December 2019 marked my first anniversary at Cue Ball and as a VC. During this time, I learned a ton about what the job meant beyond the glitz of pitches in conference rooms and drinking endless coffee (expensed, of course) with entrepreneurs.
Maybe that’s just how I saw it. Maybe I was just poorly informed of what VCs actually do in their spare time. Either way, in the past year I went up to the fire hydrant, started drinking from it, had my face hosed right off, and loved every moment of it. I also had the privilege of sharing with some really smart people what I’ve learned during the past couple of years and how I got to Cue Ball.
With that said: they say hindsight is 2020, so my first post for 2020 is hindsight.
1. VC is about having a point of view.
What makes this job interesting is not how well I can do Excel, how many entrepreneurs I talk to in a week, or how much money I can blow expensing coffee. What is valuable, in my opinion… is my opinion. Above all, VCs are paid to think. It can be about industry trends, how a company might better present its vision to investors, or the merits of supporting one type of company versus another.
An investment committee is not only about informing people what the metrics are — any reporting system will do it. At its core, it is about interpretation and presenting a point of view. As I mentioned before, that can be in any of the parts of the VC’s job, whether that is firm-related work, IR, operational support, or diligence. Your perspective is where most of the value-add is, and is what brings you beyond the table stakes of Excel and Powerpoint.
This is also why you see many different points of views from various VCs — they are presenting their points of view as hypotheses they have crystallized from their experiences and what they have seen. Hell, this post itself is its own opinion piece. Some other VC probably has an entirely different list of things they’ve learned as a VC, and that’s all right.
Also, you don’t need to have extensive experience in an industry to have a point of view in it. Your points of view on various topics will evolve and become more and more nuanced as you become more informed, but you need to start somewhere (aka 0 knowledge)! If you’re open-minded and curious about sectors outside of your current interest, just start doing research and put your best effort into it. That’s how I got into cosmetics and beauty soon after I joined Cue Ball, even though my experience was in diligencing and assessing pure software companies. 💅💄
Have a point of view on a company or two, or an industry you care about. A couple years ago, I once told somebody I loved B2B SaaS companies. When she asked me for examples of companies I liked, all I could do was shrug.
Don’t be like Young Chiyoung and not do any research beyond “this is a cool, hip industry,” but actually have an opinion of something that you can bring to the table. In an interview setting, (and probably many other settings), I value your ability to assemble a coherent argument and point of view much more than whether you can tell me the exact words “operational cash burn.”
2. Part of the job is investigation. Actually, probably all of it is.
How do you get a point of view? If you know nothing about a company, how can you say anything about the company besides “I heard this company is doing something cool” (which is what every company says, by the way)? The VC role in general, and diligence doubly so, is investigative journalism on an accelerated timescale. You need to dig around to learn everything you can about what you are buying.
For example, when I’m making a big purchase such as a new keyboard, I do a ridiculous amount of research to make sure I’m making the best use of my money in getting what I want. When people buy houses, they often try to learn everything they can about the house, and often hire home inspectors to ensure nothing about the house is off. In my opinion, there is no reason to skimp on diligence in venture, especially given the stakes involved. Even if you are an early-stage investor, you can always learn as much as you can about the business model, founder, and industry. At the very least, consider it pre-reading for your investment.
The previous tip and this one are heavily connected. If you want to have a point of view on a company or industry you will be doing at least some desk research. Be prepared to talk about things beyond just the company, such as parallels in other industries or “comps” with successful / public companies. As you start from one company, you might research competitors, key figures, key technologies, and slowly increase your circle of competence in this area. Whatever the case, you will be stacking up a strong knowledge base that will serve you well beyond the interview.
3. Pitches and coffee are a tiny part of the job.
Here is, in no particular order, a list of some of the things I do on a day-to-day. I’m probably omitting things as well. Also, please note that these are the responsibilities for my current role and may not reflect responsibilities of other VCs.
1. Fund Stuff
This can be anything from investor relations (IR) and internal reporting (another kind of IR, I guess) to fundraising materials and helping set up On Cue, our annual event.
2. Operational Support
I’ve been involved with no fewer than 10 of our portfolio companies over the past year. I’ve done anything from helping out with pricing strategy, to customer strategy, to event planning.
