Sander Vonk, Volta Ventures (Image credit: Volta)
What is essential to scaling your business? If your answer is ‘capital’ then, yeah, you’re right. But capital is more than just cold hard cash. The importance of human capital is something founders often overlook. That is what Amsterdam’s Volta Ventures and Tech Rise Ventures noticed, too. Both, in their own way, are aiming to bridge the gap between financial and human capital.
Volta Ventures partners with LevelUp
Volta Ventures provides seed and early-stage capital for internet and software startups in the Benelux. As such, they’ve provided their fair share of financial capital to startups like fintech Blanco or deep tech companies such as Sentiance. While investing, Volta found that it is not all about the cold hard cash. “Human capital is one of the biggest barriers to their growth”, says Volta’s managing partner Sander Vonk.
“We found that a lot of the problems in human capital can and should be addressed sooner. For example, companies that are hiring often look for profiles that don’t exist. I always like to joke they are looking for a CFO with Python skills. Because we don’t need a full-time financial guy yet, so he needs to help with coding. But more generically, they underestimate salary, the time to hire, recruitment costs. Or they overestimate the skillset that you can find in a single person. So these are typically problems that we try to resolve with our startups.”
Investments in human capital
That is why they teamed up with LevelUp Ventures. With this tech-minded talent acquisition agency from Amsterdam on board, Volta can offer investments in human capital as well. They offer all their portfolio companies two workshops per year, during which founders receive tailored, strategic HR advice from LevelUp’s shareholders Aik Deveneijns and Lebinh Luc. “We’re trying to cover the complete domain regarding talent acquisition and retention”, says Deveneijns. “Each founder has his or her own needs that should be addressed. So we try to find out what they require most. What’s the challenge at the moment?”
At Volta, they realised the importance of HR in a fast-growing startup. According to Vonk, the best time for a tech startup to think about talent is ‘immediately and always’. “It’s not just recruitment or hiring. It’s a whole range of strategic HR topics. Startups often think of HR as recruitment. But it’s so much more, and it’s too soon for a startup to hire a strategic HR help, so we can offer that. With LevelUp, we try and tackle these problems with industry experts.”
Volta’s partnership with LevelUp is among one of the first times in The Netherlands a VC is investing human capital in startups. Vonk: “Large funds, such as ProjectA in Berlin, have operating partners to actively help their portfolio companies, we wanted to offer the same level of support. We don’t see that a lot in the Benelux yet.”
‘Yeah, sure dad’
Having an outside company like LevelUp advise their family of portfolio companies not only brings in expertise and access to industry experts. There’s another added value as well, says Vonk. “In the Netherlands, we have a saying: ‘vreemde ogen dwingen’ [Translates to: a stranger’s eyes forces action – red] At some point, we become the father on the board. You say something and your children go ‘yeah sure, dad’. But when the industry experts come in, they listen to them.”
LevelUp’s Deveneijns also sees advantages for VCs to employ experts on HR. “VCs tend to have to focus their time, either on portfolio companies that are on fire, or the ones that are in a transaction. A lot of the companies are just building the fundamentals of their company. So taking the position that Volta has done, trying to make those companies scalable by having specialists tend to particular areas, I think it takes courage. It’s a wise move to do.
Vonk: “The companies in our portfolio can grow faster because we can tackle human capital at an earlier stage. They are not bothered by a lack of knowledge or lack of access to knowledge on a human capital side. And somebody is proactively helping them with these things before they know it is a problem.” The first company Volta and LevelUp did a trial with, to make use of the HR strategy session, came out extremely happy, says Vonk. It also revealed how much possible bottlenecks in HR there were in that particular company. Vonk: “They came out with a three-page email of HR topics that they wanted to have tackled. This reveals how much there’s going on.”
Tech Rise Ventures’ approach
Elsewhere in Amsterdam, yet another talent agency is tackling the same problem as Volta and LevelUp. Tech Rise Ventures approaches it from the opposite direction. The talent acquisition company builds scale up teams that are investment-ready, supporting them in all steps of their fundraising and assuring the team is fit for growth post-fundraising. Their services range from finding the right investor to negotiations and closing the deal with both the investor as well as additional key team members.
I think that in the field of capital, you can differentiate two types of capital”, says David Mozes, partner at Tech Rise. “We’re talking about human capital and financial capital. And although it sounds like these worlds are far from each other, we believe that’s not really the case. When you’re a fast-growing startup, you are suddenly forced to sell your vision to your potential investors. That is a whole new game.”
‘How we combine human capital with financial capital’
“All founders are engaged. But they do not always have the best tactics on how to sell their story. And this is where we come in. We help by guiding and advising them on what type of language, documents, and metrics should be presented to sell your vision to investors. We know from experience how investors will look at the track record and experience of the founding team, and make sure that any missing management team member gaps are filled.”
“We advise on how to engage with a community of potential new team members which need to be attracted and how to secure that team as fast as possible once you receive the funds. Having these members ready to sign once the investment is on the bank, assures the investor’s money is used for value creation from day one. Here is how we combine human capital and financial capital.”
By bringing both forms of capital together, Mozes aims for startups and scaleups to scale faster. “It’s about de-risking. If I’m a VC and I see a gap in the team, then I’m betting that it will all work out after I wire the money. But will it actually be that easy to fill this void? It’s just a risk, and I don’t want it. This morning I had a call with a company active in the gaming payment industry. And they have a powerful CTO and CCO. But what they don’t have is a financial guru in their management team.”
Stronger in negotiations
“Now, if I’m an investor, I demand an experienced CFO to jump on board because it is not only about creating strong financial structure, it is also about making sure that any risks on this payment technology are managed. Experience in the handling of payments and the involved risks is vital. I believe you have the upper hand in negotiations with a potential investor if you need to say ‘I think you are right. Give us three months to find this particular person’.”
Taking human capital and team composition seriously in the early stages of the first rounds of fundraising is something we’ll see a lot more, says Mozes. “I do believe that these more modern hybrid operational type of VCs will have a more prominent role.”
This approach will make it easier for startups to scale without running into avoidable HR problems along the line. “These operational VCs will potentially have even higher management fees on the money they manage on behalf of their investors, which tempers the return in the short run. But the returns will still be very good later on because they are de-risking their portfolio by offering all types of on-site support services, of which HR and recruitment are essential pillars. It might even increase the chances of a unicorn coming out of the portfolio”.
