AMA: Venture Capital Co-Founding Partner

Good evening everyone! (or whatever time it is in your time zone),

I wanted to open up some time for Q&A with the WSO community. WSO was a very helpful tool in helping me pursue internships and gain knowledge on particular areas in finance, specifically IB, PE, and VC related. I believe it is only just for me to give back by answering any questions you may have. Unfortunately my old account got erased some time ago, so I had to quickly create a new one to get back in the WSO game.

This post is going to be long as hell, so put on those reading glasses, pour yourself a stiff one, and enjoy!

My Background:
It all began during my freshman year of college.. I went to a non-target state school that did not have a huge IB/PE presence, which made things tough, but had an exceptional finance program. While most of my peers were getting shit-faced Wednesday-Saturday, I put myself forward in pursuing as many finance related opportunities as I could. In the fall of my first year in college I gained the courage to go downtown to a finance internship fair. I stumbled around expecting to not receive anything out of it but the peer concept of in-person interview practice and connection establishment. I came around to speaking with a partner at a middle market PE fund that was locally based in the city. We exchanged contact information and I surprisingly received a call the next week inviting me into the offices for an interview. At the time, I knew very little about PE, besides the fact that I was great with numbers and wanted to get into something investing-related. The interview came quick and after a week of teaching myself everything possible about the industry in the short amount of time I had, I did relatively decent on the technical aspects of the interview. I have always been an entrepreneurial-minded, talkative, and ambitious individual, so the personality-based questions came easy to me.

A few weeks later, during a Christmas break shopping spree I received a call from the MD whom I interviewed with. I got offered a position for an internship during the winter semester. This was a shocker to me and of course I immediately accepted it.

During my time with the firm I spent a significant allocation of time connecting with investment bankers trying to source deals to review. I would hop on the phone and connect with various MDs around the nation and pitch our criteria to see what they had in stock. After signing an NDA I would then receive an OM (opportunity memorandum) which laid out everything I needed to know (for the most part) about the company. Grant it, everything these OM's had to say were positive since the investment bankers are like real estate agents - they aren't going to put a damper on their own deal. I would present the deals that I thought were good at our weekly meetings where the board members and partners would rank which deals we wanted to pursue.

If one (or more) of mine were picked I would setup a broker call to receive more info on the deal, then submit a preliminary valuation (IOI), then eventually press for a (LOI) where I would build the LBO months later.. Needless to say without getting into too much detail (kinda already did but there's no going back now) I got the opportunity to work on a few buyouts and had some incredible exposure that I am very grateful for.

I continued my internship the next following years, where I eventually left and pursued an internship my junior summer a bulge bracket PE shop. My experience there was a huge resume builder and emphasized my background. Later into the summer I got put on a job to work with the firms new fund of funds division on early stage investments. At this point I instantly fell in love with the idea of venture capital. Analyzing the VCs to invest in showed me truly how profitable the industry was, not to mention the risk-factor behind it was stimulating. Not only that, but the fact that these funds could step in and make an incredible idea that otherwise may have failed turn into a Facebook acquisition was just incredible.

Now its important to briefly go back in time. I had always loved starting my own little ventures throughout highschool. I started 2 businesses and had one decently successful one that I sold off for a small amount to an acquaintance when I went off to college. Now fast forward. I finished the summer with an offer to continue in the fund of funds position and I accepted it. I worked that position for about a year in a half. The last 1/3 of my time in that position I began founding my own venture fund with 3 other partners of mine that I had met in college and had worked with who I knew would be valuable assets to the team - that was what was important - the team you raised. We started raising capital and were able to reach an amount that we saw was enough to start calling in to make early seed investments in tech startups.

It has been 2 years since the found of our VC fund, and needless to say, I have absolutely no regrets. I love the work we do and the startup founders we work with. Seeing these small startups grow into something they deserve to be is truly rewarding.

Before I ramble on too much, I'll end it here. Feel free to shoot away with questions! Thank you guys for your time for reading this, and to everyone out there who may have helped me indirectly through your posts in the past.

