Wednesday, March 29, 2017

Michelle Killoran

There is a commonly held belief that aside from the initial capital investment, the main benefit to portfolio companies when they partner with Venture Capitalists is access to a vast network of prospective customers, top talent, and future investors.

Your VC relationship needs to be more than just capital

While these benefits might have once been the primary motivators for start-ups to seek VC investment (and remain significant today), the Venture Capital industry has transformed in recent years to offer more services to portfolio companies. In a competitive funding environment, as was evidenced by the $2.0 billion ICT venture capital investment in Canada in 2016[1], Venture Capital firms are focused on ways to differentiate themselves and the result has been to add more value to the companies, beyond the capital commitment. If the investment symbolizes the wedding, it is the marriage where VCs can really step up and stand out. This is evidenced through roles such as OMERS Ventures’ Community Director and Talent Director. Both provide valuable operational resources to our portfolio companies and bring them together to learn from each other.

Value-add means something different for every company

Before joining the investment team at OMERS Ventures in March 2016, I was in a financial advisory role where I developed my analytical and valuation skills. While valuing companies in my past role involved defined methods and approaches, I’ve come to realize that alternative methods and approaches are necessary to value start-ups. It quickly became clear to me that: a discounted cash flow approach is useless when a company is burning cash; forecasts are significantly riskier when a Company is pre-revenue; and valuations are just as much an art as they are a science.

As an Associate at OMERS Ventures, my direct value-add to our portfolio leverages these skills but applies them in ways that are unique to the current needs of our portfolio companies. For example, one of our earlier stage companies was in the process of building out its financial team, so I helped them create their 2017 forecast in the interim. I ended up getting to know their team really well by working out of the Company’s office throughout the project. Together, we were able to create a detailed plan that captured the dynamic business model and significant growth expectations for each function in the Company. When the Company hired a finance lead I transitioned the model but was asked to continue to assist the team with other projects based on my skill set and now deep understanding of the business and look forward to doing so.

By getting the chance to jump into and work directly with portfolio companies like this, I’ve learned that start-ups grow in dog years and it has been exciting to watch them do just that. Start-up pups consume resources faster than expected and sometimes develop in spurts that leave their paws too big for their bodies or vice versa. My role as a VC is to apply my analytical skills wherever they’re most needed to help ensure the healthy growth and development of our companies.

Stay friends with your cap table

The path to becoming a VC is undefined, resulting in a team of people with diverse backgrounds and unique opportunities to add value. The take-away I want entrepreneurs and founders to get from this post is that for those of you with VCs on the cap table, take advantage of this relationship and the access to (non-financial) resources it provides. When monthly growth rates are comparable to annual growth rates in the public markets, it helps to have a few extra hands on deck!

[1] CVCA - VC & PE CANADIAN MARKET OVERVIEW 2016 

Back to Community