What Measures do VCs Take to Manage the Financial Metrics of Their Portfolio Startups Human resources and marketing are the two areas where the majority of companies spend the most of their money. The proactive strategy taken by VCs entails close collaboration with their portfolio firms to thoughtfully plan and get ready for these critical areas well in advance, ensuring they are well-equipped to handle possible obstacles.
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Highs and lows are unavoidable since markets are always changing. To assist the company's founders in overcoming any unique difficulties that may arise, the investors keep in close contact with them. The founders also continue to engage with and seek assistance from their investors' extensive networks, which span numerous nations and industries.
Based on a structure they hope will keep businesses honest throughout all phases of the startup lifecycle and help them through challenging times by prioritising important areas of emphasis, VCs have continued to work alongside their portfolio in light of recent events over the previous 12 months.
Here are a few steps that venture capitalists have taken to control the financial parameters, including burn and runaway, of the firms in their portfolio.
Closely works with founders
3one4 Capital works with its founders to plan and actively manage financial metrics including burn and runway. According to Nruthya Madappa, Partner, 3one4 Capital, "These are critical aspects we help them monitor and gain control over on an ongoing basis regardless of the macro scenario."
The VC firm drives continuous, collaborative financial planning across its portfolio, to explore and capture cost optimisation and business model efficiencies to help founders make their companies more resilient.
Encourages concentrating on core businesses
Kae Capital asks that its portfolio companies aggressively concentrate on their key competencies and start reducing costs in non-core competencies where there is no significant PMF (Product Market Fit). In some circumstances, "we suggest that they search for bridge rounds as well," according to Kae Capital Partner Gaurav Chaturvedi.
Vishesh Rajaram, Managing Partner of Speciale Invest, continued, "Startups occasionally might have to let go of their employees as well. We advise founders to spend all of their remaining funds only on endeavours that advance technology and company, which will lower risk, boost chances of success, and help them raise additional money."
Run a special program and connect with the right partners
Inflection Point Ventures has set up unique initiatives like a 'Lets Grow Startup' program for deep engagement with 4-5 identified experts from various domains who work closely with its portfolio companies advising on strategy and have a regular check on burn and runway.
Apart from the cash conservation and management exercise on a case-to-case basis, "we do assist companies in connecting to right partners (like other VCs, RBF companies) for intermediate financing arrangements," stated Ankur Mittal, Co founder, Inflection Point Ventures.
Look for a M&A target
During these times, in addition to locating funding sources, cost reduction and—most importantly—standing by the founders when things become rough could mean the difference between success and failure. "Our portfolio management team gets involved when it becomes crucial for the startup to hunt for an M&A target to sustain or increase shareholder value. Several of our companies, including Supr Daily, Belita, and AHA Taxis, have been acquired throughout the years, giving investors an exit," as per Lead Angels Founder and CEO Sushanto Mitra.
Recommend being creative, freezing new experiments, & prioritising profitability
According to BEENEXT, it keeps in close contact with its founders to assist them in overcoming any unique difficulties that may emerge. "For instance, we advise being creative to lessen the burn if the firm has less than 18 months of runway and is still attempting to identify its Product Market Fit. Prepare for a hard reset with just the core staff and be ready for the worst-case scenario," advised Chinmaya Saxena, Partner - Community Strategy, BEENEXT.
But if the startup has already achieved Product Market Fit and has a longer runway than 18 months, the priority should be finding new funding as quickly as possible. "We advise doubling down on the primary product's monetisation while halting any new experiments and hires. Additionally, it is essential for these startups to provide a clear route to profitability, perhaps by securing longer revenue contracts or subscriptions," Sexena said.
On the other hand, if startups have less than 18 months of runway but have not found their Product Market Fit, efforts need to be on low-cost Product Market Fit discovery by reducing burn and preserving runway for as long as possible. "If the startup has achieved Product Market Fit and has more than 18 months of runway, then they need to prioritize profitability over growth by doubling down on channels that are working well and cutting down on low ROI experiments," emphasised Saxena.