Some VCs offer portfolio services, also known as VC platforms in the US: in addition to money, they give you other services like legal, accounting, HR, recruiting, design and more.
One VC company offers portfolio services in non-core areas like HR, but not in core areas like engineering and marketing. Some hire employees for this purpose, and some, consultants.
All VCs should offer portfolio services, including in core areas. There are many advantages and aspects to this:
First, time to market: in theory, an employee making $X is interchangeable with $X in cash, but not in practice. It takes a month or two to find the right person, or longer if you have a high bar. Then they need a month or two to join, at which point they may change their mind or shop around your offer, so you’re left with nothing after waiting multiple months. By offering portfolio services, VCs can help make their portfolio companies make progress faster, rather than just demanding it, which isn’t helpful.
Second, opportunity cost: When you start a startup, there are tons of things that need to be done that and critical for success. But there’s limited time to do them all. If one problem — hiring — is no longer a crisis for the founders, they can focus on other things.
Third, specialist skills like computer vision or machine learning (there are lots of people going around saying they know ML, but few actually do) can be offered to startups under the portfolio services model. If a startup is exploring whether to use computer vision, they can’t hire someone to figure it out, because that’s a catch-22 — you typically hire once you’re sure you need it. But having a specialist on tap can make all the difference. This idea extends beyond tech. For example, we could have specialists in different markets and domains like retail, agriculture or government relations.
Fourth, common skills like app development can also be offered under this model, not just specialist skills like computer vision.
Fifth, leadership skills like a part-time or interim CTO can also be offered to startups. Finding a cofounder or C-level leader is very hard, and instead of rejecting startups for not having one, the VC can help them make progress. After all, if the other two founders are high-potential people, and the market is big, and they have a differentiator, and their business model makes sense, if all these are in place, not having a CTO shouldn’t be a blocker to investing and making progress. You’re never going to find a perfect startup, anyway. And helping companies make progress is a more constructive attitude on the part of VCs than rejecting them for not having everything figured out already. If they’d figured everything out already, they wouldn’t be startups.
Sixth, skills can be offered across functions like eng, UX, marketing, sales, etc.
Seventh, consultants will act as both advisors and executors. A senior consultant may require a higher hourly fee, but if a startup is willing to pay that, they should be able to ask him to roll up his sleeves and do the work, not just advice.
Eighth, these consultants can be former founders themselves, or at least employees of very early-stage companies, like 5-person companies, so that can calibrate their work for a startup environment, which is nothing like a big company.
Ninth, VCs should vet consultants on multiple dimensions: technical, attitude, professionalism, personal goals, communication skills, etc.
Tenth, VCs should sign agreements and NDAs with these consultants, so that individual startups don’t need to worry about legal risk, having one-sided contracts, etc.
Eleventh, the presence of the VC will reduce risk for both sides: consultants are less likely to cheat, since they have more to lose, and consultants have less risk of startups cheating them. So, for example, they might be open to working without an advance.
Twelfth, professionals providing portfolio services can be consultants of the VC rather than employees. This reduces costs to the VC, and lets them bring more consultants on board offering a broad range of services from computer vision to understanding the agriculture market. Such a broad range of services won’t be otherwise financially viable for the VC to offer. With consultants, there’s no financial downside to VCs.
Thirteenth, consultants should be paid directly by startups, not by the VC, because it ensures that consultants are getting paid only if they add value, and that fees are reasonable, which is exactly the kind of market incentive you want to create. It also eliminates the conflict of interest for consultants to act in the VC’s favor rather than the startups’ favor. If VCs were to pay the consultants, rather than startups, it creates a perverse incentive for startups to use the consultants’ services because they’re free, not because they’re valuable.
Fourteenth, consultants should be required by the VC to be transparent and disclose the terms and fees they’ve charged other clients, whether other portfolio companies or other companies, to portfolio companies. This prevents startups from having to guard themselves to avoid being overcharged. Transparency is globally optimum, and a market maker like a VC can ensure that.
Fifteenth, startups will be able to poach the consultancy’s employees. After all, who better to hire than someone who already knows your code and stack, and whose skills and attitude you know personally? The VC will prevent the consultancy from putting in a no-poach agreement. (See the tenth point.)
Sixteenth, the VC will standard terms in place that works well for both sides. For example, the consultancy won’t be able to ask for advance payments. They’ll be able to invoice the startup only once in a month, with a 20-day payment window. Startups shouldn’t have to give an advance notice to discontinue a consultant’s services. Startups should get the source code the consultant has written, unlike some who don’t give it, or charge extra. And so on. All these terms will be standardised, to reduce friction, and work on the actual work.
Portfolio services can be a win-win-win for the startups, the VC and the consultants.