Venture as a Service (VaaS)

 

What is Venture as a Service? 

Venture as a Service provides all the services that you would typically expect from a platform and operations driven VC firm. This includes assistance with: 

  • Capital Raising
  • Recruitment
  • Leadership training 
  • Business development and partnerships
  • Operational support and governance 

 

How is it different to traditional venture capital and why is VaaS better? 

Some entrepreneurs will tell you horror stories of their experiences with their investors post-investment. Some of the common complaints we here are that the investors: 
  • Didn't provide funds when they said they would
  • Delayed the transfer of funds to increase their bargaining power and ownership positions 
  • Were incompetent or frequently unprepared during board meetings, did not add value or tried to steer the company in the wrong direction 
  • Didn't help them hire key positions when they said they would
  • Failed to make key strategic introductions that they promised 
  • Were generally not responsive to requests of the founders
  • Were overly controlling in the business, stripping autonomy away from founders.  

Having the wrong investors on-board can be a distracting experience for the founders and potentially fatal for the startup. Unfortunately, after an investor has invested in your startup in return for a given equity stake, poor performance on their part is hard to rectify. 

When a VC invests in a startup, they typically require the founders to reverse-vest their equity. Essentially, this means that the founder gives up all their equity in the startup and earns it back over a period of 2 years or more. Whilst many founders dislike this provision in term sheets, the logic for having it is strong. It protects the investors (and other co-founders) from one of the founders departing the company, on good terms or bad, whilst still holding a significant chunk of the cap table. In short, it's to make sure that founders behave themselves. But what about the VCs? What provision is there to make sure the VCs behave themselves?  If the VC was investing cash and nothing else, it would be less worrying as the contractual terms of the investment are crystal clear. But typically, VCs promise founders a lot more than cash alone - they differentiate themselves on their value-added services, expertise and networks that they can use to support the startup. 

The VaaS model seeks to rectify this imbalance, by better alignment of incentives between founders and investors. One of the ways we do this is by making the equity stakes we hold in startups also subject to vesting, just like the founders. Our stake vests over time and is awarded to Colony members based on the relative ratings they receive from founders. 


Let's look at an example to better explain this concept:

Jack is the startup founder of "New World". Harry and Sarah are VCs within the Prediction Colony. At the end of Q2-2019, Jack was sent a survey asking him to rate how much value Harry and Sarah provided to New World. Harry received a rating of 0/3 as in Jack's eyes, he did nothing to support New World over the last quarter. By contrast, Sarah received a rating of 3/3 because she helped Jack hire a new CMO. As a result, Harry receives $0 of vested equity and Sarah receives $3k worth of vested equity. Sarah is fairly compensated for her efforts and is now even more incentivised to continue helping Jack and New World. 

In summary, the VaaS model increases accountability, and ensures that VCs or anyone else that is providing valuable services to the startup gets paid fairly and according to their performance.