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Intro to Advanced VC & PE Portfolio Management

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February 5, 2021

Portfolio management is the process of making investment decisions on behalf of vested individuals and institutions, with the goal of maximizing returns. In other words, it's the meat and potatoes of VC and PE firms. Portfolio management is a key component of maximizing returns.

But what if you're not versed on all the strategy and tactics? Luckily, there are a variety of well-recognized techniques and new tools on the market, such as Sourcescrub's portfolio tracking, that deal shops of all sizes can utilize to maximize IRR and build synergy between their portfolio companies.

What is a Portfolio company? 

A Portfolio company is an entity in which a venture capital firm, a buyout firm, or a holding company, invests in. Shorthand, you can refer to all of the companies currently backed by a private equity firm as that firm's portfolio.

The goal of portfolio management is to manage this collection of investments in a fashion that is consistent with the investor's goals, their time horizon for needing the money, and their tolerance for downside risk in their investments. 

Within portfolio management, there are a number of factors to consider that affect the success of the project, and thus the organization, as well as unexpected benefits from the investment. 

What metrics do deal shops analyze when gauging a fund portfolio?

There are generally two metrics that deal shops: industry KPIs and time weighted returns. 

KPIs Determined by Industry 

Depending on the industry, there will be different key-performance indicators (KPIs) that explain how well a company or collection of companies is doing. This will be industry specific, so what looks like good KPIs for one, will not be the case for another, and a portfolio manager must learn to distinguish. 

Time Weighted Returns

This is a common method of calculating investment return. Returns are compounded over subperiods, which result in an overall period return. Then, rate of return over each sub-period is weighted and ranked according to duration relative to the whole.

How and what do deal shops monitor in their portfolio?

The answer to this question depends on whether you're an old school deal shop or a New School Deal shop. Before we talk about that, there are a few standards that every deal shop looks at. 


Also known as stock or equity dilution, is when a company issues new stock, reducing existing stockholders' ownership percentage of the company. Dilution is one way a company can raise additional funds, though it often depresses stock prices. Deal shops are constantly monitoring this to try and predict future behavior and the overall quality of an investment. 

Exit Strategies

Exit strategies include IPOs and sale of the business to another private equity firm or strategic buyer. There are different types of exits: total exits or partial exits. A full exit results in the sale of all VC holdings within one year of the exit, while a partial exit involves sale of only part of the holdings within that period. Knowing what kind of exit strategy you might be looking at with a portfolio is a huge part of managing it. 

Macro Economic / Market Forecasting

Every deal shop worth its salt does some kind of economic analysis and forecasting within its portfolio management. How a shop looks at market upturns and downturns for different prospects is a major part of what goes into management and analysis. Tools like Sourcescrub's market intelligence can help identify and differentiate strategies for the best return on portfolios. 

How the Old School Manages a Portfolio

Portfolios are often managed by a VC firm or a principal/associate within the fund. Sometimes the CFO is involved, and they analyze and act on monthly reports on revenue, EBITDA, growth, and sales progress. The main strategy of old school deal origination is based on networking, relationships, and relying on your charisma to close deals. But knowing the right people isn't enough as the market grows and becomes more competitive, which has prompted the use of technology and new strategies to source deals.

How the New School Manages a Portfolio

The New School method of deal origination stands out from the old school method by using a data-driven, strategic, and differentiated approach to finding and closing more and better deals.

One of the seven strategies of New School Deal Flow is data-driven lead scoring, or the process of scoring the viability of prospective investments to determine how well a prospective investment aligns with goals.

What is lead scoring? 

Lead scoring is the process of assigning value to each lead generated for businesses, usually based on a numerical point system for ranking to determine sales-readiness. Traditional lead scoring adds and subtracts value based on how certain properties of a lead meet criteria. Predictive lead scoring uses an algorithm to determine if leads in a database are qualified or not qualified based on a number of criteria. Lead scoring models leverage key firmographic data points that meet an ideal investment thesis and apply them as filters against an extensive dataset of companies and sources. Data can include: 

  • Information that leads have disclosed
  • Behavioral data about leads and their activities
  • Social information about leads that can give insight into support networks and pools of capital
  • Demographics of the lead in question
  • Media coverage or reports about the company

The goal of lead scoring is to uncover potential sell-side and buy-side opportunities, and   maximize deal origination efforts by enabling data teams with the ability to better landscape the prospective playing field and quickly identify the right investment opportunities. 

What software and tools do PE firms and VC's use?

General Workflow Tools


For most firms, tracking and analytics are a central part of several different areas, but especially marketing and web reporting. Tracking and analytics is the process of gathering, analyzing, and applying data, information, and reports related to the content prospects interact with online. Examples of analytics and tracking platforms are Google, SugarCRM, and Salesforce. 

Social analytics specifically focuses on the data obtained from content shared on social profiles and the social profiles themselves. Platforms like HubSpot and MailChimp help with this. 

