Ecosystem, Network, and Community. The Strategy Behind Your VC Firm’s Most Important Relationships
This article is part of a series of posts for venture capital platform leaders and investors introducing strategic frameworks to more effectively design a VC firm’s platform strategy.
As the venture capital industry has expanded over the last two decades, it has become increasingly obvious that there is a single asset that impacts the success of an investment firm, and no, it’s not capital. In the VC world, the only asset of importance today is people. More specifically, what really matters is the set of external relationships that each firm builds and the ways in which they activate those relationships to support the firm’s long-term objectives.
This operational approach to developing relationships and engaging people with a firm at scale has become the cornerstone of many funds’ platform strategies. While platform encompasses a very broad set of activities, including a significant amount of hands-on and tactical work, relationship-driven platform strategies are often some of the most effective and highest leverage efforts that a firm can implement.
Given the significant importance, I find that many firms struggle when determining what relationships to focus on building, what activities to engage these people with, how these efforts can drive dealflow or support portfolio companies, and where these pieces ultimately fall within a firm’s broader platform and firm-wide investment strategy.
In observing how some of the best firm’s in the industry go about building their platform strategies, and specifically their strategy around fostering external relationships in meaningful ways, I have found that most VC firms can classify the people they engage and the activities they run using in three distinct categories: ecosystem, network, and community.
While these terms are often used interchangeably in practice, in this article we will use the following framework and definitions for each of these three categories of relationships, and the strategies that accompany each one.
Ecosystem: The total population of people who could be connected to or engaged with your firm in any way, typically engaged at scale through marketing efforts.
Network: An identifiable group of individuals, typically all one or two degrees of separation from your core team, who are or could be directly engaged with your firm in the coming two to five years.
Community: A small group of individuals who would identify as formally or informally affiliated with your firm, either as members of a portfolio company, actively engaged in your investment process or frequently and actively participating in firm activities and events.
A firm can think of their ecosystem similar to their Total Addressable Market (TAM). For most generalist technology venture firms, their ecosystem likely consists of millions — perhaps tens of millions — of people.
So who are these millions of people and why are they important? They could be potential employees at a portfolio company, possible founders to invest in, current and future customers for portfolio companies, or anyone interested in the areas a fund invests in. A VC firm’s ecosystem consists of every person that a firm could potentially directly or indirectly interact with.
In general, how a firm builds and engages people within their ecosystem will be through marketing efforts. Some firms choose to do this through blogs and high-quality content (First Round, OpenView), others through podcasts (A16Z, Stride.VC | 20 Minute VC), newsletters (Lerer Hippeau, Work-Bench), research reports (Bond | Mary Meeker, Bessemer | Cloud 100), videos and tools (NFX, Pillar, Y Combinator), PR and much more. While most ecosystem efforts have evolved to be firm-focused strategies, you also see many individual efforts. This includes more traditional strategies, such as publishing books (Brad Feld, Ben Horowitz, Jeff Bussgang) and speaking at major conferences, as well as more recent trends such as weekly newsletters (Accelerated / Justine and Olivia Moore) and highly active, often meme-heavy, social media presences (@loganbartlett, @turnernovak, @hunterwalk).
Venture capital is not unique by any means in their ecosystem building efforts, in fact, these strategies are typically modeled on marketing best practices. Indeed, this is why many ecosystem-focused platform leaders are former tech marketing leaders or journalists, such as Joseph Flaherty at Founder Collective (former Wired), Josh Constine at SignalFire (former TechCrunch) or Kerry Bennett at Upfront (former SVP Marketing at DogVacay and HauteLook).
A key challenge with ecosystem efforts (like most marketing efforts) is the question of how to measure direct fund ROI. A firm may never be able to attribute one blog post, podcast, tweet, or speaking engagement to a critical hire in their portfolio or a new investment. Instead, these outcomes are typically a result of a long-term combination of many platform strategies focused on engaging individuals more deeply in a VC’s community — which is by design.
Ultimately, ecosystem-level engagement is the widest part of a VC firm’s platform strategy. When done effectively, ecosystem efforts will be able to capture the attention of the right people in order to drive further, more personal engagement between the firm and these interested individuals.
Similar to a marketing funnel, the goal of a firm’s ecosystem is to create an onramp for a very broad set of people through a blog post, tweet, speaking engagement, etc. to learn more and engage deeper with the firm, ultimately moving onto the next category of engagement: the network level.
The biggest difference between engaging people in a firm’s ecosystem and network is that most people in a firm’s ecosystem will remain faceless. The firm may never know who the people are that are engaged in their ecosystem, and those individuals very well may not even know that they are engaging with the firm when consuming their content.
In contrast, a firm’s network is primarily a group of identifiable people that are typically one or two degrees of separation from the fund’s core team. Nearly everyone in the network should be someone that a firm could anticipate a desired form of deeper engagement within the firm’s community, the third category of a VC firm’s relationships, in the next two to five years.
If we consider the ecosystem to be a firm’s Total Addressable Market, the network would be the firm’s Serviceable and Obtainable Market (SOM). In terms of size, a firm’s network typically grows proportionally to size of the VC team. For the sake of simplicity, we can say that a firm’s network is usually ~2,000 people for every one core team member, or 20,000 people for a ten-person venture firm. This number is both a factor of each team member’s personal network (assuming each team member has a unique and diverse personal network) and how many people you can reasonably reach and keep engaged (a General Partner could have 10,000+ Twitter followers or LinkedIn connections, but they cannot reasonably reach and engage all of them effectively as part of their firm’s network-level efforts).
A critical component of effectively tracking and engaging a firm’s network is to have the right tools in place to manage it. While every firm uses their own tools for this, most will use a CRM of sorts such as Affinity, Pipedrive or Salesforce.
