The 5 Methods Venture Capitalists Use to Monitor Their Portfolios

Over the past two years, our team delved deep into the practices of more than 150 VC firms to uncover how they track the progress of their portfolio companies. We found that there are five primary methods that VCs rely on. Here’s a straightforward breakdown.

What is Portfolio Monitoring & Why Does it Matter?

At its core, portfolio monitoring is about collecting and analyzing information on your investments, using that data to guide your decisions, and communicating effectively with your Limited Partners (LPs).

Here’s why it’s crucial:

1. LP Expectations: Your LPs expect you to be fully informed about your investments. Just as VCs walk away from deals when they see red flags, LPs may walk away if they feel your tracking systems aren’t up to par.
2. Informed Decisions: Effective portfolio monitoring allows you to make smarter investment decisions, ensuring you can quickly respond to both challenges and opportunities.

Most VC firms have a system in place for this, and if you don’t, here’s how to get started.

The 5 Most Common Portfolio Monitoring Strategies

(From least to most popular)

1. Direct Connection
   • What it is: Plugging directly into a startup’s systems to collect first-party financial and performance data.
   • Why it’s uncommon: This is the least used method in the industry, often viewed as non-founder-friendly.
   • Pros: You get real-time, unfiltered data straight from the source.
   • Cons: Without management commentary, early-stage numbers don’t always tell the full story.
   • How it’s done: Some firms use software like Standard Metrics or Visible, while others rely on custom systems or even shared Google Sheets.
2. Online Signals
   • What it is: Tracking publicly available data such as PR, website traffic, social media activity, and LinkedIn updates.
   • Pros: Provides insight without direct engagement.
   • Cons: This data is often less reliable and should be used as a supplementary method, not a primary one.
3. Back Channels
   • What it is: Gathering information through informal networks or from other firms.
   • Pros: A way to get exclusive insights you wouldn’t otherwise have.
   • Cons: Time-consuming and limited in scope, often far removed from the source.
4. Information Requests
   • What it is: Sending surveys or having your team directly reach out to portfolio companies.
   • Pros: Effective for gathering specific information, with a compliance rate of 50-80%.
   • Cons: Can be burdensome for founders, especially if you’re not the lead investor. Requires a strategic process for outreach, follow-up, and data analysis.
5. Founder Updates
   • What it is: Receiving regular updates from your portfolio companies, typically quarterly or monthly.
   • Pros: Direct information from the source.
   • Cons: Labor-intensive to manually parse and analyze data. Expensive if you're paying an analyst or associate, and humans are still prone to error. Your team could be focusing on more complex tasks.

Where Sagacity Fits In

At Sagacity, we built our tools with direct input from both founders and investors, aiming to streamline your portfolio monitoring process no matter which method you prefer.

• Requests: For those who regularly collect data from their companies, Requests automates the entire surveying process, providing clear visibility and reducing the burden on both VCs and founders.
• Dispatch: Forward your updates to Dispatch, and our secure AI model will process every email, capturing relevant data and displaying visual trends over time. It’s like adding an extra pair of hands—or two—to your team.

Interested in seeing how Sagacity can simplify your portfolio monitoring? Schedule a demo today and explore how our tools can fit into your workflow.

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