A decade ago there was hardly a name for it. Today venture capital platform roles are a crucial way for investment firms to attract startups.
Credit: Neil Thomas / Unsplash
The venture market is a crowded one. Even in an investor-friendly environment, competition to get on the cap table of a startup with good technology is still strong. Investing the money is one thing; but what makes an investor stand out is the ability to help the portfolio succeed. Platform, generally defined as the bucket of activities in the unit that doesn’t involve direct investment or board participation, is how more and more CVCs are standing out.
If you think platform is a vague term that doesn’t tell you much about the role itself, you’re right – it’s different at every unit, depending largely on its strategy and the nature of the startups it deals with.
“You might speak to 10 different funds and get 10 different definitions,” says Oliver Fitz-Gibbon, platform and community lead at InMotion Ventures, the corporate venture arm of Jaguar Land Rover (JLR).
According to VC Platform’s The Power of Platform report, which analysed metrics from 850 venture capital firms, the number of platform roles has grown faster than the VC industry as a whole over the past two decades. A higher concentration of platform roles has correlated strongly with higher returns.
The number of venture team members who are dedicated to platform functions has roughly doubled since 2000, according to the report. It has grown to one in eight from one in sixteen. It has helped units outperform peers in internal rate of return and return multiples.
“Platform is no longer optional. It’s something that every fund that is competitive and differentiated in this market already has,” says Cory Bolotsky, a platform and community consultant, who led VC Platform’s report.
Nearly half of all venture firms today have invested in a platform function, while some 40% have at least 10% of their team dedicated to platform roles.
Tasks that can be described as platform activity can run the gamut, from helping with the sourcing and due diligence pre-investment to a wide range of post-investment support including marketing, communications, talent recruitment and business development. Historically, these responsibilities have been spread across the team, but as Archna Sahay, head of platform at Northwestern Mutual Future Ventures, put it, it is the role of platform to quarterback those non-investment initiatives.
“It’s a Swiss army knife for the team and the portfolio,” she says.
Out of roughly 2,000 members of VC Platform, around 140 come from CVCs, who – relative to their institutional peers – can draw on the resources of the parent company. This is partially the reason CVCs can make do with smaller platform teams compared with their institutional VC peers.
“We’re always trying to think about how we can differentiate ourselves. We want someone to be over the moon whenever they have interest from us,” says Meghan Hunt, platform manager at HG Ventures.
One of Hunt’s favourite activities is connecting portfolio companies with Heritage Group’s research group, which can provide detailed technical feedback and insight at no additional cost to the founders, bypassing the need to engage engineering firms.
“Even pre-investment, I get asked a lot: who should we include whenever we’re doing diligence? Who should we have a technical call with?”
The role of platform generally also varies depending on how strategically aligned startups are with the corporate. For portfolio companies that have strong strategic links, for example, the focus of platform could be on operational expertise and getting them in front of the right people internally to form partnerships. If their focus is a bit more tangential to the corporate, platform can act somewhat in a general supporting role by connecting them with the unit’s network, making introductions and getting them help where the corporate is less able to bring direct assistance.
A lot of the work is reactive, responding to requests for connections or dealing with unexpected situations in the portfolio or CVC. But much of it is also anticipating where points of collaboration can exist, and where value may be added between different points in the network.
“I think that there’s definitely a common narrative in CVC and VC that in platform, you’re always running towards whichever fire is burning the brightest. There’s an element of truth in that, but there’s a lot you can still plan for,” says Fitz-Gibbon.
“We know which portfolio companies are gearing up for a raise or have just closed a round and therefore will hopefully be entering a period of rapid growth. So, we can anticipate who’s going to need fundraising support, investor introductions, PR guidance, operational support or help from our colleagues within JLR.”
What makes a good platform person?
As funds have become larger, they’ve been able to hire more specialised people to dedicated platform roles. CVCs have longer-tenured, more senior people with varied backgrounds who have come from the parent company to take platform roles.
Even with a wide range of backgrounds, some common traits tend to make an effective platform person – they tend to be curious, passionate about the problems their units are solving, and comfortable going beyond their specific job spec as no two days are the same.
Soft skills carry a premium in platform functions, so emotional intelligence is crucial, being able to manage different personalities, and reading situations and connecting dots.
That’s not to say that a background in the subject matter doesn’t come in handy. Sahay, whose background is in financial services, finds that it makes it easier to translate between the two sides.
A genuine interest in what the fund is doing is crucial. “You have to be all in on the fund and the portfolio. As the platform lead, you are the champion of your thesis, you’re the champion of your founders, and you’re the champion – in our case – of your solo LP,” says Fitz-Gibbon
Parallel to the growth of dedicated platform folks, there is a rising trend in specialisation. Instead of just having a team of three people focused across all areas of platform, one is focused on the communications, the other on branding and the other on operational support, for example.
Challenges in connecting mothership with startup
Bridging the gap between very large and very small organisations comes with its challenges. One of the most common is dealing with different time horizons. Every day counts for a startup, and a six-month horizon for a pilot or proof of concept – that to a corporate would be quick – can feel like an eternity. Managing expectations between the two sides becomes an important part of the balancing act that platform professionals need to strike.
And it’s not just for timelines. When the time is not right for a collaboration, getting to that “no” quickly can be just as valuable as getting to the yes, lest an opportunity cost be incurred for fear of letting the other side down.
“A lot of times, even though we say [there is no obligation to collaborate] there can still be discomfort on the corporate side of things to say no and to say it quickly,” says Hunt.
“Sometimes it’s not a no, it’s just not yet.”
One area where work is being done to gain greater clarity is on exactly how to measure the effectiveness of the platform function. VC Platform research shows a strong correlation with financial results over time, but how can those be quantified back to the work being put in?
The metrics change from unit to unit, but they tend to include things like the number of investments themselves, introductions and engagements in the corporate, such as pilots, proof of concepts, and testing of startups’ technology in the labs.
Tracking which connections were made that ended up leading to meaningful outcomes is important.
The benefits of platform can sometimes feel intangible, and the benefits tend not to manifest themselves quarterly, but rather over time. The best platform teams are seen as those that can make incremental changes over a long time.
Ultimately, the promise of CVC, relative to their institutional counterparts, is the additional value they can bring beyond capital. While a lot of startups would love to get a corporate on the cap table and get a pilot off the ground, word spreads quickly if a CVC can’t deliver.
“I think that word goes around when funds are really going above and beyond and doing credible things, and when they’re not. How funds position themselves and promote what they’re doing doesn’t really matter. What matters is what they’re doing,” says Bolotsky.