Exploring Portfolio Relationships from Experience at Four Startups
This article is part of our VC Portfolio Relations spotlight series. Each week, a different professional joins us to share their experience partnering with organizations as a venture capital or private equity firm. Learn more in the intro article.
Asher Mathew has worked at four startups, three of which have exited. Through those experiences, he’s learned a lot about how VC funding works, partnering with portfolio firms, and more. Asher is also one of the three co-founders who brought Partnership Leaders to fruition just over a year ago. (We interviewed Tai Rattigan, another co-founder, last week.)
Today, Asher joins us to discuss strategies for finding the right VCs, best practices for building a VC channel, how the pandemic has impacted portfolio firms, and more.
Thanks to xAmplify for sponsoring this quarter’s spotlight series.
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Asher’s Experience with Portfolio Firms
At the four startups Asher Mathew has worked at, he has collaborated with portfolio firms in a variety of aspects. “The second startup I worked at, Avalara, helped me truly understand what the VC world is all about. At Avalara, I started to understand how you can support VCs to help their portfolio companies. The trend is the VCs will create operating arms where they take best practices from all the portfolio companies they have. They then standardize across their portfolio in an effort to help their companies to succeed. When companies approach VC firms, they’re looking for money and help — they want expertise to drive faster growth, making portfolio firms money faster.”
Asher explained the venture capital methodology. “The VC formula is 10x or better in ten years. That means that any money they invest, they’re looking for at least 10X return. These are big, bold, bets they’re making. Typically, there’s a well thought through collection of criteria they’re looking for to identify rocketships. At Avalara, when you think about VC as a channel, the hypothesis is if you are starting off and you want to gain customers who will grow with your product, then going the VC route and supporting early-stage companies helps. Early-stage companies are willing to take more risks with your product.”
Also within the alternative investment field are private equity firms. (Explore the difference between PE and VC firms.) “The PE investment hypothesis is 3-5X return on cash in 3-5 years. Their timeline is much shorter. Typically, PE firms are looking to restructure the company to optimize profits. This can sometimes take longer — if you want to go from $5 billion to $10 billion and then flip for $100 billion, that takes time. PE firms are good to work with because when they make an investment (in the form of a divestiture) they work on a 90-day cycle. During that time, they have to get 80% of the systems up and running. If you’re working with a PE and you’re part of their tech stack, your product is going to get deployed every time they make a transaction, making the sales cycle a lot faster,” Asher explained.
Why Partner with Portfolio Firms?
There are many reasons you may choose to partner with portfolio firms. Asher explained, “VCs are primarily buying an idea. If you go to VC firms, they have lots of connections in the marketplace because of their history — they have connections with their customers, other investors, and more. If you want to build a big business, with the possibility of a 10x or better return, the way to drive that growth is by leveraging the VC firm’s resources. VC firms are inherently taking on risks. The good firms will work with you to make introductions to customers, prospects, thought leaders, and advisors. All of which are really important.”
“When you go down this VC path, you’re actually getting a few benefits, including channel sales and marketing benefits. You also get access to people who have lots of information on the market, such as where the market is heading and what trends are coming. If you want to grow a company in 10 years, you better have a good idea of the market landscape. Some of those firms have advisors that are specialists in each function of your business. Best of all, they can actually fund you, if you’re using the VC channel to establish better relationships, then you’ve already had some level of interaction with them and can ask for money.”
Finding the Right Portfolio Firms
Depending on your goals for partnering, there are different things you’ll want to watch out for in a portfolio firm. “It’s interesting because if the goal is to create a channel for sales and marketing purposes and there’s no person dedicated to helping portfolio companies at the VC firm, you won’t get a response. A VC firm’s job is to deploy capital. Every minute they’re waiting to invest, their money isn’t making money. So, if there’s no person responsible for helping portfolio companies be successful, that’s definitely not the right VC to work with,” Asher shared.
When you’re looking to drive sales and build a marketing channel, Asher highlighted the factors you’ll want to seek out. “Sapphire Ventures runs summits bringing c-suite executives together. Some of the portfolio companies or vendors are invited too. There are many of these firms that are now building centers of excellence that are focused on sales, marketing, product development, infrstastruce, and more. Those would be the right criteria to choose a partner that you’re going to go to market with.”
If you’re looking for a partner to invest in your company, there are different criteria to consider. “One thing that’s important is the person raising money and person investing have to be philosophically aligned. Their outlook on life, outlook on helping each other, it all matters. If you don’t have philosophical alignment, you get into lots of board issues which is a waste of time and money. Everyone is different. Pick the person that fits your profile, is action-oriented, and has the resources you’re looking for.”
How COVID has Impacted Portfolio Firms
Like most sectors, the COVID-19 pandemic has had a significant impact on the way portfolio firms operate. “VC firms have had to work a lot harder during the pandemic. So much of their job is meeting with people, connecting with them, and demonstrating that they’re thought leaders. There is also tons of capital coming into the marketplace. VC firms have to work harder because most companies and founders like to meet in person.”
Asher continued, “From the channel side of things, the VC operating partners were actually way busier than at any point in time. Since sales were slow for companies, they decided to work on infrastructure products so for the next stage of growth, they’re prepared to sustain. From a channel perspective, it was a really good time to build VC partnerships since they were initiating more projects. When things get slow, people start working on infrastructure projects.”
Best Practices for Portfolio Partnerships
Asher highlighted best practices for developing a VC channel from his experience partnering with portfolio firms. “If you go to a VC, the best path to take is to actually go on their website, look at their portfolio companies, and get 2-3 portfolio companies to use your product. When they go to standardize, they’ll ask their portfolio companies about your product. If you’re already a known entity in their portfolio base, it’s a lot easier. Of all the tips and tricks that I’ve utilized, that’s the best.”
Partnership leaders are likely familiar with the value of your network, a point Asher also highlighted. “You need to leverage other partnership leaders who can make warm introductions to these VC firms. Portfolio firms get hit up thousands of times each day. If you want to have an audience with the good ones, you need a warm intro. Partnership leaders are in the best position to do this. We have relationships, connect with people, and move deals forward. One final tip to consider: VC professionals prefer texting over email. Most VCs operate off of their phone, so texting tends to work well over emails.”
Expand (or Launch) Your VC Portfolio Relations
Partnering with portfolio companies can be an effective channel for growth that your organization can lean on. Be sure to vet firms and do your research before reaching out. Tap your network for warm introductions wherever possible.
Professionals like Asher have tons of valuable information to share from their experience in the industry. This quarter, we’re digging into insights from venture capital, private equity, and business development professionals! Individuals with experience on the portfolio and technology sides alike will join us to discuss lessons learned, best practices to implement, and ideas to consider from their time in the industry. Be sure to follow us on LinkedIn so that you don’t miss any updates.
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