Teaching Founders How To Fish: Differentiating Your Venture Capital Firm In A Competitive Market

February 28, 2022
min read
Pave Team

"Give a man a fish and he will eat for a day, but teach a man how to fish and you feed him for a lifetime.”

Most entrepreneurs have heard this ancient proverb at some point in their careers. 

But cliche as it may sound, it remains a powerful illustration about empowering autonomy and enabling scalability for fast growing businesses. 

Particularly if you work on the venture capital side advising portfolio companies.

Teaching founders  to fish is a critical part of your job. If your firm maintains a portfolio of startups with exceptional growth potential, your strategic input to senior leaders across that community could be the difference between a million dollars and billion dollars.

Pave is fortunate to partner with nearly one hundred venture capital firms around the world. Our partners range from holding 40 to 500 companies, and the list is growing by the week. 

In light of the last few years of conversations we’ve been having with our community of portfolio managers, directors of platform, and heads of talent networks, we’ve decided to codify our insights. 

Here’s an overview of what to expect in our forthcoming curriculum, Teaching Founders How To Fish:

  • Part 1: Differentiate Your Firm In A Competitive Market
  • Part 2: Enhancing Portfolio Support With New Value
  • Part 3: Saving Yourself Time to Focus on Key Work 
  • Part 4: Deepening Your Executive Relationships

In this first post of our series, we’ll focus on market differentiation.

According to recent numbers from the National Venture Capital Association, despite the pandemic and economic downturn, we’re living in record times for venture capital. There are just under two thousand active venture capital firms in this country, with $548 billion in assets under management.

Clearly, differentiating your firm in this competitive landscape has never been more important. It’s a buyer’s market. Venture capital is no longer solely about wining and dining founders and then writing a check.

When capital itself becomes more and more of a commodity, the competition for deals has never been fiercer. Bringing high quality coaching offerings to portfolio companies can be a part of your sustainable competitive advantage in a fiercely competitive market. 

Today’s (and tomorrow’s) startup founders are coming to the investment table asking questions like:

  • Why should I give you part of my Cap Table over other VC’s?
  • What additional value can you offer a high growth startup like mine?
  • What kind of support can your firms provide in addition to financing?

As such, your firm’s goal is to find ways to differentiate itself through more than money. To provide unique value at no additional labor cost to you. You don’t want your platform to sound like every other competitor firm, or blend in with every incubator, accelerator, community group and graduate program in your city.

Here are several compensation centric recommendations for how you can teach founders how to fish.

Differentiate Through Data

A key differentiator for your platform offering will be preparing your founders to execute a repeatable compensation process. This assures them that as they scale, they can continue to conduct these types of initiatives without your direct involvement.

The foundation of successfully executing this strategy is leveraging data. Not just the average compensation data from the same old, stale surveys everyone uses. But the best data that’s updated with the most coverage. Data that can help portfolio companies with quotes, ranges, and more.

Two key questions around data to consider:

  1. Where would you use this live data?
  2. When do you want to use it?

Typically after raising a round of capital, a company starts asking their VC questions about hiring a high number of new staff, particularly around compensation for key roles.

If your firm has access to a trusted platform to see what the market pays today, that data helps portfolio companies calculate how many people they can hire and how to structure headcount budget accordingly.

And keep in mind, after a startup fundraises, the hiring doesn’t stop a month after the raise. Nor does the market stop. There’s often a blitz of hiring initially so the founders can accommodate their aggressive goals, but high growth brands are always looking to hire at a future date.

And they’re going to want the most accurate, relevant data going forward as they scale. Think of the data as the lure that helps them fish for the best talent to build their team.

The last point about data relates to employee retention, which is as important (if not more important) than acquiring talent. Key hires your portfolio companies make when they raise money need to stick with them through the next fundraise.

And they may expect a raise themselves if there’s an injection of capital. Now founders can leverage compensation transparency tools to retain their top performers.

Differentiate Through Insight

Pave’s venture capital partners range in size and focus, but one commonality we’ve seen is, they’re sounding boards when portfolio companies have a specific opportunity or challenge. Platform managers help their startups develop sustainable processes to support and enhance their growth.

Does that sound familiar?

If you’re the de facto advisor when it comes to issues around hiring, compensation, equity and other key people topics, it’s imperative that you’re armed with resources.

You can’t afford to keep answering the same questions over and over, as your time needs to be focused on higher leverage activities.

Imagine a founder approaches you to answer a complex question about metric cycles or employee equity. You could certainly answer them based on crowdsourced knowledge or industry standard resources like compensation surveys.

A completely fair question.

But what if you have several hundred founders in your portfolio who all want a piece of your time? How can you scale your knowledge in a way that both supports portfolio companies and doesn’t monopolize your time and energy?

What’s more, founders may be wondering in the back of their minds:

“Thanks for telling me how to budget my developer headcount, but where, exactly, did you get your data on software engineer salaries?”

Naturally, founders might not express such skepticism if they’ve just been given tens of millions of investment dollars, but that doesn’t mean they’re not thinking about it. 

The above example is akin to giving founders the fish.
Whereas teaching them how to fish would be more value forward.

Imagine you write back to your founder by saying:

“Great news, we know the exact salary to pay your crypto software engineer because it’s based on current market data. We use a cutting edge comptech tool that helps us stay in the know with accurate, high coverage data.

Remember, we don’t want your growing company to have to rely on crowdsourced opinions, as data driven opinions are king. Let’s chat for a few minutes tomorrow and I’ll walk you through how this real time platform works so you can use it to benchmark all of your new roles going forward.”

Hook, line and sinker.

Framing your conversations in such a fashion reinforces the brand perception that your VC firm is up to date with current compensation trends and tech forward in their data driven decision making.

This fights the unfortunate but real stigma that venture capital professionals are giving and taking business advice based on crosstalk they overheard on the eighteenth hole.

Your founders would rather imagine you in the war room with five screens of market data, prepping to generously counsel their troubles like the wizards of information and resources and wisdom that you are.

With the above strategies around data and insight, you can empower founder autonomy and enable scalability for your fast growing portfolio businesses. 

P.S. When you’re having these conversations, use your partner link (or this one!) and give your portfolio companies access to real time compensation data.

P.P.S. Is your VC firm not yet a partner of Pave? Click here to reach out to us.

Learn more about Pave’s end-to-end compensation platform
Pave Team
Pave Team
Pave is a world class team committed to reinventing the world of compensation and help build a more transparent future of work.

Become a compensation expert with the latest insights powered by Pave.

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