Can Startups benefit from VC operational service platforms?
From the VC boom following not long after recovery from the 2008 Great Recession and through 2021, one addition by venture capital firms, might be of use now. During this time, VCs created “platforms” with skilled professionals focused on specific non-investment functions to help their portfolio companies beyond funding. These teams are… “the value a VC fund offers a portfolio company beyond just funding.”1
A VC platform fills the gaps that entrepreneurs often find challenging to navigate on their own.2Some examples of these roles are community building, marketing, and business development. These teams provide post-investment support to improve the odds of success for the portfolio companies. They support the founder and the management team to let them concentrate on what will help the company create revenue and grow. Also, founders and their original teams rarely bring experience in these specialties.
A recent study by Scale Venture Partners and the VC Platform Global Community 2 analyzed the return data from 850 venture capital firms over the past two decades and found that even though platform teams aren’t a new concept, their popularity didn’t grow until after the Great Recession of 2008 with Andreessen Horowitz leading the way.
In 2009, only 24% of venture firms had any platform headcount… Today, that number has more than doubled to 52% of firms with platform roles3 {with} numbers employed rising from less than 5% to more than 13%. The study finds a strong correlation between the amount of investment in these teams and superior fund returns, even though it doesn’t state that venture capital firms are required to have platform teams to have great returns.
For superior performance, VCs must align these teams with the investment strategy of the firm. The VC Platform Global Community study is linked here: https://powerof.vcplatform.com/.
These teams within the venture capital firms can be definite positives for startups, especially the younger startups where the founder and the management team would have to wear multiple hats. When times are tough and cuts might need to be made within the portfolio companies, these teams can be a valuable resource of experts.
Unfortunately, times are tough for venture capital firms, too. Some might see these groups as a cost center since they don’t bring in revenue. This could be a short-term net income view that costs the health of portfolio companies and the profit of their exits. 3
1 “So what exactly is Platform?”: VCs’ secret weapon for outsized returns; Zara Zaman; Medium; April 28, 2023; https://medium.com/@zarazamanc/so-what-exactly-is-platform-vcs-secret-weapon-for-outsized-returns-e778534ba15d
2 The Benefits Of Using a VC Platform For Startups In Your Portfolio companies; GETPROVEN; February 20, 2023; https://www.getproven.com/blog/benefits-of-using-vc-platform-for-startups-in-your-portfolio-companies
3 Are ‘Platform’ Teams The Key To VC Success In Down Markerts?; Dale Chang; crunchbase; August 9, 2023; https://news.crunchbase.com/venture/vc-platform-teams-value-down-markets-chang-scale/
