Funding 101: Prep


Profile of a Venture Capitalist

Contrary to popular mythology, venture capitalists are just regular guys who make bets on big opportunities like anyone would in the stock market. They do everything in their power to make sure their bets pay off, but ultimately, even the best ones miss far more often than they hit.

A venture capitalist is charged with finding a relatively small number of investments (usually less than a dozen per year) to make over a 7 - 10 year period. While the venture capital firm may look at thousands of deals in a given year, they can only pick a handful of deals to pursue.

Writing Checks is Easy. Managing Companies is Hard.

The reason venture firms can only make a small number of investments is because each investment must be personally managed by one of the Partners of the firm. Since partnerships tend to be small - less than a dozen partners - the number of venture capital portfolio companies that they can reasonably manage is also pretty small.

Therefore you're really competing for the venture capitalists' time, not just their money. They can easily write more checks, but they can't allocate any more time. They need to be sure that your investment is worth segmenting their time even further, reducing the amount they can spend on existing investments as well as new potential investments.

Know Their Focus

Investment deals are complicated, and unlike public company stocks where you can judge a potential investment based on numeric values, an investment in a startup company can only be gauged based on how well you understand the sector that company is in.

Be certain that whomever you are meeting with understands your industry. Don't assume for a moment that because they "know about business" that they are the oracle of every industry. Venture capital Partners to be highly focused on particular market segments where they have a great deal of domain expertise.

Your best bet when selecting venture capital firms to pitch is not only to find out where the firm tends to invest (you can find that in their portfolios) but also where the particular Partners within the firm invest. You'll get far more traction with a Partner who knows and likes your industry than one who will spend more time trying to figure out what you do rather than why you're special.

Associate or Partner? It Matters

Amongst venture capitalists, titles matter. It's not due to ego (although it does come into play) it's due to decision making authority which matters to you as the entrepreneur.

While there are a handful of titles that are thrown around, such as General Partner and Principal, the one that matters the most is whether the person you're talking to is a "Partner" or not.

Venture Capital firms are setup as partnerships, with each partner typically getting a vote in whether a new investment is made. Structures differ a bit from venture firm to firm, but many require a unanimous vote in order to make an investment decision.

For this reason, unless you're getting buy-in at the Partner level, you're not over the goal line.

The Role of the Venture Capitalist Associate

Associates are the entry level candidates at a venture capital firm. Since there are very few firms, these jobs tend to be highly coveted, so even an entry level Associate will tend to be pretty polished.

Entrepreneurs often get excited when a venture capital firm makes and unsolicited call asking about their business. They immediately assume that the firm is interested in making an investment. The truth is they may be, but more likely it's an Associate looking to drum up new business.

Generally speaking, if you're getting an unsolicited call from a venture capitalist, it's from an Associate of the firm. The first question you should politely ask is "What is your role at the firm?". If they don't use the word "partner", it's most likely because they aren't one. Partners at VC firms usually make it very clear they are partners. Everyone else dodges the question.

The Golden Key: A Partner

Within the land of venture capital giants, the Partner reigns supreme.

The Partner has the ability to endorse your deal to his partnership, which is exactly the goal of all of your pitch meetings. The Partner is the person who will most likely join your board. When things go really well or really horribly, this is specifically the person that you're going to be married to through the entire ride.

Finding the right fit is more than just "anyone that will write a check" because in fact any venture capital firm can write a check. The right fit is a specific partner that truly understands and believes in your business and will go to bat for you when you really need it.

And trust us, at some point you'll really need it.

Looking for a Venture Capitalist?

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