VC roles, importance of co-investments

As I meet more and more fellow VCs I see a growing diversity in the roles that VCs take. There is this notion in the Venture Capital and Startup world that money (capital) is just the base that an investor can offer to a founder. What really matters is the added value. This value add takes many forms.

What I have seen so far (10 years in Startups/VC), is that there are three very distinct roles a VC can take. These roles are perfectly aligned with the kind of value add that investors pitch to founders.

The Networker VC
If you ask 10 random founders what they would value the most in an investor, I’m confident that they would say access to a network. Venture Capital is a people business. Knowing the right kind of people might immensely influence the success of a VC and a startups funded by that VC.

This network built out by investors is an important asset to startup founders. Getting a sales meeting at that huge customer might be just an email away. Hiring a great VP of engineering — not a big issue, when you tap into your VCs network.

Building an extensive network of contacts takes many decades. This is why more experienced VCs with well known firms have incredible networks. It is very hard for younger investors to compete on that ground. Founders shoud X-RAY LinkedIn profiles of VCs, they would like to work with. Spending 10 minutes on LinkedIn will verify this “network” value add.

The Product VC
A repeating theme among startup founders is to focus on VCs that have operational experience. Investors that in their former life where on the other side of the table as entreprenuers. This hands-on experience might have been in sales, marketing, product or technology. I characterize this added value as “Product”. These are the VCs you can turn to when you are stuck with your business model or user experience or team building or many other day to day challenges.

In my own experience I feel that there are very few VCs (especially at seed stage) that are product oriented and can add real value. It is very easy to test for “bullshit”. If you are a SaaS founder struggling with user acquisition for your self service product — ask your VC to sit down with you and go over the various channel strategies and tools you could use.

Working with a Product VC at later stages might not add so much value, but in early stage it might be fundamental to further success.

In recent years this role of The product VC, was taken on by acceleraters.

The Money VC
For those of you who already raised funding, it should be pretty obvious by now that Venture Capital financing is an ongoing process. It hardly ever ends at just one round of funding — unless you fail right away. Building and scaling tech companies takes money. Especially if you want to do it in a very short period of time.

When you take money from an investor you should always ask him what he thinks the financing roadmap should look like. The second question should be, how will he be able to help with further financing.

I see it over and over across Europe. First time founders take money from investors who will add very little value in future fundraising. This always ends bad. The Money VC is usually and investor with extensive experience in transactions. He knows how to structure deals and put the company on the right financing track. This VC will keep the money flowing if the company needs it.

In a perfect world you would want to find a VC that combines all those roles. That is rarely the case. Unless you are focusing on firms like Andreessen Horowitz, you will need to find this added value in a syndicate of investors.

One way of looking at co-investment rounds is through the aspect of pooling together smaller tickets to close the round. I would suggest structuring the round through the lense of the three value adds I outlined earlier.

Inviting a Networker, Product and a Money VC into your round might position you better for the future.

Written by

I’m a Partner at Innovation Nest, a seed VC fund focused on B2B Software. Helping SaaS founders with growth strategies and tactics.

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