Businesses use analytics for a number of reasons:

  • Understand the metrics that matter most, such as engagement, reposts, shares, clicks, impressions, and sessions
  • Identify effective ways to increase brand awareness and reach
  • Resonate with your audience
  • Increase traffic to your other content and website
  • Increase conversions

Data Processing

Data processing tools are used to process and sort data that comes into your organization's workflow. While the humble spreadsheet can often be used for this, more powerful tools like Microsoft Power BI, Xplenty, and HubSpot are common.

Project Management 

Teams use different methods for managing projects, depending on the type of project, the workflow required, and the individual tastes of team members. Trello, Asana, Kanban Tool, Kissflow Project, and Airtable are common tools. 

Ops Management

There are numerous tools for operations management, some of which might fit into the project management tools listed above. However, ops management is often specific to businesses, so many firms use bespoke tools. 

Deal Flow Management Tools


Many businesses use CRMs (Customer relationship management) tools for sales, marketing, and management, which can easily be used to track and analyze data to help you create a lead scoring model. Typical features offered by a CRM platform include:

  • Lead management: Automatically or manually enter new leads into the CRM and track and analyze data about them.
  • Marketing automation: CRMs can automatically send marketing emails or publish social media posts according to a schedule. 
  • Sales automation: CRMs track customer interactions and automate selected business functions of the sales cycle that are necessary to follow leads.
  • Workflow automation: CRMs optimize processes by streamlining workloads to free up employees for more complicated tasks. 
  • Analytics: CRM solutions can offer built-in analytics tools for insights to analyze attributes in the data and target leads. 
  • Artificial intelligence: CRM solutions can offer AI capabilities built into their systems to help automatically recognize patterns leading to successful sales, which can help you build more accurate strategies for future deal sourcing efforts.
  • Individualized experiences: CRM can be used to create personalized and consistent experiences across various marketing channels to help increase conversions and brand awareness.

Sales CRMs

Salesforce is the most common option here, with a long tail of small-mid sized business-oriented CRMs also in use (e.g., Streak, Pipedrive, Copper). These solve the core elements of opportunity tracking (stages, reports, etc.), and make it easy to share notes and files with the team, providing efficiency benefits over the typical spreadsheet. Data entry for these systems are still quite manual, and there's a significant mismatch in the workflows and features they were built for (helping sales teams close deals) vs. the ones VCs often use them for.

VC-focused CRMs

This category is just beginning to emerge, with different vendors at different levels of sophistication. Some sample names: 4Degrees, Sevanta, Zaplow, FundStack. The big advantages of a VC-focused CRM is:

  • A focus on eliminating data entry by integrating with email, calendar, and some company data sources
  • They help leverage the network of the firm and manage relationships (given how important it is for deal sourcing and portfolio support)
  • They support the core workflows of a fund
  • They help find signals to ultimately source the next deal

Deal Sourcing

Deal sourcing and origination is the foundation for many deal shops. Sourcescrub's platform allows you to gain unparalleled insight into privately held companies with powerful deal sourcing tools that leverage constantly fresh, accurate data. Searching out the unicorn is what Sourcescrub is built for, and it'll give you the data to be successful in your strategy.

Startup Specific Considerations

When managing the portfolio of a startup, there are a few considerations that differentiate this from normal deal flow. Here are some of the major considerations:

  • Managing Growing Pains - When a startup starts to get investment, it can often run into some serious growing pains. Failure to address these can cause the whole endeavor to go up in flames. 
  • IP portfolio management - Linked to growing pains, intellectual property must be protected and managed well, lest the company lose its competitive advantage. 
  • Founder resources and management - Often startup founders are inexperienced or require additional resources and training, which needs to be part of any management plan.
  • Sales training - Getting the startup's products out into the market is critical, and a robust sales team is a must for this. 

Building Synergy After an Add-On

An add-on acquisition is when a private equity firm or other buyer acquires a company and integrates it into an existing company within the buyer's portfolio. Add-ons are generally strategically positioned and sought out to add value to the portfolio or use them to stimulate growth inorganically within a portfolio company. 

Add-ons can also be a way of enhancing company value before a sale. Often, this can be called a "buy and build" strategy, where the PE firm attempts to raise the value of a company by forcing its growth, rather than letting it occur naturally. This can massively increase the value of a company, because it:

  • Lowers costs by merging staff members with similar expertise 
  • Allows for expansion into new regions, domestically or abroad
  • Creates more product offerings
  • Generates Cross-selling opportunities
  • Consolidates management
  • Consolidates finances
  • Boosts buying power

However, just like with funding a startup, an add-on can sometimes have disastrous results if poorly managed. Read more in our article on the topic here. 

Advance Portfolio Management with Sourcescrub 

There is a large and growing body of techniques and tools companies can use to go beyond "managing" their portfolio and move towards leveraging and strategically deploying their portfolio. We call it the New School Deal playbook. Find out more by checking out our resources.