Regards

Comments (26)

Apr 27, 2016

As a senior in high school who runs a bunch of small ventures, I found your story very relatable! Thanks for taking the time to post

1) What majors/concentrations would you recommend a student going to an undergrad b-school who is interested in entrepreneurship/startups, but realistically will want to end up in VC/PE or consulting?

2) What colleges have you seen most recruited at your workplaces, or which ones do your firm & other VC firms recruit from the most? I am a high school senior struggling to decide between a few b-schools.

Apr 28, 2016

That's impressive that you have been involved in startups at a young age - it is all upward momentum from here on.

1) I pursued a double major in finance and economics. This gave me the technicals background as well as the economical side the table to advance my knowledge on market drivers. My real exposure came from my initial internship in PE. PE and VC often relate so I began my research of the VC industry. A successful venture capitalist is someone who is VERY entrepreneurial-minded. This is important because startups are going to want to partner with a VC who has been in their shoes, so keep up the good work.

2) I have seen recruiting from all over the place. Obviously, the ivy leagues are the ones who get the most attention due to their recognition and reputability, however, that doesn't mean they are better than someone who doesn't go to an ivy league school. Networking, proving yourself, and gaining relevant experience are the most important things recruiters look at. VC recruiting is very niche and isn't very frequent. However, when we open up opportunities we enjoy reviewing resumes and applicants from any university. We look more into their personality, ambitions, and experiences more than the school they attend. However, this doesn't mean education isn't important, because GPA and credentials do matter and are important. Conclusion: choose the school you see yourself best fit in, not the one that others see yourself best fit in. You will naturally prosper in an environment that you find fitting to yourself. Network a lot, and make yourself stand out and you will quickly learn that it isn't all about the school.

    • 2
Apr 27, 2016

It's incredibly hard to raise capital, especially for first time funds and especially in VC. For someone with your background (no operating experience other than small side ventures, no experience in growing a company and having a big exit, no direct investing, etc.), how were you able to even get any investors to invest in the fund? It makes it sound like a very, very small seed stage fund.

Apr 28, 2016

Since I cut myself off I'll elaborate a bit more to help answer your question, especially since I left out quite a bit of information. I had several experiences with buyouts and strategic exits during my time in PE. I often assisted the portfolio management team with governance and identifying growth initiatives for our portfolio companies.

Yes, we are certainly no mega-million dollar VC fund, but you have to start somewhere, and it is important to realize that in this industry. I don't want to get too much into detail with numbers, but we have enough capital to make approximately 40-60 sufficient investments with our current committed capital. We raised our initial fund phase through family members, friends, and high net-worth peers. Having experience in capital raising while working for the fund-of-funds division I met a lot of wealthy individuals and established keen connections with them. A lot of cold calling takes place to try to swoon investors over to give you their money. We worked diligently with the initial phase of money we had to prove ourselves and that we could grow their investments through our models and growth initiatives. All it takes is that one investment to skyrocket and you've got yourself some proof to share with prospective investors.

Thanks for the question! It was a good one. I hope I cleared up some confusion.

    • 1
Apr 27, 2016

Good stuff. That sounds like an awesome opportunity, best of luck.

    • 1
Learn More

9 LBO Modeling Tests, 10+ hours of PE Cases and 2,447+ interview insights across 203 private equity funds. The WSO Private Equity Interview Prep Course has everything you'll ever need to break into the competitive PE industry. Learn more.

Apr 28, 2016

I'm confused. You were sourcing deals as a freshman in college?

Apr 28, 2016

That's correct. During my internship at the PE firm one of my main tasks was to constantly be on the phone with investment bankers sourcing deals that met our investment criteria. It's a very repetitive task, but is essential to the PE firm's growth.

Learn More

9 LBO Modeling Tests, 10+ hours of PE Cases and 2,447+ interview insights across 203 private equity funds. The WSO Private Equity Interview Prep Course has everything you'll ever need to break into the competitive PE industry. Learn more.

Apr 28, 2016

What are your thoughts on convertible debt vs equity? Local accelerator vs YC? And how to get in front of VC to pitch your startup?

Apr 28, 2016

Great questions! I'll answer them separately for you more so in the eyes of a startup, since that seems how the question is structured.

