Portfolio management for startup accelerators: what to measure and how to do it

Measuring

In the last post we argued that the startup accelerators, due to resource and business model limitations, should not apply the active VC-style model of portfolio management. Instead, they should act as connectors and focus on helping graduates of their programs secure next round of funding, precisely by VC funds. To achieve this objective they should:

  • Present portfolio startups regularly to investors during informal meetings and at various events they attend, not only during demo days;
  • Match mentors with graduate companies, not only with the current batch;
  • Increase the likelihood of connections by promoting all their startups via social media, events, workshops, or in newsletters sent to accelerator’s stakeholders;
  • Keep track of fundraising related KPIs; and
  • Never stop thinking about portfolio startups.

With this framework in mind, let’s see how they can make it happen.

What to measure?

To help their portfolio startups, the accelerator team first needs to have access to relevant and up-to-date information about each of the startups. We suggest requesting regular updates about:

  • Traction. This is a magic word among startup investors and one of the key factors taken into consideration when deciding whether to make an investment. Traction takes form of metrics that demonstrate the attractiveness of startup’s value proposition to customers. To an investor, they are an indication of a startup’s future earning potential or exit value. The metrics themselves depend heavily on the type of startup, stage and business model. For example, key metrics for a SaaS startup are around number/growth of subscribers and their LTV. A marketplace startup should report metrics related to transactions made on their platform. Key metrics for a social network are daily active users and their engagement such as average visit duration, number of activities, etc. The accelerator and a startup should agree on max 2 or 3 metrics that best describe growth for each startup – in money terms, percentage growth or absolute numbers.
  • Fundraising. This should be information about current valuation, how much the startup is looking to raise, who are current investors, what kind of investor profile is the startup looking for, who they are talking to now, etc.
  • Achievements. Investors like to bet on winners and often observe all signs of social proof before making a decision to invest. For example, Mattermark, an analytics company for startup investors, includes followers on LinkedIn, Twitter as well as Facebook Likes and visits to website among the signals determining if a startup is hot. Reporting on the latest mention in TechCrunch, an award, or big milestone reached are all great pieces of information that accelerator staff can share with potential investors and mentors.
  • Cash. Startups fail when they run out of cash; it’s as simple as that. Regularly monitoring cash burn rate and remaining runway allows to raise alarm bells early enough to have time for action.

This is a mix of qualitative and quantitative information that is actionable and can help accelerator staff make introductions to investors and mentors. Some of this information needs to be reported on a regular basis, some only when there are changes, or important news. The additional benefit of requiring such updates is making the founders think regularly of the big picture and keep fundraising firmly on their agenda.

Setting up and managing the process

After agreeing on the metrics, the next step is to set up the process to make sure the reported information is easily accessible and can be acted upon. Most common practices used nowadays involve emails, Excel spreadsheets and shared folders. Such system works fairly well if an accelerator has 5 startups in the portfolio, but what if they have 20 startups… in each cohort? Sending reminders to founders, editing different formats of information, sharing the updates with people, adding new people to share it with is basically a full time job if done right.

The best solution for that problem is using a dedicated tool. The benefits? With solutions available now on the market, including Fundacity, you can set reporting request just once and then:

  • Forget about sending reminders
  • Receive all information regularly and in a consistent format
  • Share it with more people as all information is accessible in the cloud

Once the information starts coming in regularly, the whole focus for the accelerator team should be on making sure it is actually used to help portfolio startups and not left there in the cloud. There are several ways to make that happen:

  • We suggest there is a dedicated person in the accelerator team responsible for reviewing the updates and making sure portfolio startups are always on the agenda.
  • There should be regular staff meetings where the updates from startups are discussed and converted into concrete actions.
  • Finally, helping portfolio startups should be included in annual goals for the whole accelerator as well as in individual goals for individual team members i.e. not only portfolio manager, but partners and e.g. marketing executive too.

Summary

We all hate when we see promotions for “new customers only”. It seems like startup accelerators often have the same mentality, putting much more emphasis on attracting new startups to their programs than on helping the ones in which they have already invested. At the same time startups invest in their Customer Success teams realizing that taking care of existing customers is at least as important for growth as acquiring new ones.

Perhaps it’s time the accelerators learn something from their portfolio startups too.

This is the third part of our series of articles discussing portfolio management for startup accelerators. You can see the first post (“If startup accelerators are real investors, they should behave accordingly”) here and the second (“Accelerators are not VCs: how they should approach portfolio management”) here.

Photo credit: orkomedix, via Flickr under Creative Commons license

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