WHAT WE EXPECT FOR PORTFOLIO INFORMATION FLOWS
TRACKING THE RESULTS; PREPARING FOR THE FUTURE
At RCP, we get involved with and monitor our portfolio companies at various levels. For some we hold Investor Director Board seats; for others, we just get irregular, informal updates. For others, we've found ourselves intimately involved in operational management when the situation calls for it.
In this post, I wanted to give a taste of what we expect and aim for when it comes to reporting on and valuing our portfolio.
Our relationship with Founders begins just after the initial investment. We try to meet regularly and get trackable information, so we can follow the trajectory of the business. Ideally, we come away with concrete, objective data that we can use to create some value markers. The question we want to answer: Is it growing in some form- revenue, net profit, customers, etc- and tracking to its projections. A solid measure is ever increasing valuations at fundraising points.
We maintain a Portfolio Tracker so that we can monitor, reflect and project these data points. This gives us some level of comparison over time and a method to value our entire portfolio, albeit imperfectly.
There are some added benefits to this reporting. We can prepare for risks, cash calls, exits and get more involved operationally to help the business.
What are some of the issues to overcome:
- Irregular data- as startups, some companies are constantly refining their management information presentation.
- Inconsistent access over time- With one company, we held observer rights for Board meetings, then when a large VCs came in, we gave up our position (quite rightly), and we now have a less complete view.
- Valuation objectivity- It's possible to use revenue and net income numbers for valuation, but may not give a true market picture. And even the last fund raise valuation may be misleading because it may be dated or over-inflated.
The nature of the beast in early VC investing is constantly changing management information. Hopefully, that is down to growth; sometimes it's not. We just want to make sure we're keeping an open line of communication and getting some sense of value inflection points.