Post-investment, VC firms spend a lot of time with the new company. We start by agreeing to goals and milestones for the company to achieve.
This could be addressing issues raised in the due diligence process prior to investing, developing a revised business plan, or restructuring teams to meet plans to scale.
Sometimes the headline figure you see in the press is tranched, meaning the company will need to meet certain milestones, such as a number of paid users, or revenue targets, with the funding split into chunks, to be released as each milestone is reached.
VCs offer experience and expertise, as well as funding. For example, I’ve been involved in the founding and exit of three companies, so I have a good understanding of an entrepreneur’s concerns and pressures.
Our team here is made up of complementary skillsets so we are able to cover the many facets of building businesses and provide advice and guidance to our portfolio companies.
Looking inside the company, we can help add people to the team by sourcing talent to join. We have hired seven key leadership positions for portfolio companies in the last 12 months, largely through our networks here and in the US.
We suggest ways to improve financial reporting or governance, and use our experience at building companies to streamline processes or make introductions to our network of analysts, advisors and consultants.
Externally, we seek out ways for the company to grow. This could be identifying co-investors, bolstering marketing and sales, or branching out into global markets. When the company has gained significant traction, we start thinking about further investments, either from ourselves, or we reach out into the VC network here and overseas to start another funding round.
We want to see all our companies do well, grow into more markets, and eventually, exit and make a lot of money for everyone.
By taking an active interest in businesses, we guide and nurture them to scale and exit. Then the process begins again – serial entrepreneurs are common, as are ex-entrepreneurs who go on to become angel investors, accelerator founders or take a role at a VC firm, like I did.
Our investors (in Australia, it’s usually superannuation funds) provide VCs with capital which we place into a fund. From that fund, we make investments in portfolio companies.
Naturally, the aim is to sell for more than we’ve invested, so we can return positive returns to our investors. Our investors like us to make deals which are in the growth space, for good terms and for an excellent outcome.
That’s a very high level explanation of what VCs do. Ultimately, we’re investing in teams and people who we think will succeed.
We don’t just invest and hope for the best, we take an active interest in our companies. Supporting them as much as we can gives the company the best chance at success.