Unlocking VC for the Culture: 3 Things I Learned at Deal Camp
Diversity in technology is very important to me. I believe the future of the tech industry relies on us creating and funding companies founded by underrepresented founders and run by diverse teams. There are so many opportunities to create great products and companies solving real-world problems outside of the lens of the typical white male founder. Fundraising and navigating the tech startup ecosystem for an underrepresented founder can be extremely frustrating. Less than 1% of American venture capital goes to Black founders and the percentage of Black VCs is abysmal. I’ve experienced this struggle, met with founders on a daily basis that are going through the same struggle. So, I decided to do something about it!
As the former head of Microsoft for Startups in Los Angeles, I dedicated the past 3 years of my career to helping startup founders. One of the largest issues in the industry is the lack of minorities in VC. With my background in engineering, business and ecosystems I decided to begin my journey into the VC world. I was accepted into VC Unlocked: Deal Camp, a 4-day crash course on early stage investing organized by 500 Startups and UC Berkeley.
The Deal Camp program is amazing. As a founder I had a limited view of how VC worked behind the scenes. This program truly unlocked that mystery in a period of a week. We had lectures from some of the top lawyers and VCs in the industry, and participated in hands-on activities where we role played as angel investors and VCs. We had investor meetings with actual founders in the 500 Startups program.
We were immersed in the VC world. By the end of the week I had an investment thesis, skills needed to raise a fund and structure deals, and a new found confidence in my ability to start my own technology investment fund.
My goal is to fund diverse teams solving real-world problems using exponential technologies (AI, Blockchain, IoT, etc) in LA and West Africa. Now is my time to help create the next generation of unicorns (or what I like to call dark horses 😉) founded by groups that have been overlooked and underestimated by the tech industry.
Here the top 3 things I learned from this course:
1. Differentiation is important to founders and LPs
Starting and running a fund is very similar a startup except the 2 main stakeholders are founders and LPs. Founders and LPs both have a variety of funds to choose from, so you must differentiate yourself to attract the best money and startup deal flow. When running a fund keep in mind what both these groups need and want:
Capital — They need funds, of course…
Network — Who do you have access to that can improve their chances of success? Do you have talent that can fill roles at their companies? Can you make introductions to valuable customers?
Brand/Reputation — Are you a winner? Does the industry respect you?
Function or Domain Expertise — Do you have any superpowers? Can you step in and help with specific challenges they’re facing?
Time — How available are you to help?
Deal Flow — Do you have access to enough quality companies? Are you a hustler? LPs want winners.
Investment Selection — What’s your process for selecting companies?
Track Record/Performance — How well have you done with previous investments? What is your Internal Rate of Return?
Portfolio Construction — Which companies have you invested in? What types of companies are they?
LP Relations — Which other notable LPs are you involved with?
Discipline — How disciplined are you? Have you stuck to your investment thesis?
2. Your investment thesis is very important for discipline
Every VC has an investment thesis. Your thesis answers the who, what, where, why and how of your fund. Just like a startup, you much have an elevator pitch — a high level description of your strategy and approach.
- Who are you? What’s your track record, network, etc.
- What do you invest in? Which stage? Specific sectors?
- Where do you invest? Specific cities, countries, regions?
- Why will you win? What is it about your fund (model, projections, etc.) that makes you a winner?
- How will you invest? # deals, check size, lead or not, target ownership, first check vs follow-on, stage of company/valuation.
500 Startups’ Investment Thesis:
Systematic, Predictable Dealflow: We believe a large, diversified portfolio of early-stage investments reduces risk and maximizes potential return relative to “traditional” VC funds. 500 has a systematic method for early stage investing which focuses on being helpful to founders and building meaningful relationships in the global ecosystem.
3. Economics and control determine your fate
When structuring a deal there is a great amount of negotiation that takes place. This negotiation involves terms that determine economic impact (pre-money, post-money valuation, vesting, option pool and anti-dilution, etc.) and control (structure and control of board of directors). As an investor you must be very careful with the details of term sheets and investment documents. Anti-dilution protection is key for investors. In order to protect yourself, you need to ensure that you have sufficient power/control to block issuances of new stock and have the right to participate in future rounds of funding. Issuances of new stock can cause your ownership to be significantly diluted in future financings. You can also avoid economic dilution through broad-based anti-dilution protection, which adjusts the price of your shares by taking into account the magnitude of the lower-priced issuance of stock.
Deal Camp was an invaluable experience. It taught me the fundamentals I needed to become an impactful investor. I will continue to share stories and learnings from my journey into the world of venture capital, so stay tuned.