Expertise is the new currency driving the next generation of Venture Capital

A cultural shift is taking place, and startups need to reimagine their relationship with traditional VC funding models. It starts by looking beyond cash. Kevin Monserrat of Consilience Ventures asks: is expertise new currency driving the next generation of Venture Capital?

The pursuit of funding can become an obsession for early-stage startups, and not always for the right reasons. Within the VC world, cash is viewed as the ‘fuel in the tank’ that every fast-growing start-up needs to continue its journey. But the roads are littered with well-funded startups that have burned through capital or spent it at the wrong time — and found themselves lost and on the road to nowhere.

Cash can stifle innovation and ambition

And when it comes to helping start-ups achieve their potential, money doesn’t guarantee success. Instead, cash-rich startups often find themselves under more pressure, overwhelmed by the burden of investor expectations. In the early stages, this can rob founders of the flexibility they need to execute their vision fully, and can even push them towards decisions they would never have taken otherwise. It’s far too easy for startups to get distracted, sit anxiously on large piles of ‘rainy day’ cash, or looking to spend their way out of trouble.

Understanding why start-ups fail

With so much of an emphasis on attracting cash, you’d think that a lack of cash would be far and away from the number one reason why start-ups fail. But it’s not. In 2019, CB Insights conducted ‘post-mortems’ with startups to find out the reasons behind their failure. Running out of cash came a distant second behind lack of market need, and no financing/lack of investor need came well down the top 20 list.

The most frequently cited points of failure fall into three distinct categories: the wrong people, the wrong business strategy, and the wrong relationship with customers. Of course, lack of cash is a problem for any business, but failure is more likely to result from a lack of expertise in the core areas needed for start-up success.

The ‘Cash Catch-22’

In many respects, the obsession with funding becomes a lose/lose situation — potentially harmful for both startups and investors alike. It’s not the fault of investors, it’s just the traditional way of doing things. The VC industry by and large remains wedded to one increasingly outdated model. Cash is considered the cure-all, rather than the means to an end. It’s like a doctor prescribing the same medicine to every patient, regardless of their symptoms.

Startups, and investors, both find themselves in a dilemma — the rules of the game ensure that cash is needed to fund growth. But in the post-coronavirus world, pockets won’t be so deep, so it’s likely that risk aversion within the VC community will increase significantly. Therefore, we all need to start thinking beyond cash as the solution for startups and focus instead on what cash is traded for.

What problems do startups need to solve?

While every start-up is unique, they all face similar issues that funding hopes to solve. There will come a time when they will need to think about solving the following problems:

• How to develop and refine their core proposition
• How to access and compete in new markets
• How to cultivate a more robust business model that allows for expansion
• How to get past new and unexpected stumbling blocks

Cash is merely the currency used to give startups access to the talent and expertise they need because what’s really needed to meet those challenges is access to a deep and broad pool of talented professionals from a broad range of backgrounds and industry specialisms, available preferably at short notice.

Startups need to find people who are engaged, experienced, fast, not a drain on resources, and intrinsically ‘get it’. It’s not easy to do that. Bringing new people into key (but newly created) roles can be an exhausting process and one that amplifies the risk of heading in the wrong direction. Traditionally, this takes money. Expertise is usually expensive, hard to find, and hard to bring on board.

But what if you could access the expertise without the cash outlay? Well, now it starts getting interesting. That would give start-ups the momentum they need, without the cash-burn, and dramatically improve their chances of long-term success.

The answer lies in reimagining the start-up economy by prioritising expertise — rather than cash — as the currency of choice. At Consilience Ventures, we’ve spent the last two years building a market network that prioritises talent over capital. We don’t just offer funding to deep tech startups through our ‘sprint financing’ model, but we provide them with the professional resources and expertise they need to accelerate their growth.

Aligning the interests of investors, startups and professional experts

Instead of cash, stakeholders (founders, investors, and professional experts) are connected through a unified token currency (known as CVDS) which is used as startup equity. It’s a collaborative, hands-on approach that aligns the objectives of startups, investors, and experts within a virtuous circle:

• Investors use CVDS to take a stake in our portfolio of innovative startups
• Startup quickly and efficiently, or to advance their intellectual property (IP) without significant capital expenditure.
• Carefully-chosen experts within our market network are paid in CVDS (or a combination of CVDS and cash for larger projects) for the time, input, and expertise provided to portfolio companies.

Our sprint financing model ensures expertise is introduced at the right time, available to be called upon when a startup needs it. We work with founders and teams to identify their areas of focus and to direct the best resources to help them move forward. This enables start-ups to access finance in a staged, progressive, results-based manner, based on the immediate business goals. Most crucially, our network makes this a repeatable process, but highly individual and bespoke every time.

The ‘Market Network’ model

Our process of onboarding experts into the market network offers a short-cut to startups that need access to talent and expertise which can be brought in at short notice for short-term ‘sprint’ projects assignments. We do the hard work of recruitment, and none of the experts are tied into the startup beyond a project or assignment — although our portfolio companies appreciate being able to call on the same experts, time after time.

To date, we’ve on-boarded 150 ‘experts’ into our market network. These experts, all specialists in their chosen field, offer a broad spectrum of skills. Portfolio companies can choose which experts to work with, allowing them access to a pool of hands-on talent — without the expense and uncertainties that traditional recruitment usually involves. It’s a unique way of ensuring startups have the resources and the know-how to scale quickly while keeping costs to a minimum.

The most immediate benefit of the market network is that it democratises the VC structure. Investors are frequently experts themselves and each member of the network — whether they are a Chief Technical Officer, accountant, Chief Financial Officer, or front-end developer — owns a stake in the success of the network itself. Their stake increases in line with the time they put in or the services they render — but with only a single entry on the startup’s capital table.

What does the network model offer above and beyond expertise?

Startups need to capitalise on opportunities, but this can be incredibly difficult without the right talent and experience at their disposal, and available at critical moments. But it’s not just a transactional approach. Above all else, this is a people-focused way of doing business. The network offers start-ups access to a pool of recommended, trusted, seasoned, industry experts — the type of individuals that are essential to any young growing business but are incredibly difficult to find, recruit and hold on to in the early days. Each member of the network adds value, sharing their unique experience, opinions, and skills. And these members are in turn constantly referring talented individuals, thereby growing the network and expanding the knowledge and skillsets available to start-ups.

Access to expertise = new venture capital

Lose-lose situations are unfortunately all too common within the VC world, but removing cash from the short-term picture reveals the inner truth we all instinctively know. Business is a collaborative endeavour between people with many different things to offer. The right people will help you to listen to your customers, create the right product or service, and determine the right go-to-market strategy.

Funding by itself is purely a means to an end. But by building an expert market network and making it readily (and cost-effectively) available to ambitious start-ups, everyone within the VC community can reap the benefits. In other words, it’s that rarest of thing in today’s world: a win-win-win.