Portfolio Screens

Over the years, I’ve seen a bunch of ways to screen a venture capital portfolio looking for insights into risk, return, capital allocation, and areas of concern. I posted about one of them last week I call the Survival Matrix and people seemed to like that one so I’ve got another one for you this morning.

The Survival Matrix is all about risk, particularly financing risk, in your portfolio. It allows you to easily identify the companies that are going to have near term financing issues.

I call this next one the Portfolio Maturation screen. You plot annual revenues on the y-axis and a subjective measure of "traction" on the x-axis. It’s tempting to be overly quantitative with the x-axis and I urge you to avoid doing that. Just pick a numerical score for each company (1 to 30) that gives you some sense of how well they are doing in their attempts to scale into their market opportunity. If the company is a consumer facing web service, then uvs per month would be a good metric to think about. If the company is an ad network, then the amount of inventory they control would be a good metric. If the company is a enterprise oriented web service, then number of customers or channel partners or market share would be a good metric.

Here’s what it looks like (again this a set of make believe companies and does not reflect our portfolio or any portfolio I am aware of).


The size of the balls represents how much is invested in each company.

What you want to see (of course) is the balls move up and to the right over time. And you want to see them start out small and get bigger as they move up and to the right.

I’ve seen companies get to the up and right location different ways. You can move up in a straight line by adding revenues in parallel with scaling into your market. That’s the most typical way to grow.

Or like the light blue/green ball, you can move out on the x-axis agressively acquiring customers without generating revenues and then once you’ve reached critical mass, you can turn on the revenue engine and move into the desired location.

You can also scale along the revenue line first, like the orange and purple balls, and then try to gain traction. In my experience, this is the safest way to grow a business but also the hardest move to make. For whatever reason, a lot of balls get stuck in the upper left of this chart.

What you don’t want to see is the lavender ball stuck at no traction and no revenue and growing bigger and bigger. That’s a troubled company and you need to either figure out how to help them or find a way to get them out of the portfolio.

The other great thing about this screen is it shows if you are scaling capital into your best companies. We like to start with a very small ball and grow it over time as the company develops its business. If the balls are too big on the lower left of this chart or too small on the upper right, then we are not doing a good job of capital allocation and that’s a problem.

I hope you like this screen. Let me know what you think about it in the comments please.

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Comments (Archived):

  1. stephanelee

    Very interesting as always.What do you think of having within one company :- Product A going up on the Y-axis- Product B going right on the X-axis- Product A being monetization/upselling of Product B- Product B being lead gen for Product AWould it make sense ?

    1. Rohan

      That sounds like Freemium model.

    2. fredwilson

      yup, that’s the freemium model in action

      1. stephanelee

        I had a more synchronous model in mind.Freemium is more like “blue ball”, being free until sufficient traction, and then offering premium version.So no revenue until premium takes off.

        1. fredwilson

          I think there’s more than one way to do freemium and your way seems smart

          1. stephanelee

            Having simultaneous progression on both axis creates a comfort zone (revenues AND traction).The Open Source model works that way : Product B is (free) software and Product A is software integration.

    3. David A

      Makes sense. That’s what we’re doing at http:heekya.com . Like the graph Fred

  2. jefftala

    It would be cool to see this chart animation using Google’s motion charts. Seems like a perfect application for it. http://documents.google.com

    1. fredwilson

      Good idea

  3. andyswan

    “The size of the balls represents how much is invested in each company.”That sentence is just too awesome.

    1. shafqat

      I agree.. surprised no one else picked this up. Another great model by Fred, but this time with a one-liner for the ages.

      1. andyswan

        It definitely took balls to publish that model.

    2. fredwilson

      That made me laugh andy!

  4. vincentvw

    It’s definitely a good way to visualise it. Essentially, you’re talking about it optimally being a bootstrapping/minimal burnrate model, only making (big) investments, when actual revenue comes in. The perfect web-model, and, to some degree, non-web model.

    1. fredwilson

      Its very much our investment model. Doesn’t always happen but its what we shoot for

  5. headlemur

    Fred, Love your stuff, but, don’t you think that bubbles on a financial chart especially one dealing with web companies is a little counter intuitive? Little money bags might work better

    1. fredwilson

      As andy said, we like to call them balls 🙂

  6. AYPark

    This is very interesting. I think if we saw the trajectory of each of these balls/companies based on their business model, it would be helpful. As in, if one company is going to scale X first, it’d be interesting to see a dotted line to indicate that it’s traction is “on strategy” with the dotted line kinking up after it hits a certain point. Of course, I know this graph is just illustrative and it makes a great point.

