In a post published on VentureBeat, Christian Claussen, a managing partner at European VC firm Ventech, condemned all value-add VC models. In his post, likely a response to articles supporting the model from OpenView founding partner Scott Maxwell as well as Brad Feld and Marc Andreessen, Claussen proceeds to pick apart VC value-add from every angle. While he makes some compelling arguments, Claussen largely misses the point.
True, there are VC firms out there that tout value-add services when bringing on a new investment and then do very little to back up those promises. But there are also VCs that have built proven, repeatable practices through years of experience. And while all value-add teams are not created equal, there are VCs that offer differentiated, impactful services that help their portfolio companies grow and scale.
Good value-add services are highly tailored and differentiated
Claussen argues that innovative companies need tailor-made operational support and resources. And I wholeheartedly agree. But Claussen wrongly assumes that all value-add services are generic and not tailored to the individual needs of a specific portfolio company. On the contrary, many VCs either have niche investment focuses and can therefore offer up highly specialized services and/or have amassed valuable experience first building their own companies and then helping countless others scale.
When OpenView was founded in 2006, we chose to focus our investments in a very specific market — business-to-business SaaS technology companies at the expansion stage. Building up expertise in this one specific area emboldened us to start our own value-added services arm. Nearly every member of our value-add team has deep operational experience working in-house at B2B companies and translates this knowledge to our own portfolio companies.
Value-add teams bolster a company’s ability to grow
Claussen’s next point claims a value-add team distracts VCs from their primary role of catering to entrepreneurs. This assertion is unfounded. There couldn’t be a clearer way to cater to entrepreneurs than by offering them an entire team of experts to ramp up recruiting, sales, and marketing efforts. After all, it’s in the interests of every VC to get their portfolio members to reach profitability and/or exit quickly. It would be ill-advised for VCs to offer up services that in anyway hamper a portfolio member’s ability to grow.
Value-add programs are opt-in
It’s also important to note that participation in value-add services programs is not mandatory. Most of these programs are (and should be) opt-in. The best VC firms don’t force help upon their portfolio, and term sheets shouldn’t come with the expectation that new investments enroll. Instead, VCs should offer value-add services when entrepreneurs request them in areas where they lack expertise or manpower.
Value-add services teams won’t last if they’re not successful
In a hyper-competitive landscape like venture capital, reputation is everything. VC firms that offer up enticing value-add services before the ink is dry on the term sheet, but then have little if anything to provide six months in can be sure their so-called value-add teams won’t last for long.
At a time when many entrepreneurs are being offered multiple term sheets, you better believe they’re actively seeking out references before committing to any one VC. Reference checks are a sure-fire way for entrepreneurs to check up on a VC’s lofty promises. And if the word is that their services team is more marketing campaign than true value-add, entrepreneurs will begin to wonder what else about the VC is merely for show.
True value-add programs demonstrate quantifiable value
Lastly, value-add services are not nebulous, impossible-to-quantify programs. In fact, they can and should be measured and tracked meticulously. A recruiting support team should know the total candidates sourced and hires placed for any given time period. The efficacy of any sales and marketing programs should map to the initial goals outlined, whether that’s number of leads generated, total traffic, deals closed, or other metrics. If a value-add VC really is in the business of adding value, it should have no trouble backing up its contributions with hard data.
Contrary to what Claussen would have us believe, value-add services benefit all parties involved, from the entrepreneur to the VC firm leading the deal. After all, helping portfolio companies “reach success faster,” as Marc Andreessen puts it, generates faster exits, which only serves to bolster returns for LPs. Everyone wins!
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