Don’t talk to the analyst

The analyst position is a relatively new role in venture capital, at least in Europe. While in the past, VC teams mostly consisted of a group of partners with a few associates; nowadays the majority of funds have hired analysts in addition to support the team. The main difference between associates and analysts is the previous experience. While Associates have usually worked anything between 1–4 years in e.g. startups, consulting, or banking, analysts appear to be mostly hired directly out of university. I would like to shed some light on the role of an analyst and describe how entrepreneurs can leverage the additional contact during the investment process.

Before I first joined Earlybird as an analyst intern last summer, I wondered what my role and responsibility would actually be. Would I only screen through pitch decks and do market research, or would I actually get to talk to founders and be involved in the investment process? Thanks to the summer internship, I got to experience first-hand how our partners also expect us analysts to take on responsibilities in all aspects of the business, e.g. the investment process, portfolio support, investor relations, or community management. Well aware of the opportunity, I did not have to think twice when I got the offer to join full-time after finishing my studies at WHU. So I joined the team in January of this year to begin my ‘360° Venture Capital training’ (see Alex Ruppert’s Lesson (to be) learned). Therefore, when I started in January of this year, I knew the role wouldn’t just be flipping through pitch decks over and over again (emphasising “not just” i.e. I still do it and enjoy it).

Focussing on the investment process, entrepreneurs need to beware of VCs always making two investment decisions: The first investment decision is about our (and the founders’) time commitment and the second investment decision obviously is about money. While the latter has to be taken by the partners, analysts and associates significantly influence the former, as the partners leverage us as gatekeepers in the process (Sourcing -> Screen -> Evaluation -> Due Diligence/ Closing). If a startup passes the screening by one of us, be it by a partner, associate or analyst, we always pitch it internally to get support with the evaluation and to form a deal team consisting of one junior team member and one partner. Due to the active involvement of our partners as board members in our (many) existing portfolio companies, the analyst or associate would then lead the deal team and be responsible for the investment process. By the way, this is also the case even if one of our partners was the initial contact, so no need to worry. The goal of the further process is to gradually build an investment case, which we believe can convince the rest of the partnership to invest. To get there, I need to do the necessary evaluation steps such as analysing the business plan, understanding the market, conducting reference calls etc., and finally write up an investment proposal to facilitate our partners’ decision to invest. Throughout this process, I am in constant exchange with our partners and venture advisors to share findings, to challenge the case, and to decide whether we want to keep spending time in the process (it is better for everyone to say no as early as possible).

Having briefly described my role in the investment process, I want to encourage founders to leverage our collaboration to their advantage. Founders always want to get into a meeting with our partners and if the deal is as good as they say, I will help them get there and be more successful:

• I know our internal processes, agendas and criteria, and can help founders to manage through that process. This may be by setting the right expectations regarding timeline, or it may be by briefing the founders on our criteria and thus, which aspects of their business should be emphasised when meeting with our partners. This has proven to be very helpful, since founders can manage their own resources more efficiently and prepare more targeted. At the same time, the meetings are more efficient and leave more time to discuss exciting parts such as the long-term vision or to better get to know each other.
• Even though I may only have limited previous insights into a specific business model, technology, or industry, I do see a lot of different proposals and concepts on a daily basis (I see thousands of decks a year) and work with many of our portfolio companies, which allows me to quickly recognise recurring patterns, you can also call it best practices, for many aspects of a startup like go-to-market strategy, product development, customer acquisition, budgeting and so on. Even if I can’t relate to any aspect of a specific business, I usually know someone within our team or one of our advisors who does. Thus again, founders can utilise me as a sparring partner for business planning and together we can develop and fine-tune which may increase chances of overall success, and likewise chances of receiving funding from us. Regardless of the investment process outcome, time was not entirely wasted, since both sides have learned something new.

I hope that founders who have previously not been aware of our internal structures feel a bit more comfortable when getting in touch especially with our partners and being directly referred to me or one of my colleagues to discuss the pitch deck and next steps, while all they want is to get in a room with one of our partners and pitch face to face.