How Far Should a VC go to Add Value?

Have you ever met a venture capital firm that doesn’t claim to add lots of value? Probably not. The question you need to ask is, “How far do you go, Mr. VC in adding value?”

I bring this up because at OpenView Venture Partners, we decided to go all out. We have spent the last 4 years building up our OpenView Labs consulting practice, and yesterday, we launched Labs’ new and shiny website. Check it out now!

Let’s review the full spectrum of VC value-add:

Financial and capital market acumen

This is what I call Level 1 in value delivery. This acumen is what separates angel investors/friends and family from institutional investors. Once you let a VC with this expertise in the house, you will likely receive good support when it comes to the financial management of your operation and sound advice/support when it comes to raising future equity funding or other types of funding (e.g. debt financing, venture debt, etc.) This includes supporting your efforts at the point of exit (IPO or acquisition.) More on that here: (Are you Ready to be Acquired?)

Board level support

Level 2. This is where your VC assigns you a partner or principle who sits on your board. Your exposure to this VC would follow the board rhythm. Through this interaction, you should be receiving sound advice and guidance as you navigate the choppy waters of the expansion stage. The degree of value you receive at the board level is extremely correlated to the experience that this individual has had in his/her past. But at a minimum, your VC partner should being to you sound board member practices which I describe in more detail here (Balanced and Cohesive Board) and here (The Board Imperative – Cause no Harm).

Market Expertise

Level 3. This is where you find a VC that has focused specifically on your market space, and has had previous investments in it. Through that exposure, the VC should be able to help you network with strategic players, help you attract and recruit senior managers, and help you in the refinement/evolution of your vision and road map. Typically, when a VC doesn’t have market expertise, the gap is filled by recruiting one or more independent board members that have the desired experience.

Operational Expertise

Level 4. This is where the VC that sits on your board has a strong operational background (as opposed to a heavy finance/banking background) and is able to translate that expertise to helpful mentoring to the CEO. VC firms augment their Partners’ operational expertise by recruiting what is typically called “Executives in Residence” to work with their companies. These EIRs are typically highly experienced CEOs who have recently exited from a VC portfolio company and are waiting for their next CEO role. They typically get engaged with portfolio companies on a consultative basis, anywhere from 1-6 months.

Operational Consulting Service

Level 5. This is where the VC makes the delivery of operational support a core and fundamental offering to it’s portfolio companies. The best example of this is OpenView Labs. Another example is Insight Venture Partners and its OnSite consulting team (the OpenView team actually spun out of Insight). A third example, albeit for later stage investing, is the combination of Bain Capital and Bain Consulting.

At OpenView Venture Partners, we made the delivery of extreme operational value-add a fundamental part of our vision and mission. To that goal, we made a massive investment in creating OpenView Labs as the central hub of operational best practices across all the functions of an expansion stage software company. We deliver these best practices to our portfolio companies in various forms, starting with exposure through our Forum Series, to consultation by our Labs Senior Advisors, to actual project work through our team of consultants.

I hope you will visit our Labs website… and I hope you will find it useful to you and your organization. It is our contribution to the software market community.