Venture capital explained: A no-bullsh*t guide to how we invest
We published a piece similar to this several years ago. This is an updated and expanded intro to our approach.
The fundraising process is tough and time-consuming for startup founders. It’s inevitable that when your early stage business is taking off and you want to invest complete focus and every spare minute in making your business thrive, you’ll have to invest time in raising capital.
The people most responsible for driving that growth — you and your co-founders — will be heading into what can feel like endless meetings with potential investors, the vast majority of whom won’t invest (statistically speaking).
Founders want the fundraising process to be as quick as possible, and so do investors. There are few things as exciting for us as walking out of a first meeting and thinking “yep, this is a team we want to back”.
We’ve invested in nearly 20 companies (many of them multiple times) and are constantly getting faster at progressing startups through the investment process. Your time is one of your most precious commodities, so we try to waste as little of it as possible. It usually takes us about a month to go from an initial meeting to an agreement, and we let people know as quickly as possible if they’re not a fit for us.
Part of that is being transparent about what we’re looking for, so you know if we might be a fit to join your team as investors. So here is a concise and no-bullshit version of who we are and what we’re looking for:
Rampersand VC at a glance:
- We’re an early stage tech fund that invests in late seed to Series A investment rounds.
- Our average first investment is just under $1m but we have invested from $150k up to $3m
- We like to connect with founders as early as possible — we invest anywhere from pre-revenue to series A, so it’s great to build the relationship
- Fund 1 launched in 2013 and backed 10 companies. Fund 2 launched in 2016 and has made more than 10 investments so far. You can find most of them here.
What we look for:
- The world’s best, not just Australia’s best: we are in a globally competitive environment, and we back world’s best startups. Big vision, big ambition, big belief.
- Startups solving real and growing problems: we back teams building great products that are solving genuine issues and changing the status quo.
- Companies serving big markets, or niches you can own. Most of our companies are globally focused but we don’t have any strict rules.
- Tech companies: while all companies are now tech-enabled, we are looking for companies that build the breakthrough tech itself. We are fairly agnostic about the type of tech — it could be software-as-a-service, data, automation, robotics, mobile, AI, blockchain, mobile, IoT (etc etc etc), but core to rampersand’s vision is providing more than just money so we’ve been hesitant in the past with medical, green and bio where we’re not experienced and therefore have limited value to offer.
- We don’t invest in gambling companies, which is just a personal choice.
- We like to hear from founders early in their journey: taking on investment is a big decision so we believe it works best when both sides know each other well, and we’ve had a chance to follow your early stages and got a sense for how you think and work. We have invested in companies we’ve just met, but it’s useful to reach out in advance if possible.
- We’ve detailed our particular areas of interest in this post.
We want to be honest and open about diversity also. The venture capital community has a long way to go in terms of even getting close to investing in diversity, and that includes us. Diversity is about more than gender, but we simply do not see enough women founders, only about 20% of the founders who reach out to us are women. So if you are a founder who also happens to be a woman, we would love to hear from you — even if that’s a long time before you feel ready to raise.
The dream pitch
Here’s what we want to understand:
- You and your team: we view investing in a startup as joining the cofounder’s team and know a startup’s success is largely about its leadership.
- The problem you are solving and why: this is critical
- Your unique solution: both the product now, and what it will be in the future
- Progress to date — this helps us know how well you’re doing but also if you’re at the right stage for a meeting.
- Big plans — a lot of founders have been encouraged to keep their huge visions quiet, and focus on the more immediately achievable elements of it. We want to hear both.
What we don’t care about
- Your exit strategy: it’s way too early to tell, and we’re not backing you for your exit strategy
- 10 year financial plans: just tell us what your milestones are and how you plan to build up to them
- Investment memoranda that take 30+ slides to explain the proposition
We have a five step process, with a go/no go after each stage:
- An initial phone call with one of the team here.
- Meeting with one of the managing partners
- Deeper dives: go to market, product, team
- Internal presentation to investment committee (term sheet would be presented at this point)
- Finalise the investment
The whole process is generally under a month, but it can vary. What makes it longer? Generally it’s the lawyers, but it can be wanting to spend a bit more time building the relationship or understanding particular points. Our emphasis is on collaboration throughout the process, both with the founders but also with co-investors . This is going to be a team effort, so there’s value in getting the team together as soon as is feasible.
Terms and structure
We are happy to lead an investment round or follow if you already have a lead but we do prefer to co-invest. Our preference is straight equity, we have a leaning against convertible notes (see this great piece from Mark Suster) but if you really want them, we prefer SAFE notes.
Once the deal is done
We feel our job is relatively simple — find the best entrepreneurs in the country, ensure they have enough capital to thrive, and help them surround themselves with the best people.
The basis of rampersand was to help give the companies we back an unfair chance of success through our experience and networks, so we are at our founders’ disposal. We believe that our role is to become a trusted adviser for our founders — for both the good bits and the hard bits. We know there are going to be difficult parts of every company’s journey, and we don’t expect the founders we back to have all the answers. It can be very lonely being a founder, and we are there to back you no matter what happens.
This manifests in a number of ways, from board or advisory roles, regular catch ups, support with PR, marketing, sales, M&A (all skills found within our partnership and shared services model), and just stepping back and cheerleading from the side.