Investing as a Partner

Katalysen is proud to be a venture partner, which is something different from what most other investment firms in the start-up sector are, and for this one key reason: the belief that partnerships are fundamental for early-stage success.

Where most would see themselves as the investor in relation to the companies they invest in, we see ourselves as a partner. This means that we provide more than just capital to our partners. We help them by seeing opportunities where others might see problems, and by adding experience and a can-do attitude where others might take a stand-back approach, because we are committed to the mutual long-term success of all of our partners. We are in this together.

Photo by David Marcu on Unsplash

The Problems with Traditional Funding

A conflict of interest exist in traditional funding between the investment firm and the companies they invest in. Even though most VCs, for example, would be more than ecstatic if the company they invested in becomes a unicorn, the goals of the VC aren’t always aligned with the goals of said company.

Who is the customer?

The reason for this conflict of interest boils down to who the customer is. In the case of VCs, their customers are the limited partners that invest in their fund, not the companies that they invest in.

This means that the first priority of a VC is to generate returns to their limited partners, not ensuring the success of the companies they are invested in. Often these two interests coincide - but not always.

By having to prioritize the needs and wishes of their limited partners, VCs are often put in a situation whereby their decision of how to steer their portfolio companies is heavily influenced by how it will affect the performance of their fund as a whole. In the best case this might mean focusing on short-term gains, while, in the worst case it might mean forcing mergers or splitting up and selling companies that don’t perform well.

Instead of cutting losses, a venture partner looks for solutions. Being a partner instead of an investor means that we can focus on doing what it takes to help our partners succeed, by putting ourselves in the same boat. As a consequence, we must focus on the long-term success of our partners rather than short-term gains.

The Network Effect

The partner-company relationship can lead to significant additional value beyond that which is created merely by having both parties working towards the same goal. The venture partner is the hub at the centre of a strong network of partnerships, and by leveraging this network the venture partner is able to create significant synergies. This often in the form of unique partnerships and deals that become possible between the partners within the network.

VCs might argue that this is just an excuse to act as a gatekeeper, a way to work one’s way into new deals. But the fact is very simple: It is in every partner’s best interest to enable communication within the network as a whole.

Firstly, because otherwise you would hinder both the size and growth rate of network effects. In other words, the potential value created by interactions between network participants would be low, and it would remain low as there would be little incentive for new people and companies to join.

Secondly, because by not enabling network-wide communication you would slow down both yourself, and your partners, by being a bottleneck to every interaction within the network.

Lastly, the strategic partnerships that occur within the network often serve to strengthen all partners involved, which in turn strengthens the venture partner. Again, we return to the concept of “sitting in the same boat”.

Keeping the Bridges Intact

Being a partner also means long-term commitment. What results is a partner-relationship that grows stronger as both partners grow together, and even when things don’t go as planned there is rarely any bad blood: The ambitious and hard-working partners will remember a venture partner that did its outmost to build mutual value, not someone who left them at their weakest.