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2

Growth Strategy VC firm

I am wondering how would you structure this following case:
Your client is a small Venture Capital (VC) firm which invests primarily on start-ups tech and engineering firms with particular focus on B2B business.The firm currently holds 5 mid-sized start-ups (~$1-2M valuation) and is actively managing their operations. The scale of each of the business is global (from Asia to Europe to US). The client asks you to provide a growth strategy for our VC, not in the form of improving operation of existing portfolio.

Thank you very much guys and your inputs are most appreciated.

I am wondering how would you structure this following case:
Your client is a small Venture Capital (VC) firm which invests primarily on start-ups tech and engineering firms with particular focus on B2B business.The firm currently holds 5 mid-sized start-ups (~$1-2M valuation) and is actively managing their operations. The scale of each of the business is global (from Asia to Europe to US). The client asks you to provide a growth strategy for our VC, not in the form of improving operation of existing portfolio.

Thank you very much guys and your inputs are most appreciated.

(edited)

2 answers

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Best Answer

Q: The client asks you to provide a growth strategy for our VC, not in the form of improving the operation of existing portfolio.

There are two main activities for VC or any investment body:

  • Get fund from investor (gov, pension fund, insurance company etc)
  • Invest in business

To grow the business means at least we should focus on these two things.

----------------------------------------

But how I'd like to approach comprehensively by looking at external factor and internal factor:

External: (To assess the posibility/ knowing how hard growing the VC given the industry growth)

  • How is the market performance?
    • Size?
    • Growth?
  • How is Competitor performance?
    • Value prop?
    • Share?
    • Growth?
  • Regulation?
    • New regulation affecting investment activity?

Internal:

  • Is it possible to acquire another VC?
  • Increase funding
    • Current source
      • Can we increase the fund amount?
    • New Source
      • Actively searching for new fund from a new investing body
  • Increase investing
    • Current portfolio
      • Can we increase the investment?
    • New portfolio
      • Actively seeking a new company to invest

Simply, we can start from here.

Q: The client asks you to provide a growth strategy for our VC, not in the form of improving the operation of existing portfolio.

There are two main activities for VC or any investment body:

  • Get fund from investor (gov, pension fund, insurance company etc)
  • Invest in business

To grow the business means at least we should focus on these two things.

----------------------------------------

But how I'd like to approach comprehensively by looking at external factor and internal factor:

External: (To assess the posibility/ knowing how hard growing the VC given the industry growth)

  • How is the market performance?
    • Size?
    • Growth?
  • How is Competitor performance?
    • Value prop?
    • Share?
    • Growth?
  • Regulation?
    • New regulation affecting investment activity?

Internal:

  • Is it possible to acquire another VC?
  • Increase funding
    • Current source
      • Can we increase the fund amount?
    • New Source
      • Actively searching for new fund from a new investing body
  • Increase investing
    • Current portfolio
      • Can we increase the investment?
    • New portfolio
      • Actively seeking a new company to invest

Simply, we can start from here.

Growing a VC firm is different from growing a company. VC firms grow by:

1. maximising upside of invested capital
2. minimizing downside risk

For #1:

- Invest in high-margin, low CAPEX businesses that have high scalability and sustainable growth. Essentially these are software focused, product focused, and firms with large TAMs. This is similar to optimizing "product mix" at a product firm.
- Invest in high growth geos and high growth ideas -- e.g. china/india vs brazil and more cloud computing, less telecom.
- Invest later vs super early - you do limit upside this way but you decrease chances of failure.

For #2:

- Invest later vs super early. Lowers risk.
- Hedge - don't invest everything into one area, e.g. AI or blockchain
- Avoid unknowns you cannot control - less regulated industries, less geo-political risk, etc.

Growing a VC firm is different from growing a company. VC firms grow by:

1. maximising upside of invested capital
2. minimizing downside risk

For #1:

- Invest in high-margin, low CAPEX businesses that have high scalability and sustainable growth. Essentially these are software focused, product focused, and firms with large TAMs. This is similar to optimizing "product mix" at a product firm.
- Invest in high growth geos and high growth ideas -- e.g. china/india vs brazil and more cloud computing, less telecom.
- Invest later vs super early - you do limit upside this way but you decrease chances of failure.

For #2:

- Invest later vs super early. Lowers risk.
- Hedge - don't invest everything into one area, e.g. AI or blockchain
- Avoid unknowns you cannot control - less regulated industries, less geo-political risk, etc.

Hi Hemant. While this is definitely good advice for making good investments, do you think this is what the question means by "growth". Given the very long term time horizon for investments to mature, I wonder if "growth" here refers to growing AUM rather than ROI. Out of curiosity, how would you change your advice if that was the case? Obviously, in the long term high ROI makes it easier to get more AUM but maybe you have an opinion on what a shorter term growth strategy would look like? — Stephane on Nov 14, 2018 (edited)

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