As more capital flows into the venture asset class, many VCs are making attempts to differentiate themselves. Some examples include building a community of entrepreneurs and mentors who can help each another, hiring in-house specialists and agents to support the founders, and using technology to share knowledge and connections between the partners and portfolio companies.
However, based on my interactions with many founders, what they appreciated most from their investors boils down to the following.
Trust: The investing partners do what they promised to do. There is transparency and candidness. The founders are trusted.
Professionalism: The investors are responsive and handle issues professionally.
Expertise: The investors provide the knowledge or expertise that can be leveraged to grow the company to the next level.
Access: The investors make introductions to people who can help grow the company.
Brand: The investors have a brand that can be leveraged for hiring, the next round of financing, winning customers, business development, credibility, etc.
These elements are very similar to the things we look for when selecting any other service business. In fact, the service sector is defined as the “soft” part of the economy, where people offer their knowledge and time to improve productivity, performance, potential, and sustainability, which is termed affective labor. The basic characteristic of this sector is the offering of services instead of end products. Services (also known as “intangible goods”) include attention, advice, access, experience, and discussion. (Wikipedia).
Offering attention, access, experience, knowledge, or time to improve productivity, performance, and the potential of clients (founders) sounds exactly like what is expected of us (investors).
Venture capital is a service business. No matter what sort of community, operational capacity, or technology is adopted to serve founders better, a service mentality by the investing partners is required to provide a great experience to the founders. I believe the quality of service is the greatest differentiator.