Chapter #3: VC Organizational Structure — An Overview
Raising your Seed Round — a Playbook for Israeli Entrepreneurs
After discussing a variety of early-stage funding sources in Chapter #2, this chapter discusses the org structure of investors capable and willing to lead seed rounds. Just like you’ll want to understand the organizational structure of your potential customers before marketing and selling your product, you’ll want to understand the org structure of your potential investors before you begin marketing and selling your equity.
In Israel, Micro VC and VC organizations have between 2–6 Partners and 0–6 investment professionals, while Equity Crowdfunding Platforms (ECPs) fall into similar ranges. Partners may have additional titles such as General Partner, Managing Partner, Venture Partner, Junior Partner, CFO Partner, Legal Partner, and others. For investment purposes, you’ll want to prioritize General and Managing Partners. Investment professionals will have titles such as Analyst, Associate, and Principal, and the less commonly used Vice President.
Unfortunately for founders, the investment process and its owner(s) vary depending on the fund. Sometimes an Analyst, Associate, Principal, or VP must convince the Partner(s) to spend time on a deal. Other times, the Partner(s) will drive a deal forward, tasking his/her Investment Team with certain assignments.
Some of the variance between firms can be addressed by reading through the investor’s website and learning who works on investments and in what capacity. Online content, however, has limitations in terms of accuracy, so also speak with recently-backed entrepreneurs to learn who does what at each target fund and who has the most influence over the decision making process.
Since Partners have the final say, this may lead you to the conclusion that engaging with investment professionals is a waste of time. And if the fund has no investment professionals, you will be correct :). However, most funds do have investment professionals, a highly coveted and competitive position often bringing more than 100 applicants per role. While you should judge each investment professional individually, remember that statistically speaking VC investment professionals have some unique advantage(s) and can add value to your company, even if a Partner doesn’t invest. Anecdotally, I can tell you that many of the investment professionals I’ve met in Israel have good intentions, critical thinking skills, and networks. So rather than see investment professionals as an obstacle, see it as a relationship-building opportunity.
Investment professionals, usually segmented into junior (Analyst & Associate) and senior roles (Principal and Vice President), help with sourcing, due diligence, and deal execution on the investment side, as well as various other operational and portfolio-related tasks. In general, Analysts and Associates focus more on sourcing and due diligence, while Principals and Vice Presidents focus more on due diligence, deal execution, and portfolio/LP support. Within a fund, you can expect titles to reflect a chain of command, but between funds, titles are difficult to interpret. In some funds, Associates will have a stronger voice and process ownership than Principals at other funds.
In addition to speaking to recently-backed entrepreneurs, you can further assess the influence a non-check writer has at his/her fund by looking at his/her Linkedin and seeing how long he/she has been in the VC industry in general and the current fund in particular. In the first 6 months at a fund, a non-Partner will have limited influence because they still need to build trust with the Partners.
Since seed investors get approached by more companies than Partners have time to review, non-Partners will often conduct an initial screening to determine whether or not your company is a good fit for the fund’s investment strategy, in order to be more efficient with Partner time. Sometimes this initial screening will take place on the phone or in person, and it can be frustrating to not make it past this initial step to a face-to-face Partner meeting, especially without a clear explanation of why.
In next week’s post I’ll discuss how to optimize this screening process and secure your first face-to-face meeting with a Partner.