Editorial: Who do you know?
Posted on 31 May, 2015 by James Mawson, editor-in-chief
An ecosystem really is all about the network.
Everyone agrees networks are important. Whether it is finding a job through your weak links on LinkedIn or funding for a startup through your closer ties of friends, family and university or management consultancy’s alumni association, the connective tissue helps or hinders people’s progress.
Then are the more rarefied circles. Lehman Brothers’ private equity unit used to say it was the finance equivalent of the US Central Intelligence Agency for its ability to reach anyone.
And there was some truth in the Lehman bombast. Private equity and venture capital firms are the new conglomerates of their age.
Their ability as intermediaries to promise their limited partners’ wealth to service providers as fees for deals but then link and network their portfolio companies to try and boost their investment returns.
Top venture capitalists are often as good in helping their portfolio companies exit – how much was WhatsApp really worth to Facebook, $16bn or more or less? – as they are in selecting which ones to back, looking at Brad Feld’s blog last week on the Rally Software sale.
However, many of these deals are relatively autonomous. A venture capital or private equity firm might take a shine to a theme, such as Emergence Capital Partners backing Salesforce and then others in the software-as-a-service space, but concerns about conflicts often limits how many and what support they can give to each other.
Moving beyond this support to understand the impact of the collective in effectively shaping an ecosystem is a bigger issue that few grapple with. Kohlberg Kravis Roberts, Blackstone and Carlyle have brilliantly built multi-asset and geographical alternative investment firms with consultancy arms, such as KKR’s Capstone, or joint purchasing central points so portfolio companies can save money.
But outside initiatives, such as National Venture Capital Association chairman Jon Callaghan’s True University, there have been few ambitious attempts to harness the ecosystem development tools now available.
As referenced in our editorial, Optimism’s blind eye, earlier this month, one who has done so is Saul Klein, outgoing partner at Index Ventures.
In his blog, Klein wrote how he has spent the past three years quietly "building a set of services and nurturing a collection of active communities, to better support not just the founders and CEOs that we work with, but critically their teams as well. This is becoming an extremely powerful marketplace for knowledge and expertise — a distributed Fortune 500 if you like."
In a call afterwards he explained more how the “rare, distributed network” created by Index’s 140 portfolio companies across all sectors gave it a “very rich” platform of talent across geographies and skillsets.
For VCs trying to justify their management fees, helping entrepreneurs and portfolio teams beyond just capital is a leitmotif many promise but relatively few deliver on, beyond the sophisticated corporate approach taken by Andreessen Horowitz (A16Z), or Atomico’s communications platform underpinning its global operation. Corporate venturing units, such as Google Ventures with its user experience offering or Intel Capital and Qualcomm through its reach into customers, have offered greater advantages in these areas than many VCs, albeit with sometimes commensurate challenges in strategic alignment.
Klein said one tangible way Index helped through this services operation was in hiring. “Beyond the CEO, to the next level of CFO, designers, general managers and sales, we help the company scale as far as possible. If you are hiring being able to reach a network of peers is more helpful than talking to a former CTO [chief technology officer] who was relevant two years before.”
Given the success of some companies to start and disrupt incumbents, as Ben Horowitz from A16Z discusses the impact of Uber on hotels, there is increasingly a welcome focus on how to make this happen.
Steve Blank in his post this month discusses the organisational debt that can build up to limit how far companies can scale, while next month entrepreneur and angel investor Sherry Coutu launches her Scale-Up Institute in London with the doyen of networking, Reid Hoffman, founder of LinkedIn.
An ecosystem really is all about the network – and we are delighted this week to be welcoming perhaps the world’s most influential set of venturing professionals to London for our Global Corporate Venturing Symposium, where we will also be publishing our Early Stage Report that looks how governments, universities and corporations are collaborating to create the new world order.
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