Somehow the world seems to be spinning faster these days than just a few years ago. The frantic pace of technology cycles, the amount of tech news, the blogs, the conferences, the demo days, the announcements, the fundings, the IPOs. It’s exhausting. Perhaps unsustainable.
It got me thinking about the advice that I often give to new VCs. For years I saw myself as the new guy in VC but then you wake up one day and realize that 50% of your peers have been doing it for less time than you and time has moved on.
Any longtime readers of this blog will know that I often try to simplify complex ideas into a simple parable that is easier to remember to set the tone of one’s behaviors. Lines, Not Dots. Attitude over Aptitude. Building Startups for Basecamp. And so forth.
So the advice I’ve been giving many VCs from my experiences is that “in VC it’s important to play offense, not defense.”
What do I mean?
Defense is when you react to others. It’s inbound. It’s responding to somebody else with the ball. As VCs we’re inundated with emails from founders, friends, colleagues, angels, seed investors, VCs, law firms, venture banks, corporates and so forth with their favorite deals. So this becomes your dealflow.
Anybody who has worked in venture can tell you that if you took every intro that came your way you’d simply spend all of your time in meetings reviewing new deals sent to you. But new deals sent to you are discovered. They are known. They are seldom sent just to you.
There has been much discussion in the past few years of the changing structure of the venture capital industry.
On the surface the narratives have been
The rise of “micro VCs” or seed-stage funds
The rise of alternative sources of capital (crowd funding and the like)
The poor performance of the asset class (this analysis has largely been wrong as I pointed out here –> most analyses were clumsy rear-view mirror looks at the data)
We are in a bubble (with so many private $1bn+ valuations)
15 years ago we were at the peak of Internet hype with the launch of many over-capitalized businesses with a market size & opportunity was limited.
Where are we today?
50x more Internet users (2.4 billion)
Online connections that are 180x faster (10.
I was having dinner with a friend last night and we were chatting about venture capital and a bit about what I’ve learned. I started in 2007 with a thesis that my primary investment decision would be about the team (70%) and only afterward about the market opportunity (30%).
I was telling him that it was much easier when I started because there were fewer deals, life was less public and somehow the world seemed to be spinning more slowly. A year into my tenure the world went into economic collapse and that seemed to dominate the consciousness more than which deals one was chasing.
Today we’re in a world where 10 accelerators are bombarding you with emails to meet their 10-15 companies. Seed investors are aplenty and of course they need downstream money to fuel their early-stage bets. Angels have been prolific for years now and they, too, rely on downstream money to cover their bets.
And we live in public so many people are able just to reach out.
And there’s conferences. Oh, the conferences. Disrupt. Recode. Web Summit. Collision. Fortune Brainstorm. Lobby.
Tom Perkins is one of the founding members of the venerable venture capitalist firm Kleiner Perkins. He just had his Mitt Romney moment and his name will forever be etched in the collective consciousness of the tech community for this terribly insensitive and tone deaf letter to the Wall Street Journal.
The headline of Mr. Perkins letter to the WSJ?
Progressive Kristallnacht Coming?
“I would call attention to the parallels of Nazi Germany to its war on its “one percent,” namely its Jews, to the progressive war on the American one percent, namely the “rich.””
Picking a VC is hard. You don’t really have much to go on to decide who would make a good fit. Reputation of firm? Of partner? Deals done in your industry? It’s a bit of all of these.
I had an enjoyable conversation this morning with a young team straight out of college this morning and they were calling to ask advice on how to approach fund raising (angels vs. VCs, how to select a VC, etc.) and I realized that without years of experience it is tough to answer this question.
So I thought I’d write about out with what I would look for in a VC knowing what I know now and why.
Most VCs are book smart. It’s insanely competitive to get into our industry so most have degrees from institutions like Stanford, Harvard, Wharton and University of Chicago (blatant plug ;-). Smart is simply not a differentiator. In fact, book smart can be a negative. The last thing you want is a know-it-all telling you what to do when they are at 50,000 and haven’t had to deal with your exact circumstances.
I call them “VCs Seagulls.” (you know … fly in, shit on you and then fly away).
In my recent post “Why Am I So Lucky? Why You Need to Be Sure You’re Not the Sucker” I talked about how VCs (or other investors) get deals sent to them and how to interpret a referral.
I tried to make a simple point: People have motives when they send you a deal. Sometimes those motives are positive (they really want the chance to work with you, they think you have unique skills) and sometimes they are less positive (their first-tier of “go to” referrals passed on the deal, they don’t want to write another check themselves, etc.).
As I said in the post, I really appreciate referrals and I take meetings introduced to me from a wide variety of people. I simply wanted to make the point that if a deal referral seems “too good to be true” it probably is. If the deal is from out of your geography and/or out of your focus area or a deal is being referred by a well-know investor who normally co-invests with similar syndicates – at least ask yourself, “Why am I so lucky to be getting this call.