Creating Value in Technology Companies
Investing is only one piece of the venture capital picture. Learn more about how VCs use their experience to help you handle your company’s rapid growth.
High-growth enterprise technology companies have the unique ability to scale so rapidly that they experience growing pains detrimental to their business model while achieving hyper growth. These pains can commonly be exposed through inconsistent processes and methodologies, lack of technology adoption, and not having the proper scaling functions in place to sustain their growth rate. As a founder or as part of a leadership team in growth mode, your investment partner can help, providing not just funding but expertise in implementing and professionalizing technology and processes to help your company efficiently scale to the next level. Read on to learn how venture capital firms create value.
How Venture Capital helps
Prior to making an investment, an investment firm will go through a detailed due diligence process to make sure your company fits into their investment thesis and uncover the growth levers for continued market expansion. They’ll look at your company’s records and processes to determine whether your company will fit into any of its investment playbooks.
The due diligence process also identifies opportunities to scale that can be improved upon post-transaction. Analyzing these growth levers will help founders and CEOs rethink business strategy, refine processes, and revamp technology stacks needed to scale.
Most growing technology companies will already have solutions in place, but they might have the wrong tools, redundant or unnecessary solutions, or a technology stack that doesn’t work together cohesively. Venture capital facilitates processes and procedure optimization, then makes sure the tools integrate and support the processes. Finally, documenting the optimized processes and instituting a regular commitment to training will ensure consistency and efficiency.
Start by making sure the Revenue Operations (“RevOps”) stack and expertise are in place. Depending on the company size, the expertise may come in the form of an in-house professional or a third-party RevOps specialist. Every fund is different, but in general, most venture capital firms will take a more granular look at the following processes:
While most companies will have been doing some marketing, your investment partner will want to deeply understand lead sources and how they’re converting to revenue so they can accelerate results. Ideally, leads will come from multiple sources – outbound, inbound, partners – but you need the proper systems and reporting in place to identify and scale the most efficient channels. This also includes refining the messaging, identifying the Ideal Customer Profile (“ICP”), building and maintaining a strong target customer contact list prioritized by intent data, optimizing the marketing funnel and campaigns, all to identify and scale the most efficient inbound, outbound, or partner channels.
Tracking data is essential to improving marketing and the business as a whole so you can measure success. Attribution is particularly important. Attribution technology now is “phenomenal,” explains Jim Douglass, a Partner of Fulcrum Equity Partners. “You can confidently know and track where your leads are coming from, what they cost to generate and ultimately how they convert to sales. This allows you to see what channels to fund and scale efficiently at the end of the day.”
Investment firms will also look at your sales technology and processes including onboarding, training, playbooks, pipeline management, and individual sales rep performance and compensation. They’ll solidify and codify a repeatable process that helps the sales team use effective and consistent tactics when speaking to prospects. A consistent, continuous commitment to training your entire sales team on the new-and-improved tools and approach is critical to building high-performing sales teams.
“Focus on sales by channel is especially important as direct will have a very different cadence than partner sales,” said Fulcrum Partner Philip Lewis. “It is important to base your sales motions on buyer actions vs. sales actions to ensure you are moving deals on the pipeline based on the timeline in which your prospect is most likely to buy”.
Your investment partner will also review everything from your product roadmap, how you plan to adapt pricing as you release new products, and product enablement tools to drive customer adoption. They’ll also ensure the right team members are in place to continue your product strategy and help recruit for the talent you need moving forward. One of the most important metrics in a SaaS business is net revenue retention (NRR) because it leads to a high growth rate. Net retention is driven by your customers buying additional products so a well-planned roadmap enabling your customers to adopt new product releases is critical.
“I can’t emphasize enough how important a good product strategy and product leadership is,” says Douglass. “It’s not just what to build, it’s how to enable your customers to adopt and how you increase deal sizes and upsell along the way,” he adds.
Improving processes will put your company in a better position to evolve your product and drive customer expansion, NRR, and ultimately a high growth rate. Great communication between all of your revenue functions (sales, marketing and customer success) will lead to top-performing NRR.
Like sales and marketing tech stacks, the customer success stack is crucial to scaling. You may need tools for CRM, onboarding, documentation, workflow, personalization, feedback, analytics, customer support, customer intelligence, subscription management, and more. Customer success platforms have matured over the last 10 years and retaining and expanding your customers is equal to if not more important than new sales, so get this technology and process in early. A venture capital firm experienced in your industry will be able to provide plenty of leadership and guidance on improving your customer success processes and the relevant technologies.
Operations and analytics
In marketing, sales, and every other aspect of business, you’re continuously trying to measure and improve results. Tracking Key Performance Indicators (“KPIs”) make that easier, but the most important part is to figure out which metrics companies can reliability track and turn to for the tell-tale signs of success or imminent failure. These are not just metrics to keep your investment partner happy, they need to be owned by your team and organic to your business and how you manage weekly.
“If you get your KPI and revenue operations systems in place, everything is trackable. So now you’re making a fact-based decision, and the data tells you how to drive your business,” Lewis adds. “tracking the leading indicators of customer performance and usage can get you ahead of any potential churn and customer issues”.
The people factor
Leadership and expertise are necessary to make your business a success. You need the right people or providers to strategize, manage technologies, and improve processes. This is why investment partners like Fulcrum immediately prioritize attracting the right people and partners within their companies.
Fulcrum has a rich history of helping find talent and third-party partners to help companies continue to scale. They assist in building out the human capital component of the business necessary to support the improved processes. “We have partners we work with to help a company install really strong programs for how they hire, motivate, and drive culture,” Douglass explains.
An experienced firm will know third-party services that can help. They’ll have contacts to help find up-and-coming talent and will encourage collaboration among portfolio companies to share best practices.
Improving investment outcomes
Investing is only part of the venture capital picture. A firm’s expertise lies in working to professionalize the marketing, sales, product, customer success systems, and human capital management that will take your company to the next level.
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