Venture Capital vs. Venture Building: Key Differences and Why Vala Chooses a Blended Strategy
When it comes to growing early-stage companies, investors often face a choice between two paths: venture capital (VC) and venture building (VB). Both approaches have their strengths but they cater to different needs for portfolio companies. To help illustrate these differences let’s take a look at real-life examples from our Better Ventures EIS portfolio: The Sustainability Group (TSG) and Revving. These cases hopefully highlight how each model works and why a blended strategy could be especially beneficial for investors.
What is Venture Capital?
Venture Capital involves investors providing funding to startups and early-stage companies that have high growth potential. Typically, VCs invest in exchange for equity in the company. Their primary role is to provide financial resources, but they often also offer strategic advice and access to their broader networks.
The Sustainability Group: A Venture Capital Story
TSG is the parent company of FuturePlus, a forward-looking sustainability monitoring platform that we encourage every portfolio company to use, to help us in making our capital contingent on change (for more on that please have a read of our Sustainability Manifesto here). TSG’s story is a great example of how venture capital can help a company grow. As a VC-backed company, TSG secured significant financial resources early on, which were crucial for developing and scaling FuturePlus. This funding allowed TSG to rapidly build its platform, make key hires, enhance its offering and expand its market reach.
Here’s why venture capital has been particularly beneficial for TSG:
- Access to Expertise and Networks: The VC partners have brought more than just money. They helped scale FuturePlus by encouraging other portfolio companies to sign up, provided industry feedback to shape its development, and made introductions to complementary investors.
- Diversified Investor Base: By attracting investment from multiple VCs, TSG diversified its investor base, bringing in a variety of perspectives and expertise. This approach also reduced the risk of relying on a single investor, making TSG more resilient and better positioned for long-term success.
- Scalability and Rapid Growth: Venture capital allowed TSG to invest heavily in key areas like technology and talent, which were critical for scaling the business quickly. With financial backing and strategic guidance, TSG was able to expand FuturePlus’s capabilities, attract top talent and accelerate its go-to-market strategy, positioning the platform as a leader in forward looking sustainability monitoring.
While venture capital can sometimes lead to equity dilution and a focus on quick returns, for TSG, it provided the essential resources and strategic support needed to build a robust, scalable platform that meets a critical market need. This approach has already resulted in significant valuation uplifts for Vala’s EIS investors of 5.2x.
What is Venture Building?
Venture Building is a more hands-on approach where an investment firm or a group of entrepreneurs actively co-creates startups from the ground up. This model involves providing not just capital but also operational support, strategic guidance, and infrastructure. Venture builders often take on a co-founder role, working closely with the startup team to build the business.
Revving: A Venture Building Story
Revving is a fintech company within our Better Ventures EIS portfolio that’s transforming how small and medium-sized enterprises (SMEs) manage their financial operations. By offering a platform that significantly improves the efficiency of their treasury functions, Revving is addressing a critical need in the SME market. However, like many great ideas, Revving needed the right support to become a reality.
Here’s how our venture building approach played a crucial role in Revving’s success:
- Identifying and Supporting a Great Idea: Revving was founded by two talented entrepreneurs we knew well, who had a compelling vision for transforming payments within the digital economy. While their idea had great promise, they needed help turning it into a viable business. Recognising this, we stepped in to provide not just funding, but also the mentoring and resources needed to bring their vision to life.
- Mentorship and Strategic Guidance: From day one, we worked closely with the founders, offering hands-on mentoring and strategic advice. We helped shape Revving’s business model, enabled customer testing to refine the platform, and helped them develop a go to market strategy.
- Capital and Resources: Beyond mentoring, Vala Capital provided the initial funding to build and launch Revving’s platform. To be clear, the very earliest investment in the business was not via the EIS fund given how early stage this was, and the level of risk involved, but was instead from the IC members at Vala. The EIS fund then invested when the business was off the ground and there was sufficient proof of concept to envisage a truly scalable business. We also offered workspace and access to our network, allowing the founders to focus on innovation and growth without the operational burdens that other startups often face.
Through our venture building approach, Revving evolved from a promising concept into a fintech company with demonstrable revenues and significant potential. This has now positioned the company to raise additional capital from external investors, allowing it to follow a more traditional VC track. By backing Revving from its earliest stages, Vala Capital offered our investors a unique opportunity to get in at a lower valuation, increasing the potential for substantial returns if the company succeeds and ultimately exits. Early Vala EIS investors have already seen an 11.16x valuation uplift on their investment.
The Case for a Blended Strategy
While both venture capital and venture building have their advantages, we believe a blended strategy offers the best of both worlds. By combining these approaches, investors can build a diversified portfolio that balances high-growth opportunities with a more controlled, hands-on approach. This strategy also maximises the in-house expertise within our Investment Committee, which consists of successful entrepreneurs with multiple exits between them.
In a market where traditional venture capital and venture building each offer their own benefits, a blended strategy provides investors with a hybrid approach. The stories of TSG and Revving within our Better Ventures EIS portfolio show how these models can complement each other, offering different ways for companies to achieve their goals and set themselves on the best possible path to success.
For more information about the Better Ventures EIS, please click here.
