As the title implies, there will not be any groundbreaking insights here. But as I was trying to summarize my first week I figured I would share some of the things I have learned during this short but intense and exciting period of time. In a couple of weeks I will probably take all of this for granted, so here’s the last chance to present an outsider’s experiences from the inside of the industry.
Investors move fast…
My first day featured meetings with co-investors to discuss exit options, decision meetings to decide go/no-go for new investments and portfolio updates. VCs spend their time on numerous different issues (or as Foundry Group’s Partner Brad Feld puts it: “Something new is fucked up in my world every day”) and in that regard it is similar to management consulting — with the big exception that VCs make investment decisions whereas consultants advise.
… But Investments Take Time
Even though VC is a fast-moving business, investment decisions are not made light-heartedly. Even early-stage investments are subject to extensive screening, which means that founders looking to raise capital need to make initial contact well ahead of their deadline. If you pitched on a Monday, you really can’t expect money in the bank on Tuesday. Investment processes obviously look different depending on the firm, but generally they include preview material, analyses, investment memorandums, term sheets, due diligence and contracts. At every stage there is also typically a gateway meeting, i.e. a go/no-go decision to determine whether to move on to the next phase.
This process is also one of the reasons why VCs often come from a business/finance background combined with operational startup roles. As a VC you need to be able to see an investment through all the way from initial meeting to an exit — at which time the company has hopefully grown into a leading international actor.
You Need to Know Your VC
Raising capital is like applying for a job — only more complicated. When you apply for a job you need to tailor your application for the specific position and employer. The shotgun approach in which the same generic application is sent out to hundreds of different employers usually do not yield great results.
The same thing is true with fundraising. Not only do you need to research the firm itself and its investment strategy, you also need to know which individual investor at the firm is the most relevant and whether the timing is right. Looking at the website, social media, previous investments and networking usually helps a lot.
Reputation is Everything
Most VCs are dependent on three major groups of actors to be in business — Limited Partners (the institutions or individuals investing in the VC fund), Founders and Co-investors (other VCs/angel investors etc.).
As a VC, you really need to be respected by all of these categories to stay in the business long-term. And by long-term, we really talk long-term. It is not uncommon to hear investors refer to other investors by mentioning deals that were made back in the 80’s or even earlier. The VC scene is small and investors remember every deal they ever made — or didn’t make.