Rise of VC Community
This is part one of the VC Community Series.
Since 2010 year, there has been an increased focus on how VCs can deliver more value to portfolio companies. Whether a firm is interested in developing more value-add to compete for deals against other firms or if it’s to provide resources to help ensure better outcomes of the existing portfolio, it doesn’t matter. There is a growing focus on expanding value.
One of the fastest growing signs of this is the rise of the VC Community role.
Traditionally, VC firms were comprised of investment roles and administrative roles only. Their responsibility was to find great businesses, write checks and, depending on the firm, join the board to help those companies grow to a successful exit. Partners and investors were expected to provide their expertise and advice to portfolio companies, but those services were limited by Partner time. Entrepreneurs were encouraged to tap into external networks to find peers, seek professional expertise, and to hire talent. Venture Capital firms were experts in writing checks and were evaluated on their ability to get deals done and provide strategic advice.
In 2010, USV planned to expand their team to better connect their existing portfolio companies. They created the first General Manager role at USV,
“It will be the job of the GM of the USV Network to build on our early work to create a useful and sustainable connection between the portfolio companies. Think of it as a community manager for the USV portfolio. The community is small, and private, but populated by people and companies who are having a big impact on the web.“
In June 2010, they hired Gary Chou, the first General Manager of the Union Square Ventures Network. A mouthful of a title, but it was one of the first internal early-stage VC roles that was focused on building community among portfolio companies.
Five years later, there are now 30+ VCs with a dedicated team member focused on community. Out of the top 50 ranked early stage VC firms, the majority have one or more people focused on community efforts. A number of angel groups, accelerators and incubators are increasing their focus on connecting their portfolio companies to each other.
USV Network Evolution
Today, I run the USV Network at Union Square Ventures. I’ve been growing our community for over three years and my predecessor, Gary Chou built the role from the ground-up for three years prior to that.
Since building a community in VC is an emerging field, there is a lot of conversation about why this is important, who should create one, and how to get started. I’m often asked for advice on how we’ve built the USV Network, our community of portfolio companies.
Questions aren’t limited to VCs, I’ve also been approached by accelerators, incubators, professional organizations, and non-profits, looking to build a community among their members or portfolios. The goal of the role is to support a group of individual companies at scale, through education, connections and resources.
So whether you’re trying to figure out if you should build this role in your organization, where to get started or if you want to take community organization to the next level, this blog series will walk through the process of building from scratch.
Creating a VC Community thoughtfully
There is a definite benefit for companies and VCs alike who create this type of service and that it is increasingly becoming a point of competitive differentiation. The risk is that if the community is not created with intent, it can be detrimental to the firm (too much overhead) and to the company (overwhelmed or too dependent).
The rapid growth of the VC Community role across firms is a strong signal of the importance, but comes with a few warnings. Quality support is important but too many communities can be a risk to the portfolio companies, the VC’s reputation, and the perspective of LPs.
If you’re going to create a new community, here are some guidelines to make sure you’re setup for success:
Should you start a community for your portfolio?
If you’re thinking about expanding your community role or building one from scratch, consider what your VC firm offers, understand what the culture is, figure out how that applies to your role.
The best place to start is to look at the unique characteristics of your firm in order to figure how to leverage those to create unique value add.
What should you evaluate first?
Before anything else, state the thesis of your organization. Your company culture matters. What is your investment thesis? What do you believe to be true? Use those to apply them to your own network.
At USV, we believe in networks.
Thesis 6/8/11:
Thesis 12/14/2015:
We’ve applied our thesis, the belief in networks to empower bottom-up, emergent behavior, to the way we serve our network, hence the name USV Network.
What is the goal of your organization?
Every VC, accelerator, and incubator is different. To best serve the community, it’s important to understand both the scope of your services and the characteristics of the companies you serve.
First, define the scope of your services. If you are an accelerator, you may only work with companies for a short time. If you’re a VC, you may remain with a company for several years. Defining the relationship expectations of your organization to the community is the first set of constraints.
For USV, we work with our companies when we make an investment all the way through to an exit. Whether that exit is an IPO, an acquisition or a shut-down, we continue to work with those companies. We anticipate we’ll work with a company around 10 years, in a few cases, even longer.
Looking at our portfolio, here are some things we kept in mind when we were getting started:
- We can be long term with our thinking. We spend years with each company so we don’t have to deliver all of the value in a short period of time, we can deliver value through long term relationships.
- If we include all employees, we have a large number of network members. We have a number of individuals we can tap into, it’s not just limited to a small number of small teams.
- Experiments can be tested multiple times with the same groups of people, instead of starting with a fresh group each time. Iteration and feedback are easier when community members can see and weigh in on changes over time.
- We can build lasting relationships between companies.
- We have a range of companies which means there is a lot of ground to cover. We have investments from 2004 onward across various locations, industries and business models. There is not a one-size-fits-all model to support.
- We wanted to keep the community manager role to a single person to ensure we were building something lightweight and sustainable. Networks benefit from low centralized overhead, unlike top-down advisory services.
Solve problems in your community
Take a look at your community. Do you have things in common with ours or do you have the opposite scenario?
Take some time to spell out the unique components of your organization. Understanding what works for you will be the key to getting started successfully.
In the next post in this series, I’ll provide next steps and examples of how VCs, accelerators, incubators and beyond are serving their communities.
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