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I don't know how many entrepreneurs are actually on WSO but I know there are a few. Additionally I know there are some people that are just generally interested in how a junior VC team member assesses potential opportunities. First note that all VC's are different. We all have our own cultures and some may disagree with me. All I can say is to each their own.

Background:
I'm an analyst with a well know VC focused in a specific industry (i.e. - Energy, Healthcare, software, Information Technology, ect.). We evaluate opportunities from seed up through buyout with a sweetspot in the Series A-D rounds. Ok, enough about that.
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Things to think about before the call:

First and foremost, you must understand the purpose of an initial call is to simply learn about each other. 99/100 times you won't talk to anyone who can write a check. That means your real task is to educate me enough that I can effectively go back and present your business to my team in a manor that let's us have a constructive discussion. I can't stress this part enough. If you think you need to be good at an elevator pitch, you should see what I have to do. My job is to take the 25 or so 30-minute intro calls I do a month with startups and then pitch them to my entire team, ready with answers to any questions from business model to management backgrounds to competitive landscape. To get this point across I'll often start of a call saying "look, I'm an investor in the space and I talk to a lot of companies but please treat me like I know nothing." Sometimes this is actually the case too, especially if you're truly innovating. Give me everything you got - you want me on your side and it will play out well for both of us if I look polished and can easily communicate what you do.

If you have a deck, make sure you send it beforehand but don't expect me to read it. I squeeze sourcing calls in between portfolio management, active deal due diligence, industry analysis decks, ad hoc assignments for my MD's and a myriad other tasks. In reality I probably looked through it for 5 minutes, got some context and actually prefer to let you mold your own presentation.

Whether your company is a financial or strategic fit, do a little homework on us and have the basics of your angle ready. Ask me to take a few minutes and describe ourselves - it's easy for me - I've done it thousands of times. Also try and check out what types of deals we've done in the past. A lot of funds subscribe to the believe that they shouldn't do a deal unless it could potentially return 10% of their fund. So if you think your business can only get to a $50M valuation and your talking to a $300M fund, you're probably already pushing it. This isn't the case with everyone though so do your homework.

Once on the call:
PLEASE give us over the phone, via e-mail and in your deck an easy to follow 1-paragraph overview of what your business does. We all go back to our MD or team and have to pitch the company. It is one of the most annoying things going through materials multiple times just so we can effectively relay what you do in a few easy sentences. It's just like the dictionary - even when you know the meaning some words are just hard to explain until you quickly look up the definition one more time.

NDA's - don't ask on the first call. In the rare case we actually will agree to it, it will only be once we're doing due diligence. We just want to learn - we're not going to go out and talk about you. We're already marketing our portfolio companies 24/7 for potential exits. In the rare case you have a valid concern for needing a NDA we may play ball, but be careful.

The key areas I try to hit on a first call are:

The Team:

    What are your backgrounds?
    Namely have you done any startups before?
    Have you raised Venture Capital or Private Equity before?
    Have you successfully sold a company before?
    Why do you like this business? What are your goals for your role in it (Money? Building value? Passion?)

Your Product/Service:

    What problem are you solving?
    Who are your customers? How and when do you get paid?
    Where are you? (proof of concept, beta, selling, generating revenue, building version 2, fully developed?)
    What are the unit economics? Where will this product be in 5 years?

Talking Numbers:

    Let's keep this basic.
    How do you make money? What are the major drivers? How are you going to succeed here?
    How much are you raising? What are your next major growth milestones and how long will these take to achieve? Is this really going to get you there?
    If you have existing investors who are they?

Defense

    In your eyes what is the competitive landscape like in your industry?
    Do you have any IP? If so how defensible is it really?
    Who are your competitors; give me names and how you feel you stack up. What will be their response to your entry to the market?

The Market

    How do you define the market for your product/services?
    How big is the market?
    What are the growth characteristics? What are the main factors that could positively or negatively impact this?

What you can expect from me:
A good overview of my fund, our objectives and how we work with and help businesses post investment. I will also take some time to sell my fund and show why our money is not just green. In addition to this you can expect me to listen carefully and ask thoughtful questions. Overall, I understand this business it your baby and I will do my best to show respect and a desire to learn.

After the Call
We talk with a ton of people and the fund partners talk with even more. My goal is always to get back to you with at least preliminary feedback within 1 week. This just doesn't always happen though. If you don't hear back, please be persistent. If you don't hear back from me within 10 days shoot me an email. If you don't hear back from me for another week give me a call. Some VC's may disagree but I'll own up to it and apologize. Your time is valuable as well and fundraising always sucks as it is distracting to running your amazing business.

Final Thoughts
Understand there is almost zero chance we will invest in you. It's nothing personal, it's just statistics. My fund talks with 500-750 companies a year regarding a potential investment. From that we'll do 5-6 deals. This doesn't mean we aren't interested or can't be of help. I may be able to introduce you to additional investors in my network, help you with filling key hires, or we may just think it'd be better to re-engae in 6 months or so.

Most importantly just keep your head up. There are few I respect more than a well polished entrepreneur who can handle rejection with grace, say thankyou and continue on their fundraising path. I remember everyone I talk to and if our paths cross again I'll return all the respect you showed me the first time round.

Well, those are my thoughts. Hope this was helpful.
-Bambino

15

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Comments (20)

  • West Coast Analyst's picture

    this is great. Let's make sure this gets some attention during the week instead of uh late Friday night frontpage!

  • Ipso facto's picture

    great post. I'd be happy to see a few more posts on entrepreneurship in general

  • philosophizingphilosoraptor's picture

    Great stuff, loved the content, but the fucked up grammar kind of, well, fucked up the reading for me..."you're real task" ? "pitch you to our team in a manor that let's us"? "an elevator pitches"? And this is all in the second paragraph...
    Anyway great stuff, just wanted to point out the shit that makes my eyes burnnnnnnnn

    To the starving man, beans are caviar

  • TheBigBambino's picture

    ^Philosophizing -- haha fair points. I just pieced this together over a few weeks and finally the other night was just like 'it's going up regardless'.

