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September 18, 2013

I’ve been thinking a lot about how Venture Capital firms can innovate on what I’ve been calling “Product Delivery”.

A lot of VCs are starting to be more creative about their “product”.  That is, what they are offering to entrepreneurs and how that makes them stand out vs. other investors.  This is a great development for entrepreneurs, and I think it’s nice to see larger funds put their management fees to work to produce meaningful and programmatic help for founders.

But I’m talking about something a bit different when I say product delivery.  I’m thinking more about the internal practices of a venture capital firm to help it do what it does more successfully.

Basically, every VC firm does the same things.  At NextView, we call it “Source”, “Select”, “Win”.

1. SOURCE: Find the best possible investment opportunities

2. SELECT: Choose the best possible investments opportunities to chase

3. WIN (a): Actually win the deal you are chasing

4. WIN (b): Help the company itself be as successful as possible

What I’ve been shocked to find is that many (most) VCs I think go about the same general activities to accomplish all these things.  I rarely hear about a “how” that has surprised me as something really interesting or innovative.

Normal companies make product delivery innovations all the time.  Think about how much companies like Amazon or Wayfair invest in their capability around shipping and logistics, for example.  Or, less operationally intensive but also impactful, think also about the 20% time of Google to foster out-of-the-box inventiveness or the red telephone at Kayak designed to instill an obsession about customer feedback in the development team.

Closer to home, one much earlier stage company I admire on this front is Yipit.  One of the core product delivery challenges of any company is successful recruiting of technical talent, especially in New York.  Yipit is fairly unique in their product delivery in that they are glad to hire folks with non-technical backgrounds and put them through their own boot camp to get their productively contributing production code quickly.  It’s pretty amazing that a company of their scale can do this, and helps them bring in really high octane people.

My favorite example of product-delivery innovation in venture capital/PE is Summit Partners. Summit is a growth equity firm, so quite different from what we do at NextView.  But I admire the company a LOT for the way they innovated on their sourcing model.  For those of you who are unfamiliar, Summit is probably the best firm in the world at outbound sourcing.  Essentially, they create lists of target companies in sectors of interest, then have an army of analysts call the companies on a regular basis, track ongoing metrics, and make the long-term sell on why they should take money from summit if/when they ever raise capital.  These are companies that are usually privately owned, profitable, and in pretty random places, which is part of why this method works so effectively.

What I love amount the summit model of sourcing is that ANYONE *could* do it.  Anyone can hire a bunch of analysts, make a list, and have them start hitting the phones.  But Summit was the first firm to think of this as their core product delivery innovation.  They have built a machine and playbook around this and are “slaves to their process” as I’ve heard it described.  Many other firms have hired Summit alumni to replicate their process because it just works, but few firms have matched their long term record of success in leveraging this model effectively.

I think about Summit all the time when I think about product delivery for our firm.  How do we take some things that all VC firms should do (or things only a few could do) and make it a core part of our product delivery process?

It’s a continuous process of innovation for us, and something we push ourselves to think about all the time.  In my next post, I’ll touch on some of my thinking around “selection”, which is related to this, and I think becoming more and more important as the market for early stage financing is getting more and more open.

  • http://blog.jordankong.ca/ Jordan

    I hear you, and I definitely think that VC firms are undergoing the same kinds of “product innovation”.

    I’m sure there’s a lot of behind-the-scenes work that go into analyzing the existing portfolio and understanding which investment strategy works and which doesn’t. For example, USV rolled out this cool tool that helped them (and their audience) visualize their investment history (http://www.usv.com/timeline3/#category).

    Also, have you heard of Correlation VC? They take a super analytical approach to investing — looking at historical data and using a model to make their investment decisions. (I’m happy to connect you if you want to learn more!)

    In the last 10 years, we have also seen the rise of microfunds (or super angels) and also very thesis-driven, or vertical specific funds (like IA ventures). I think the VC landscape has sure changed a lot since its inception in the mid-70′s!

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  • robgo
     - 13 minutes ago
    I just backed BIBLIOTHECA on @Kickstarter http://t.co/Z7TAMMvzDX
  • robgo
     - 29 minutes ago
    It's a greater threat for a VC firm to be stuck fighting yesterday's war than betting wrong on tomorrow's war
  • robgo
     - 5 hours ago
    wow.. currently on public wifi that actually works!
  • robgo
     - 10 hours ago
    I'm having a directionally challenged day
  • David Beisel
     - 12 hours ago
    .@bbohrmann: VCs can say "no" better by defining their firm, being transparent + constructive, and actually saying no http://t.co/Q20VszGh6B

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