Beyond money: Why VCs are investing in platform
Competition between investment funds has never been greater. As venture capitalists compete to work with the best entrepreneurs, they are increasingly looking at platform services as a way of attracting founders, enhancing returns, and increasing deal flow.
Venture capital platforms differ from firm to firm, but they generally provide support to startups that goes beyond simply financing. Pioneered in the U.S. by venture capital firms like Andreessen-Horowitz and First Round Capital, the concept is still relatively new in Europe.
Together with Jakob Fricke, who leads business development and platform at Samsung NEXT Europe, we’ve been exploring how platforms can positively influence growth for both startups and investment funds across Europe.
In a competitive landscape, a venture capital firm’s platform can help portfolio companies by providing ancillary services and specialized support post-investment. “What that means is literally just helping our founders identify their pain points, what’s stopping them from getting to that next level of growth, and helping them tackle that so that they can be more competitive and they can ultimately do better,” says Carolina, head of platform at Frontline VC in London.
The resources offered depend on the firm and its portfolio’s needs, but typically they include networking, business development, events, shared resources, talent sourcing, and marketing. Samsung NEXT Europe assists its portfolio companies with fundraising, sales, and go-to-market strategies.
Venture firms tend to focus their services on a few, specific areas tailored to the needs of their portfolio. “When I joined Cherry, my role was to figure out what was the best way that we could deliver the most value as possible to as many companies as possible,” says Isabel, head of platform at Cherry Venture in Berlin. Her firm divides services into three core pillars: resources, events, and content.
Firms can also help to open doors for founders by introducing them to future potential partners, including other startups and, sometimes, a fund’s parent company.
Samsung NEXT is uniquely placed to introduce its founders to potential partners through its offices in U.S., Korea, Israel, and Europe, says Jakob, director of platform business development. “Building bridges towards the mothership,” is one of the strengths of Samsung NEXT Europe’s platform, he adds.
As platforms increase in popularity, funds are better identifying the most impactful areas of support they can provide founders. Frontline surveyed its founders last year to find out which of its resources were the highest valued, explained Carolina, and found that access to other founders, events, and mentors were its most in-demand services.
Building a funnel of new investments
Investors rely on referrals from founders for future deal flow and platform services can help to make introductions between startups. Spending time building a strong network with portfolio founders can lead investors to investments in other companies, Carolina says. “From an investor perspective, we have a leg-up because if you can perform platform well in our business, we know that 90% of all the investments we make are referral-based,” she adds.
Utilizing a fund’s support infrastructure also can help to free-up an investment team to focus on originating new deals. “There’s not enough time and manpower for the investment team to do everything”, says Isabel. Having a separate team to focus on growing and supporting portfolio companies means the fund can concentrate on finding the best companies and people to invest in.
Finding the best people
Hiring qualified employees was ranked as the top reason why founders lay awake at night in the 2018 annual First Round State of Startups survey. With rising competition between startups for the best talent, investment funds can use a platform to help portfolio founders source and hire talent, Isabel says. “When they get their first money, they need to build a team and they need help to build the team. It’s a key role,” she says.
In order to make the most helpful introductions, funds must identify the right people to run their platform services. Given the hybrid function of a platform, managing it requires a versatile skill set and the ability to speak the language of both investor and founder.
Finding a qualified platform manager can be challenging. “I think it’s one of the hardest roles to hire as a fund, because there is no academic background for it,” adds Isabel, who has previously worked for multiple accelerators.
Jakob, who has previously worked in the automotive and digital media sectors, suggests considering what skills will drive value and differentiate a platform from others. “And then look for somebody that has a background in that field,” he adds.
Platform services can be beneficial to startups by making introductions, sharing knowledge and resources. They can also help an investment fund stand out in a competitive marketplace and build a pipeline of business for the future. Ultimately, all of the services combined help startups succeed.
“It’s a super crowded market out there, both for VCs and for B2B, B2C SaaS startup founders. And at the end of the day, everyone is trying to figure it out faster,” says Carolina. “If you have the possibility of offering that operational strength, that operational leverage to your founders, they have a leg up on the people that they’re competing with.”
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