A large part of the job is doing diligence on companies that come our way. Sometimes I’ll be looking at 5–6 companies at the same time, so it can get hectic in making sure we do all the research we need to come to a decision on all of those companies.
I’m separating research here from diligence. Here, research is industry research, other literature to help improve firm processes, learning about metrics and why we track them in other industries, and sometimes just catching up on news. I use Feedly to manage all the crap I read and it’s been very helpful to me so far.
Pitches and coffee are still part of the job, though. Sourcing can be anything from following up on introductions / referrals to cold emails to interesting companies and founders I run across while surfing the web. However, I don’t go for a set quantity of outreach (this part really depends on your role and how important sourcing is).
6. Personal Projects
Rather than my own startup or a side hustle, I’m referring here to miscellaneous work-related activities that don’t really fit into the other buckets. If research also extends into me building some kind of toy model or playing with some data beyond its original use case, it might fall into this category too. For example, my Medium posts fit into this category, and so do some of my coding projects — one portfolio support project saw me writing a bit of Python code for data analysis, and spending time after the project to come back and adapt the code for general usage provided a new utility for the firm for other related data analytics work.
It’s super important to be able to have a portfolio of projects you can refer to during an interview. For instance, if you can leverage that model you built for such-and-such project, milk the hell out of it. You need to show what other value-add you can bring to the company — are you a phenomenal modeler? are you a wizard at Shopify data analytics? do you have some crazy niche skill in the nail salon industry that would give you an edge in building out that business? Whatever it is, it is very worthwhile to think about this and at least have a few talking points.
4. Passing on companies sucks. A lot.
I’m pretty sure no parent wants to hear “your baby is ugly.” I hate pass emails. Sometimes, I feel like a pass email sounds something like “look, your baby is cool and all, but… your baby’s hair is too short” or “your baby doesn’t have the dimple-to-cheek-fat-ratio I want to see” or “your baby is too young, does he/she even lift?” Companies are entrepreneurs’ babies and I want to see every founder succeed. If I could, I’d love to give founders I meet everything they need, but the bleak reality is that a fund’s time and money are precious resources. While we want to support entrepreneurs it’s also trying to figure out the balance of working with as many great founders with the resources we can allot to them.
For example: I love cats. I have two cats, Kimchi and Boba. I’d love to have another cat, and name it after another food. However, I don’t think I can balance having another pet. Even if I said screw it and became a crazy cat lady, would I really be able to give each cat the love and care it deserves? Probably not. I’d be pulled left and right literally herding cats and won’t be able to dedicate any time and attention to any of them specifically.
At the end of the day, I do think passing is better than a non-answer, because it’s a concrete answer. Both sides waste less time, and entrepreneurs can focus the little time they have available to the things that really matter. However, I don’t like to just say “sorry, we’re a pass for now.” In my opinion, that’s almost as bad as a non-answer, because that doesn’t help the entrepreneur at all. I believe that as investors, we have an obligation to the entrepreneur to provide constructive feedback from the deal team for the current round and future fundraises.
The inside scoop:
Maybe this is less “inside scoop” than an explanation from me. Entrepreneurs, please know that it’s often really, really hard to pass on a company. It’s never a clean decision to pass, and there are times I stay awake wondering if we should’ve passed or done more diligence. Passes can happen for a variety of reasons. Maybe some proof points aren’t met. Maybe we don’t like certain parts of the business model. Maybe it’s something entirely different. Whatever it is, I try to send out an update (be it another set of questions, details on next steps, or a final pass email) within a month, if not two weeks.
A pass now isn’t necessarily a pass later. It could be that after addressing a few proof points down the line, we’re ready to sign the check as soon as possible. On my end, at least, a pass isn’t a final decision for all time — I’d love to hear about the big strides you make, and am always happy to continue the conversation.
5. Even if the business model, founders, etc. are perfect, the deal can still fall apart.
I always thought that once the main things were out of the way — great business model, great founders, great product, great customers — the deal was ready to be signed. However, I quickly learned that’s not true.
