When an investor mentions diligence, our minds (and yours) likely jump to that period of time before the investment, when a fund is gathering enough information to decide whether or not they want to invest in a company. In reality, the act of investing is just the beginning of a longer journey of sustained, consistent diligence. The best investors are the ones who monitor and nurture the companies and founders they invest in, helping guide them towards success. They anticipate founders’ needs, inform them of best practices, and know when it’s appropriate to be “hands-on” or “hands-off” in the help that they give.
Great investors aren’t blessed with a special intuition that tells them when and how to best help each founder. Great investors have practiced and refined the art of monitoring their portfolio — and with fund portfolios sometimes spanning over a hundred companies, keeping a pulse on each company in their portfolio is truly an art.
In this post, three fund partners – Arian Ghashghai of Earthling Ventures, Reece Chowdry of Concept Ventures, and Maddie Stenger of Chasing Rainbows — discuss the novel strategies, key metrics, and tech stack they use to meaningfully monitor their investments.
Why (proactive) portfolio monitoring matters
Portfolio monitoring isn’t just a routine exercise; it’s a fundamental component of a fund’s investment strategy. For Arian and Maddie, keeping a close eye on the health of portfolio companies is the only way to do their job as early-stage investors, i.e., help scale their portfolio companies to Series A and beyond. It also helps them forge closer relationships with founders so they can use a combination of hard and soft metrics to create a holistic view of how a company is performing. For Reece, the challenge of managing a larger-than-average portfolio necessitates building thoughtful processes that ensure close company oversight.
Going to war for every dollar
“Since I invest super pre-seed, my job is to get companies from pre-seed to seed. Philosophically, as someone who comes from financial instability and had to work hard for every dollar I’ve made and deployed, I’m very sensitive to the amounts of money that get thrown around in VC, so I go to war for every dollar I deploy.”
- Arian (Earthling Ventures)
Metrics drive success
“Monitoring companies is essential for what we do at Chasing Rainbows. Cash is only the starting point for our relationship. We support a company's growth journey by leveraging our other portfolio successes, industry/VC insights and offering a sounding board. To do this effectively, we need to see how the company is orienting toward growth and their top priorities. Metrics drive outcomes and the metrics need to be thoroughly thought through. Aside from the hard metrics, there are soft metrics that are just as important. We want to see how the team culture is being shaped, what are the customers saying and what the general sentiment is. This full picture helps us find ways to add value to these portfolio companies.”
- Maddie (Chasing Rainbows)
The bigger the portfolio, the bigger the imperative
“Given we manage a slightly larger portfolio than usual, portfolio monitoring is a key challenge and something we’ve been thinking about from the outset. Knowing how our companies are performing and their core KPIs is crucial.”
- Reece (Concept Ventures)
Approaches to portfolio monitoring
The methods that investors use to monitor their portfolio usually fall into two buckets: (i) monthly investor updates and (ii) regular check-ins with the founders. For both, consistency is crucial.
For solo GPs and emerging managers, like Arian, constant communication through text is the most authentic way to stay in touch with founders. For larger funds with multiple partners and investors it's important to design processes that give the entire team visibility into portfolio data. Concept Ventures takes this one step further by giving portfolio companies access to this data, too.
Talk and text for a personal touch
“VC is a people business, so this might sound nuts, but I actually just talk and text with and work with my founders closely. There is no better way to feel if someone is on track or not. For companies I’m less involved with (I’m not super close to all of them equally) I try to help make sure the monthly updates report relevant metrics. I implore all of my founders to write monthly investor updates.”
- Arian (Earthling Ventures)
Being diligent with setting a cadence
“We review presentations with companies and set up quarterly or monthly check-ins depending on the stage of the company.”
- Maddie (Chasing Rainbows)
Using automations to build novel processes
“We generally monitor portfolio health in two main ways: (i) written monthly reports, parsed through AI tools to extract core metrics & requests (also all read by the team lead) and (ii) F2F/Phone/Virtual catch-ups with founders and constant interaction via WhatsApp. What we think we do differently is our internal portal, which we built using a series of automations, to ensure we centralize information and extract key info from team members' inboxes and PDFs.
Every company has its personal profile, interactions, monthly reports and KPIs all in one place for the team to dive into. It also includes phone numbers, email and LinkedIn so anyone from the team can grab details in a rush. There is also a [portfolio] side of this so they can access and see much of this information too — but this is still a work in progress.”
- Reece (Concept Ventures)
KPIs and key metrics: Knowing what to track and when
To effectively monitor portfolio health, you have to know what you’re looking for. As a result, it’s important for investors to pick key metrics to track over time.
Key Performance Indicators (KPIs), which help measure a company’s success against a set of targets, objectives, or industry peers, can’t be approached with a one-size-fits-all mentality. For industry-specific investors like Arian, there are industry-specific metrics that provide a more binary filter for whether a company is on track. Whereas, for industry-agnostic investors, KPIs can vary largely between industries, businesses and stage of company. To that end, it’s important for investors and founders to align at the outset on what metrics matter the most.
Focusing on trends and momentum
“Since I'm a specialist investor, I usually have a pretty good grip on what they need to achieve to raise a seed within[the] expected timeframe. So rather than “monitoring” investments I usually have a bit of a binary filter of whether they are exhibiting performance that keeps them on track. There are obviously metrics specific to industries I invest in, but in the macro picture I think conveying “magnitude” is the most essential thing e.g., how many users do you have total, and how much are users growing MoM. This is true for revenue and retention as well. So in short, high magnitude in users/revenue and retention is paramount, particularly for Seed/A stage companies. Trend and momentum are everything.”
- Arian (Earthling Ventures)
Different metrics for pre and post-revenue companies
“[For post-revenue companies], first we prioritize understanding and making sure we have a good grasp of the company’s runway. We want to understand how the company has been spending money, what are the sources of cash inflows, and how can the company accelerate those inflows. For pre-revenue companies we look at different metrics. It also depends on the business and what objective they are trying to achieve, what industry they are in, and what customers they are serving.”
- Maddie (Chasing Rainbows)
Agreeing bespoke KPIs at the outset
“The obvious ones will be revenue, monthly burn, cash balance and headcount — but given we're a generalist fund, we know every business and industry is different. On that basis, we mutually agree [to] bespoke KPIs with each company, and track them over time through our proprietary internal portal.”
- Reece (Concept Ventures)
Streamlining portfolio monitoring with tech
The key to successful portfolio monitoring is having a streamlined process, and the tools investors use are often a big part of that. This is especially true in an age where the proliferation of Artificial Intelligence (AI) and no-code tools can give teams more leverage, not only in saving time but enforcing processes for repeated success.
How Arian keeps a lean tech stack
“To streamline portfolio monitoring and reporting, I leverage Airtable and AngelList backend. I use AngelList more so to index across the fund.”
How Reece leverages no-code tools
“We use a whole host of tools, mainly no/low-code, but namely; Airtable, Drive, Zapier, OpenAI, Glide, Slack, Webflow, and Geckoboard to name a few.”
The tools Chasing Rainbows uses
“Chasing Rainbows uses Carta, Excel and an internal database for portfolio monitoring & reporting.”
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Effective portfolio monitoring means different things to different investors. Like many things in the venture landscape, the best investors create tailor-made processes and use tools that align with the size of their fund, their strategy, and the genetic makeup of the companies they invest in (e.g., size, geography, industry, stage, and more). The common thread that runs throughout these different processes, however, is the mentality that underpins them: that portfolio monitoring matters and is just as important as the act of making the investment itself.