Choosing a VC: Does Sector Expertise Matter?

by

Choosing a VC: Does Sector Expertise Matter?

What’s OpenView’s experience in our sector?

I get this question a lot. And my more-than-occasional answer may surprise you: We have none.

In this post, I’m hoping to portray why — if a business is a good fit for OpenView — this doesn’t matter.

As you may already know, OpenView invests exclusively in B2B software businesses. Beyond that broad theme, our portfolio features businesses across a variety of verticals and functionalities. In fact, there are only four things that our portfolio companies all had in common at the point of investment:

  1. B2B Software
  2. Large market opportunity
  3. Differentiated solution
  4. Expansion-stage financial profile

While each member of our investment team has favorite sectors and we all place emphasis on market-size, OpenView ultimately prioritizes stage over sector when it comes to investment criteria.

Why Sector Expertise Matters for Early-Stage Startups

I have found that many founders are sensitive to working with VCs who have direct sector experience, and I can certainly understand why — it makes a lot of sense that a startup with no real customers would look towards a well-connected adviser to introduce them to potential clients and partners in their market. Gaining initial customers without references is very difficult, and as such this type of well-connected VC lends credibility that allows many businesses to establish beta partnerships and build out the proof points that will allow them to sell more broadly. In short, I feel that sector expertise is important for early-stage businesses when it comes to selecting a VC.

Why Sector Expertise Isn’t as Important as Stage Expertise

However, given OpenView’s desire to work with expansion-stage businesses that are already doing 2-20M in revenue, initial introductions will never be within our scope. Rather than using our sector experience to help our portfolio, OpenView has set up OpenView Labs, a team of consultants who are experts in helping expansion-stage B2B software companies across four major pain points: recruiting, sales, marketing, and strategy.

To put it simply, the folks at OpenView will never know more about a portfolio company’s sector than the founders and leaders at that company. However, our stage expertise will help portfolio companies that have developed a great product that is being used by a few real customers scale their businesses better and faster regardless of the type of software, specific buyer, or industry/sector focus. As such, our expertise lies in stage, not sector.

In my opinion, it is more valuable for an expansion-stage business to have assistance in developing infrastructure to acquire many customers through scalable strategies than assistance in acquiring a handful of customers through VC connections.

Do you agree?

MA Candidate- Department of Nutrition and Food Studies