Firms will design these tools to segment their network into high level buckets, such as talent, founders, co-investors, and corporate executives. The more data a firm has on the people in their network, the better. Data enables the firm to query their network quickly and effectively for the right engagements. For example, a firm may have an investment opportunity they are considering and they want to engage a very specific subject matter expert from their network to help with diligence. Or, they may have an urgent and specific talent need for one of their portfolio companies. If the firm’s network is effectively built, engaged, and tracked, this becomes a powerful group of relationships to quickly cull through and activate as part of the firm’s portfolio and investment activities.
Unlike ecosystem engagement strategies, firms will often engage the people within their network more directly and intentionally. That engagement could range from personalized monthly or quarterly email newsletters for different subsets of the network, to invitations for in-person meetups, conferences, or webinars. No matter the size of a firm’s network, to maintain ongoing relationships with individuals in their network, most firms will try to engage or communicate with those people at least once or twice a quarter, though ideally even more frequently.
For focused subsets of the firm’s network, many will use tools and scalable communities to engage them more regularly. As an example, many firms have used platforms like Getro and Thrive to build talent networks, in order to make meaningful connections between relevant people in their network for open positions at portfolio companies. Firms like FirstMark have built massive networks focused on regular live Meetups and others, like USV, have built large networks on Slack or other online forums.
The goal of any network engagement is simple — if an individual is identified as part of a firm’s network, they are someone that the firm wants to strengthen their relationship with. Overtime, as those relationships are built through different types of engagements, individuals within a firm’s network will naturally become an integral part of a firm’s community, the third category of the VC relationships.
In recent years, most venture firms have acknowledged that building, supporting, and engaging their community in unique ways is one of the most important things they can do to drive investment activities and support their portfolio’s success.
If we follow our earlier metaphor, thinking of the ecosystem as a firm’s Total Addressable Market and the network as a firm’s Serviceable and Obtainable Market, a firm’s community would be parallel to their actual customers. The people within a community are all individuals that are intimately known by the firm and who members of the firm have built real and lasting relationships with — oftentimes over decades.
A firm’s community is usually small, and that is by design. Genuine relationships are not something that can scale, and therefore a community needs to be built intentionally. Similar to the way we think of network size, a firm’s community is proportional to the size of their core team. Generally, we can say that a firm’s community is approximately 200 people for every one core team member, or 2,000 people for a ten-person venture firm. (This size assumption is loosely based on Dunbar’s Number.)
Given the size limitations of a community, firms need to be very intentional and thoughtful about what areas of their community they focus on building based on their fund strategy and priorities. I go into much more detail on how firms should approach this using the VC Community Honeycomb framework in this post.
The determinate of what makes someone part of the firm’s community is what I will call “the rule of mutual affiliation.” The key difference between someone in a firm’s network and in their community is that every individual who is part of a firm’s community should personally feel that they are affiliated with that firm and the firm should feel the same way. What “affiliation” means varies significantly, sometimes it is through a formal title, program, or even incentive structure. However, it is more often through informal links.
Some of the most common formal community programs focus on sourcing investment opportunities through Scout Programs (Indie.VC, Sequoia Scouts) or affiliated micro-funds (Flybridge | XFactor Ventures, First Round | Dorm Room Fund, General Catalyst | Rough Draft Ventures). Other formal programs are commonly focused on talent engagement, oftentimes through student fellowships (Pear VC, Kleiner Perkins, True Ventures) or functional expert networks (Founders Circle Capital, Guild’s by FirstMark). Many firms even bring individuals in their community “in house”, sometimes with a formal title (entrepreneur-in-residence, expert-in-residence, venture partner, etc.), usually offering them a desk in the firm’s office, invitations to weekly investment team meetings, and even compensation at times. While compensation is rare for community members, some firms have found unique ways to align and incentivize members of their community though sharing part of the fund’s carry economics, such as the Underscore VC Core model. (Full disclosure: I was previously Head of Platform at Underscore)
Beyond formal programs, the most ubiquitous way to engage a firm’s community members is through private events (e.g., dinners, conferences, social events, virtual happy hours), one-on-ones meetings or meals, and frequent coffee meetings. In addition to in-person engagement, regular communication is critical to maintain these relationships over time and stay deeply connected with each community member. Firms have developed a range of communication strategies, from regular community email newsletters to digital forums (Slack, email groups, and online forums) for ongoing community conversations. More personalized forms of communication are important pieces of community engagement such as regular phone calls, text messages, and the occasional handwritten letter. Some firms have focused on delightful gifts or firm “swag” (beyond the mundane Patagonia vest) for their community members — an example being Shrug Capital and their 2020 Calendar, among others.
That being said, what really matters is that a firm builds real and genuine relationships with their community members. Looking at a firm’s community, there are many ways to judge success, which primarily looks like a direct impact on deal flow and portfolio success. These specific outcomes usually consist of activities such as making an investment in a company introduced by a member of the firm’s community, recruiting a community member into a portfolio company, or hiring someone introduced by a community member, having a community member champion a portfolio company’s product to become a major customer, or for a community member to become an advisor or even a board member for a portfolio company.
Given the ever increasing role of community within the venture industry, and the role it plays as part of a firm’s larger platform strategy, it is increasingly important for firms to think strategically of how to build their community, who they want to include within it, and what forms of engagement they will use to ensure that community members feel a true affiliation with the firm. When done effectively, a firm’s community members become their top promoters. The community acts as an extension of the team, helping to make introductions for the investment team to great entrepreneurs, world-class talent, and simply being helpful in ways that drive the firm’s investment strategy and outcomes.