I’ve had the privilege of working in venture capital for the past few years, starting at a very young age with little mentorship in the beginning. As a result I made a ton of mistakes – and learned a great deal making them. Below are a few of the more important lessons I wish someone had told me on my first day:
- Don’t be a generalist (focus on a space you care about). Don’t be afraid to limit the scope of what you’re willing to spend time looking at. I’ve actually found that the more specific I was about my area of interest, the more deal-flow I would see in a given space (e.g. education). The logic is simple: when I see a good deal, I want to send it to friends. But when every one of the 100 VCs I know has told me to send them stuff I like in ‘mobile,’ who do I send it to? I can’t send it to all of them, so I end up sending it to (a) the guy I saw last week that’s top of mind, and (b) the person who told me they’re super passionate about that specific space. There are plenty of startups in spaces you care about – focus on those.
- Say no quickly. Early on I had this misguided notion that every deal we were sent we had to deeply examine, and I would therefore spend far too much time researching and sorting each out in my mind. Just because something looks like a good deal doesn’t mean it should be pursued. If you aren’t really passionate about the space – or haven’t taken the time to truly understand it on your own –, don’t waste an entrepreneurs time with weeks or months of due diligence. They have a business to run. I try to say no in the first meeting (or even before that) to most of the stuff we’re sent, while pointing them in the right direction and providing a few thoughts if I know something about the space. I’ve found that the best entrepreneurs will come back and try to prove you wrong (and tenacity is a very good sign).
- Make sure you can really add value. If you can’t add value (beyond recruiting) on an ongoing basis, you won’t stay relevant to the team and will be out of the loop – even if you’re on the board. (Side lesson: the most important decisions are made before and after board meetings). Stay a part of the conversation and in the know by making sure that you’re constantly engaged with the team and helping out. This is another reason why it’s important to be specific in your investment screening – if you care about the space you will have an easier time staying actively involved.
- Invest in teams with an ‘unfair advantage.’ Because of simple web languages, an abundance of APIs, and open-source content, it’s easier than ever to build a web product quickly. The teams you want to invest in are those who have an ‘unfair advantage’ in two areas: (1) in their deep understanding of the space – the competitors, partners, and customers –, having lived/worked in it for years, and (2) in their *proven* ability to build beautiful products people love. A deep understanding of the space provides them with not only the knowledge to navigate it but the right relationships to sell into it. This understanding, combined with an ability to craft great products, makes for a huge competitive advantage. It’s easy to build a product, but difficult to build one that the right people will care about enough to pay for.
- Invest in (technical) novelty. I don’t believe venture capital dollars should go to companies that are building a ‘me too’ concept for a different geographic region or demographic (see the Founders Fund Manifesto for more on this). Invest in big ideas that will really pave a new path and radically change the world in a positive way, and in technology that took more than a weekend to build. There’s no problem with simplicity, but generally it takes a while to get an idea right for a specific space. It’s not about the pure technical complexity of a product, but rather the fact that the team has slaved away on it long enough to know exactly what features and technology is required to solve the core of the pain-point for their target demographic. In most cases there’s a pretty strong correlation between the time it took to build the product and how long before you see serious competition.
- Don’t be pressured into closing fast. It always takes a few in person get-togethers for people to show their true colors. Make sure you have enough time to really get to know the entrepreneur (see this post by Mark Suster), and to do your homework. Generally there’s no way that you’re going to have time to properly reference check and diligence a person and concept if the deal is closing in a week. I make this clear to entrepreneurs upfront, and its one reason why I frequently say no fast.
- Involve your partners early and often. I’m a pretty independent person, and in the beginning I lost a few great opportunities because I worked alone and tried to present my partners with a pretty package at the end, only to be met with a lack of excitement or confusion. Don’t expect your partners to jump the moment you show them a deal. Make sure they ‘get it’ early and often, and don’t assume they’ve read the due diligence and understand the intricacies. Most importantly, figure out what your partners are looking for. Ask what they need to see for it to be a rockstar in their eyes.
- Manage Entrepreneurs’ Expectations. All too often my excitement would translate into mixed communication with an entrepreneur, and a misguided notion that it was a done deal. Make sure they’re aware that it’s a partnership decision, and that you speak for yourself, not others.
- Make sure your vision of the product is the same as the entrepreneurs. And that they have a strong vision to begin with. Coming from the entrepreneurship world, I tend to have a very ‘big vision’ way of looking at things, and sometimes get caught up in my own ideas for where something can go. Make sure you’re not projecting your vision onto their startup, and that you’re on the same page.
- Don’t screw entrepreneurs. Keep deals simple, and give founder friendly terms. (It will come back to bite you – trust me).
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Juventas Fugit is designed and written by Justin Wohlstadter, who, when not writing in the third person, can be found in a coffee shop talking about startups, thinking about the future of education, and generally procrastinating something important.
- Passions: startups that positively affect the world, education innovation, good design, learning, and meeting those with an equally insatiable curiosity.
- Play: working on something really neat....
- Previously: was director of product design at Enterproid. Before that I built the early-stage venture arm of Penny Black and co-founded BOLDstart Ventures, where I was lucky enough to invest in some awesome startups including Rapportive (sold to Linkedin), Blaze (sold to Akamai), GoInstant (sold to Salesforce), Klout, Indiegogo, Enterproid, ShowMe, LocalResponse, and many more. And before all of this I was involved in a bunch of other crazy, less successful startup ventures involving fire extinguishers, measuring philanthropic impact, and creative spaces.
- Pedantry: most of the important stuff I taught myself or learned from friends, but I’m fortunate to have also (barely received) degrees from Harvard and Oxford. At Oxford I wrote my dissertation on how internet innovation will disrupt access to higher education.
- Procrastination: can be found on Twitter, Linkedin, AngelList and other web spaces, and be reached via email at my first name at this domain.