The value of relationship management in Venture Capital
Investors are well aware that relationships are valuable for their business. That’s why they have spent huge efforts building relationships and expanding their networks.
However, while Business intelligence software has had broader and successful applications in marketing, sales, finance, and even operations in the past 5 years, nothing has been designed to manage relationships intelligently. Most businesses still use obsolete ways to manage existing networks of relationships. Very few know how to efficiently manage it.
At nevaal we have been exploring intelligent ways to help businesses realize the value of their relationship. Below, we have summarized use cases where intelligent relationship management software can solve existing pain points that Venture Capital has while discovering the hidden value of its network.
Sourcing deals is one of the most important activities performed by venture capital firms. According to a survey, for each deal a VC firm eventually closes, the firm considers, on average, among 101 opportunities, only one will be funded. On average, employees spend 22 hours a week networking and sourcing deals.
Getting in touch with target companies
30% of quality deals are generated by VCs initiating contact with entrepreneurs.
VCs need to find proper ways to get in touch with the target companies. Contacting through existing networks is the preferred way for many. It is very likely that the internal team or partners have certain connections with the management team from the target companies. But the relationship may not always be that obvious- maybe they are alumni that never met before, members of the same association or maybe they are connected via common investors.
After contacting, Venture Capital also faces competition to win good deals. The most promising startups always choose investors. So it’s also a topic for Venture Capital to think about what to show when contacting the targets, how to show its strength strategically and stand out among its competitors.
With nevaal, you can have a visualized and structured overview of your team’s network.
You can discover key influencers that connect you to high-value targets. Sometimes you even find there is more than one path to the target, then you can choose a better way to initiate the conversation.
Keep updated and maintain a long-term relationship with the targets
It is not always possible to pursue a transaction at the first point of contact with the target companies. The reasons are numerous and varied: the company may need to develop more, the owner may not be ready to sell, etc. If the business or the industry is appealing to you, staying connected helps you to stay top of mind for when the time for a deal is more matched.
nevaal maps, as a community management tool, can keep the target companies engaged in VCs’ network. Through media sharing boards, VCs can share research or relevant content that might help inform their strategy or views on industry dynamics. It is a good way to demonstrate the value you can offer to the target companies and it will increase your chance of winning especially when there is fierce competition to win the ”hidden gem”.
Finding capable experts
Due diligence is a crucial link after deal sourcing. Yet it is time-consuming and money-consuming. On average, you can expect a due diligence process to take between a week and a few months. An average of 118 hours is spent on due diligence and an average of 10 references and experts are contacted.
Most of the hours are spent building teams of experts covering a variety of focuses, doing interviews, and gathering information. Even if experts are experienced, they may not be collaborative and flexible. Requests for information and additional details can create time-sucking delays in responses, which can delay the timeline for completion and increase the cost.
nevaal maps can solve the problem in the following ways:
- nevaal maps help VCs build an organized way of understanding the expertise in their network. VCs can easily identify the right experts when they need them.
- With nevaal, VCs can maintain a big expert database in the long run. In that way, the relationship with experts has already been built by the time when experts are contacted. Approaching experts that you already know will get you faster responses, higher-quality answers at a lower cost and in a shorter period.
- nevaal also helps VCs better communicate and collaborate with experts on various issues in one place, eliminating miscommunications regarding timing and inaccurate documents.
Portfolio company management
Once VCs have put money into a company, it is in the firms’ best interest if the acquired company succeeds. They become active advisers for the portfolio companies. The goal is to create value by improving the company’s performance.
According to research, VCs interact substantially with 60% of their portfolio companies at least once a week and with 28% multiple times a week.
These portfolio supports include:
The management team was identified as the most important factor that contributed to the success or failure of VCs’ portfolio companies. However, VCs meet some challenges to find proper talents:
VCs spend high expenses asking an executive search firm to search for the right fit. Despite different fee structures, the expense spent to search for a typical executive in a later-stage startup can easily reach $40,000 or more. VCs are not able to maintain relationships with promising candidates. When suitable roles occur after a long time, VCs can’t recall them and match them to those roles.
nevaal maps as a relationship management tool help VCs manage their own talent pool instead of asking help from an executive search firm. It may assist you in keeping these important people of your network engaged and, as a result, ready to step into those positions when the time comes. A single executive found through the internal network can represent $40,000 indirect savings.
When a vacant position arises, nevaal helps VCs to rediscover suitable candidates just in seconds, even if the person is not top of mind. The advanced search function helps to find all matching persons in the network.
Monitoring and reporting
After successfully establishing an elite team, it is also important for VCs to monitor the change of the management team. Because of the relatively high fluctuation rate of employees joining and leaving the company, it requires agile and flexible management of the human resources and the ongoing projects are crucial. Failure to track the change of the team and the development of the company will bring huge risks.
Don’t forget that VCs need to track dozens of portfolio companies at the same time. All projects need to be streamlined, documented, and managed efficiently.
nevaal expand the use of Business Intelligence into the relationship management field. nevaal helps VCs get a structured overview of the organizational structure and understand the characteristics of the human resources in the portfolio companies at a macro level. More important, nevaal offers auto-generated periodic reports to track all the important changes. It saves huge time and enhances the efficiency of reporting to a new level.
Connecting portfolio companies to other stakeholders
The key method to create value and ensure the growth of the portfolio companies is to connect them to different stakeholders including investors, customers, business partners, and experts.
nevaal maps, as an ecosystem management tool, give managers an overview of all stakeholders in the ecosystem. They can quickly distinguish what are the most suitable partners or landmark customers for a chosen portfolio company.
Many portfolio businesses must handle complicated procurement procedures with many stakeholders. Through nevaal, portfolio companies can collaborate with all stakeholders on the platform without VCs intervening in the whole process.