Hello from the other side
As I’m beyond excited to be officially settled here in my new role with M25, I thought my first contribution to the blog would be a message out to my brothers and sisters on the startup side of the equation. Aside from simply the opportunity in venture capital in general, the foundational values, innovative approach, and ‘founder first’ mentality have me thrilled to be here. That being said — up until now I’ve spent most of my career on the founder side of the table. So, the purpose of this post is to share a few quick and simple insights on how things actually look over here in VC.
We’re a startup too — kinda.
Just like many startup founders I’ve talked to, my journey with M25 began with a conversation over a beer at my favorite local downtown spot. We were just catching up, as Victor happened to be in town that day, and the next thing I knew I was hearing “the pitch.” Not quite yet the “Mike let’s team up” pitch, but more “here’s my crazy idea/vision/plan to change the world” pitch. A few months later (after getting the “Mike let’s team up” pitch) I found myself on the road with my new partner in crime, pitching our future investors on how we planned to take our innovative strategy to venture capital, and why they should invest in our new fund. Just like the startup founders we invest in — we started with an idea, developed a strategy to execute on, raised against that strategy, and now are executing against that strategy to do what we said we were going to do (and get our investors the return we said they would get).
I know it might not seem like a lot of VCs understand how hard it is to raise money, but trust me — most of us do.
Not being a fit does not translate to we don’t like you… usually.
A lot of times I get the sense that founders who hear “this isn’t a fit for us…” or “…with our strategy we don’t do this stage/industry/shade of blue” interpret that directly to “we don’t like your idea” or “we’re trying to find an excuse to say no.” The fact of the matter is, as I mentioned above, we do in fact have a strategy that our investors expect us to stick to, and going off strategy can have some real consequences. For us, those consequences can be obvious, as investing in a company that’s at a later stage or has a valuation outside of our range can greatly impact and possibly break our model. At a higher level, going off strategy can also suggest that 1) we’re not seeing as many good opportunities as we told our investors we would, and/or 2) our strategy isn’t as good as we pitched it to be. It doesn’t take an experienced VC to understand how these implications can be damaging when it comes time to raise the next fund. At the end of the day, some VCs do go off strategy to chase a deal that they just can’t miss. If they’re right it’s great… but if they’re wrong it’s a nightmare (and we’re all wrong more often than we’re right).
The best way to avoid the “not a good fit” outcome is to do your own due diligence on your potential investors before you try to raise money from them.
It’s not enough to be a ‘Fundable’ company.
As Victor talked about in his previous post, ‘Sorting the Investable from the Detestable’, there are some boxes each startup needs to check before they can cross the hurdle of being ‘fundable.’ Things like having a great team, developing a strong MVP, getting some initial market traction, and having an opportunity with an attractive risk/reward ratio are all in that bucket. For the past several years I’ve been working with startups — helping them start from scratch, get these boxes checked, and grow. Now that I’m spending my time sitting on the other side of the table from those same startups, I think it’s important to be even more clear as to why it’s not enough to just fit the ‘fundable’ criteria. In fact, it’s important to realize that checking those boxes should be understood to be the bare minimum. With our current deal flow, we’re looking at 20+ companies a week — most (if not all) of which have those ‘fundable’ boxes checked. Since we only write 2 checks a month on average (which is actually a lot compared to other more traditional VCs), it’s simple math from there to figure out why just checking the boxes is not enough to get a check from us.
Don’t just have have a good team, have the best team. Don’t just have some traction, have great traction. Don’t just get in the room with an investor, get in the room with an investor who’s strategy aligns with your opportunity.
We’re going to have to say no to a lot of founders we like
As you can imagine given the previous information — we’ve already had to, and will continue to have to, say “No” to founders and startups that we actually like. This is more of a realization for me to acknowledge than necessarily one I think entrepreneurs need to take to heart. Don’t get me wrong — I knew coming into this that we’d have to be saying no a lot. What I wasn’t quite prepared for was to what extent that I’d have to say “no” to companies and founders that we really do believe will be successful but just aren’t one of the absolute best opportunities we believe we have in front of us. Now, for our investors this is a good thing — as it means we’re seeing so many good opportunities, forcing us to be extremely diligent, and only choosing from the best of the best. It’s also a strong indicator that the startup activity in the Midwest is healthy and growing. Finally, for the founders out there that get a no from us along with “we hope you prove us wrong”… it means we actually think there’s a decent chance you will.
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Mike Asem is M25 Group’s new director. Previously, Mike championed The Anvil (now the largest student-run co-working space and startup incubator in the world) while earning his degree at Purdue University. Mike also worked on the VC side of the table at Purdue as a Student Fellow for Chicago Ventures. After graduating, Mike led business development at a nanotech startup born out of Purdue. Most recently, Mike served as Director of Collaborative Relationships for the Purdue Foundry, where he supported business development and talent related activities for startups in the Foundry’s portfolio. Aside from his passion for working with startups, Mike can often be found making fruit wine, rooting for Chicago sports, and hunting down great sushi.