Expert blog – September 8, 2022
Bertrand van Leersum, Investment Manager at Borski Fund, describes how the Value Creation Model enables StartGreen to assess investment proposals and help impact entrepreneurs grow. ‘We are not an investor who watches from the sidelines. We want to actively maintain a relationship with entrepreneurs and regularly look at what is going on together with them.’
Pitfalls and points of attention
‘StartGreen’s various funds have assessed thousands of companies for investment opportunities over the years. Ultimately, we have invested in hundreds of impact companies. So together, we have an incredible amount of experience and knowledge in that area. We have brought this together in this Value Creation Model (VCM). In doing so, we looked at what we consider important elements: what pitfalls and points of attention do we look at in an investment proposal, and how can we realize the potential?’
Moving flexibly
From all those facets, we have identified six value drivers. These are the aspects you need to pay attention to in order to reach the next phase and which therefore determine the success of a company. We look at management, the technology of the innovation, and the company’s market position, among other things.
By monitoring the six value drivers closely, we ensure during every growth step that the company is prepared for the next step. Things always turn out differently than you expect, which is why the company must be able to move flexibly so as not to end up with its back against the wall. The ultimate goal is an attractive company, ready for acquisition. Moreover, a company that is ready for sale is in control and has the most flexibility in tactical and strategic decisions—whether it is sold or not.
Blind spots
Initially, the VCM ensures that we have no blind spots during the assessment of companies. When we consider investing at Borski, we first perform a QuickScan: based on the six drivers from the VCM, we determine the points of attention for a company. During due diligence, we zoom in further on these. If we decide to partner with a company, we work together with the entrepreneur on those points of attention. We do this with a 100-day plan.
After those 100 days, the completed VCM becomes a roadmap that we review together with the entrepreneur every so often: where do we stand now? What is going well? What effects do changing market conditions have? What is a priority? We then guide the growth process in three steps:
Step 1: getting the basics in order
In the first period, we look at the basics. This includes findings from the due diligence, adjustments to reporting structures, hiring policy, filling vacancies, and recommending a legal advisor. We ensure that the entrepreneur is not only busy with what she or he has the most affinity with, but also with all other important aspects for growth.
You not only want to prevent surprises, but you also want to know what needs to happen to start fundraising in a timely manner. For example, are expansions in the management team needed for that? We can help draw up expert profiles or introduce a CFO. We can also suggest parties with a specific focus for support.
Step 2: expanding the strategic position
In the period that follows, we help the company to further expand their strategic position. In this phase, it is desirable, for example, to achieve proof points, such as certification of a product, but we also help with strategic partnerships, market introduction abroad, a certain turnover level, or bringing in expertise. If you double in employees, processes and management lines must change. In short: we help them adapt the organizational structure to growth.
Step 3: accelerating growth
During the third phase, we help the company grow faster. For example, by bringing international investors on board, attracting debt financing, through integration and optimization of internal systems, broadening the product portfolio, expanding with sales teams abroad, or by improving production and supply.
Reflecting and anticipating
We are not an investor who watches from the sidelines. We want to actively maintain a relationship with entrepreneurs and regularly look at what is going on together with them. This is how we help them grow. We find it important that the entrepreneur remains in control. But, you know more together than alone. Tackling challenges and realizing opportunities, that’s what it’s about. And if we can’t help them, there is someone in our network who can. We have a facilitating role. Other investors are completely hands-off; that does not fit our strategy. In addition, for us as a shareholder, it is a means to reflect and anticipate internally: is the entrepreneur still on course?
Helping to determine direction
A value creation model is also relevant if you have the role of lead investor. With this model, you ensure that all investors are aligned. Together with them and the entrepreneur, you can use the VCM roadmap to discuss: “How can you get there?” instead of: “What are you going to do?” That doesn’t mean we tell the entrepreneurs how to do it. We do discuss strategy and direction together. It is a very compact model that you can use well to reflect on and discuss. It helps to bring focus.
Purpose profiling
Helping to grow can also mean: thinking along about how a company makes its impact clear. A clear vision on diversity & inclusion helps to define culture, norms, and values. Diversity and female entrepreneurship are central to Borski; we see that companies that are consciously working on this have more choice in the tight labor market. Clear brand positioning based on purpose and SDG performance ensures external profiling and positioning. Ultimately, it promotes sales and profitability. Our advice in this regard could be: create an impact dashboard or communicate your purpose more clearly. Or: use a counter on your website to show how many people you have helped with your medical innovation. With the VCM, you can ensure that the entrepreneur also pays the necessary attention to this.
Added value
Of course, we are not equally closely involved with every company we invest in. It depends on the phase in which we invest, whether we are the lead investor, and to what extent the entrepreneurs want active involvement. At the start of an investment process, we therefore ask ourselves together with the entrepreneurs: where can we be of added value? To this end, we compare our experience, capabilities, and network with the needs of the entrepreneurs and the company. As a fund, you provide added value if you can help entrepreneurs accelerate, overcome hurdles, and reach a next growth phase.’
