Commentary How VC Works VC for Entrepreneurs

Dear VC, Please have a Strategy! ? !

I have the pleasure of talking to a lot of VCs lately. Good for my company. Good for my entertainment. Good for the outlook. But … oh my. What is this?

Everybody drops vintage year, AuM, partner bios, that they are not interfering with management – passive investors – and add value via network. *headscratch* It goes on with dropping some portfolio / exit names – if they have some, otherwise they skip it – , some talk about their resumes – Ivy, Banking, PE aka “I missed out on finding out what I want to do in life and I dropped the best 10 years of my life to make money. Now I am underqualified in this and was hired because my bosses made the same mistakes, but hey we got good fund returns because we screw our companies on terms and we are good on the long tail.”. Then they drop their MRR /ARR requirements, their stage preferences.

Oh my.

  1. First of all, please disclose your covenants. Thank you! If you can’t invest into our geography, why talk. Your LPs also matter. Since we cannot afford CapIQ and Pitchbook licenses and we talk to lots of folks, talking about the governance of your investment vehicle is at least as important to us as your AuM. And we are hustlers. Even if you are fully divested in 2 years and fail to raise a fund. We think that isn’t thaat relevant for us. We watch you secondary and get a new investor and get your out of our captable. It isn’t really our concern if your fund is old.
  2. Second of all, if you want to brag, talk about (a) your risk appetite, (b) the syndicates you pulled together and how you maxed out your MOICs/IRRs statistics by adding value to the companies. That works magic. ; ) Don’t talk MOIC expectations and how hands off you are. And (c) knowing and dropping war stories about your favorite entrepreneurs isn’t something you just share when hiring partners for your fund, you can share that stuff with us too. *wink* Chances are, we want to read up on them or know them. And will connect to them for advice. Good for you if you are serious about investing.
  3. Thank you, if you think about which business models and industries you do not only invest in but believe in right now. That is valuable information. If you talk about the pros and cons of our competitors and the war stories traded in the industry about them – yes, a few funds did that with us – it is highly welcomed and appreciated.
  4. Be honest. If this is a screening call, because you want to invest into another company. Just tell us. Chances are we spare you some diligence and tell you where our competitors are really bad at. We have eyes and ears and t hink about them around the clock. On the contrary, we hardly will give you any real information on us on a screenign call.
  5. If you have no single entrepreneur or engineer on your payroll, we veeery likely will never consider you as lead. Sorry. We like bankers and PE folks for supporting our M&A agenda. Not so much for trusting you in active investments and intros and key hires that have our best interest in mind.
  6. If you want a board seat and be a lead investor, you really need a very strong hypothesis and depending on your stage you should be conversant on ALL the industry plays we are observing. If someone is looking for a consolidation play, tell us. Chances are, we know it already, but please do the effort. Or don’t try. If you don’t give us information. What value add can we expect later?
  7. Yes, we realize you like when we talk syndicates and big rounds and have a good capital deployment plan. Telling us about ideas on how to build a pack around yourself also helps if you want to lead.
  8. And pssst, it’s a secret. Talking about incentive structures that you like as part of your deals heads on also isn’t going to backfire on you. What’s your opinion on ESOPs vs Phantoms. What’s with the option pool shuffle? Warrants? When?

And now the biggest secret if you want to (a) do good diligence, and (b) want to blow our minds. If we get a call from a top hire for us a few days after talking to you to strengthen our team, that is something we do not reget if it works out. Just make sure he mentions that you guys referred him,

So please, dear VCs around the globe. Have conviction. Do your research. Add value to the system independent of your investment. And enjoy our markets and your job. And we might like you as much as you like us when we are raising and you are competing on the deal.

Thank you!

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