Venture capital is at its root a betting game. It’s again, about balancing the time and money you spend on a company with how much it will move the needle for a firm. If it’s a fantastic company, but the valuation is ridiculously high, and I can only put in a fraction of a fraction of my fund’s total value, it might not be worth the bet. This is because in order to get a great return, the valuation needs to skyrocket, but even if that skyrockets, if the total amount of money put to work wasn’t that high to begin with, it’s not worth it. Also, the earlier the stage the company is, the more risk we’re exposed to as early-stage investors — if there’s not enough data for us to have conviction and expose a good chunk of money to high risk, the more likely we are to pass.
On that point on a company being potentially “too early” — this is a very vague term that has different implications depending on what stage you are and what types of investors you talk to. Some VCs want to work with founders as early as possible, even if they have nothing but a great business plan. Sometimes it depends on how big the fund is — if it’s a small VC fund, they might need to do a bit of work before putting in a few hundred thousand for a seed round, while a mega-sized VC fund may be more open to putting in a few million dollars with the same amount of conviction, simply because those few million dollars represent a smaller portion of the fund, implying exposure to less risk.
On top of valuations, there can be anything from messy cap tables to timing, little bandwidth, or issues with other fantasy numbers. This business is weird.
The inside scoop:
Honestly I’m not entirely sure what to say here except to be aware that such skeletons in the closet may unfortunately torpedo the deal at the last moment. While it’s not that common, and many things are negotiable, don’t expect much if your seed valuation is at $500M, your convertible note has no discount, and you reach out to investors saying that you’re on a tight timeline and looking to finish the round in 2 weeks.
6. The deal begins when the check is signed.
This might be a repetitive point, but the deal really begins when you sign the check. To continue the “companies are founders’ babies” analogy: upon signing the deal, you’ve made an agreement with the founders that you will act in the best interests of the child, which can include providing connections and advice that can help the child grow to their full potential. This may include, among many others, providing support during fundraises, connections to potential customers, and an outsider’s perspective on customer strategy.
I think I just want to reiterate here the tip from 3. Pitches and coffee are a tiny part of the job. Reading The inside scoop for this part may explain why an investor’s value-add is so important — anybody with money can throw cash at a company, but it’s your unique blend of experiences and perspective that provides lasting, immeasurable value after the check is signed.
The inside scoop (this time, from Captain Obvious):
If at all possible, try to get investors who can add value beyond just cash. Oftentimes, if you see yourself moving a certain direction, try to get investors who have experience in that sector — you want your board of directors to be composed to advisors who can provide meaningful (and often diverse) points of view from their own experiences, be it operational or from an investment standpoint. If your company is the USS Enterprise, you’re undoubtedly Captain Picard. But speaking captain-to-captain here, even Captain Picard needs his bridge crew for the ship to operate at maximum efficiency (Star Trek fans, please don’t nitpick this analogy).
7. The industry is all about relationships.
Everybody you talk to about VC will at one point say the same damn thing: this is a relationship-driven industry. But hey, if you weren’t privileged enough to be born with a full Rolodex in your mouth, know that I wasn’t either. Relationships are cultivated over time, and existing relationships may surprise you years later.
VC is not about knowing other people, but about building meaningful relationships with other people. These other people can be with founders, other investors, anybody in general. Building these relationships can happen many ways. Maybe you’re the type that hustles at networking events and goes through a box of business cards a month; maybe you’re very close to a few people who in turn “know somebody”; maybe you’re a prolific mentor and have built out give-and-take relationships along the way. Whatever it is, you probably have a relationship-building style with a network of people you’ve curated and care about, and that’s the best place t o start. If you don’t have a network to start with, I’m happy to be your first contact — find me on LinkedIn. 😊
Inside scoop and interview tip:
Really, though, don’t take the power of relationships for granted. VCs get a relatively large number of cold introductions / outreach. Even if you are the perfect candidate / company, it’ll be easy to lose you in the crowd. A warm introduction brings with it a pre-vetted seal of approval, especially if it comes from somebody I trust.
Please note that I’m not supporting nepotism in any way. My (potentially naive) belief is that when I or somebody refers a person, there is an implication that this is a person we hold in high regard, and that we are staking some part of our reputation on this referral. After all, would I send your way somebody whom I couldn’t trust?