The goal for venture capital is to return a profit. How can we improve the odds of success?
- Get better at improving the odds. A combination of people, process and technology are how we build Start-ups. Why can’t this apply to those who fund the startups? Many VCs focus on people and connections. People with different skill sets improve the odds of success along with a well-defined business process that focuses on the right KPI’s. For example, having a well-defined brand, at the right time improves Long-term KPIs.
- Having a technology core that improves core capabilities of the VC as well as the startups they invested. For example being able to define a total addressable market is critical to understanding the opportunity. Many startups are forced to pivot too many times, creating a risk of running out of capital. How can you quickly define the market, tested rapidly, ramp and scale at speeds not seen before? It’s not possible using yesterday’s technology.
- The long-term goal is higher returns, better deal terms and becomes demanded (brand). Few VCs recognize they have a brand they’re focused on results. By improving both sides of the equation, ABC and those it funds can have greatly improved outcomes. It’s not about PR, It’s about being able to predict and create the market movers.
Systematically improving odds of success means you need a way to look at predictive indicators in sales, marketing, and product development combined with solid due diligence (what you already do well).
Combining all of this is how to make it work. You can’t drive a car without three sets of data: data of the past, real-time and predictions of the future. You have to combine all 3 in different datasets and create priorities based on the circumstance you are in. Think of it as driving a car. You’re not going to put the car in third gear at a stop sign.
Building a predictive process into the VC, the Start-up and for the total addressable market, the customer base is a must. It’s a three-way balancing of an equation.
I call this a business growth operating system, you would attract more deals, at favorable terms, based on the higher chance of success. Deals would be scored according to their ability to succeed, using methods taught at the best business schools.
Here is a high-level outline of what I would do.
Picking deals based on a process that is well defined by many business schools, using predictive indicators. Companies that are disruptive and likely to succeed can be defined by a process before any investment is made. Odds of success improved dramatically when there is an understanding of the market, the technology, and the opportunity.
Predictive business planning combined with due diligence management. What Clayton Christensen teaches results in higher success rates and bigger scale. One of the downsides might entail the greater use of capital but that’s to be determined by the market you’re in.
Scorecard management. Get rewarded for taking calculated chances, testing in predictive ways. How your choose investments need to be balanced. Companies with too much caution choose wisely, produce great returns but suffer by not finding enough deals. Companies that don’t manage their investments according to a predictive methodology lose track of what is possible and the capabilities of their investment. After the check is writtenThe right kind of management and oversight needs to be in place. If this existed you would not see the abysmal failure rates that exist today. It’s possible to double the chances of success.
Data-driven marketing and sales. Marketing automation combined with sales intelligence Needs to be in place so matter if it is B to C or B to B. Modern ways to find predictable yet profound scale are possible. There is no need to overreach and suffer abysmal marketing KPI’s anymore. Great companies know this everyone else relies on something from the past.
Build the brand. Become demanded. You obviously know what this means. If you’re desired to get to be choosy. Your investments are more precise and the results are more predictable. What’s not to like.