A portfolio review is more than just a routine check-up for a venture capital or private equity firm; it’s a core ritual that shapes future investment decisions and influences how a firm supports its portfolio companies.

In a portfolio review, the firm’s partners typically go company by company, assessing financial metrics, comparing actual results against planned projections, and discussing qualitative updates around product development and team-building. However, as this industry adopts tools for centralizing its data, a new generation of technology-forward firms is redefining the way these evaluations are conducted.

The Traditional Approach

The conventional methodology for portfolio reviews has focused on evaluating each company across a variety of factors on a regular basis (often quarterly), including:

1. Financial Performance: Measuring revenue growth, profitability, cash and runway metrics, and other key financial indicators.
2. Performance Against Plan: Evaluating how companies are performing against their operational and financial plans as well as the firm’s internal underwriting.
3. Product Updates: Understanding advancements in product development and market reception.
4. Management Assessment: Reviewing the capabilities and effectiveness of leadership teams.

These factors are critical, but they lack a broader context that could provide deeper insights into a company’s performance.

Why Benchmarks are a Game Changer

What’s missing from the traditional approach is real-time market context, especially as industries shift rapidly amidst economic turbulence. Using tools like Standard Metrics’ Global Benchmarking product, forward-thinking VC and PE firms are now starting to programmatically integrate external private market data into their portfolio reviews. For example, a firm can look at how a company’s growth and profitability compare to privately-held peers based on data from the most recent fiscal quarter instead of evaluating it in a vacuum or based on heuristics.

Here are a few reasons why this methodology is particularly compelling:

1. Enhanced Contextual Understanding: By situating a company’s performance within the market landscape, firms can identify trends, challenges, and opportunities that might otherwise go unnoticed.
2. Informed Management Support: Providing portfolio companies with insights derived from real-time data can empower management teams to pivot strategies more rapidly and effectively.
3. Proactive Decision-Making: With access to real-time data, firms can make more informed, timely decisions regarding their investments—whether it’s deciding to double down on a promising company or re-evaluating a lagging investment.
4. Competitive Advantage: Firms that adopt this data-driven approach will have an edge over those that stick to traditional methodologies. Understanding market dynamics in conjunction with internal performance can lead to better strategic planning and ultimately, higher returns.

A standout example of this innovative approach can be found in the recent work of our customer 8VC, which they described in detail in a blog post titled Introducing Global Benchmarking from Standard Metrics. 8VC evaluated their portfolio companies against real-time market data and benchmarks, transforming the traditional review process into a more dynamic and informed assessment.

8VC was able to draw clear conclusions from their benchmarked data, not just on individual companies, but on entire segments and sub-strategies within their portfolio. For example, they were able to carefully examine the revenue growth performance of companies they had incubated, identifying that early companies were growing slower than peers but later-stage companies began to significantly outperform the field. This is a meaningful conclusion that would have otherwise been unavailable to the firm, and we expect our customers to leverage these types of findings from benchmarks for internal planning, fundraising from LPs, and more.

Conclusion

As the VC and PE landscape continues to evolve, data-driven portfolio reviews will become the industry norm. The innovative practices being pioneered by firms like 8VC signal a shift toward a more comprehensive approach that integrates internal performance metrics with external market realities. Embracing these changes will be essential for any firm looking to maintain its edge in an increasingly competitive environment.