Venture Capital Funds are a two-sided service business: You connect startups one one side with money from investors (Limited Partners = “LPs”) on the other side. Strictly speaking, “investing” is more of a catch-all phrase of three things the local financial regulator [1] wants you to do:
- Direction of capital deployment,
- Stewardship of capital and capital commitments,
- Risk Management.
The Risk Management point is especially important: Usually you are willing to take one risk more than anyone else in the industry. Because you are particularly good at managing that particular risk. For you, that risk is not that risky because you have some proprietary insights, or processes, or tacit knowledge that makes you believe you can deal with these risks better than others.
[1] For example, in the US, that regulator is the Security Exchange Commission (“SEC”), in Luxembourg it’s the Commission de Surveillance du Secteur Financier (“CSSF”), etc.
Help ≠ Service. How to Evolve.
“We are super helpful.” “We help our founders.”
This is the second-fastest way for me to come to a “no” (the fastest way is if there is no investible product) when we diligence managers, especially emerging ones. The first level of help:
- Did you show up late to a board call and mumbled something around Product-Market-Fit .. or restructure a go-to-market with surgical precision during a wartime pivot?
- Did you blow the coffee cold during a meeting and “enjoyed the conversation” .. or did you spend weeks going through legal documents to spin-out and setup a corporation even though there was no investment made yet?
- Did you double-check the Notion flow and structure of the company, made some suggestions, and reviewed some sales presentations .. or did you bring a whole new operating system to the table that changed the trajectory of the company or opened up a completely new customer class?
How to make “help” a service for startups (the one side of your two-sided business model):
- How is your “help” repeatable and scalable? How can you teach what you do to new hires?
- How is your help truly transformational, how does it have an exponential effect on the trajectory of your firm or your portfolio companies or your LPs?
How to make “help” a service for investors (the other side of your two-sided business model):
- What is your alpha you get from “helping” that will be incredibly valuable, even if the company (or your help!) fails? How is your “help” creating proprietary insights, lessons-learned, sharpening processes, gaining new advocats and partners and advisors, etc?
If you do something that is not accelerating your portfolio companies faster than their competitors, how is that helpful? If you do something that is not providing exceptional value for your investors (usually returns) beyond what others can offer, how is that helpful? Are you wasting their time, and they should’ve talked to someone else to begin with? Know what you’re exceptional at. Just because you can help doesn’t mean you should help. Perhaps the best transformational help for some topics or challenges is an intro to someone else.
We had proprietary insights into XXX. We convinced the founders and the board to do YYY. We did that for two reasons: it would shorten customer acquisition from three months to two weeks, basically tripling the cashflow and allowing investment in ZZZ. And it would give us valuable value-chain data for a technology area thesis we were developing.
Seven Elements of an Effective Service
- Consumable Outcome: The user can clearly access, use, and benefit from the service. Not just a feature or tool, but a result that solves something.
- Engagement Model: There is a defined path to initiate, use, and exit the service, It can be transactional, subscription-based, time-bound, or continuous.
- Defined Value Proposition: It creates measurable value for the user or customer. Not just utility, but meaningfully addresses pain, desire, or job-to-be-done.
- Pricing or Cost Structure: The cost-to-value ratio is clear (free, freemium, paid, subsidized, etc.). It can be financial, temporal, cognitive, or emotional.
- Delivery Infrastructure: A repeatable system or human/machine process reliably delivers the service. That includes interfaces, operations, data flows, and people.
- Responsiveness & Feedback Loops: Service evolves through user feedback and interaction. It adapts to changing needs or contexts is embedded in the design.
- Trust Framework: Especially for early-stage ventures, a “service” must convey trust, consistency, and minimum viable guarantees. This is the “service promise,” and without it, you’re offering software or experimentation—not service.