    Glad you liked it guys - I'll try and do some more. Maybe like 1 big VC topic a month or something.

    "If you want to succeed in this life, you need to understand that duty comes before rights and that responsibility precedes opportunity."

  • NorthSider's picture

    Very insightful. Agree with the grammar distractions. +1

    "For all the tribulations in our lives, for all the troubles that remain in the world, the decline of violence is an accomplishment we can savor, and an impetus to cherish the forces of civilization and enlightenment that made it possible."

  • watersign's picture

    from what i understand, alot of VC's wont invest in people who don't have ivy/target backgrounds or a STEM background.

    What are my chances of getting funding if im the sole owner of the project and all the work ive been doing is being outsourced at the momet (what Dropbox did when they first started? )

    alpha currency trader wanna-be

  • In reply to watersign
    TheBigBambino's picture

    watersign:

    from what i understand, alot of VC's wont invest in people who don't have ivy/target backgrounds or a STEM background.

    What are my chances of getting funding if im the sole owner of the project and all the work ive been doing is being outsourced at the momet (what Dropbox did when they first started? )

    I would say it depends one 1) the VC you're talking to and 2) the industry you're innovating in.

    Personally I couldn't care less what school you went to. If you have a solid idea, can show me data that supports your thesis and I feel like you have a cable management team and strong market potential I won't even ask if you went to college.

    On the second part however, I personally like knowing a member of the management team has a STEM background. A reason for this - the quality and capabilities of the management team are one of the few things we can impact as investors, the rest is always just a best guess. Additionally we both know that once you get funding and start ramping up you will likely need to bring on a technical management team member anyways (again, depending on your industry). With that in mind I would argue you should find someone who shares your vision and build it together.

    That's just my opinion though - every VC is different and idk what you're working on.

    "If you want to succeed in this life, you need to understand that duty comes before rights and that responsibility precedes opportunity."

  • In reply to watersign
    TheBigBambino's picture

    .

    "If you want to succeed in this life, you need to understand that duty comes before rights and that responsibility precedes opportunity."

  • watersign's picture

    TheBigBambino:

    watersign:

    from what i understand, alot of VC's wont invest in people who don't have ivy/target backgrounds or a STEM background.

    What are my chances of getting funding if im the sole owner of the project and all the work ive been doing is being outsourced at the momet (what Dropbox did when they first started? )

    I would say it depends one 1) the VC you're talking to and 2) the industry you're innovating in.

    Personally I couldn't care less what school you went to. If you have a solid idea, can show me data that supports your thesis and I feel like you have a cable management team and strong market potential I won't even ask if you went to college.

    On the second part however, I personally like knowing a member of the management team has a STEM background. A reason for this - the quality and capabilities of the management team are one of the few things we can impact as investors, the rest is always just a best guess. Additionally we both know that once you get funding and start ramping up you will likely need to bring on a technical management team member anyways (again, depending on your industry). With that in mind I would argue you should find someone who shares your vision and build it together.

    That's just my opinion though - every VC is different and idk what you're working on.

    Thank you very much, this is why I love wall street oasis. If it werent for this place I would never have learned half the things I know about finance/business

    alpha currency trader wanna-be

  • mgotrade's picture

    Coincidentally, those topics you hit on your first call could also very well read as a general interview guide, if you change the context slightly. It would behoove everyone going into the interview to think about his or her "customers" (internal or external, depending on role), and how one goes about maintaining a competitive advantage and professional growth.

    "Death smiles at us all. All a man can do is smile back."

  • Crane's picture

    How did you land your job as a VC analyst? Were you a former entrepreneur?

  • TheBigBambino's picture

    Crane:

    How did you land your job as a VC analyst? Were you a former entrepreneur?

    I was lucky - no other way to put it. I'm planning to do an AMA post in the second half of July so I can elaborate more then. Short short version: Had some solid internships, some starup experience, networked constantly and got hired out of undergrad.

    "If you want to succeed in this life, you need to understand that duty comes before rights and that responsibility precedes opportunity."

  • stanfordstud's picture

    haha nice maybe entrepreneurship / startups can be a new section on this site...!

  • initialsCG's picture

    Pretty good synthesis. Absolutely agree that every firm is different. If I may, I would just add something many start-up entrepreneurs don't go into enough.

    Who are your customers? In too many cases, start-up pitches don't focus enough on this. Of course it depends on the stage of the plan: seed (which a VC will rarely do) early, growth, etc. But you've got be talking to customers at least, better if you're selling. The biggest selling point of any pitch is the quality and quantity of customer/client, strategic relationships, beta users, or anything a VC can get his hands on to feel comfortable.

    Even in a very early stage project, if the entrepreneurial team can show that the market is practically pulling this product or service, the deal becomes far more interesting. It's the best way to prove your thesis. If possible, I'd almost lead with this point (but this is only because I have a short attention span, and wont really hear much after the first 60 seconds) ... in reality my mind is already racing in many different directions about what I'm hearing. So, it is imperative the entrepreneur tries to manage this VC thought process as much as possible. For example, "We've met the development teams at Cisco, Microsoft, Intel a few times already and ..." Suddenly, my mind snaps back to concentrate more on what you're saying.

    I would prepare a list of customers (or potentials) that will talk with a VC. Those are the first people I want to talk to when doing my due diligence. Even better if the key customers could eventually acquire the company. Because many VC's will almost always want to see the exit before they invest.

  • CeleryBurnsCalories's picture

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