Many venture firms are recent converts to portfolio services. Not OpenView Venture Partners.
The firm has offered services to its companies for 15 years and presently has a services staff of about 20.
Managing Partner Scott Maxwell says the key to success is crafting services that offer a unique competitive advantage, not something every firm is good at. That means paying close attention to the specific needs of portfolio companies and designing efforts to address them.
“Sector and stage is actually quite important,” Maxwell says. “If I’m focused on B2B companies, the talent that we’re going to help our companies hire is different than the talent generally in the B2C companies.”
With many firms expanding offerings to keep step with high-profile pioneers Andreessen Horowitz and First Round Capital, services are taking on a more strategic role in venture. Maxwell says he expects plenty of refinement ahead as GPs hone in on what is actually most useful.
VCJ chatted recently with Maxwell about services. What follows is an edited transcript of the conversation.
Q: There are different ways venture firms offer services, the Andreessen Horowitz agency model, for instance, or the First Round Capital approach. What works best?
A: The key here is that whatever you set up, needs to add unique value to your portfolio companies. What I mean is that your portfolio companies can’t easily get the same level of help somewhere else. You shouldn’t be setting up anything that’s not absolutely unique.
Q: What do you mean by unique value?
A: Our portfolio is very clean in sector and stage. It’s B2B software at the expansion stage. Because of that, the two key issues for our companies are that they need more customers and more talented people.
In regards to more people, there are some very good retained search firms that can help get those talented people. Building a retained search capability for senior people, or hiring a retained recruiter out of firm, doesn’t make any sense to us. What does make sense to us is everybody else: All of the jobs that they need talented people for that they are not going to go to a retained search firm for. We set up a retained quality search firm for all those other jobs, which quite frankly are the majority of the jobs.
Q: Do firms bring real value to portfolio companies with the services they offer today?
A: I think so. We’re in the early innings. It’s easy to hire people that you claim are value-add resources. It’s harder to actually have an impact on your portfolio companies that’s measurable.
If firms work on it, they’ll get better and better. I actually don’t know where the industry stands on it. The impression I get from entrepreneurs is that they’re still skeptical.
Q: Would you argue that firms don’t adequately target their services?
A: If I look at what other people are doing, my sense is the early services that VC firms offer are perhaps not thought of that way. Some firms match up. Google Ventures, generally an early-stage VC, seems to have a focal point on user experience.
To me, if I’m building an early-stage VC that wants to offer valuable services to early-stage technology companies, this seems like a really relevant service to offer. If I was a later-stage growth firm, I might offer an M&A service that helps my portfolio companies buy small companies and tuck them in.
Q: You recently added a business development effort at OpenView. I understand it is similar to what you put together years ago at Insight Venture Partners, where you connected portfolio companies and large tech companies to create business development opportunities and perhaps open the door to acquisitions. Can you describe the new initiative?
A: We got to the point at OpenView where we had a big enough portfolio that it seemed to make sense to put in place the same role. Our recruiting team found John McCullough and he seemed like the absolute perfect guy. He’s been learning the portfolio and connecting them up with bigger technology companies.
He’s also calling into the bigger technology companies to talk to them about their needs, and talking to the bankers. He’s been involved in a couple of transactions.
Q: You’ve expanded your network of resources for portfolio companies. What are you up to?
A: What we’ve really been doing is building our network of third party experts. I’d say we’re working on it more than ever with the idea of being able to introduce our portfolio companies to an outside person with a lot of experience addressing a specific need.
Generally it is outside of getting more talented people or getting more customers, which we already do really well. Things like product management or user experience or design, all the other things a company needs to do.
Q: Are the introductions made person-to-person or through an online system?
A: So far it is person-to-person. Hopefully, someday, we’ll get to the point where we’ve really nailed the automation aspect of it.
Q: Automation, such as offering a social community like First Round Capital?
A: I think that to do what First Round has done you need a relatively large number of portfolio companies to make it work. I don’t think that approach would be as successful with our portfolio.
We tried it, quite frankly. With a relatively small portfolio, we have about 25 companies, the number of companies that have the interest in networking and actively engaging is still a subset of the overall portfolio. If you start with 25, and 20 percent is interested in it, you end up with five. If it is the right issue, you can get something going, and we have in circumstances. The bigger the portfolio, the easier it is to get something like that going.”
Q: What’s your advice to a firm consider starting a services effort?
A: My point to everybody is you’ve got to figure out what it is you are trying to do before you actually figure out how you’re going to go about doing it.
You need to make sure the services you offer are differentiated, that portfolio companies can’t find them elsewhere. If you do that you will end up with something that is very unique.
Photo illustration of Q&A from Shutterstock.
Photo of Scott Maxwell from OpenView Venture Partners.