In the first article in this series I discussed the opportunities and challenges facing companies that are in the later stages of being VC owned and are still founder managed.
Within a time frame that generally runs from B Round to E Round, these companies face the challenge of delivering on their VC’s investment hypothesis—and getting to their next round of funding.
Management Advice for Later Stage VC-Owned Firms
VC Objectives
Early stage VC-funded companies differ from later stage companies that they hope to grow up to become. VCs invest in companies because they believe in the product(s) the company is developing and starting to sell. A VC investor believes that, with investment, the company can scale big and fast—typically by producing a product (and preferably a category) that hasn’t previously existed. In some cases, the company may have only a plan or prototype for a product. It may not yet even have a business model or revenue model.
Later stage companies typically say they are “tuning the machine”—growing the bottom line, streamlining operations, reducing costs, building an efficient back office--toward a sale or IPO. Earlier stage, VC-funded companies are still building their machine, which at this point may resemble a Rube Goldberg contraption.
What VCs Do For Their Portfolio Companies
VCs invest in a founder who is dynamic and visionary—but may need help in guiding and building business functions. Via its role in frequent board meetings, the VC tracks the company’s attainment of its milestones.
To keep up with the industry and validate strong market demand for its current and future products, VCs constantly gather market intelligence in dialogue with industry contacts and other VCs. What is constantly top of mind for the VC is the viability of the company’s story about how it can win out over competitive alternatives, considering the geographical limits of its business.
What Newport Can Do For VC Portfolio Companies
The goal of a VC funded company is typically to disrupt an industry. VCs are usually confident of their portfolio company’s capabilities and resources, especially its brilliant technologists. But these technologists’ viewpoints are often quite product-centric, lacking in depth knowledge of the business environment in which these products will be sold and used.
Newport advisors are CEOs and senior executives who are highly experienced in the everyday realities of the industry that the VC portfolio company is trying to disrupt. They are steeped in details and understand the business models of the industry’s old guard and the mechanics of penetrating the market. They can also provide insights into the industry’s prevailing standards as to pricing, product/service bundling, frequency of upgrades and other practices. They can help the company see what it takes to develop an enthusiastic, loyal customer in the industry it is targeting. Even if an early stage company‘s products are “better, faster, cheaper”—it still must deal with these industry and market realities.
A credible strategic advisor is one who has a history as a CEO or senior executive of making successful operating decisions in the portfolio company’s industry--and then living with them. He or she can help fit an early stage company’s disruptive products with the dynamics and practices of the market it intends to sell into. The result can be renewed momentum toward progress in scaling the company, which will be rewarding to its VC, founders and other investors and stakeholders.
If your are a Venture Capitalist looking to hit that new stage of growth, download our ebook, "How to Get and Keep Bank Credit." In this ebook you will learn the 9 step road map designed for emergin middle market companies.
About the Author
Jim has an extensive background as a CEO, board member, advisor and investment banker. Jim was CEO at Gist Communications where he led the firm into cloud, software and mobile products with clients including Charter Communications, Philips Electronics, and Axel Springer. As President of Torsted Advisors, a strategic and financial advisory firm, he also has experience as an entrepreneur, including as President of a company that provides products for cloud-based video conferencing management. Contact or learn more about Peter here.
Connect with Jim on Linkedin
