When screening becomes VCs’ biggest competitive advantage

As you probably know now, the whole G Ventures’ crew has the chance to benefit every week from the insights of an investor sharing his knowledge and experience about how that — sometimes cloudy — VC world is working. Paul Moriou, VC at Serena was the one focusing on that wide topic of screening and analyzing a startup.

Far from the traditional investment decision-making templates, Paul rather focused on giving us tips to develop our own pattern recognition, as well as some essential VC skills to identify a great startup.

Let’s start with a quick reminder on the VC role before deep diving into why is screening so strategic.

What are VC duties?

• Generating and maximizing deal flow — which involves meeting as many founders as possible
• Building a conviction on the investments through the identification of patterns and low signals
• Close deals — which looks more and more like “win deals”
• Support his portfolio
• Facilitate startups’ exits

VC world is competitive for startups and so it is for aspiring VCs! Therefore, differentiation is key! But how to actually make it? Personal branding can be built through many formats such as content creation with articles, podcasts, and/or relevant LinkedIn posts. But in the end, the real stake in VC is still investment performance. The best way to break into VC is, then, to work — as soon as possible — on developing a strong investment conviction which will eventually be a massive competitive advantage.

An average VC bets on probability when good ones rely on convictions.

All VCs are looking for…

1) Scalable BM

VCs are looking for scalable business models which are “hypergrowth-friendly” models. Scalability is defined by the decorrelation between cost and revenue structures eventually enabling high margins and returns.

2) Huge market

Understanding funds suppose to understand the way they operate. Their performance follows that well-known Power Law explaining much of their strategies. The markets they’ll bet on must be billion-dollar markets to be considered as high potential opportunities.

3) Focused team

Beyond the obvious and needed founder/investor fit, some entrepreneurs’ traits and mindset are particularly differentiating. Founders must be obsessed with tackling and addressing a real opportunity identified on the market. Their conviction must result from observing the market until identifying a real need and/or significant pain point. The problem comes first, the solution second!

4) Defensible posture

Eventually, what comfort VCs are the awareness and lowliness of entrepreneurs. Getting on the market involves thinking on the way to maintain its dominant position by setting up barriers to entry.

Traditional VC analysis following scholar pillars (market, unfair advantage, team, and so on) — each of which can be subdivided into about 10 new criteria — only leads to mind noise.

The key is to build your own investment and analysis network.

Personal conviction is a long-time process built through experience. Seeing as many deals, discussing and challenging your opinions with other analysts, identifying only a few key points/relevant KPI to focus on, taking time to get back on your analysis — even more on failures — and confronting expectations and realities, adapting your framework to the ecosystem,… all of this will lead to your own success recognition investment pattern.

Long lesson short: assess your assessment! Test and learn are not only for entrepreneurs.

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