NPS in Venture Capital

Net Promoter Score (NPS) is used extensively across industries to measure customer loyalty and as a proxy for customer satisfaction. It has been adopted by some of the biggest companies in the world - from banks to airlines to SaaS companies.

NPS is a business tool that has become ubiquitous in mainstream customer relations. The idea is simple: to measure customer loyalty and satisfaction, you ask people how likely they would be to recommend a product/service to others on a scale of 0-10. You then segment the responses into three groups:

• Detractors: Ratings of 0-6
• Passives: Ratings of 7-8
• Promoters: Ratings of 9-10

The NPS score is calculated by subtracting the percentage of Detractors from the percentage of Promoters (Passives are ignored). For example, if your survey results in 30% detractors, 50% passives, and 20% promoters, your NPS would be 20. 

According to Bain & Company, an NPS score above zero will result in growth in your business; a score above 50 means you’re doing very well. In our experience, most industries average between 20 and 50%.

While NPS for B2C companies is fairly common, it has only recently taken off in the B2B space. In fact, it’s recommended that Venture Capital Funds use NPS as a diligence criterion for investing in new startups. 

And yet, very few VCs use NPS themselves and seek feedback from their portfolio companies. One would think that when you're putting your money into someone else's company, you'd want to know what they think of you! How else would you know whether or not you are adding value to their company? And if you aren't adding value, wouldn't you want them to tell you so?

NPS can be an awesome way to understand the quality of the relationship between early-stage investors and founders. Also logically, investors that regularly ask their portfolio companies for feedback have more successful outcomes—and NPS is one way to make sure you're staying on top of that feedback loop. 

Learnings/ Insights from the NPS Survey at Malpani Ventures:

We conducted an NPS survey to seek feedback from our portfolio founders and the results were insightful. While the most common way to run the NPS survey seemed simply to ask: "How likely are you to recommend Malpani Ventures to fellow founders?" – We were not convinced. This question suffers from the fact while capital is now available more easily at the early stage, most founders are not in a position to say ‘no’ to early capital. 

At Malpani Ventures, we believe that it is important to measure the impact of our value add and responsiveness as investors to improve our performance. While at the same time, we did not want to make the survey an exhaustive exercise for our founders. Our objective was to run this as an anonymous survey so that we receive candid feedback. Seeking personalised qualitative feedback would 'out' the founders and limit their responses.

In the end, we settled for 10 questions that would not take more than 3-4 minutes to respond:  All questions (except one) to be answered simply by providing a rating between 0 (lowest/ not satisfied) and 10 (highest/ extremely satisfied)

Our overall NPS score was 46! In our view, this is a good score and not a great one! 

Key feedback we received on our survey centred around the following:

• Improve peer to peer engagement in the portfolio
• Connects with sector experts
• Increase in-person meetings

We intend to incorporate the above in our plan for the next year and hit a target NPS of 50+ by next year! 

If you would like to know more about our NPS survey or are keen to work with us as investors, do write to me (Dhruv) or Siddharth