  7. Jay Jamison

    As an entrepreneur, I find your visualizations helpful to understand how an investor is looks at my company vis a vis his portfolio.I’m curious whether the elements of time or % change over time in users or revenue are able to be captured on this chart, potentially by color (high % growth rates have intense green color, negative growth intense red).

    1. fredwilson

      I think you’d need a 3D chart to capture time on the other dimension

      1. Jay Jamison

        or you could just pull the date of investment and put it in the circle, under the name of the firm.there’s gonna be text somewhere on the chart. 🙂

      2. Jess

        That’s where the Google Motion Graphs would come in (to show movement and investment over time).

  8. MartinEdic

    “For whatever reason, a lot of balls get stuck in the upper left of this chart.”Isn’t this the Crossing the Chasm problem? You get the early adopters then get stalled when reaching out to the broader market. If I were a VC, this is where I’d be watching very closely for how they are going to execute, marketing-wise.Also, we do both a Freemium approach for lead generation and a paid version (we’re B-B so this is a little unusual) so we’d probably need to change the Axis criteria.I laughed out loud about the Bigger balls statement!

  9. Alex R

    I’m “starring” all of these models in my google reader, so I have them for a later date… it would be great if you bundled them all together into a “VC evaluational toolkit”.

    1. fredwilson

      Somehow I think the web is going to do that for me

  10. Sean W Roach

    I’ve always been a big fan of the bubble chart. The sizing is a great visual and adds that extra level of comparison.

  11. hv23

    Not sure if this is already the case, but I imagine it’d also be helpful to color-code the chart in various hues by date of investment (light to dark) to get a better sense of where the companies stand in relation to each other.Very interesting model in any case- Fred, how often do you and your partners look at such screens and track portfolio performance?

  12. Keith Teare

    Awesome Fred. What tool did you use to create the graph?BestKeith

  13. Edwin Khodabakchian

    This is very interesting (and simple) view point/tool. Thanks for sharing.

  14. Derek Skaletsky

    Great chart, Fred. Love it. Obviously, you could do another chart showing “market traction” on the y and time on the x to show you how fast your companies are executing.You could also do the same chart with the size of the balls (this is too fun) reflecting burn rate or time to zero cash. This would help you visualize which ones to throw more $$ at.But you say that you don’t want to see a ball which is “too small on the upper right” because that would indicate that it’s undercapitalized. I would think that ball would represent a smart investment and great execution. With little cash, they’ve achieved revenues and traction. That’s good, right?

  15. Brett Tilford

    Wow tis is avery helpful tool for tracking a companies health. I think it’s interesting the different strategies you can use to go up and too the right.

  16. Ivan Kirigin

    Using 3D balls is misleading as you’re increasing radius linearly (I presume), while the volume increases at a cubic. Perdy though.”And you want to see them start out small and get bigger as they move up and to the right.”I had to remind myself this is a measure of a portfolio for VCs. As a founder, I’d love to move the ball up and to the right without making it bigger.The geek side of me is having trouble with the unquantified x axis. Considering how arbitrary and misleading stats can be, a gut ranking is probably the best bet.

    1. andrewparker

      Agree on the unquantified x axis issue, but I think it’s the lesser of all statistical evils. How do you compare traction of a entreprise sales model to a messaging platform to a search engine, etc…

    2. fredwilson

      So true about the founder’s incentives. We respect that and are happy if that’s the outcome

  17. SteveF

    It’s a great visual, not just to watch the portfolio, but for management to show employees how the company’s investors view the company’s progress vis-a-vis other investments. I also agree with the comment that, from a founder’s perspective, I want the ball to be as small as possible at any location on the chart and not grow too large as it rises to the top-right.

  18. mgx

    Google’s new visualization API would be perfect for this. http://code.google.com/apis…Using the motion chart you can capture the delta over time which would itself reveal volumes about the underlying trends.

  19. darrellross

    Two tips for this chart:- No 3D……eliminate the reflection. 3D elements in a chart cause, from a cognitive science POV, interpretation errors.- Use one color across all bubbles, UNLESS you are trying to use color to represent a fourth data element. In that case, use gradients of the same color. For example, use 4-5 shades of gray to illustrate 4-5 bands of runway (0-6 mos, 7-12, 13-18, 19+).BTW – this chart can be built in Adobe Flex quite easily. My firm has built them for several business apps.