An interview with Plaza Ventures Partner, Matthew Leibowitz.
Venture capital investing is said to be an “apprenticeship business” — that is, you learn by doing. But your learning curve can be shorter, and your results better, if you learn from pros who have already mastered key parts of the business.
That’s why we sat down with Plaza Ventures Partner, Matthew Leibowitz. Matthew is a seasoned venture capitalist having originated, managed and completed dozens of M&A, equity and debt transactions for over 10 years.
In this interview, we spoke with Matthew to learn how Plaza Ventures manages the complexities of portfolio reporting.
What is Plaza Ventures top challenge with portfolio reporting?
I’d say it’s consistency. On a fundamental level, any quantitative portfolio analysis needs to be fed with sound data, but getting that right isn’t easy. Sourcing data in a consistent structure from multiple investments spanning several years is exceedingly challenging.
The importance of data consistency naturally depends on standardized, long-term data collection. But when your investments are continuously growing and evolving, collecting consistent data is easier said than done.
Effective portfolio reporting is also reliant on a fund’s understanding of its investments. We’ve found it’s been easier for us to monitor and report on portfolio companies when we’re in constant communication with them regarding business operations and KPIs.
Keep in mind that as a fund, we have an obligation to our shareholders. It’s critical that we collect this information so we can send them the deep datasets and analytics they expect.
How do you maintain strong portfolio relationships through strenuous reporting cycles?
Beyond market and environmental factors, the equation between the investor and the company is crucial for driving success. That’s why we want our portfolio relationships to be more than just capital-based.
By building trust and creating deep connections, we’ve been able to navigate the sometimes choppy waters that is portfolio reporting. I’ve found that if the relationship is strong and something goes wrong during a reporting period, it’s a lot more manageable.
At Plaza, we set reporting expectations early on and have an open dialogue with our entrepreneurs about what metrics will be tracked, so everyone is on the same page. This also allows us to define KPIs with portfolio companies, which I think helps with governance, makes future financing rounds easier and overall leads to more impactful datasets.
So you don’t have a one-size-fits-all KPI structure.
Not at all. Implementing such a structure doesn’t lead to accurate portfolio monitoring and reporting. Ideally, you want to track whatever's driving value for the company and that will vary by company.
Just like portfolio diversification, the concept ought to be simple: You don’t put all your eggs in one KPI basket.
What do you consider the most important when investing?
Our ability as consumers to learn about new products and services has never been better. And once we have found out about something we want to download or purchase, we can do so in seconds.
So perhaps one of the most important things I consider is a company’s speed of adoption, or what I termed 'intra-company virality'.
Let’s say you’re a software company and you sell to a large corporation. At the beginning of the POC only 10 people are using the product, but after 6-months 100 people are using it. To me that indicates that widespread, sticky adoption is likely.
From there my team can drill down and gather other data points — how long are users spending on the platform? What are they using it for? What are the forecasts?
You could say the acceleration of startup growth is complemented by the increasingly sophisticated use of data in venture capital decision-making.
Are there any industry trends with portfolio reporting that you don’t agree with?
One trend I’ve noticed amongst funds is the attempt to outsource back-office operations lock, stock and barrel. I think the challenge with outsourcing is obvious; service employees aren’t naturally going to be as knowledgeable as a fund’s own employees, especially when it comes to portfolio data collection.
This generally leads to CFOs reverting back to Excel and spreadsheets. I’d argue that the cost of relying on spreadsheets has a trickle-down effect on dealing with the challenges of investor expectations.
At the end of the day, portfolio reporting is a long distance sprint. Even with all the tools available, funds will always need to roll up their sleeves.
Matthew, fellow VC pros and Hockeystick will be attending the CVCA’s Invest Canada 2017 conference from June 6th - 8th in Montréal, Québec. This is Canada’s premier private equity and venture capital conference.
Matthew Leibowitz has been a partner with Plaza Ventures since April 2012. Matthew is a seasoned early-stage institutional tech investor having originated, managed and completed dozens of equity and debt transactions. He has arranged significant private placement financings in private equity and VC settings. Matthew is a frequent public speaker at conferences in the technology and clean-tech VC industries and a regular contributor to business schools, accelerators, incubators, selection committees, etc. Matthew earned an LLM from Oxford University, an MSc from the University of New South Wales, and an H.BA from the University of Toronto.