The number of tech startups and venture capital funds is growing fast. It's diversifying too, expanding in both established tech capitals and emerging regions. It's exciting but competition has become fierce.
The European venture capital landscape has taken an interesting turn: according to The State European Tech Report produced every year by Atomico, venture capital has increased by 40% in 2019, reflecting a 124% increase over the past five years. With venture capital entering Europe at a record pace the question is: how can venture capitalists differentiate themselves to make sure they’re not missing out on the best investment opportunities?
Enter Platform. Platform is a function within venture capital funds that serves to improve their offering to portfolio companies. While US venture capital funds such as Insight Partners and Union Square Ventures have taken the lead overseas, pioneering the Platform function over the last two decades, it’s a relatively new role in the European tech ecosystem.
We’ve collaborated with the platform leads of 14 leading European venture capitalists (including Atomico, Notion Capital and Seedcamp) to build a collective guide that answers the big questions funds should ask before implementing an efficient, scalable Platform strategy.
To get started we’ve identified three key factors that define the return on investment of Platform today:
1. Platform increases the performance of a venture capital fund
Platform can increase the quality and quantity of a venture capital fund’s dealflow. “It’s increasingly becoming a key part of the deal flow process and, in some cases, the driving force,” says Connect Ventures’ Keji Mustapha. “More and more founders are asking early on in conversations with investors how else they'll add value post-investment and how else they'll support them.”
By having a dedicated platform person or team venture capital funds can showcase their unique value-add and offering to founding teams outside of just financing. This will position the company as a more attractive partner within the competitive startup ecosystem.
2. Platform helps portfolio companies overcome growth challenges
“[It’s] how we create better opportunities to move our companies towards the goal of raising that next round of funding,” says Seedcamp’s Natasha Lytton. Platform can, for example, compensate for knowledge and experience that a startup’s founding team may be lacking, by aggregating and scaling that of the company’s partners and management team. In this way, Platform acts as the link between founders and experts from the wider network.
By empowering founders with the knowledge and expertise they need from within the firm Platform can help them grow faster and increase their chances of raising that all-important next round.
3. Platform takes on key portfolio management tasks from the investment team
As Kim Pham, formerly of Frontline Ventures, explains: "Value-add has typically been on the shoulders of partners or investment committee members. While these folks know the companies well, this one-to-one relationship doesn't scale as the portfolio grows and partners have increasingly more companies.” Platform can support the company’s investment team through these periods of growth, “creating a context where, one, companies can get dedicated support, but also, two, network effects are experienced as the portfolio community grows".
With Europe on track to reach record investments of $34.3bn by the end of this year, now more than ever venture capitalists need to prove their value as startups become more selective about who they choose to raise money from. We’ve seen venture capital benefit from Platform in the US; now I predict that Platform will play a fundamental role in helping the European tech landscape grow to its full potential.