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By: Matthew Louie and Cali Tran
The investors in the survey can be segmented into different size of funds, industries and partner level. However, regardless of fund size, industry focus or partner level, investors across all levels believe that they directly add value to their portfolio companies.
Table 7: Investor Perception of Value-Add
(shows the consistency across different segmentations
of how investors believe they directly add value)
Nearly 100% of the investors interviewed believe that they add value to their portfolio companies. Unfortunately, not 100% of the entrepreneurs agree. Rather, at best, approximately 60% of entrepreneurs (round 2 financing) credit the investor for value-creation in their companies. It is clear that there is a gap of unfulfilled expectations between the investor and entrepreneur, and a deeper exploration of this gap can identify where the vacancy is located.
Expectation Gap Analysis
Throughout this paper, the term ‘value-add’ has been loosely defined. In exploring into what the entrepreneur and investor mean when they think of ‘value-add’, the survey required the respondents to answer questions about the investors’ contribution to specific functional and sub-functional roles within a company. For example, the survey asked whether the respondent believes that the investor contributes “not enough”, “just right”, or “too-much” value in the portfolio company’s Business Development practice. In addition to Business Development, the survey digs deeper and identifies sub-categories in Business Development such as “partnership contact introduction”. An example of the entire functional survey is in Exhibit 1: Functional Survey.
Functional Gap
From a functional perspective, the largest gap in unfulfilled expectations is in business development. 10% of the venture capitalists interviewed indicated that they feel that they are not doing enough business development for their portfolio companies. 25% of the entrepreneurs noted that they believe that investors are not doing enough business development for their companies. There is a 15% gap between the entrepreneurs’ and investors’ perception of what is the investor’s role in a portfolio’s business development practice.
Table 8: Functional Expectation Gaps
(highlights the size of the unfulfilled expectations between the investor
and entrepreneur in the investor’s role in the portfolio company)
In terms of sub-functional roles, the largest gap of unfulfilled expectations is in Business Development: Partnership contact introductions, Sales: contact introductions, and Human Resources: C-level executive recruiting, with a 17%, 12% and 11% gap, respectively.
Table 9: Sub-functional Expectation Gap
(highlights the top 5 largest gaps between the entrepreneur and their investor)
Great research guys!The conclusion mirrors my experience very closely:the VCs think they know how to market your product but they don’t actually know, let alone speak with, anyone in the target market. That’s why the good ones are so rare.
Whoa!!! great efforts buddy, newbies like me are also getting benefit from this.