21. VC Portfolio Strategy (Rob Go)

Due Diligence Podcast DownloadNick Moran Angel List

Rob Go joins Nick on The Full Ratchet to discuss VC Portfolio Strategy including:

  • Rob Go VC Portfolio StrategyWhat are the five main parameters that VCs consider with regards to portfolio strategy?
  • From your standpoint, what is the single best strategy that a VC firm can employ?
  • How is your portfolio strategy structured and why?
  • As you watch the portfolio of companies evolve through the fundraising stages and their lifecycle… what are your expectations of companies that will succeed vs. fail?
  • How do you handle capital calls?
  • What are your thoughts on specializing with a sector focus?
  • At a high-level, how are different funds often structured across a venture firm’s portfolio?
  • Do you think that portfolio strategies in venture capital has evolved in the past decade and, if so, how?
  • Have you seen any unique or non-traditional approaches to portfolio strategies emerge?

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Key Takeaways:

 

1- The five main parameters of a VC Portfolio Strategy:
  1. # of investments
  2. % Ownership in each company in which an investment is made
  3. Amount of capital & staging of capital
  4. Capacity… How much time and mind-share does each venture professional have to contribute?
  5. Exceptions… When one breaks away from their chosen approach to items 1-4

 

2- Sector Focus
  • Sectors do come and go- they have a natural lifecycle like anything else and the time that a sector is venture-fundable is a small percentage of that sector or industry’s total lifecycle.  Here Rob advises that you consider the evolution of your sector focus areas to make sure that you stay ahead of the curve instead of falling behind it.
  • His second point here related to how broadly or narrowly the sector is defined.  As one crafts his or her angel or venture portfolio strategy, the amount of deal-flow that fits with focus area must be broad enough to see enough opportunities, while being narrow enough that one’s expertise allows these opportunities to be sufficiently and quickly vetted.

 

3- Three types of Opportunity Funds

  1. Follow-on opportunities from previous fund investments, where VC’s are using their pro-rata to maintain their percentage or attempting to increase their ownership.
  2. May do some follow-ons from previous investments but also will invest in new opportunities.  These may be companies that they decided not to invest in earlier-on b/c the economics or other factors weren’t a fit for that fund, but now would be a strong fit for an opportunity fund investment.
  3. Large opportunity funds focused on only late-stage, venture-backed, private companies.  And Rob did mention that some hedge funds & mutual funds, that typically play in the public market, are starting to move downstream to invest here.

 

Tip of the Week:   The Under-appreciated Exit

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Randy

@JavierMBGJ Had no idea @TheFullRatchet existed. This is exactly what I've been missing!