Value Creation Concept and Approach for VC
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1) The document discusses value creation as a service (VCaaS) which involves delivering business and customer development activities to add value to portfolio companies for venture capital firms. 2) It recommends that venture capital firms implement a full value creation program using program management principles to align strategy, people, processes, technology, structure, and metrics. This would provide an end-to-end approach to helping portfolio companies. 3) Steve Blank's customer development model is proposed as a framework for the value creation activities, focusing on discovering customer needs and validating business models and tactics.
Value Creation Concept and Approach for VC
- 1. Value Creation as a Service
- 2. 2 What is Value Creation more than dollars made Value Creation ≠ Business development in sales & marketing Value Creation = Building value for stakeholders by delivering the right products or services to customers through product, customer and business development
- 3. 3 Conventionally value creation activities such as business development are facilitated by VC to help their portfolio companies to gain traction and generate revenue, in turn delivering a higher return on investment for them. However value creation doesn’t only benefit the “downstream”, it could also benefit the “upstream” in a make or break situation. Let’s consider the following analogy: Every year, sporting apparel companies such as Nike, Adidas and Under Armour are offering sponsorship packages to players in the NBA league to wear their brand of sneakers in upcoming season. Not all players are treated equal - the top tier players who highly regarded as the next “Michael Jordan” will receive tailored packages from interested companies. The main difference between the packages is compensation and bonus; but what truly differentiate from one to another is the value added benefits (both intrinsic and extrinsic) – owning signature shoes, launching co-branded product line and gaining popularity in overseas market. We can draw similarity between the story above and VC making investment offers to high- potential startups a.k.a. unicorns. Unicorns are alike top tier players, they have the liberty to choose investors that they want to have a strategic relationship with. Hence it is important for a VC to demonstrate their track record and ability in helping the company to thrive during deal making. What’s in it for Me (Investors) set the stage with basketball’s analogy
- 4. 4 Value Creation Strategy alignment/resource matrix StrategicAlignmentwithBusiness Goals HighLow Allocated Resources for Value Creation Support value creation activities on ad hoc basis Design and implement value creation program Plan individual project of value creation activities DedicatedUnassigned Facilitate value creation activities on best effort basis
- 5. 5 1) Identify business drivers and objectives Strategic Alignment how value creation ties with business goals Growing top and bottom line Increased visibility and presence in Asia Differentiated competitive positioning Decreased time to market Indigenous customer needs & expectations New and changing regulations PortfolioCompanies Reduced investment risk Decreased time to exit Improved relationship with business partners Value added Created jobs VC Macro Economy 2) Define business outcomes addressable by value creation Growth in market share Customer and market needs met Customer-related outcomes Financial-related outcomes Revenue growth & profitability Economy-related outcomes Growth in expected VA and jobs Respectable yearly return on investment 3) Determine KVIs and Value Metrics Relative Market Share by geography by product by quarter Total Revenue Growth by country by year by account Investment Scorecard by region by industry
- 6. 6 Allocated Resources structure and work allocation Phase 2 Phase 3 Portfolio Companies Initiative HC ET ICT Value Creation Program Phase 1 The recommended structure below is targeted towards the choice of dedicated resources, given that VC allocate dedicated headcount for value creation function. In an unassigned setting, value creation work could come under investment professionals’ responsibilities. One staff to look after one sector or more depends on the number of companies. The staff acts as an account manager in managing relationship with particular companies. All value creation activitiesare organized, documented and repeatable as initiative. New staff is hired as / Existing staff grows into a portfolio manager to bridge the gap between strategy and execution. Managing value creation initiative as a program allows the function to scale as portfolio companies expand (in both variety and volume). This phase requires PMO (Program Management Office) to be established in order to create and maintain a successful program.
- 7. 7 Value Creation Program the big picture view A research conducted among 587 C-Suite and senior executives by the Economist Intelligence Unit (2013) reveals that organizations can improve their competitiveness by successfully executing initiatives to deliver strategic result. ProgramVision “To be the premier investor in building the future economy” Program Mission “To value add our portfolio companies by enabling their growth globally” Program Objectivesand Goals We accomplish our mission by leveraging our extensive network, resources and experience to help them to: 1. Build long-term perspective beyond typical investment cycles 2. Develop new business opportunities in Programs (Example) 1. Developing “green lane” in clearing regulatory requirements with relevant government agencies. 2. Facilitating access to government grants, enterprise activities and procurement opportunities. 3. Analyzing local market and customer segment needs. Value Creation Program Charter (strategic alignment level) for VC For Reference The invitation-only BizSpark One program offers personalized consulting and mentorship with a single point of contact at Microsoft.
- 8. 8 Customer Development is a four-step framework developed by serial entrepreneur, Steve Blank to help startups in discovering and validating the right market, building the right product features that solve customers’ needs, testing the correct model and tactics for acquiring and converting customers, and deploying the right organization and resources to scale the business. The rationale behind choosing Steve Blank’s model is to avoid from reinventing another BD process that doesn’t necessary add value to portfolio companies. Instead we should leverage on a proven model (which is being adopted by most internet startups) to steer our value creation process in creating value-added activities for portfolio companies. On the right diagram, boxes in red depict activities that VC could value-add for portfolio companies. Leveraging Steve Blank’s Customer Development Model Value Creation Model business & customer development process and activities
- 9. 9 • The father of open innovation, Henry Chesbrough pointed out that in order to sustain profitability and achieve new growth, organizations must think of their business as a service business. • Value Creation as a Service (VCaaS) is about delivering business/customer development-related activities that evolve and add continual value to portfolio companies for VC. • It is recommended that VC to gradually create an end-to-end Value Creation program. Program management discipline can integrate and align six critical dimensions (strategy, people, process, technology, structure and measurement) needed to make Value Creation initiative a success. Summary recommendation and what’s next