1) There are various ways to fund a startup, and a lot of founders of startups are not genuinely aware of these various financing structures and their costs and benefits - So that is important for a startup to know. Since your question just pertains to equity and convertible debt I will focus on those two. Equity is the typical go-to for a startup as it is very difficult to predict cash flows at such an early stage. This being said, in some cases flooding a startup with debt is a tough bet, as forecasting the repayments of the debt is a burden for startups. When we invest our equity into a VC we secure certain percentage stake in preferred stock based off of the pre-money worth of the startup. Preferred stock vs common stock for us is important because it secures higher interest and liquidation preferences. In comparison to interest rates on convertible debt, equity financing is the route to go as the payback terms are a lot more forceful and risky. In the eyes of the startup, equity is an advantage as it doesn't necessarily have to be "repaid." Not to mention, equity financing sets an equity valuation on your startup, so you know where your current worth is at for future rounds of investments or even acquisitions. Now, this can be either a positive or negative thing depending on the valuation. The major downside to equity financing is the complexity of the structure of it.
Startups would prefer convertible debt in situations where they want the option of paying back the cash and being done with it after a period of time, versus taking in permanent equity capital as leverage. Convertible debt is much quicker than the equity financing route and is often cheaper due to ownership dilution in the previous method. The major disadvantage is that convertible debt has a strict limited time frame where it needs to be repaid, on principal and interest, or obviously can be converted into equity, which can also be costly down the road for a startup.

  1. Accelerators are a short term "kickstarter" for startups. They typically only provide minor oversight and small investments at a very early stage and are only involved for 90 or so days. They usually provide key resources to kick the startup into drive so they come the next round of investors, the startup is prepared to seek larger investments and more active control. Accelerators have become very popular over the past few years and are actually relatively simple to start, given your level of experience, team, and funding capabilities. The larger venture capital funds, or "Incubators" are more in it for a longer term. They provide larger sums of investments at early-mid stages, and sometimes seeds, and are involved with the startup for typically longer than a year. Depending on the fund, sometimes they don't really play a key role in the startups operations, but are simply there to provide capital to fund the ventures.
  2. A lot of VCs, include our fund, have areas on our website and divisions that allow startups to reach out to us to setup a time to talk more about their startup. We do a lot of our own sourcing as well, but often times startups do connect with our team first. During a pitch, we like to keep in relatively informal so the environment isn't uptight. Growing a startup is a fun experience, so we aim to provide a collaborative, engaging, and interactive meeting/pitch process. The startup will come to the meeting prepared with a "pitchbook" or deck of slides/presentation of all aspects of their startup. In it, they will include what their business is about, their team, structure, what the market problem is and how their startup aims to solve it, current financials or money invested into the startup (via the founders or other outside investors), what they aim to seek in capital, growth initiatives they have identified, how they want us to help them get to the next level, etc. After the presentation there is always a ton of Q&A from both sides of the table.

I hope this helped. I would be happy to answer any follow-up questions you may have.

Apr 29, 2016

First off, thanks for doing the AMA. As always, appreciate the time and effort. Now onto my question.

Based off your post, you sound like you're just a few years out of undergrad... Maybe 25/26. I have two questions:
Considering your young age, how are you able to convince investors both to:
A, Convince investors to pool capital for your fund
B, Convince investors that you and your partners have the expertise to run a successful VC. Why should these investors give you capital, when there are tons of other successful VC's out there with proven success and decades worth more of experience.

Cool writeup. I've enjoyed this greatly!

Apr 28, 2016

Thanks for the questions, I always enjoy giving a helping hand.

Venture capital is a young industry, meaning teams are often comprised of individuals in their mid 20's+. Grant it, there are a lot of VCs out there with partners and teams comprised of much older individuals who have been in various industries within finance for ages. I believe that having a young team isn't a bad thing, and frankly it is one of our competitive edges. A lot startups are founded by students in college, or freshly graduated individuals, and the fact that we can relate to them over the basis of age and our generation is important. This alone forms a strong connection and makes the startup really enjoy working with us.

