Breaking into VC — Le Case Study
The trials and tribulations of anyone looking to get a job in VC are becoming well documented. It requires patience, hustle, timing and a significant helping of luck. You need to be a hunter, a detective, a salesperson and have a unique opinion about the world and the startups you might want to invest in. Can you can help the companies operationally? Even better.
At Frontline, we’ve been interviewing for a new hire recently, and one of the last steps we ask the candidates to complete is a case study. Having spoken to many firms, it seems like most places use the same format, one part, show me how your brain works. Another, do you have an aptitude for the job by finding a relevant company and making a case for us to invest.
Running these case study interviews was eye-opening for me as I completed similar variants of the same thing less than three years ago. It reminded me that I was flying blind then, and I wish there’d been a resource online to give me a steer. Now, I don’t claim for these to be the best case study presentations of all time. But I got the job, so I think they’re a good place to start.
A few points of information before getting into it; I was given this exercise to complete in April 2018. I had the option to write a 1-page memo or to build a 4-slide deck. My first recommendation — go with what best reflects your personality. I could do that more with visuals than words at the time, so I went with the deck.
These were the actual case study questions, and these are real decks I presented whilst interviewing for an analyst position at Frontline.
Part 1: Is Stripe worth $9.2B? Show your reasoning in favour or against.
For those too young to remember, there was a time when top companies didn’t raise capital every 12 minutes. Stripe had last raised in November 2016 and almost 18 months had passed since they’d been valued at $9.2B. I thought it was 100% worth the $$$ so figured, why not start off with some cartoon unicorns?
Using the question to demonstrate wider thinking is really important in these exercises. I started the exercise with a narrative around e-commerce growth, emerging markets growth, and a shift to the west looking more like China over time. It’s worth setting the scene in these exercises and showing that you’re not just looking for why a company is valuable but why the market it lives in will make it that way.
Stripe’s growth numbers are still pretty secretive but knowing what I know now, I’d imagine it was significantly higher than 40% at this stage (I got that number from a Wall Street Journal article and figured if it’s in the WSJ it must be legit). Google is your friend in these case studies. Do some digging and showcase the relevant info.
Another way in which I played to my known strengths; I suck at Excel and have never even seen a DCF analysis. But I know product and I understand that narratives are as important to valuation as metrics are, so I took the opportunity here to talk up Stripe’s cross-sell opportunity and product surface area expansion.
Searching for further justification, I then looked beyond product and into customer verticals and new geographies. In retrospect, Stripe’s geographic expansion outside of Europe has been a lame duck in the short term. But all of this layered the narrative that the company was winning across a range of verticals. With this type of customer and implied processing volume, the valuation feels more rational.
Part of VC is understanding the ‘inside baseball’ aspects of the industry. It’s showing that you know companies are valued by intangibles a whole lot more than they are by the hard numbers. It’s also being able to come up with a thesis using publicly available information and trying to read between the lines. Part of that here was flagging that Stripe’s backers are top tier firms. It might seem stupid, but it’s fair enough to say that if Sequoia - the best VC in the world — thinks Stripe is worth paying $9.2B. Then it’s probably worth $9.2B.
After getting feedback from the Frontline partners, it became clear that the ‘winning’ part of this presentation was the focus on how big this opportunity could actually become. Trillion-dollar markets, multiple geos, multiple product lines, founders you can believe in. To be successful in VC you need to be great at imagining the ‘what if’ — it’s easy to see why something will fail. Harder to see how big things can win — if everything goes right.
Part 2: Find a company you think would be a good fit for Frontline to invest in and make the case for why we should invest.
Often these case studies have to be prepared on pretty short notice. You might only have 2 days to get your thinking straight and go out and find a relevant company. Now, you might be someone who’s been passionately following a bunch of startups and have a list ready to go. But odds are you’re going to have to go out and find something original. Recommending the last deal Sequoia did here isn’t going to win you kudos for having sick proprietary deal flow.
You can go digging in Crunchbase, Techcrunch, Sifted or any number of places online where people write up on interesting companies. You may know a founder who you think is shit hot and have a thesis on their space. Or you can just go ask someone who’s job it is to know. I’d met a guy on a pub crawl in Web Summit in 2017 who was running Techstar’s b2b program in Berlin and asked him who was the best company in the most recent batch?, I knew Frontline’s spec was early-stage b2b software, and I figure the top company out of a top accelerator would be a good place to start. The company he suggested was GTMhub.
Again, companies aren’t just successful because of the company itself, they’re successful because they are also in the right markets at the right time. GTMhub was a platform for automating and managing OKRs at a time when these were reaching their peak of popularity thanks to books like ‘Measure What Matters’ by John Doerr.
A key part of being a VC is being a detective. Can you explore a company’s website and find out what makes it tick? Can you pull out the interesting aspects of its USP and present them to others in a way that makes sense? It’s the inner detective you should be channeling when you’re presenting your case for a company. What can you find out this company online, and why is interesting from an investment perspective?
I was fortunate here that the person who’d referred the company to me was able to give me some internal metrics around MRR, Net Dollar Retention (Negative Churn) and ACV (Via MRR*12/Customers). But other aspects of the case around investment came from the founder’s pedigree at a rocketship company in Bulgaria. Look for the signals. Customers like Kleiner Perkins’ backed SpotAHome give a lot of credibility that you don’t need insider knowledge to uncover.
Lastly it is important that you make the case, and that you make it directly relevant to the VC. Again, Frontline’s focus is European based, early-stage b2b software companies that want to scale into the US. A big part of the attraction here was presenting a company outside of the fund's core geography (Ireland and the UK at the time, Pan-European now). I was determined to show them a company they had not seen before, so I went somewhat off the beaten path.
How to nail the case study?
When it comes to both tasks, there are some practical tips you can follow to put your best foot forward:
- 🏹 — Showoff your inner hunter. Find information, people and companies that aren’t obvious but still fit the brief.
- 🕵️ — Be a detective. The answers aren’t always staring you in the face so with the information you’ve uncovered, try to think beyond what it says and focus on what it could mean.
- 💰 — SELL. You might not like to hear this but a lot of being a VC is being a glorified salesperson (except the product you sell is money). Use the case study as an opportunity to sell your ideas and yourself.
- 🧠 — Don’t be afraid to have an opinion. A unique opinion is a must-have for any job in the industry. Venture funds are partnerships and partnerships are kept interesting because of the diversity of opinions in the group. Weird ideas and views on technologies and companies will make you stand out.
- 💪 — Play to your strengths. Pretending to be someone you’re not, or to master skills that you don’t, in a VC interview process is a surefire road to ruin. You’ll get found out and rather than experiencing imposter syndrome, will actually just be labelled as an imposter. If you have a big network? Leverage that. If you are super passionate about a niche market? Leverage that. If you’re a spreadsheet jockey? Model away to your heart's content.
There are many successful ways to be a VC. You have to find your own and a good place to start figuring it out is on the way in. Even if you don’t get the gig, it might be a blessing in disguise.
Thanks to Deepka & the Frontline crew for making this substantially better than the first draft.
