This article first appeared on China Ventures. Oasis is authorized to translate and publish its contents. The original text was translated by Yuqian Shi and Julianna Wu.
If you are a business owner who is in the process of wooing investors, what do you think is the most important? Their brand power, fund size, or post-investment management capabilities?
As competition becomes tighter, Chinese venture capital and private equity firms are increasingly framing post-investment management as a value-added service when they approach startups.
Generally speaking, the term refers to services that facilitate the capitalization process in line with the company’s strategy, such as asset planning, valuation consulting, fundraising consulting, talent recruitment, legal consulting, marketing, and networking.
To understand companies’ overall attitudes and expectations towards post-investment management, China Ventures recently interviewed the representatives of four startups that experienced the services facilitated by their investors.
“The best post-investment service is empathy,” said the representative of a Series C medical company
Companies at different stages of development have different needs for post-investment management. Before our Series B fundraising, we wanted our investors to map out our capitalization route so we could figure out how much money we needed to raise next and how many shares we should dilute at different phases. After that, the most important thing was business expansion. For a medical and healthcare company, that means to obtain the necessary licenses in order to sell our products. We hoped to receive guidance from experienced investors on that.
I also attach great importance to how much an investor cares about our team. The ideal investor would be someone who’s there to help when emergencies or misunderstandings occur. We’re grateful for any assistance when unexpected situations crop up.
From a company’s perspective, I think the post-investment phase is a good time for the investors to learn even more about the startups, so they won’t place excessive emphasis on business results and doubting the team if there are dips in performance.
Whether investors are able to come up with services packages for their portfolio companies or not, the biggest advantage an investor can wield is their professional understanding of an industry. To be frank, many post-investment services can be outsourced easily.
“Post-investment can determine one’s reputation,” said the representative of a Series B data analysis company
The quality of post-investment management varies significantly from one firm to another.
Some investors make the effort to provide companies with the most suitable services based on the actual demand. In contrast, others’ help is not on point because the investment firms lack thorough understanding of the companies.
When it comes to choosing an investor, what we look at first is undoubtedly the size of their fund and their branding power. Afterwards, we will look at the reputation of the firm, and post-investment management is an important part of that.
If we hear from their portfolio companies that this fund tends to protect itself when the startups face difficulties, it won’t make it onto our shortlist.
After an investor transfers their investment funds over to us, my expectations are simple: they must treat the company as a friend, understand its needs, have faith in its team, and be willing to offer timely advice when problems arise.
Some investment firms have so many portfolio companies that they don’t have the energy to nurture every one of them.
“Do not hold great expectations for post-investment services,” said the representative of a Series B AI company
Overall, large VCs and PE firms with big names and sufficient funds can provide better support, even if they do not have a team dedicated to the services that a startup needs. That is mainly because larger firms have more resources and information channels at their disposal. After all, a tiny piece of key information can make a huge difference for companies in the field.
In my opinion, a key factor in determining the quality of the firm’s post-investment management is how good their leader’s network is.
Many investors are good at talking a good game, but their actions don’t always match their claims. With fierce competition in the market, it’s understandable that they have to make every effort to highlight their post-investment management capabilities to draw the attention of their target startups.
“We need nothing more than an open ear,” said the representative of a Series C consumer product company
Of all the types of post-investment services, my favorite are those that add value without creating chaos.
The problem for many entrepreneurs is not a lack of resources, but how to leverage what they already have. As such, we expect investors to act as coaches, providing the team with valuable insights and constructive advice so that they can break through bottlenecks faster and make fewer mistakes.
Fortunately, the investors I’ve worked with are generally very good. For example, in the early stage of our company, our inventors helped us recruit senior executives, sort out the business strategy, and plan the timing for fundraising. I know that many funds do nothing after transferring the money.
However, for investment firms, the most important things are still their branding power and fund size. In contrast, post-investment management is a vague promise before you receive the funds and truly work with them.
The advice given by the investors is usually generic. In reality, the portfolio companies have different weaknesses. They encounter different kinds of problems that often require more detailed and specific solutions.
The relationship between a company and its investor is like a marriage. Good investors should entail emotional support and trust. Entrepreneurs are a lonely group of people, we have to endure many tough times on our own. We need nothing more from post-investment management than an open ear when we feel distressed and frustrated.