The Venture Capital Net Promoter Score

by Eric Tobias - Partner

One of the most critical measures of a company’s performance is the NPS or Net Promoter Score — this simple metric is meant to quickly summarize the loyalty a brand has with its customers. As I’ve discussed before, with so much capital available to entrepreneurs today, it’s becoming increasingly important for VCs to be effective marketers (while also not sacrificing the qualities that made the partners great entrepreneurs).

So, if companies measure their NPS, shouldn’t venture firms measure this too?

At High Alpha, we’re consistently engaged in the fundraising process — either with our portfolio companies or even for our own fund. In participating in this process and observing this process, I’m always reminded of the value of “references.” As part of the due diligence process, potential investors will usually call a handful of people you’ve worked with in the past and ask them pointed questions about you. Most of the time references are simple checks to confirm information about someone or something. Recently, one of our potential investors took the time to do reference checks on us at High Alpha. While I wasn’t surprised this investor wanted to do some reference calls, I was taken aback by the depth and discovery of these calls.

During these reference checks, our potential investors have been targeting our portfolio companies (High Alpha Studio and High Alpha Capital), partners, co-investors, and everyone in between. Reading between the lines, it appears they are trying to determine our value as a VC. And while we haven’t received their feedback yet, I’m really thankful they are doing this. It’s been a great opportunity to stop and realize the value of asking your customers for feedback about what they think about you. Software companies routinely do this with their customers. Why don’t we do this as venture firms?

Most VCs simply judge themselves by picking and choosing — and more than that, VC investors and partners judge them that way as well. While a critical measure, in the short term, this can be something that is incredibly difficult to determine. Beyond that, it doesn’t account for a lot of the intangible aspects of a VC — such as the value they add to their investments. This necessitates a new measure that can fill in the gaps, to which I propose a psuedo-NPS where VCs can know how they are doing in the short term and gain a valuable feedback loop that seemingly doesn’t exist today.

This might be especially valuable in the current social climate as well — if VCs have a low NPS, it may show a lack of confidence as a brand, which can quickly signal to investors and companies looking for investment about the quality of VCs on deals to optimize capital deployment.

I don’t think this needs to be highly nuanced either — something as simple as asking individuals within the portfolio companies you’ve invested in if they’d recommend working with your firm is a quick measure of your VC’s efficacy. I have a feeling measuring the firm’s NPS score would be very eye opening for most venture firms and more importantly, most entrepreneurs.