There's a lot of opinions available regarding the best choice of KPIs for startups - but what about the investors behind the startups? What are the KPIs that venture guys should be aware of? Here's nine suggestions from Hatcher:
1. LP Happiness
The basis function of a venture capital company is simple: you need to raise capital from investors (known as "Limited Partners", or "LPs"), invest it wisely, and return your LPs a multiple of what they invested within an acceptable timeframe. What is a reasonable multiple? 3x to 5x is a good starting point for a later-stage fund. What is a reasonable timeframe? For many traditionally structured funds, this timeframe can extend to ten, or even fourteen years. However, for funds raised within the past few years, the timeframes are getting shorter, and the competition to deliver a fatter multiple is growing.
2. Update Frequency
What do you need to do in between returning capital and upside? Send information - regularly. Keeping your LPs regularly updated about what your companies are doing is the second-most important function for venture partners (perhaps the most important in the early stages of a fund) - even better if, like Hatcher, you can do this using a real-time information portal that enables LPs to log in and view the performance of individual companies in real-time. And in addition to being regular, it's best to be real - investors can tire of cheerleaders pretty quickly, especially in an absence of a return.
3. Portfolio Quality
Choosing a good startup to back requires the partners to have solid domain knowledge, good character judgement, excellent analysis skills, and the balls to act before everyone else gets in on the deal. It also requires the partners to act decisively when a founder leaves or the company otherwise gets into trouble - i.e. when the startup starts missing its own KPIs. Successes are often born - but equally often they are made.
4. Valuation Growth
A fund's Net Asset Value, or NAV, tracks the value of the fund's portfolio of investments. When an investment grows in value, as a result of a fresh round of funding or similar such event, this results in an updated, higher NAV. Growing the NAV is one of the most fundamental KPIs that venture partners need to achieve.
5. Operational Stability
When investors hand money to a group of partners to invest, and fork over a management fee in addition to the principal capital, the expectation is that the partners will create a stable operating environment, not overspend, and act as an ocean of stability within the fast-moving startups they have been charged with growing. Partners need to be clear on their responsibilities and prepared to work as a team for the life of the fund.
6. Brand Strength
One of the driving forces behind Hatcher is our desire to create a strong brand in emerging markets for venture. A strong brand backed up by solid support for its stated mission is one way of getting a venture firm noticed by startups - and can be a critical factor when it comes to sourcing and closing deals.
7. Investment Focus
When a venture firm announces to LPs during its fundraising that it doesn't invest in consumer services, semiconductors, robotics, or retail products - LPs have every right to expect the venture firm to go deeper into its vertical areas of expertise, not horizontally into new areas. When a fund says it "will only do pre-Series B investments", LPs should rightly expect the fund to retain a focus consistent with their original mandate. One key KPI we adhere to is consistency with our mandate, and our chosen asset class.
8. Promises Kept
Some venture firms make promises, such as co-investment or representation rights, that go unmet. This part isn't rocket science - if you base your firm on a stated set of principles, it's probably a good idea to stick to them. Keeping your promises builds trust and as such is an important KPI for venture funds and portfolio companies alike.
While it is possible to create a negative using two positives ("yeah, right" is the example that springs to mind), we suspect you'll probably agree with us when we say that the consistent application of negativity cannot create positive value, long-term. Someone in the group needs to be a believer - not a rabid, fact-free kind of believer - but the kind of positive leader willing to espouse a vision and take a bullet for that vision, and keep driving the business forward, no matter what.
We're big fans of founders - and fellow partners - who display high levels of "AQ" ("Adversity Quotient"). Startups are not for pushovers - but they are not for naysayers either. Positive, pushy, and profoundly interested in the problem being solved - that's what we're looking for. And that's what we think LPs should look for in their venture guys as well.
Can you think of other KPIs that you think we should add to our list? How would you re-prioritise our thinking? We'd love to hear your opinions - please let us know in the comments below.
John is a serial entrepreneur and investor, and the co-founding Partner of Hatcher+, a data-driven, globally-focused venture investment platform based in Singapore. In addition to leading capital raising and deal syndication, he is the visionary and architect behind the Hatcher Stack, the company's proprietary research and technology platform. Over the past five years, John has led numerous venture investments in early-stage companies, including ASYX, DocDoc, Dropsuite, Heardable, Invit, Inzen Studio, SocialCops, ThoughtRiver, and Telr - and syndicated over US$100Mn of additional debt and equity co-investment. IPOs and trade sales in which he was acted for the majority shareholder include Dropsuite (ASX:DSE) and Inzen Studio (ASX:ICI). His M&A work includes the merger of payment leader Telr with Dubai-based Innovate Payments, and the merger of Singapore-based companies DocDoc, and DoctorPage. Prior to co-founding Hatcher, John founded cybersecurity technology leader Authentium (acquired by CYREN in 2010), and acted as a director for global payments aggregator Mozido, and an advisor to Africa-based Gateway Communications, satellite technology developer MDS America, Kuwait-based Internet marketplace Sheeel.com, and Orion Partners, a $2B private equity fund manager based in Hong Kong.
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