Venture capital outsourcing refers to the process of hiring third-party firms to assist with the business operations of venture capital firms in order to increase cost efficiency and enhance the quality of business solutions.
Venture capital investments in the US reached an impressive USD34bn in over 2,298 deals in 1Q 2020. In Europe, they rose to USD8.8bn from USD7.9bn during the same period.
As venture capital firms start to scale up, they would require assistance with their business operations. Venture capital outsourcing could, therefore, prove to be extremely lucrative. We list below the operations that could be outsourced to boost ROI.
Investment research and strategy
Help with investment research could enhance the decision-making process. Outsourcing the task of investment research could help venture capital firms manage diversified profiles and achieve maximum ROI. Firms that deal exclusively with investment research are usually equipped with state-of-the-art software and employ data analysts to run their research on a wider and more intensive scale. They can also help venture capital firms strategise their investments, enabling them to boost their profit margins.
Building an investment pipeline
For venture capital firms, finding the right companies for investment is crucial. An outsourcing partner can help track and monitor market trends to look for companies with unique business ideas and potential to grow.
Due diligence questionnaires
Venture capital firms must invest only in those startups that show potential and have innovative business ideas. An inefficient analysis would lead to a significant loss. Outsourcing partners could prepare questionnaires and conduct due diligence on the shortlisted companies. This would give the venture capital firm an overview of the company’s business operations, essential for analysing whether it has the required potential to thrive and grow in the current market and it is worth the investment.
In addition to the abovementioned operations, outsourcing partners could also take care of market mapping, identify trends, screen targets, analyse valuation, profile individual companies and validate hypotheses. Such a partner would maintain confidentiality when conducting due diligence.
Advantages of outsourcing
Outsourcing certain functions could lead to a number of benefits, such as reducing costs of operations of venture capital firms and enhancing the quality of their business solutions.
Get expert and focused solutions
A venture capital firm may not be able to hire the most skilled individuals, whereas outsourcing enables it to get the help of experts in a particular domain. Additionally, as there are no geographical constraints when outsourcing tasks, a venture capital firm could obtain an efficient and focused business solution from the best talent in the world.
Reduce cost of operation
At times, businesses need specific solutions to their problems. Hiring help just for such times could increase the net cost of operation. In addition, hiring employees is a time-consuming task and may delay business operations. Outsourcing can eliminate such hassles and provide a business solution almost instantly. It also provides the flexibility of paying for a service only when it is needed.
Even after investing, venture capital firms would need to keep an eye on the development activities of the firm invested in. This process becomes tedious and inefficient when you have a diversified portfolio. Outsourcing partners can help you track and record such activities, with their reports helping you to analyse their growth or decline and boost net productivity.
Venture capital outsourcing could, therefore, boost the profit margins of venture capital investment firms and make their business operations easier.