6 Lessons I Learned In VC

A few thoughts on venture capital

One year ago, I lived one of the most exciting time of my life. Every week, I had the chance to:

• Meet outstanding people who wake up every morning with the mission to improve your life and shape the future (hint: these people are not Marvel’s superheroes)
• Try cool products before they officially launch, for instance: Sharepay, the next-generation credit card to share expenses, or Photonomie, a beautiful app to take immersive pictures
• Witness rising tech trends in various sectors such as mobile applications to consult your doctor online, or digital bank accounts built only for mobile

You may wonder for what company I was working. Actually, I spent 6 months in one of the most active venture capital (VC) firms in France, Idinvest Partners. As an analyst, I was in charge of sourcing and screening new investment opportunities in fast-growing European startups. If, like me, you’re passionate by technology and startups, working in VC is a fantastic opportunity to nurture your curiosity.

Make no mistake, working in VC is an intense education. The rewarding moments I mentioned above are mostly the result of long weeks of work and continuous learning. I had to follow closely the tech press, dig into every business plan we received, document complex technologies (think cybersecurity) and review hundreds of startups to pick up the few ones that could be a good fit.

Eventually, working in VC is a unique opportunity to understand how investors and entrepreneurs think. Before it all becomes a bit blur, I thought I would share some of the most striking lessons I learned during my internship.

NB: These are only the views of a young graduate who spent a few months in VC—I don’t pretend to have Andreessen’s experience!

1. Timing is key

When you’re an entrepreneur, your time is limited. Everyday, you have to deal with tons of issues: product development, sales, recruitment, legal, admin and many others. Execution is what distinguishes good managers from exceptional entrepreneurs. The last ones always stay on task and focus on what really drives their business forward. They don’t have time to waste on nonessential tasks.

Raising funds is another—although not necessary—responsibility of entrepreneurs. However, pitching VCs should not deter founders from their business. You’re almost better off making your business better than your pitch better. That is why, investors and entrepreneurs have a short window of opportunity to connect and decide whether they want to marry or not.

Given this constraint, time is probably the most critical resource when it comes to funding startups. Investors and entrepreneurs must have a clear sense of each other deadlines and should be very transparent about it.

2. Listen first, ask questions then

VC is an irrational science. No theorem. No formula. Only uncertainty and unvalidated learnings. You can never predict whether an investment will pay off in the future. You can simply evaluate an investment opportunity and hope that it will turn out to be the Next Big Thing.

During meetings with entrepreneurs, I observed two traits that investors share in common:

1. first, they always listen actively in order to learn as much as they can from the founders
2. then, they spend a lot of time asking great questions

So what are the “great questions” to ask? Actually, there is no perfect framework when asking questions. But Ryan Sarver, investor at Redpoint, revealed that most investors ask themselves 4 key questions:

• What problem are you solving?
• Why are you the right team to do it?
• What’s the market size and is the market growing?
• Can you show early product-market fit?

Eventually, I noticed that experienced investors have the ability to detect immediately what are the most critical aspects of a business. Thus, they usually skip the typical framework to spend more time challenging the entrepreneur on these aspects.

3. Look for entrepreneur’s thesis

Everyday at work, one of the most recurring questions that my superiors asked me was: “What do you think about this company?”

As a young analyst with no past experience in venture capital, building my own opinion about a company was one on the hardest thing in my job. During the first months, I used to reply to this question by doing a vague summary of the idea, the product features, the founders’ background, the market dynamics, and so on. But at the end of my demonstration, my superiors always replied: “OK. So what should we do?”

After a while, I noticed that investors were actually looking more closer at the team and their thesis on how the world is evolving, than the product itself. And this is especially true for early-stage startups when data is still scarce.

4. Live in the future

I’ve always been interested in technology and startups. Reading—and more recently writing—articles about the latest products, upcoming technology trends or cool apps was already my passion before I joined Idinvest. However, I quickly realized that following the tech news was not enough when it comes to investing in a startup.

Most investors have the ability to project oneself into the future in order to create an idea—even wrong—of how the world will evolve. They build their own thesis about how things will be in the future. When I say “living in the future”, I don’t mean betting on flying cars and time machines. No. I think about intuitions based on your own experience, knowledge, and personal beliefs.

These thesis-driven investors will naturally invest in companies leaning towards their vision.

5. Too much money is your worst enemy

I remember well of one of the last entrepreneurs I met. He was building a smart algorithm to analyze open-source pieces of code in order to allow tech companies to match with the most relevant software engineers. When one of our partners asked him how much he wanted to raise, the founder answered: “as much as possible before the exciting fundraising climate in Europe falls apart.”

Actually, raising too much money too early often fucks companies up. Early-stage startups that raise a huge amount of money at a greedy valuation will have to demonstrate exceptional growth and financial performance in the coming months. If they don’t, they will go through hard times when it will come to raising the next round at a rational valuation.

Moreover raising too much always leads to spending too much. “You hire too quickly. Your culture suffers. Your processes creak. Your CAC stinks. And then the smell forces panic, job cuts, belt-tightening, inside rounds and buckling down to prove your worth.” summarizes Mark Suster, investor at Upfront Ventures.

That is why, little money is always good in the early days of a startup. Having limited resources leads you to make hard choices about what you want to build and what you won’t. It unleashes creativity across the whole organization—doing more with less. It makes you spend more time in front of the customers than investors. Above all, it forces you to invest in the company culture rather than in free breakfasts.

6. A VC is not a rock star, it’s a roadie

Working in VC is a perpetual learning process. Digital world is constantly changing and it takes time to develop the knowledge and unique perspective that can differentiate you as an investor. And usually the more expert you’ll become, the less knowledge you’ll think you know. Therefore, humility is probably the most common trait among experienced investors.

Last but not least, I found out that investors around me were all extremely respectful of startup founders. For instance, they would wake up every morning and think about what they could bring to their portfolio companies before thinking about themselves.

So forget about the glitz and glamour behind the acronym. VC is mainly about hard work, thirst for learning, independent thinking and humility.

Interested in joining Idinvest Partners for an internship within their VC team? More info here.