A. The awesome thing when forming a fund is that investors wont be deceptive of your age when they realize the exceptional numbers you can produce. Numbers talk for themselves and that is the only thing investors look for. Now, launching your first fund is the hardest part about it because you do not have those numbers to prove that you are successful, so you just have to start small. Our partners started by investing our own money into the fund to prove that we were all in. With our pooled money alone, we could make a few early seed investments, but we didn't yet. We started the capital raising process by encouraging family members and friends of family who were wealthy to trust us with their money. That is what it is all about - trust. We were ballsy in this because we guaranteed them that we could return more than their traditional investment accounts through some financial adviser ever could. It was a long process, but we accepted whatever we could get, and it all compounded eventually. Now that we have made successful investments, we have proof to cold call high net worth individuals and institutions to prove to them that we have the potential.

B. Being still an early stage VC, this engaged investors because if you're not first, you're last. The investors who get into a fund first are the most successful in regards to the returns they receive. In exchange for that, they are also the most speculative. I think that the biggest factor that convinced our initial investors over was our ambitions and our teams' strong entrepreneurial background. We all have founded a company in the past and either sold it, still own it, passed it on, or pursued other endeavors. Getting the investors to give you their money is like being a car salesman - you have to press them and be aggressive in a way the shows you aren't messing around. And if they doubt you, you make them aware of how they are missing out or making a mistake. It's all about convincing. It's an adrenaline filled process, especially because we're young VCs approaching dinosaurs in the industry with insanely impressive pasts who are often intimidating, but you just have to be relentless back and not be afraid to prove yourself.

I am glad you enjoyed the post. Feel free to message me with any other questions.

Apr 29, 2016

This is cool stuff. My roommate is working with a VC up in Memphis doing something with a biomed product so I've been learning more about startup culture.

If I was interested in VC as a career, do you think IB/PE is a pre-requisite?
Last question: Does your firm select startups within a certain industry? From my limited knowledge of VCs, don't most choose to specialize in one industry, just because they can lend more expertise. I can't imagine your firm being experts at everything from CS to bioengineering to fintech, etc.

May 1, 2016
SeedCapitalist7:

We were ballsy in this because we guaranteed them that we could return more than their traditional investment accounts through some financial adviser ever could.

That's not just ballsy, but illegal.

I've read a lot of self-congratulatory crap on WSO before, but this is by far the worst. Agree with the poster above that this whole thing just feels like fantasy and there is nothing even remotely resembling actionable advice. It's eIither some sort of micro-fund funded by 'Dad' acting like something it's not or possibly some college kid spanking off to the idea of being a VC "founding partner".

All-in, this could be the worst thread to ever make the front-page of WSO. It's just horrible.

Boooooooooooooo.....

    • 2
Apr 29, 2016

I think this post says a lot about the VC industry - the barriers to entry are really low. Any group of guys who can scrape together a few million bucks can throw a shingle on their door and call themselves a VC. It highlights the lack of technical sophistication and operating expertise that VC investors often have. I don't mean to imply that all don't bring any value to the table, but this kid definitely does not.

The value and attention that a VC can bring to a portfolio company is also very limited because of the number of investments they make (15 to 20 let alone 40 to 60?!? They must be ~$50K investments). Another challenge is that only the VCs with the deepest pockets can fully fund the growth necessary to realize their investments. Being able to afford the follow-on growth equity investments are important to protect against dilution.

    • 1
    • 1
Apr 29, 2016

The challenging thing is that the Sequoias and Warburg Pincuses of the world sometimes get first dibs on making investments as well as collecting investor dollars. YCombinator is supposedly the Harvard of startups-- why go to some dude out in Westchester County?

I feel like the secret for competing against YCombinator is to pull a Chris Kuenne/ Rosemark Capital. Come in with some business experience and be a college professor. If I ever have a gangbusters idea for a startup, my first phone call won't be to Paul Graham-- it will be to Prof. Kuenne, because I know him personally, because his class forced me (and everyone else) to pitch a startup to him. It also helps that Rosemark has moderately deep pockets.

So I guess here's the question: what is your strategy for sourcing startups?

Apr 29, 2016

@vincentgambini' ...this is 99% a kid still in high school his posts are absurdly general and shine lack of experience...

