Your fiercest Competition is your VCs’ Other Portfolio Companies.

If you believe you have a great startup, then I hope you have a great product. And, naturally, you will have competition. Gartner is not going to create a magic quadrant for a new huge market with only a single company in it.  Your product should be awesome. You should strive to find product-market-fit fast. You should win deals against others in the market. And competition is part of being in (good) business, as others have written before.

But your fiercest competition is coming from a mostly overlooked place: your VCs.

If you have VC funding from a firm you’re fairly happy with, then chances are that either their platform or the partner helping you are fairly helpful. It’s more than “just money”. You are competing for capital and attention against the other “children” of your VC, potentially across all of their funds.

  • So what happens when there’s a downturn or a change in a market segment? Which company will the partner or her platform help through that transformation? How many companies can they really pay attention to?
  • Or you’re coming up for your follow-on round: How do the reserves look like? How fast are the growth rates of the VC’s other portfolio companies? How much of your company does the VC own versus their other companies?
  • What if the VC is currently fundraising for their new fund, but your story does not quite fit into their new story?  Or they are simply really, really busy and are suddenly less available than you would like them to? Or they have too little or too much capital deployed in you and that story does not fit their new portfolio strategy and “lessons-learned from past investments” that they are telling to potential new LPs?

If other companies in the VC’s portfolio have greater weight ownership-wise, then the firm might focus their help and attention there. If your growth rate is slower than the rest of their portfolio, then they might focus their reserves on other companies. And if your VC is not closely involved anymore with your company, or is doing less than their pro-rata, then that has certainly a signal for your current investors and your future investors, and maybe even your customers.

So make sure you are taking an interest in the other portfolio companies of your VC and their performance, even if they are operating in a totally different sector, at a totally different stage. If anything, you’ll learn something about your VC.

Thoughts? Opinions? Comments? Corrections?