The advantages of a VC-as-a-Platform: Daphni’s business case
As we have explained in our former article Uberization? Nope, Platformization, the economy is structured around organizations whose roles are to design, produce, assemble, distribute, sell or consume goods and services.
In this model, the unidirectional approach is predominant: value is created by a tunnel of sequenced actions. The digital world has allowed the elimination of certain sequences as well as the incorporation of a new tool, the platform, in the value creation chain. Platforms are open intermediary interfaces through which suppliers and customers meet. The two sides may exchange goods (eg: Amazon) but it can be other types of transactions, like social interactions (eg: Facebook).
Daphni is convinced that the VC model is going to change and has decided to become the first VC-as-a-platform as explained in our recent article “Why daphni Is the First VC-as-a-Platform”. Sometimes, you just have to choose between being disrupted or disrupting, we’d prefer the secondary.
The platform, a growth accelerator
The platform model makes it possible to be more efficient and relevant on every step of the VC value chain: (1) access the best opportunities, (2) select the good deals, (3) be chosen by quality founders, (4) optimize scale and (5) ensure best funding & exit options. Let’s see first how the platform can help us with the first three parts.
In aspect of the deal flow generation (1), platforms favor an increase in number of geographic markets addressed and in number of investment opportunities received. Daphni increases its reach capacity of the hub it targets including Paris, Berlin, London, Stockholm, Copenhagen, Helsinki and Amsterdam.
In aspect of the deal flow management (2), the platform enhances the review process and reduces the delay between the reception of an opportunity, the first review of it, the feedback made to the entrepreneurs and the potential launch of an in-depth instruction. This amplification of deal flow sourcing is further supported by the possibility of reaching a wider public due to the brand-platform and new usages, which it makes possible. This also makes entrepreneurs all the more incentivized to choose our funding offer (3).
The platform, a scalable value proposition
To benefit fully from the advantages and power of a platform, the network effect is essential. The more contributors the platform has, the bigger the value offer is. For example, the value of the service offered by BlaBlaCar increases simultaneously with the number of active members on the platform. At Daphni, we have not limited the use of our platform to our team and deal flow companies but we have opened it to our community of talents and experts as well as to our investors and the entrepreneurs of our portfolio companies. We call them the daphnipolitans. We have aligned interests, since either they are investors in our fund or they are backed up by our fund.
Our objective is to offer the best service to our customers through the features of our platform:
- On the one hand, we are totally transparent with our Limited Partners. They can follow our deal flow (if not conflicted), have access to our analysis and monitor our interaction with our entrepreneurs and the members of our community. Furthermore, we offer them the ability to co-invest along us when we make a deal, or independently when we don’t make the deal by leveraging on our analysis. At the end of the day, our LPs have the closest relationships with the players of our ecosystem.
- On the other hand, we are a problem solver. Our daphnipolitans as well as each member of the team can be pinged online by the entrepreneurs of our portfolio to find a solution when they face a specific issue (4) & (5). They want to expand to the US? They can interact with our daphnipolitans located in the Valley or in NYC. They are looking for a growth hacker? They can post a job in our feed. They are beginning to look for a US- or Sweden-based VC? The influencer of those locations, our team, the entrepreneurs backed by this type of funds will get back to them.
With our platform we are not a team of 10 people to help our entrepreneurs to scale, we are a community of 200 talented people willing to transfer and share their knowledge and network as well as to invest along us in deals.
New assets, money is not enough
In the platform economy, value moves around: the enhancement of interactions supplants the value of assets. Uber owns no vehicles, AirBnB does not possess real estate, Facebook produces no content.
This new development model, freed from the problematic of financing infrastructures, has made a rapid jump in scale as well as rapid internationalization possible. Platforms like Kickstarter, for example, are built to offer a unified service across countries, with marginal and decreasing costs. What they are betting on is their ability to pull in the greatest number of buyers and sellers.
At Daphni, the funds raised to be invested in the portfolio companies remain essential but we think that it is not enough if we want to have access to the best deals. This is why we are betting on our platform. We didn’t just build a dealflow management tool. We are improving it overtime both for entrepreneurs and LPs, adding features, adding people into the community, adding services. We’ve decided to lower our paychecks but to invest. As every ambitious entrepreneur does.
New spirit and no resistance to mindset changes
The secret of ‘platformization’ rests on a change in the paradigm, which requires a considerable effort of open-mindedness and willingness to question established principles. The customer becomes the supplier. Your competition becomes your customer. Users develop commercial relations among themselves. The user becomes both the producer and the consumer. It requires to be very transparent. It means that the value does not rely exclusively on the information you own but in the power of the ecosystem and the quality of the execution of the service.
From an insular or individualist approach, we promote a collaborative and open practice where pollination between all players of the ecosystem benefits eachother.
All the VCs are going to platformize their business
Many sectors have already been disrupted: music, hospitality, distribution, travel, media, transport, etc. All markets could potentially be ‘platformized’, from the most improbable, like politics, to the most conservative, like education. The more established industry (eg: finance) are starting to be platformize. Indeed, even in finance, we observe a decrease of level of intermediation and the the emergence of digital innovative services that create new usage or take market share to traditional players.
This movement is also making inroads in the financing of startups with the crowdfunding platforms like Angellist or Kickstarter as well as the penetration of diverse players which syndicates deals, most often still manually. At daphni we are convinced that we are on the edge of major changes for the way the VC industry is going to be organized. Also because of this vision and a paradoxical lack of digitalization of our business (we invest in digital projects, remember), we have decided to develop our home-made platform.
The main objective of our platform is for sure to bring happiness to its users, but particularly to have a value proposition that fits both LPs’s and entrepreneurs’ expectations. They are our customers. We have to serve them the way they deserve it.
That’s it. This is the story of our mutation into the first VC-as-a-platform. We are the first one. Innovation does not last very long in the digital world. We are impatient to discover platforms from other VCs. We will cross fertilize ideas to improve the value proposition of our industry.