It may be due to the poor quality of questions being asked but inexperience and lack of industry knowledge is apparent here. Best of luck OP.

Am I really the only one here reading these answers thinking wow this kid sounds like he read 1 book about VC and is dreaming.

OP description and anecdotal advice about raising capital couldn't be further from the truth. Write up on private debt/equity products seem rudimentary and academic.

    • 3
Apr 28, 2016

This post is intended to be an informal AMA to answer any sort of multitude of questions, whether it is technical-related or personal. I am happy to provide general oversight, however, I do not have the time to writing a novel here getting into the strict and finer details about things. I created this post to help others out, as I used this forum in the past before impetuous radicals like yourself disseminated the pages with ridicule for no apparent reason.

I'd like to point out that you claim to be a commercial real estate developer, however, prove a lack of general knowledge by begging for information on real estate salaries in former posts. I'd imagine a RE developer could put two and two together, or simply hop onto glassdoor (you unintelligible's getting skimped with asinine rates and defaults yet?).

Anywho, thanks for the criticism, opens your mind up to what intellect truly is

Apr 30, 2016

I'd like to give you some constructive feedback. I've read this whole thread and refrained more than once from posting, but I want to add something now.

It's a small world. I'm highly confident I've identified who you are. You've posted enough about yourself (age, internship experience [in specific tandem to corresponding years of education], full-time experience, and now your new venture that anyone with a few extra minutes could pin you down.

Investment management is an even smaller world. There's a finite set of capital sources (allocators, whether they be institutional [fund-of-funds, sovereign wealth funds, pensions, endowments, foundations, etc.] or private [family offices, family foundations]. There are incredibly sophisticated tools to look into who you are and what you've done in the past. People make a living doing operational due diligence, professional due diligence, and character diligence on GPs.

VC is a smaller world still. There just aren't that many funds out there, and there's a real power law: about a dozen and a half funds put up numbers that matter, while the rest just float around putting one homer on the board per decade and soaking up the management fee income in the meantime. Moreover, everyone knows each other.

Commenting in an anonymous forum but providing enough identifying info on who you are is just never wise. Harassing other people who disagree with you is even worse. The killer is that it can all tie back to your future fundraising prospects.

In summary, consider wiping some of your identifying information from this thread right now. Also consider being more diplomatic in how you handle someone commenting in a way you dislike.

Specific to your career, I'd recommend dialing back the "I'm here to give back" until you've produced a bit more of real substance. Great companies take 5-7 years to get built. Liquidity events in venture investing rarely happen in less than five years. You've been at this for less than that; while your 'track record' may be compelling enough to help you raise a pool of a couple million from friends, family, and people who respond positively to your smile-and-dial approach, it's hard with that formula to have credibility in a world where success is proven over decades, not over months or years.

    • 4
Apr 29, 2016

Hey bud, you clearly don't have a clue about the CRE industry if salary inquiries is your basis for lack of general knowledge...keep at it though, i'm sure your VC fund will do great. lol.

May 1, 2016

I find it extremely hard to believe that someone who went to a "non-target state school" whose only full-time experience was 1.5 years in a fund of funds could raise a seed fund. It's not impossible today if you know some wealthy generous individuals, but the few who are able to do it usually have a compelling network that they can uniquely tap into. For example, Rothenberg started out hyper focused on Stanford alum companies, and more recently Jeremy Fiance raised $6M to focus on Berkeley grads. And those guys had relevant experience before starting their firms.

Best Response
May 1, 2016

As a rule, no one who is an uncertified user should be allowed to conduct AMAs like this.

May 3, 2016

So... I'm at an endowment and I primarily do diligence (and some sourcing) of direct deals for our late stage venture portfolio, though I have done one buyout co-invest and led a couple growth deals as well.

However, we also have a portfolio of managers from from seed and VC to growth and mid market buyout. We can afford to be very selective and have relationships with some of the best managers in the world.

Knowing what I know, I respectfully doubt you've raised more than couple hundred thousand of family and friends capital for your 'fund'. Honestly not trying to be disrespectful but the odds are stacked against your ability to raise a fund AND successfully source actual deals.

Apr 27, 2016
Comment
Oct 17, 2016
Comment