The Outsourced IT Managed Service Model for Venture Capital

When it comes to providing technical IT support for the Venture Capital society, breaking into the market is very difficult. But once you do, the return on the invested time is well worth the effort. I have spent a considerable amount of time speaking with Directors of Operations, CEO’s, CFO’s Controllers, etc., trying to explain to them the benefit of switching to a managed service’s contract. Even some cases where I have been able to set up meetings for our CEO to meet with them and run through the specifics on how we would support their network, the VC has generally decided against it. It seems that it comes down to that the fact that the Managers of the VC aren’t spending their own money but rather their investors, so they don’t’ care how much they spend on IT. From an outsider’s perspective, it seems that they believe there is a direct coloration between how much you spend and the level of support you receive. That may be the case in many situations, but it is really not true when it comes to IT. With all of the new remote support capabilities available, outsourced IT providers have been able to provide a high level of service that is constantly on par with having someone in-house if not better.

I was talking to one VC in particular and their situation was quite interesting. They are working with a non-managed service support consultant and they are spending a considerable amount of money. The amount they were being billed at and, considering how large their network is, they could of hired two full time IT managers onto their staff, but instead they chose to hire a traditional IT consultant who worked on their systems part time. In addition to paying the expensive hourly fees, they also had to pay for the consultant’s parking in downtown San Francisco, which is by no means cheap. When we went out and provided them with a MS contract that is 1/3 the cost of what they were spending now and would provide them with around the clock remote support, on-site support when needed, proactive maintenance and assign them a Chief Information Officer who will help them understand their network better, they weren’t comfortable with making a change.

At what cost does their excess spending outweigh their comfort on one element of their business that doesn’t necessarily make them any more profitable? Yes, having an unstable network can be very costly, but having a stable one won’t make you any more profitable. The best practice is to be as efficient as possible; spend a specific amount that is tailored for your network. (Thus every one of our contracts is based on the exact make/model of our client’s network.) The main reason why MS companies have been gaining favor and have been able to grow so rapidly is because they have devised a model that is essentially less than what everyone spends on a full time IT support and yet provides them with much better overall support.

While I appreciate their loyalty to their current provider, at some point you have to wonder under what mindset they approach their support. It really seems that the VC mindset is much different than any other small business because financing is not usually a problem. You are talking about companies with millions and millions of dollars to invest, so spending more on IT support really isn’t a concern. The few providers who have been able to break into the market are defiantly making plenty of profit. “It really seems like breaking into the Finance industry is like joining an elite college fraternity, once you are in you will make a lot of contacts with powerful and rich people.”