A FORTNIGHT IN VENTURE CAPITAL: DAY 2
A frequent enquiry from friends, former colleagues, founders and those looking to enter the industry is: “what do you do all day? Is it just Shark Tank?” Here’s a chapter of the 3 part series detailing my rough movements in a vaguely typical few days.
Making the time to acquire knowledge is as important a component to the job as any other. As usual, I try to dedicate a good hour to upskilling — at the moment I’m wading through Claud Hopkins’ My Life in Advertising after Andrew Chen’s recommendation at StartCon. When I read I always take notes and try to treat it as a formal rather than leisure activity.
8 to 10: is spent dealing with various advisory clients. For a particular business we are exploring a new data analytics piece of work to give greater visibility across key metrics. Sub-optimal data and reporting capabilities is unfortunately a common theme across early-stage companies. In our view, tracking every aspect of a business is pivotal to give founders the necessary levers with which they can run their business and drive strategic changes. Granular visibility affords the chance to challenge every assumption and iterate to encompass new learnings as efficiently as possible. Another client’s board meeting is on the approach and I spend a short amount of time setting up the framework for a colleague to populate with data.
The next hour or so is dedicated to turning down a number of investment opportunities that we had started to explore. Unfortunately these conversations (normally over the phone) can often be challenging. Any successful founder requires a level of grit and confidence that allows them to block out naysayers and deal with the stress/anxiety of building something from nothing, often in an area or fashion where others have previously not traversed. As such, giving feedback and disagreeing on the potential of someone’s life work can be grating. Nevertheless it is important. I personally don’t view it as wasting anyone’s time and we certainly aim for that helpful demeanour, happy to connect founders to those in our networks or make recommendations if appropriate. So far the best response of 2016 is below:
We have an 11:30 pitch from a Melbourne based startup doing the investor rounds up in Sydney. The business is relatively mature by startup standards and is astutely looking to build relationships with VCs well in advance of when they are looking to close their next round. (Remember that invest in lines thing from yesterday…) In a first meeting with a potential investor, a founder can rarely win investment, but can certainly turn someone off: a real lose-lose situation. In general terms, the most compelling pitches position founders as understated but confident. A limited handful of pitch commandments that EVP often jokes about include:
- Thou shall not spruik astronomical growth forecasts
- Thou shall not include graphs that magically explode directly at the point investment is being sought
- Thou shall not namedrop other investors that have submitted term sheets (especially if untrue — we will call them directly after the pitch)
- Thou shall not refuse to disclose numbers, metrics or growth strategies
- Thou shall be upfront about business challenges and underperformance
- Thou shall not include vanity metrics that only confuse and obfuscate — think GMV for a marketplace, line charts with no axis, number of downloads (urghh), cumulative user charts or LTV:CAC with a 100 month customer lifetime for a 3 month old business
This pitch is particularly promising and I calendarise a check in for early 2017.
We have an internal status meeting for one of our long term advisory gigs at 1:30 so we discuss over a bite to eat. Nothing particularly exciting to note here.
We are based in Bondi Junction so I jump on a train and head to the city for a discussion regarding last night’s referenced urgent investment opportunity. We meet with our potential co-investors to align on process, opinion and terms. While we typically prefer to lead rounds and be the lone professional investor on the register, we are certainly not averse to co-investment and work directly with a number of funds across our portfolio. The meeting spans everything from best practice modelling of net churn to discussing the most appropriate approach to talent. The room agrees on the amount the business requires, at what valuation we wish to invest and how to structure the deal. The late Monday night proved a worthwhile travail.
We head back to the office at around 6ish to catch up with the remaining team members who are at the back end of similarly diverse days. Across our small team we touched 23 companies in some way today.
At 7 I have a friend coming to the office to pitch their own startup. Having to hear every friend’s startup idea comes with the territory and is a privilege I publicly complain about, but secretly love. This is less about hearing the story but more about lending a hand. We spend a couple of hours tweaking the slides, leaning in on the financial projections in particular. We head across the road to Taco Tuesday at El Topo before I retire back to this wordpress thing I’ve got myself into…