Without further ado, let’s jump directly into the points shared by VC investors about the venture capital industry.
1- There are many approaches to VC. Define your own game based on your firm’s strategy, what you value, what type of founders you like to work with, what kind of companies excite you, and what drives real returns. Discover your own taste and lane.
2- Find highly experienced and successful mentors to teach you the history and the art of VC. Look within and outside of the firm. Don’t be afraid to seek these mentors out, ask for help and build close and long-term relationships with them. Great investors seek out mentors.
3- VC is a capitalist endeavor. Your number one job is to make your LPs and partners money. That’s the primary reason why the fund exists. Sometimes this will be at odds with founders and other stakeholders. Don’t lose sight of that even though you’ll want to.
4- Your get paid to make a few exceptional decisions each year, so the vast majority of your time and energy should go into sharpening your lens of the world, refining your decision making framework, and spending time with founders.
5- Don’t expect to see every investment opportunity. That’s impossible and unrealistic, so don’t beat yourself up for missing deals. Instead, ask yourself, how do I ensure I see the right teams in the right sectors at the right stage? And then be relentless in that pursuit.
6- If there’s a bone in your body or a soft whisper in your head that says to pass, don’t ignore or resist your instinct. Just pass. There will be ample opportunities to deploy capital. Don’t forget it takes minutes to make a decision but years to live with a decision.
7- You have to say no 100x more than you say yes, so get used to that. It’s part of the job. Just because you decline a meeting or an investment doesn’t make you unlikeable or a bad person. Just be upfront and honest. That’s what people value.
8- If you tell a founder you’re going to do something, do it. No questions asked. Be impeccable with your agreements. Believe it or not, that’s rare. Keeping your word is how your reputation will be built over time.
9- VC is a lonely job even though your days are filled with meetings. Find ways to build connection and camaraderie both within the firm and your peers in the industry.
10- Challenging or pushing back on a founder doesn’t mean you’re not “founder friendly.” Tension and conflict are natural in startups. You don’t always need to see eye to eye with founders, but always strive to be respectful and honest. The best founders welcome healthy debate.
11- FOMO is a distraction and a drug. Ask yourself, am I excited about this company because it’s a great opportunity and a team I genuinely want to work with or because someone else has validated it? In other words, think for yourself. Don’t be lazy though you’ll be tempted to.
12- Going to large events, conferences and meetups is generally a waste of time. Choose those wisely. Instead, spend your time and energy in smaller, more intimate groups with a specific focus.
13- Building relationships with other VCs is important especially early in your VC career, but beware this can be a time suck and distraction. Know your objective going into these meetings even if it’s as simple as hanging out with peers you enjoy sharing and sparing with.
14- You’ll never regret blocking time for research, diligence and learning. Deep work is as important for investors as it is for founders and creators.
15- You’ll be tempted to be a generalist because it’s easier than having a POV and more comfortable to keep options open. Remember, it’s hard to cover everything and be great. Lean into 3 emerging sectors or themes you’re curious and passionate about and go deep for 3-6 months.
16- Don’t be afraid to ask your partners and colleagues for advice and support. You’re part of a team for a reason. Leverage their expertise and experience to help you make better decisions, provide better support, and level up.
17- You’re not proven until you begin to return capital. You’ll be tempted to think you’re good at this, as mark ups roll in and you’re validated in the short term, but nothing matters more than sending cash back to investors. Remember that, and stay humble along the way.
18- The only thing you can control in the VC business is the quality of your investment decisions, how you spend your time, and how you show up for your founders. The rest, including a company’s performance, rests on a multitude of factors largely outside of your control.
19- When you feel like an imposter, remember you’re not alone. Many VCs, even those who went to fancy schools and started companies, feel this way. This is a sign that you’re growing and expanding what’s possible. Appreciate your inner imposter but don’t let it consume you.
Related: Impostor Syndrome Meaning VS. Reality.
20- If you lose a competitive deal, feel the sting of the loss, reflect on what you learned, improve your process, and remember you’ll have another at bat. In other words, learn from the experience, move on and focus on the next pitch. That’s all you can do.
21- Fear is a natural part of the game, but don’t let it overwhelm your diligence and instincts when you love a company and team. VC is about upside maximization rather than downside minimization. You can only lose 1x your money, so go after what truly fires you up.
22- Work only with founders who are guided by purpose, have a unique vision of the future, can actually build and ship product, and have empathy for their users. In the early days, a relentless focus on the purpose, product and the customer is all that matters.
23- Your inbox should not be your pipeline and task list. As soon as that happens, you’re playing defense instead of offense. Build your own pipeline of companies and people, and review it every day. Remember, offense wins in venture.
24- When looking at an early stage opportunity, don’t obsess over what can go wrong. While understanding the risks are important, focus instead on what the company could look like if everything goes right.
25- Get a coach to help you with the inner game of investing. This will help you reduce anxiety, build self-awareness, process inputs more effectively, tap into your intuition, and have more confidence making decisions. You won’t regret the investment in yourself.
26- Build relationships with Limited Parters as soon as you possibly can. You need to understand the money behind the money to launch and scale your own firm one day.
27- Venture capital is not the optimal or superior funding option for the vast majority of companies. Remember it’s reserved for a very specific type of entrepreneur, business and market opportunity. Look for attributes such as high margins, technical moat, network effects, etc.
28- You’ll be tempted to “spray and pray” because you think more at bats will increase your odds hitting a home run. Remember, many of the best performing VCs go deep, invest in fewer companies with higher conviction, and lean heavily into the winners. Study the the math.
Related: Power Law in Business.
29- A few quick-fire reminders:
-Hardware is hard
-Margins and unit economics matter
-Network effects solve many problems
-True product-market fit is rare
-Don’t be afraid to invest in science projects
-Brand is rarely a moat
-Bust your ass for founders
Here’s what I learned that could save you years of headaches and a financial meltdown “chasing your own tale”.
1. VC Motivation: VCs dont care about technology or innovation they care about their financial returns and satsifying their LPs. Understanding VC motivation will give you a better sense of who might be a better partner at an early stage.
2. VC Urgency: VC downside is protected by their salary from managment fees, so no matter what they still get paid, so they have no real urgency to invest in your startup, regardless of what your angel investor told you about VCs.
3. VC Fund Value: Just because the VC website says they are a $75M fund doesnt mean they have that in the bank. VCs work under “LP commitments” and than resort to “capital calls” for pressing deals, which means that $75m fund might only have $10m to $40m on hand. So you need to understand that after your 2pm VC call, your VC has a 2:30pm LP call, asking for more money.
4. VC Free Money: If your co-founder says VC is free money, chances are you need a new co-founder because they dont understand the value of revenue and or capital. It’s not free money but more of a license to control your company’s trajectory and outcome.
5. VC Term Sheets: Founders get all excited about a term sheet because it has an allure of finalizing the capital investment. However, term sheets are not legally binding contracts they are more like letters of intent followed by months of agonizing due diligence work, peppered with costly legal negotiations that will most likely leave you in debt with your attorney, if you’re not careful.
Preferred stock, board seat and tiny clauses might mean that after your VC-backed exit you’re still a millionaire but you’re not exactly buying a mansion, more like renting an airbnb with a swimming pool on a Tuesday.