10 Things Every VC Should Do
My VC Unlocked Deal Camp Takeaways
It’s been quite the 2-year journey to jump from a nearly decade-long B2B enterprise tech operator career to a venture capitalist role. All I can say is that the more I grow in the business, the more I realize there is so much more to learn. And that’s exactly why, last month, I was thrilled to represent Backstage Capital at and participate in 500 Startups’ VC Unlocked Deal Camp at UC Berkeley Law School alongside the brightest talent pool in the early-stage investing ecosystem, in and out of Silicon Valley.
At Deal Camp, I learned from Christine Tsai, CEO and Founder of 500 Startups, Scott Kupor, Managing Partner at Andreessen Horowitz, and Brendan Herron from WSGR, to name a few. My peers were both witty and intellectually impressive. They were nearly 40% women, from around the world (UK, Oman, Singapore), and represented a variety of professions (angel investors, VCs, lawyers, founders).
I certainly walked out of the 4-day intensive camp with global startup allies and a stronger sense of startup evaluation and VC deal mechanics. And, because sharing is caring, in this blog post, I’m going to share my top 10 takeaways and my notes on how you can apply them in real life.
Key Takeaways
1. Have a clear thesis. Is it easy to tell, from your website, what sector, stage, region, and size of deals you do?
2. Give founders and limited partners what they want.
For Founders — Add value to your founders by giving them a hand with:
- business development — can you help founders make deals happen?
- talent — can you help founders fill roles?
- fundraising — can you champion and introduce your founders to upstream investors?
- strategy — can you help your founders address tactical and strategic challenges and achieve goals?
For LPs — Make them money and share deal flow. Also, keep:
- clear investment selection criteria
- a track record
- LP relationships warm
- discipline in your thesis
3. Save time. Use the 5-minute company assessment hack. The key is to know your thesis and be disciplined about it. Ask yourself the three questions below about the company you’re reviewing. If the company is not a thesis fit, pass then and there. If the company is a thesis fit, set up a 45-min call to continue due diligence.
- Does this startup fit my thesis? Is it in the right stage/amount/area?
- Do you have an unfair competitive advantage? In other words, does the company have superpower strengths that can give them the edge on the competition?
- Is the team, product, market a fit? And remember that the top 5 reasons why startups fail (No market need/No minimal viable product (MVP), Running out of cash, Not the right team, Get outcompeted, Pricing/cost issue.)
4. Don’t be a jerk. Be soft on founders and hard on the issues. When you connect with a founder and you have a “your business won’t work” reaction, take a moment before responding. Identify your concerns, and then ask about those. Then ask about them. Have an ego-less and respectful discussion. You may surprise yourself and find that the company you questioned turns out to be a good investment.
5. Keep an eye on traction. It’s important what founders are tracking and where they stand. Here’s what SaaS and Enterprise startups should know the numbers for:
- Acquisition — Customer acquisition cost, Sales cycle, and Process
- Activation — Customer onboarding process? # of customers with active usage
- Retention — Churn
- Referral — % of customers who refer, # of customers referred, value per referral
- Revenue — MRR/ARR, Ticket Size, Pricing, Margin
6. Learn to love the art of cap tables. Beware of founders who don’t have a good handle on their cap tables and inconsistent terms. Know how to rework a cap table. Here are questions you should be clear on, before understanding whether this is a good investment:
- What’s the pre-money, post-money, employee option pool, and how much equity do stakeholders hold?
- If the startup is fundraising for their seed round, do the founders own at least 65% of the company?
- What are the terms and conditions (T&Cs) they have for previous investors, and could those become a problem for future investment or acquisition?
7. Understand valuation. Don’t give in to the FOMO and overpay. When doing valuation, consider these factors:
- stage of the company
- competition with other funding sources
- experience of the entrepreneurs and leadership team
- size and trendiness of the market (revenue multiples, exits, other fundraises for similar companies)
- the VC’s natural entry point
- financials
- current economic climate
8. Strike the right term sheet balance between economics and control. Here are the terms you should prioritize as a VC:
Economics: pre-money, post-money, fully diluted numbers, liquidation preference, vesting, pay-to-play, option pool, anti-dilution
Control: board of directors (Investor friendly set up: VC #1 + VC #2 + Outsider + CEO + Founder | Founder friendly set up: Founder + Founder + VC #1 + VC #2 + Outsider), protective provisions, drag-along rights, co-sale rights
9. Avoid economic and voting dilution.
- Avoid voting dilution by ensuring that, as an investor, you have sufficient voting control to block new issues of stock; and ensuring that, as an investor, you have the right to participate in future financings
- Avoid economic dilution through “broad-based” anti-dilution protection. This means that new stock price conversion is adjusted by the following formula: (Old Conversion Price) * ((Common stock outstanding + number of new issues shares sold at old conversion price) / (Common stock outstanding + number of newly issued shares))
10. Plan for the exit.
Know your M&A facts
- 95% of the time the exit will be through M&A
- 80–85% of all exit deal sizes will amount to less than $250M
- 59% of exits will be pre Series C (25% will exit at Seed, 19% at Series A, and 15% at Series B)
- 58% of exits will come before the company raises $10M
Know your M&A Letter of Intent (LOI) breakdown
- base purchase price — total amount to be paid by the acquirer
- earnout — a portion of the purchase price that will be earned and paid upon achieving certain milestones
- escrow — monies withheld as partial security for indemnification obligations
- holdback — hold % of the payment and pay over time
- lockup — an agreement to LOI
- fuse — expiration dates
Know how valuation is calculated
Encourage founders to engage with corporate development folks before they’re ready to sell. As the old sales saying goes: people buy from people they like. Plus, your founders will maximize their negotiating leverage when they have time (money, runway), options/alternatives, competition (multiple bidders), and the ability to walk away.
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About Lolita Taub
Lolita Taub is the Co-Founder and General Partner at The Community Fund and acting interim Head of Sales at Catalyte. She is a first-generation Latinx operator and investor pushing for diversity in tech. With 15 years working within the Silicon Valley ecosystem, she has accomplished +$50 million in sales and made 38 investments as an angel investor and VC at Backstage Capital. Lolita is also a Co-Founder of the Startup-Investor Matching Tool, a scout at Indie.vc, Venture Partner at NextGen Venture Partners, and an LP at Operators Collective. Forbes, Inc, and Entrepreneur have featured her as a women in tech promoting diversity. She has a BA from the University of Southern California and an MBA from the IE Business School. Most importantly, she is a dog mom to the cutest Dachshund mix, Choco.
