10 Lessons I Learned From Working in Venture Capital
Over the past 2 years, I had the chance to complete my Venture For America fellowship and work in venture capital at Red & Blue Ventures. Having previously been a founder, it was fascinating to be sitting and learning from the other side of the table. After having worked in VC, I wanted to share some invaluable high-level takeaways I believe every founder should know when they are looking to raise capital.
1. Founders should consider cultivating relationships with VCs as early as possible.
Mark Suster from Upfront VC wrote a great article titled “Invest in Lines, Not Dots.” Here, he advocates for how entrepreneurs need to begin building relationships with investors as soon as possible and demonstrate growth over time.
For VCs, this allows them to track those businesses’ ability to perform and build traction longitudinally over time. A founder’s ability to stay in touch with a VC is a testament to their communication, coachability, and capability. Meanwhile, if a VC provides feedback to a founder in a previous meeting and the founder can execute successfully, this makes the company more attractive to investors in their fundraising journey. You need to be already behind that open door before it even opens.
2. If a VC interrupts your pitch, it’s not a bad thing.
A VC meeting isn’t like your typical Shark Tank episode where founders will finish their full pitch before investors ask questions. On TV, this makes sense but that’s not how it works in the context of a VC meeting. If a VC does not interrupt you, there is a good chance that they are likely not listening.
As a founder, you have so many things on your deck; investors can probably think of at least a few questions for each slide. It is much more productive for both parties when a VC asks questions as you go through your deck. You should encourage them to interrupt you.
And when VCs ask questions, observe what questions they ask and when they ask them — this can inform you how to improve the content and flow of your deck or your business model as a whole!
3. Projections are always wrong.
The fact is, no one can predict the future! Projections are often inaccurate because they are dependent on lots of assumptions that founders must make based on market trends or their knowledge of their business.
However, according to a Harvard Business Review article, by Martin Reeves, Suvasini Ramaswamy, and Annelies O’Dea, while forecasts can’t predict the future, they can still provide value, whether it’s understanding different perspectives of the market, and how your business can tap into emerging areas of opportunity.
4. It’s about the jockey AND the horse
We all love a good idea but that isn’t the sole determinant of what makes a business successful. You can’t JUST have a good idea; you also need the right people on the bus.
Leadership is key; they are the ones creating processes, and processes are what help businesses scale. The best founders that VCs tend to be attracted to are coachable, communicative, and capable. Having some previous track record as a founder or any relevant market experience is incredibly helpful to demonstrate your ability as a founder.
5. Founders and VCs have an inverse relationship when being “the first.”
Entrepreneurs like being first to market but VCs often are hesitant to put their money in first. VCs often like looking for reputable “leads,” AKA the VCs who will be the first to say yes to the investment opportunity.
According to an insightful article by Aaron Dinin, logistically, having a lead investor makes running due diligence a much more streamlined process because much of the work has already been done by the lead. Cognitively, having a lead instills more confidence in other investors to commit to filling the remainder of the company’s funding round.
6. Good VCs will always seek additional opinions.
A good VC knows what they don’t know.
Sometimes, VCs can invest in companies that occupy a market they know little to nothing about. But why would they choose to invest? In such a situation, VCs can seek third-party opinions from trusted relevant experts and operators within the market they are seeking to learn more about.
This can be a hit-or-miss situation, so founders should always make sure they have an undebatable product-market fit and also come prepared with some noteworthy references.
7. Demos are toys to VCs.
VCs love getting their hands on them. Demos are a great way to demonstrate your concept’s execution and functionality. Oftentimes when pitching to investors, if you do not show them a demo, they will need to imagine how your product or service will work — this can sometimes be helpful or harmful. When relevant, always try to come prepared with a demo or a thorough walkthrough of your customer journey.
However, don’t get too hung up on your demo in a VC meeting. It is OKAY if your demo malfunctions or if it is half-baked. The purpose of a demo is to show the potential of what your product or service could be. VCs are more often than not used to seeing countless demos, and the odds are, most of them are at least somewhat half-baked!
8. Always have your pitch deck ready to share with a VC.
VCs will almost always ask you to send them your pitch deck before your meeting takes place.
You can forward a full-length deck that you plan to review for your meeting OR forward a very intro-level deck before your call if you intend to elaborate more in-depth with additional slides on your actual call. If you have a very complex concept or market, the latter might be ideal.
9. Don’t ask a VC to sign an NDA.
It is already part of their unspoken code of conduct. As my former boss used to say, “No VC out there wants to be known as the one that ‘spills the beans.’”
Some founders prefer to forward something very high level so they don’t overwhelm VCs with the information they don’t need to know too deeply. Many founders use DocSend for its password protection function. Brand Feld also summarizes this well in an article.
10. VCs don’t mean to ghost you.
The fact is, VCs are busy and are often getting pitched by various founders outside yourself. If a VC does not reply, you should not take it personally.
Prompt replies show excitement and interest, but you should always follow up with a VC and try to get an answer from them so that you can either move along the due diligence process or get the simple “no” you needed from them.
Even if It is a “no,” you should feel comfortable asking for feedback if you believe it is appropriate based on the context.
