Discussion
According to David Hornik from August Capital, there’s only five things that a venture capitalist does: find a company, pick a company, get the company to pick you, help the company and exit. However, the only two things a VC can actually do is find companies and convince them to choose you as an investor while all the other activities are impossible to codify. His controversial philosophy illustrates the importance securing proprietary dealflow has in the work of a venture capitalist. In Atomico’s first fund, they had a stated goal of not accepting meeting requests or even introductions, as they wanted to invest all their time finding companies to develop proprietary dealflow.
Tips and Tricks
Be willing to say “no” quickly and clearly, don’t procrastinate, or buy optionality at the expense of founder time. Time is the most valuable and limited resource a founder has. (Las Olas VC)
“Don't assume your thesis is a big differentiator; with so many firms popping up today, everyone sounds the same.” (First Republic Bank; have over 350 venture fund clients)
If there’s no ecosystem, start with the ecosystem. (The Pool/ArkFund/Nico)
If the ecosystem doesn’t know about you, buy part of the ecosystem. (2B Angels)
Be willing to mentor outstanding young talent; both students and first-time entrepreneurs. It keeps your network fresh and pays off in the long run. (Capital Invent, Learn Capital)
Address a community of entrepreneurs that are not being addressed, or do not feel understood by, other firms in your market. (2B Angels, Learn Capital)
Blog in languages that are not english if you invest outside of the US. There’s a lot of content in English but not so much in other languages. (Capital Invent)
It’s worth it to make sure SEO practices on your website brings your target search results to the top of key search terms, especially if you have a geographic or sector focus. (Golden Gate Ventures, Learn Capital)
Schedule your meetings back to back to prevent yourself from spending too much time with entrepreneurs in the earlier stages of meeting them. This gives you a polite way of ending meetings on time. (Walking Ventures)
Don’t focus your meetings with entrepreneurs on just an investment decision. Try to understand their motivations, backgrounds and aspirations. (Walking Ventures)
Having meetings in non-traditional formats, like walking through the park, creates a neutral territory for both parties. The power dynamic will shift in a way that is cooperative and fosters a more intimate exchange. (Walking Ventures)
Don’t act like you are more of an expert than the entrepreneur is. Learn to bring forward your advice and point of view through a series of questions rather than a lecture. (Walking Ventures)
Playing nice with and being helpful to other investors builds the credibility to receive invitations from other firms to bring you into syndicates they are leading, even letting you into oversubscribed rounds. “We believe a rising tide lifts all boats” (Golden Gate Ventures)
Work hard to earn a reputation to the extent that when someone new wants to think about the markets you invest in, the word on the street is they should come to you first. (Golden Gate Ventures, Learn Capital)
Earn a reputation for treating people fairly and with integrity; always stay founder friendly. (Golden Gate Ventures)
“When founders come to me they’ve often had other people say ‘Justin is a straight shooter. Justin is going to write good terms. Justin is extremely fair, so if you’re dealing with him or negotiating with him he will treat you well.’”
Since venture firms necessarily say no 99% of the time, get really good at saying no. Say no in a way that makes them want to work with you again in the future. (Learn Capital).
Have associates run diligence for a while before they start sourcing; this develops their judgement and helps them source better deals in the future. (Emergence)
Use email templates and “canned responses” to streamline email communications for deal sourcing. (Walking Ventures)
Send a quick feedback survey to founders after your meeting with them. It surprises them and makes them feel like you’re committed to being a great partner.(Capital Invent)
After any first meeting with founders, do at least two helpful introductions and send valuable information. (Capital Invent)
The best companies won’t necessarily come pitch you so go find them. Be willing to get on a plane to show commitment. (Atomico, Golden Gate Ventures)
“Every other week or even several times a week, we’re in Indonesia, Thailand, the Philippines. Just being on the ground and showing your face again and again is a huge indication of goodwill.” (Golden Gate Ventures)
Set custom meeting volume quotas for each investment professional, not only for new companies but also with channel partners like angel investors and seed funds. (Emergence)
Publish thought leadership pieces on your investment thesis, and use a link in direct outreach to management to increase conversion on outreach communication. (Emergence)
Host dinners along a theme or thesis, and invite more sought after CEOs to a nice dinner instead of hoping they will make an hour in their day. (Emergence)
Be willing to create rounds for companies not currently raising. (Atomico)
Remember that while VCs are diversified, founders are all-in. “A VC’s job exists because founders are willing to give up everything and give the start-up everything” (Ludlow)
Don’t let ego get in the way.
Having a deep understanding of the debt and equity space will allow you to add value to entrepreneurs who may not be ready for equity financing (Live Oak Bank)
Be mindful of your interactions during stressful situations, and be empathetic. Entrepreneurs will remember both positive and negative encounters for a long time (Monashees Capital)
Tools of the Trade
“Canned Responses” by Gmail (Walking Ventures) – Allows pre-created responses to specific emails and scenarios you encounter frequently. Here’s how to set up a ‘canned response’.
TextExpander (Learn Capital) – Allows you to insert snippets of text from pre-created content using a quick search or abbreviation.
SalesforceIQ (Emergence, Monashees) – Connects with your inbox and provides AI-driven suggestions for follow-ups
Grow (Emergence) – Provides analytics dashboard, integrating easily and using data collected from various other apps / technologies (Salesforce, Google etc.)
