VC value-add: Personal touch

In five funding rounds across four years featuring 13 different VC and strategic investors, online peer-to-peer (P2P) car rental platform Atzuche has experienced the full range of venture value-add. However, from a stable of backers that also includes ZhenFund, Ceyuan Ventures and Panda Capital, the Chinese company identifies Matrix Partners China as the one offering the most comprehensive service.

The venture capital firm, which has backed Atzuche from Series A through Series C, boasts a team heavy on operational experience, covering everything from human resources to public relations and marketing, and even healthcare. If a portfolio company founder or one of their family members falls sick, Matrix’s medical department contacts its network of third-party doctors and arranges treatment. This personal touch value-add was a hit with Atzuche co-founder and CEO Wenjian Zhang.

“Old-fashioned VC firms think that providing capital is enough, but I think post-investment services are important. Matrix is well-known in our community for covering even the most trivial of details. Now, when new VC firms want to build a relationship with us, they go so far as offering to arrange for my wife to give birth in a hospital overseas,” he says. “When we raise a next round, if two VCs offer the same amount of capital, I’ll pick the one with the best reputation and most complete services.”

Old-fashioned VC firms think that providing capital is enough, but I think post-investment services are important – Wenjian Zhang

In situations where investors are competing for access to the next hot start-up, providing deeper industry insights and hands-on support can be the difference between winning and losing a deal. While VC value-add is reasonably well-established in a business context, going a step further and engaging with entrepreneurs on a purely personal level – to the point of setting up concierge departments for founders and their families – has yet to become the norm. But will it?

“VCs are trying hard to differentiate themselves as the China market is getting more crowded and competitive. For large VC firms, the differentiation is their brands. Smaller or newly-formed players have to come up with other angles and ideas in terms of investment strategy, deal sourcing and value-add services,” says Tommy Yip, managing partner at VC fund-of-funds Unicorn Capital Partners.

The full monty

The full-service offering is already present in the US market, with Andreessen Horowitz arguably the stand-out example. The GP has 22 investment team members listed on its website, plus around 270 professionals whose areas of expertise range from technical support to government policy. Google Ventures takes a similar approach. Just 15 of its 80-plus are investment professionals; the rest cover marketing, recruitment, engineering, operations and life sciences, among other functions.

In China, Sinovation Ventures, K2 Ventures and Matrix are recognized by LPs and entrepreneurs as having strong operating capabilities in areas such as legal and financial services, HR, PR and marketing, technical support, and government relationships. Of Sinovation's 60-strong team across Beijing, Shanghai, Shenzhen and San Francisco, more than a half of them are operating professionals who help founders address almost every facet of running a small but fast-growing business.

“A lot of hard work is needed in order to operate this kind of full-service model. You have to be managing a pretty large fund, otherwise you can’t afford to hire top-class operating professionals. You’re paying them from your management fees, so the larger your team, the more pressure on the budget and the more management responsibility,” says Chris Evdemon, CEO at Sinovation North America.

GGV Capital began formalizing its value-add about five years ago. Central to the GP’s efforts is a portfolio services support group - covering the standard set of competencies - and a four-person venture partner team. The aim is to leverage the expertise the GP has built over the last 15 years and help founders in a more sophisticated, structured and customized way. Others are seeking to do much the same.

“When start-ups are in their initial stages of development, they aren’t well-structured; many functional aspects are incomplete. A GP can help provide this framework, offering advice or contributing resources in the certain areas in a way that is beneficial to us. Our investor Morningside Capital has provided a lot of support in terms of marketing, HR and legal services,” says Hua Su, founder of Chinese photo-sharing app Kuaishou.

A formalized approach

While the majority of venture capital firms tend to make their value-add services more business-oriented – aside from traditional customs such as Chinese New Year gatherings – some are taking similar steps to Matrix and seeking to add value to entrepreneurs’ personal lives as well. The question is whether these efforts need to be formalized and promoted as such.

“In early-stage ventures, we usually become very close to the founders and get to know them well. If they come to us, with whatever is going on in their personal life or something very urgent, of course we’ll assist as best as we can, because that's the kind of relationship we want to build with these people,” says Evdemon. “But formalizing this as a service in order to differentiate yourself is a step too far. We haven't heard about this in the US. One could argue it’s pampering founders a bit too much.”

Furthermore, once a GP formalizes this kind of value-add, it creates expectations about the quality of services it is providing. If there is not a deep level of in-house expertise or insufficient bandwidth to replicate it across multiple situations, perhaps close personal relationships with entrepreneurs should be no more than casual. There is also the question of whether an entrepreneur who wants a lot of hand-holding is capable enough and tough enough to address the challenges that face many start-ups.

“When you have 200 portfolio companies, you might have 10 founders’ kids who need to go to primary school. Can you make sure each one gets into a top school in China? We can’t guarantee this,” says Adam Li, co-founder of Panda Capital. “As a VC, we can only serve as an open source platform, connecting entrepreneurs with industry experts, such as third-party headhunters who can share their views on how to find the right employees, so that the entrepreneurs will be inspired.”

In much the same way, venture capital firms will continue to leverage the size of their portfolios by bringing executives from investee companies together for sharing sessions intended to offer insights into management best practice and strategic direction. For younger start-ups, this can represent a rich source of expertise that they generally cannot afford to bring in on a consultancy basis. In addition, these sessions may result in some portfolio companies finding ways to work together.

“Social activity is very meaningful for entrepreneurs. It's a lonely process building a new company. We do sometimes need our VC backers to expand our circle of friends, sharing different point of views and new ideas,” says Atzuche's Zhang.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Early-stage
• Technology
• China
• TMT
• Venture
• Matrix Partners
• Sinovation Ventures
• Panda Capital