Sevin Rosen gets it: Portfolio companies should focus on the fundamentals

I was doing my usual scan of VC firms to look at portfolio companies and who was backing them. In the process, I ran across a 2007 press release on how Sevin Rosen sponsored grants to companies at an Austin-based incubator. “Recipients receive financial support and mentoring from Sevin Rosen partners to shape business strategies, identify strategic partners and acquire customers.” I really like this kind of partnership. The incubator provides resources to start-ups to help them build the business and Sevin Rosen gets an early look at who might be worth supporting on a larger scale. More importantly, by the time the business is ready to stand on its own, the fundamentals will provide a strong platform to succeed.

Not every start-up is wildly successful. Having a good idea that spreads like wildfire is obviously what every VC want to discover when it pumps millions into a company. Barring that, a company that has slow, steady growth is better than one that fails. A lot of companies in the late 90′s focused on “rock star” executive teams who would use their connections to grow rapidly. But if those teams stumbled, companies often lacked the fundamentals to grow organically. Product marketing and product management would often be absent due to a focus on marketing budgets meant to create buzz and hotshot developers who could code anything you tell them to, but who was doing the telling? A good idea needs nurturing in a slow growth company and protection in a rapidly growing one. Good processes provide the best possible foundation for success regardless of the pace the company sets. I am sure Sevin Rosen does everything it can to bring in top talent at the executive level to try and hit the sweet spot that propels a company to success, but it is the early commitment to building a foundation for that protects the company from failure.

In that same way that VCs require annual financial audits of their portolio companies, they ought to conduct performance audits as well to determine if they have the right people and processes in place throughout the organization. Executive teams are highly visible, but seeing whether there is good communication and integration between sales, marketing, and development is not readily apparent. An audit would help ensure that the machine functions as it should and that the VC firms get all they can from investments.

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