Lesson 1: how to think and act as a VC before becoming one
On Wednesday, April 15th, the baby vc team had the honor to host its first “meet & greet” session. The concept: to welcome a VC or an entrepreneur every week during lunch time for 1 hour live to discuss all the questions you may have about VC, fundraising, latest technological trends and much more.
That day, you were more than 300 listening to Romain Vidal, Partner at CapHorn, a French venture capital fund specializing in the B2B space.
Hereunder are a few key points to remember from this session, but first let’s get to know Romain Vidal and Cap Horn better.
Romain Vidal, who ?
Former entrepreneur, Romain Vidal joined the world of venture capital ten years ago. After successfully launching its Internet-related start-up, he seized the opportunity to enter the VC ecosystem when Cap Horn was created in 2010. Today a partner in this fund, he has already supported a significant number of B2B start-ups with a particular focus on retail technologies.
>> If you are looking to raise funds, you can contact him here: romain@caphorn.vc
Cap Horn, what ?
Created in 2010, Cap Horn is a French venture capital fund dedicated to invest in all B2B start-ups. With €200 million under management, CapHorn is an early-stage fund focused on Series A with an average ticket size ranging from €1 to €5 million. What mainly differentiates Cap Horn is that entrepreneurial culture is ingrained in their spirit — Cap Horn’s founders surrounded themselves with +150 entrepreneurs and CEOs since their inception to best support start-ups. The name of Cap Horn itself set the tone: in reference to the well-known and difficult sailing point, the fund aims to take the tide and round the cape by being extremely well prepared, well-funded, alongside a tier 1 crewed vessel.
Takeaway #1: Work hard and think outside the box
It is often said that there are three things in life: work, talent and luck. There is no magic recipe: to become a good VC, you need a great dose of all three.
Take Harry Stebbings for example: at the age of 21, he launched his own fund Stride.VC with Fred Destin after having created and produced for the last 5 years one of the most listened podcast ever in the venture capital world: The Twenty Minute VC. Why did it work so well? For Romain, he acted as a VC before becoming one. And that’s what any aspirant VC should do. Working a lot, reading a lot, and starting to have your own convictions about start-ups and sectors is a first step to appear credible. You have to be convinced and convince others. However, keep in mind that venture capital is often a bet on something that others do not believe in.
To win high, bet high, bet boldly and don’t stay within the consensus. A VC job is nothing like average.
Another piece of advice from Romain would be to become a specialist in a particular field you are passionate about. It is said that VCs have at least little knowledge on almost any subject. But it is not difficult to know more about a particular subject if you set yourself the challenge of becoming an expert. If you like FinTech, learn all about it. You will be able to prove that you are passionate — that is what a VC job requires the most. In your future work afterwards, it will also be a huge asset as you will be able to help entrepreneurs on specific topics as well as give them access to your network.
Regarding your background, yes, a good school will help. Yes, good internships will also. But amidst a ton of identical resumes and cover letters, what will help you stand out is everything else you have done that is different. In the same vein, being a former entrepreneur is a great place to start, Romain and any investor would not say otherwise. However, it is far from being a prerequisite. Around 50% of today’s VCs would have started their own business before. Well, if you have not created one, think about the other 50%. It is the same for an engineer: yes, this background will always open doors for you, but it is no necessity.
Takeaway #2: People over Figures
Among all the questions people ask about venture capital, “What are your valuation tools for start-ups?” certainly features in the top 3. And Romain has obviously not escaped it. Let’s try to give a clear and precise answer.
First, you have to remember that VC covers a broad spectrum of financial operations, from seed to later stages. You do not evaluate a start-up that is looking to raise $1 million as a scale-up looking for $100 million, because clearly the two are not at the same level of maturity. Cap Horn is an early stage fund, so let’s focus on that round.
Once and for all, traditional financial valuation methods do not work for start-ups. Everything students learn in corporate finance courses, or at least the DCF method, do not work. Searching for comparables is not the ideal tool either. However, it is widely used because it helps to position the start-up among its peers and gives everyone a clear view on the start-up’s competitive landscape. But this does not mean that they define valuation. In fact, do not rely on your master’s degree in finance for this question but rather go back to your economics course in high school.