ProsperWorks – CRM system that works seamlessly with G-suite
Good Old Notebooks. (Walking Ventures) -- Tim keeps consistent notebooks and makes the first page a table of contents, numbers all the pages, and writes the name of the person and the organization along with the page numbers in the first page to keep a Table of Contents. He then enters the Table of Contents entry into a searchable Excel file with the number of the notebook it is in, and puts it on the bookshelf in numerical order.
Case Studies
Walking Ventures on Deal Flow Filtering and Screening
Walking Ventures is working to solve a problem that almost every VC firm faces: the high proportion of unproductive meetings because the company does not fall within the firm’s investment scope. Most VC firms will meet with companies to discuss opportunities, but then determine the company is out of their scope after 20% of the way through the meeting. However, Tim Jackson explains that “the current social set up of the meeting doesn’t allow them to say so and leave.”
Many firms try to solve their filtering process by require companies to get a recommendation from someone the firm knows in order to discuss investment opportunities with them. However, Walking Ventures challenges this method, as it neglects potential entrepreneurs who may not be as well-networked, but are still capable are having innovative ideas. Therefore, Walking Ventures is open to both cold outreach as well as warm introductions.
In order to improve the efficiency of filtering in-bound deal flow, Walking Ventures undertakes a three-pronged approach. They first have inquiring companies to fill out a form on the website that asks only half a dozen basic questions. Walking Ventures has determined the minimum amount of information needed to determine if the company is in their scope and worth pursuing further. Tim explains that collecting a minimum amount of information allows them to quickly make decisions about meeting with entrepreneurs, rather than having to sift through large amounts of company info.
The second segment of their filtering process is to use automation. Tim Jackson explains that their previous process was to have associates be the first point of contact for entrepreneurs. However, Walking Ventures determined that having personal contact from a partner is important. Instead of spending hours drafting emails that broadly say the same thing, they have pre-written paragraphs for common reasons for why they cannot move forward. These paragraphs can then be easily dropped into an email and personalized and addressed. This saves time on the end of the partners while having the companies feel important and acknowledged.
The third part of their process is to ask for their slide decks before their initial meetings with companies. While a lot of VCs do this, many do not take the time to actually look at the document before the entrepreneur’s pitch. By doing this, Tim explains they are missing out on two opportunities: the first is to be upfront that you don’t believe you would invest in the company, which can both save time as well as improve the relationship dynamic with the entrepreneur. The second is to have an unscripted, spontaneous conversation with the entrepreneur. By actively digging through the deck, Walking Ventures is able to ask questions that initiate meaningful conversation in the first meeting, which allows them to make better decisions on the company.
Highlights
Highlighting Emergence on Running Diligence First
Emergence makes sure that rising investment professionals spend two years running their diligence process before they are encouraged to source deals. They believe it’s impossible for new team members to understand how the investment team thinks, what they’re looking for, what warning signs will kill a deal, or the personality dynamics within the firm. Deal quality is prioritized over volume, and bringing too many uninteresting deals forward is discouraged. Emergence believes by doing time as Head of Diligence, each junior team member will develop a better “nose” for deal quality and be more effective at screening out unfit deals. Over time, everyone on the investment team shares this experience and becomes more aligned.
Highlighting Emergence on Meeting Volume Quotas and Direct Outreach
Emergence sets quarterly company meeting quotas for each investment professional, so each team member has a clear number of meetings they are working to hit. At their quarterly off-site, the investment team reviews their metrics and Emergence gives a token “Sourcerer” award to the team member that most exceeded their target.![][image15]
Emergence develops investment theses carefully and cooperatively, and uses them to both target companies that were discovered in the market research as well as to get the attention of otherwise busy and/or inundated management teams. They give their investment theses clever names, such as The Natural Resources Cloud and The Coaching Cloud, and they speak at conferences and tell their personal networks about it. Most importantly, they write thought leadership pieces that are published in places that entrepreneurs might see and find credible. Sometimes the thought leadership piece itself generates some inbound leads, but more importantly they use it as a carrot in direct outreach to entrepreneurs. During market research, Saper keeps a list of companies that are mentioned or profiled, and once the thesis is more fleshed out he will reach out to them directly over email or LinkedIn. Saper doesn’t have supporting data, but his experience reaching out to founders and management reveals that including links to thought leadership pieces applicable to the company and their market increases both the conversion of that outreach and the eagerness of the management team in developing a relationship with Emergence.
A sample of direct outreach might read like the following:
"Hey, I'm Jake, I'm a VC with Emergence Capital, we're really excited about the future of machine learning in the enterprise. We think it's going to manifest in this way, and we think you're a good example of that. Here's an overview of our thoughts and a link to the article. Let me know if you have time for an intro chat. Jake."
Highlighting monashees on Crafting a Message for Frequently Asked Questions
Gui Decourt, from monashees, touches upon how to be strategic in developing perspectives or hypotheses when asked questions about the venture space. At forums, conferences, panels, and even in discussions with entrepreneurs, VCs are constantly being asked questions regarding their firm’s opinion on a wide variety of subject matters, for example, where they think the tech ecosystem is moving, how to build the best companies,
Gui explains that he takes time in developing well-structured answers to commonly-asked questions, in order to be more straightforward and factual in his communication. By being better equipped at answering questions in your space with facts, you will leave a lasting impression on the individual you are speaking with, in addition to improving the way you think about deal flow and opportunities.
If individuals can recognize that you understand the space and have hypotheses that are relevant to share, you position yourself as a good point of contact for individuals with opportunities in the space.