Five things I learned using our startup’s product - and why other VCs should do the same

A couple of years ago, our VC fund launched a platform where startups could upload their internal data and receive an in-depth analysis – the kind we do during due diligence – but it soon ran into problems. The dashboard was difficult for founders to navigate, and we wanted a simple way to give them the most important insights from their data.

Coincidentally, around that time, we had the opportunity to invest in a vibrant new data analytics startup: Count. They wanted to fix dashboards by making them more collaborative and dynamic so entire teams could glean insights from them. 

I took the opportunity to perform two types of due diligence at the same time – on Count’s product and on Count’s data. I uploaded Count’s internal data to our data warehouse, which I then connected to Count’s own data analytics app. Once I started using the app, I found not only promising usage metrics but also a product that was in itself easy to use. It connected to our existing data stack and could run clear visualizations and analyses. Most importantly for us, we could include running commentary with all the data and charts. I thought that such capabilities would vastly improve our own startup data analysis platform. 

A collaboration was born. Growth Scanner, our data platform for startups, started running on Count, and our founders enjoyed how simple and intuitive the revamped product was. As Count has pivoted its product to a collaborative “canvas” where data is visualized and acted on, Growth Scanner has taken advantage of the new features to enhance its own value proposition.

That’s just one story of why VCs should be using their startups’ products in a variety of ways. We use portfolio companies’ products from due diligence through their lifetimes and, typically, it's our startups that get the greatest returns from it. I’ve personally learned so much from my experience with Count, and many other companies we work with. 

1. Your portfolio is your most accessible toolkit

Ironically, VCs don’t always use the most high-tech tools to facilitate their internal processes. For example, to organize investment data on their portfolio, most VCs still use Excel. 

This, despite the fact that many of the products they back as investors are directly applicable to the operations of a fund. Whether it’s a better way of organizing data, or of monitoring finances, or of managing check-ins. Indeed, over the past few weeks, we’ve seen several VC-specific data tools emerge: Pitchbook released a tool that predicts which startups are most likely to have a successful exit. Similarly, JP Morgan acquired a data dashboard where VCs can track and analyze their investments. In fact, JP Morgan was an investor in the dashboard before acquiring it.

VCs should be assessing how the products in their portfolio can improve their own internal processes. Try integrating different data tools and business products. We also use our portfolio startup Fuell in our European office to facilitate expense reporting. That way, we’re streamlining our own operations while keeping on top of the progress of the company. 

2. You’re like a power user but with a vested interest

As a VC, you can be one of your startup’s most important users. Like most early users, you have access to the product before the masses and can provide valuable feedback. But unlike most users, you have a vested interest in that startup getting it right. 

The feedback process is entirely different with a “VC power user.” It’s not limited to one-off surveys with no follow-up. Investors are there to accompany the company until they get it right. They’ll be present at every step of the decision-making process. 

Our investors have used a wide array of apps - a hypnosis app, a baby monitoring app, an at-home gut microbiome test. In every case, it has enabled us to develop a unique level of empathy with the founder. 

If you become a user having understood the company and what they’re striving to build, you can connect with the creators in a targeted way. You know where to give advice, and you know where they, as people, need the most advice. As you use the product, hold regular discussions with the startup’s team to identify the micro and macro issues they should be addressing.

3. Accept that you’re not the only customer

As much as you are a powerful customer, you’re also not the only one. We learned this during our experience with Count. Our joint collaboration was going so well that we began asking about possible extra features: could the platform enable users to easily create similar copies of the same data visualizations?

It didn’t take long to figure out that none of Count’s other users were calling out for that function. The founders listened to our feedback, and considered the proposal, but ultimately decided against it. They weren’t seeing a pattern in demand from other users - and that had to be their priority.

Early-stage startups are ultimately trying to find a market, to get to a point where lots of customers are looking to use the product in the same way. So even as power users, if we’re not squarely in that target market, we have to be humble and not push the matter.

In the end, the goal is for the startup to be guided by the data. If a startup is seeing a broad range of customers use the product for the same reason, and can further support that with verbal interviews with users, that should become their focus.

4. Due diligence has to be pre- and post-investment

Checking out a startup’s product is a core part of TheVentureCity’s due diligence before deciding to invest. We always do a test run of prospective startups’ apps or platforms. We also like to examine product usage data whenever possible. Even with as little as three months of customer data, we can start to assess growth signals within the company.

But we also don’t stop there. We believe that due diligence should be ongoing. Even after the first investment, VCs should use the product regularly, just as they assess their portfolio startups’ teams, financials, and market. 

As a startup grows, it’s crucial to monitor how the product is evolving, whether its usability is improving, whether a new feature is stealing the limelight, whether some glitches are being fixed - an endless list of variables that you can only understand if you’re using the product regularly. Each variable helps you understand the broader landscape, such as why 7-day retention has dropped since a new feature was launched. This style of monitoring ties into a principle that we consider to be vital for any sustainable startup: the product drives growth. 

This strategy can also directly benefit investors: seeing a product’s ebbs and flows, and how the team responded in real-time, will inevitably inform your decision-making on future funding rounds or exits.

5. Every VC fund needs an operator

If our experience can be summarized, it’s that being an operator investor is absolutely invaluable in supporting our startups. So much of the feedback we’re able to give founders is only possible because it comes from a place of experience.

The members of our investment team have all been there. We’ve built products ourselves, and we can apply our lessons directly to what we’re seeing in a particular product. We don’t only come back with personal user feedback - we’re able to contribute to product feature roadmaps or consult on how best to map customer journeys. 

We’ve seen a lot of patterns in product development and user engagement and can match that knowledge with the founder’s mission. Founders often have tunnel vision when building, especially early on, so a broader perspective from people who’ve done it before can enlighten their decision-making process.

With our startups, we use our role as users and operator investors to help them develop the conviction they need to make any critical pivots when the time is right. We can understand the value of the product, while at the same time, we can help read patterns in how other users are engaging.

We love using our startups’ products not only because it could lead to unexpected collaborations in building something beautiful together, but also because we can see day in and day out how our dedication to product-led growth leads to strong results. As investors, we can’t just appreciate life-changing tools from a distance, we are a part of the journey.