Valuation is highly correlated with the interaction between supply and demand. If every venture capitalist wants to invest in a start-up, valuation will rise. If not, it will plunge.
People’s interests therefore have a greater impact on the valuation than the financial calculation. The start-up’s founding team also plays an important role in this area, especially for seed rounds. Because you cannot rely on figures, VCs often look for “serial entrepreneurs”, i.e. former entrepreneurs who have already been successful in their field — proving their reliability. This is also where one of the biggest differences between Venture Capital and Private Equity lies. While Private Equity invests on a business model, based on figures and projections, Venture Capital bets on people.
To pursue this line of reasoning, a comment should be made regarding the competitive landscape and the market size of a start-up. Although this exercise is necessary, and sometimes even requested during VC interviews, a red flag should be waved on the importance of market sizing. While it is a criterion to be taken into account before investing, market sizing should in no way be an exclusionary criterion. Be careful not to miss an investment simply because you feel that the total addressable market and, more specifically the segmented addressable market, seems too small. Remember Airbnb…
Takeaway #3: There is no such thing as a “typical day in a VC job”
Romain has been VC for 10 years and has not had two identical days in a row — for two main reasons.
VC is about people: every day, a VC exchanges with several people, entrepreneurs or fellow VCs. Since each person and each project is unique, it seems obvious that each day is different. The main mission of a Junior VC will be to detect as many interesting projects as possible and to meet as many entrepreneurs as possible.
Why? Because you often have to go through 1,000 start-ups to come across the one that will return the fund.
That’s why volume is so important. There are few ways to do this: some will prefer processing data all day while others will focus on social events to hear pitches and shake hands. It is up to you, as long as you understand how essential it is to be proactive. In addition, as with any other job, the more senior the position, the greater the responsibilities and the more varied the tasks. The role of a VC evolves as one moves from junior to associate to partner.
The workload also changes with respect to the stage of an investment process. As the investigation of a start-up moves forward, more time will be spent understanding the business plan, studying the sector, entering a due diligence phase… before finally closing the deal. At Cap Horn, the usual duration of a deal is 3 to 6 months until final closing. However, Romain noted that the process is often quick because he has known the entrepreneur for many years — in fact, he would almost never invest in people he did not know before.
Takeaway #4: VC firms are much more than just a bag full of cash
Venture Capital is a full-fledged asset class. VC funds are often the first thing entrepreneurs think of when they are looking for money.
However, their skills are not limited to that. A VC brings much more than cash to the start-up it supports and this is often on this that competition between funds is fierce. One entrepreneur will choose a fund over another one, for the overall promise it offers. Again, it is sometimes more about the people in the fund than the fund itself.
At a fund level, Cap Horn particularly helps start-ups to shorten their sales cycle and gain access to business leaders.
At a more individual level, it is easy to say that people will be better able to help based on their past work and life experiences. It is therefore up to the entrepreneur to feel where he or she will be best heard. Perhaps the best starting point is to make your needs known from the beginning. Honesty being a key word, some funds will pull out on their own if they feel you will be better supported by another VC firm.
Alignment of interests is the key to a close relationship between the VC and the entrepreneur.
Takeaway #5: Within toughest times come the best successes
We believe covid-19 arrived without striking, but that is not true. It has been hanging over our heads for the past few months, and yet no one saw it coming properly.
Saying that will not help much as it is already all over the world now. Yes, covid-19 is changing our lives and it is difficult. No one is going to argue on that. Yes, valuations are dropping. And even Zoom and HouseParty are certainly facing bigger challenges than they could have imagined.
But it is also true that great minds often seem to do great things in the most difficult times. Exceptional circumstances are met by exceptional people. For Romain, such a moment is the essence of his work: being amazed by people who work hard, giving their days and nights for their company and people.
To current and future young venture capitalists, here is his advice: don’t stop supporting your entrepreneurs but never stop looking for new ones.
Now is the time to find out who everyone really is and to challenge your internal organization to push investment if you have found something really special.
And here we go. An hour live is much more than just a few tips but I hope you get the most out of it.
If you feel like it you can find the replay here: https://stormaudio.app.link/pEimtnKIH5
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