8 things I wish I knew before starting a role in early-stage VC
A representation of a junior VC who decided it was not for them ;)
Embarking on your journey as a new venture capitalist is akin to stepping into an exhilarating yet daunting numbers game, where the sheer volume of companies you'll review, the repeated rejections, and the occasional bruising of your ego are par for the course.
Without further ado, here are some learnings I hope we help take off those rose tinted glasses and hit the ground running or if you don’t like what you read, execute a sharp pivot ;)
1. It is a numbers game
As a new VC, the cynicism has yet to transfuse itself across your entire consciousness and unconsciousness. When meeting your first few founders, whose charm and passion ignite your imagination, you will want to invest in every single founder you meet.
Rightly so (in many cases) your superiors will pick apart your hypotheses that this company will reach unicorn heights for one reason or another; after all, they have seen a lot more deals than you have, so they should know a thing or two, right?
Realization will soon kick in that you will most likely have to review hundreds of companies, have most of them turned down by your team, and have your ego stamped on a few times before your first deal is approved by the board.
This often painful cycle equates to many hours of research, calls with founders, and shattered hopes and dreams (for both founders and yourself) - so if you are someone who likes to see a satisfying outcome to hours of work, VC might not be for you.
However, like most things, it is all about perspective. The more companies you see, the more likely you will be able to refine your search to fit what is deemed suitable for investment. If you take into account how much you will learn from founders, your research, and your peers, then it’s a healthier outlook compared to focusing solely on whether you achieved the desired outcome or not.
2. It is all about internal selling
One of the most powerful skill sets an investor can have is the ability to convince others that the company you think your fund should invest in, is a winner.
Particularly at pre-seed and seed stage, there are often very few numbers (if any!), to quantifiably say that a company will be a fund returner in the future. Therefore, much of the job as a junior investor is packaging the ‘vision’ of a company into such an exciting opportunity that the rest of the team also wants to allocate their finite funds towards this vision to fruition.
Here’s where it can get tricky. Each decision-maker within a fund often has preferences for certain industries, founder characteristics, business models etc. and even if you line up everything they have a preference for, they may just be having a bad day when you connect them to a founding team. One poorly phrased answer from the founder could lead to a deal going South. So play your card wisely, a top tip I was given is try and talk to your seniors during their coffee break, a casual conversation as the caffeine spike hits could help swing the pendulum in your favour.
If you would like to learn a bit more about my thoughts on this topic, please read my last blog post.
3. FOMO is real
What could help claw back the deal from no return? FOMO! Although some funds are more partial to it than others, nothing is often more likely to turn a deal around than another fund courting a start up.
Why? Excellent question, the reasons range from the sensible:
There is significant data to suggest that if a tier-one VC at Series A on your cap table then you are more likely to raise a Series B, thus it is an opportunity to surf the same wave
Or a fund has a unique point of view given their industry focus or current portfolio to see something your firm cannot
To the ‘ok understood’
Another good fund looking into a start up you are indecisive can often trigger self-doubt, did I miss something? What is this investor seeing that I didn’t that could mean that this company is a success.
To the ridiculous
FOMO can subsequently play in a junior’s favor. The fact a founder might choose a rival’s term sheet over yours can result in a bidding war where funds go to great length’s to one-up on one enough from steep valuations to see who can purchase the best gift (Yanks tickets anyone?)
FOMO can subsequently play in a junior’s favor. If a partner does not trust your opinion yet, a way of validating your opinion is to stir up interest (or at the very least) find out who else is looking to help bolster your own opinion on a case. FYI: the inverse also works i.e., x,y,z also passed.
4. Your network should become one of your biggest assets
One of my favourite things about Venture Capital is the fact that an investment round is often shared by multiple funds. Although it can foster a state of competition, it also encourages collaboration.
Subsequently, in VC, there exists a ‘if you scratch my back, I will scratch your mentality’. Meaning that dealflow is often shared between other VCs, therefore networking is so important - you never know which source your next deal might come but a deal from a good fund automatically gives the deal a higher status than one found on the streetz.
Additionally, at the early stage of a VC’s career unless you come from starting your own company or have deep expertise in an area, your individual value add to a founder is limited. By creating a network of individuals that can offer huge value. A top tip is to speak to several founders in the same sector, ask ‘what do they need help with’, note down the areas of support that are mentioned more than twice, then go and find individuals who can help them with this. For example, I discovered that one of the biggest challenges for Techbio founders is finding lab space, therefore I went about finding the best estate agency that does just that.
A third reason to build your network is that it is yours and yours alone to transfer from job to job unlike many pieces of ‘work’ you have to leave in the hands of a fund. Network is a huge asset you can bring to any organisation - some people have a million-dollar salary tag based on their network, so and make sure you are one of them.
5. Find an operational topic to work on
VC can often be a frustrating game, where a lot of the outcomes of your work are out of your control i.e. whether a deal goes through or not.
Therefore, a good way of demonstrating that you are an asset to the team is to provide value in another ways, and for your own sanity see your hard work translate into the desired outcomes.
There are many operational tasks required to run a fund efficiently, from marketing (@Alpha Q Capital) to policy creation (@Aenu) to designing new ways to assess companies (@Speedinvest), contributing to a project or laborious tasks can earn you significant kudos internally. If you are able to tie operational tasks to your KPIs for your performance report/bonus package, this can be helpful in ensuring you can have some control over negotiating a raise.
6. Do as many deals as possible
A good strategy for a VC early in their career is to try to do as many deals as possible. The more deals a VC has to their name, the more they increase their chances of ‘luck’, i.e. investing in a fund returner. Although the one in ten rule is a rather rudimentary measure, there is something to be said about a volume strategy as early as possible, this gives time for companies to grow and raise further funding which in turn, increases your ‘track’ record making you an attractive investor to hire (if you hit a couple of winners).
Easier said than done! But strategically, it is worth asking your new employers what is average number deals they invest in (the more the merrier) and if you have the means, it is also worth potentially negotiating having the ability to angel invest in companies.
7. There are growers and there are showers ;)
For anyone who has worked in the start up world, it is rarely smooth sailing for any company. But some are fortunate enough to hit the hype train (i.e. ‘showers’). For investors who put in intial first tickets into hyper-growth companies, they are hailed as soothsayer deities as other investors line up behind them to invest in massive uprounds. However, as quickly as a company rises some are unfortunate enough to fail just as fast, anyone heard of Houseparty?
Conversely, it might take some time for some start ups to reach an inflection point (‘growers’), and yet when it does, it soars. Take Nvidia as an example, for some time the company did well but only brilliantly once it launched its GPU (six years post-founding) and their revenues only soared in 2022.
It is important to understand that as quickly as an investor rises, they can fall from the halls of fame and there are a few companies that can alter the returns of a fund exponentially after many years. In an industry swimming with egos - mind to keep yours in check until the money (returns) hit the bank account but also enjoy the limelight whilst it lasts ;).
8. When the rubber hits the road
VC is a harsh environment, watch how well your fund is doing. Your future salary depends on the partners’ ability to raise a new fund, if your fund’s portfolio does not perform, then the likelihood of them raising a new fund is very low and therefore, as the first one in and the lowest of the pecking order, you will be the first one out. Be sensitive to the underlying energy of the office - is there concern, positivity, openness?
Bonus point:
As an extra tip for new joiners, keep a track record, this will be useful for future conversations whether that be job interviews or promotion conversations. Make a note of companies you have looked at, and would have invested in if you were in the control seat, a list of your contacts, and deep-dive hypotheses. Having these documents on hand helps provide quantifiable evidence of your value.
If you found this article helpful please subscribe to be the first to see are latest posts!