Key Takeaways
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Yardstick choice: Portfolio analysis needs a stated comparison set, whether a company's own past, the other companies in the fund, a segment, or the wider market.
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Sample size test: Kristian Marquez sets thirty data points as the floor for a statistically valid benchmark, below which the comparison carries too much noise to act on.
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Accounting basis first: A metric is only as good as the books behind the number, and customer acquisition cost understates whenever sales and marketing payroll sits in a general and administrative bucket.
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Four metric set: A CFO reads a portfolio company on monthly recurring revenue growth, the Rule of 40, customer acquisition cost payback period, and net revenue retention.
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Growth still funds: Public software companies show unprofitable businesses still raising on growth rate alone, so the shift toward profitability does not bind where top-line growth holds.
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Riding winners: A fund reads the individual company and then the portfolio aggregate before funding a bridge, and returns come from adding to winners rather than to laggards.
A recent poll of VCs shows that some of the primary reasons investors collect financial data from portfolio companies is to improve their post-investment support (66%) and inform future investment decisions (44%). To do this well, investors need to be able to analyze their portfolio company data through an advanced financial lens so they can extract actionable insights that lead to improved fund performance.
We recently sat down for a conversation on Leveraging Portfolio Analysis to Improve your Fund’s IRR with Kristian Marquez, CFA. Kristian is the CEO of FinStrat Management and a Chartered Financial Analyst (CFA) charterholder since 2004.
The webinar was designed for people working in Venture Capital who want to level up the way they understand and analyze their portfolio companies’ financial performance data.
Topics Discussed:
- The WHY behind surfacing portfolio insights
- Where to find benchmark data and how to use it
- Top 4 performance indicators, what they mean, and how to calculate them
- Using dashboards in Visible to evaluate portfolio company performance
- Tips for moving from analysis to action
Frequently Asked Questions
Why do venture investors analyze portfolio company financial data after they invest?
Venture investors analyze financial data after investing to improve the support they give companies and to inform the next investment decision. Any improvement in return starts with measurement, so a fund has to know how a company is performing before it can do anything about it.
Where can a venture fund find benchmark data for its portfolio companies?
A venture fund draws benchmarks from survey based industry reports, from the medians inside its own portfolio, and from the public filings of listed software companies. Portfolio medians skew when a fund's companies all sit in one direction, so an outside benchmark gives the more objective comparison.
Why should a venture fund segment portfolio companies before comparing them?
Growth and efficiency expectations move with the size and stage of a company, so one yardstick across a whole portfolio produces a misleading read. A company under a million in annual recurring revenue carries different growth expectations than a company at a billion, and customer acquisition cost payback shifts with the size of the contracts a company closes.
How does analyzing portfolio financial data improve a fund's returns?
Analysis turns a fund from a passive shareholder into one that arrives at founder conversations with evidence about spend, pricing and growth. A founder can act on being shown that sales and marketing spend runs ahead of the portfolio median, and better company performance is what moves the fund's return.
How can a venture fund use portfolio insights in its reporting to LPs?
A fund can replace a generic performance summary with specifics: the portfolio average for a metric against the outside benchmark, which companies are outperforming, which ones concern the fund, and what the fund is doing about them. Reporting at that level of detail shows LPs the fund is reading its portfolio rather than collecting from it.
