The role of VCs within the startup ecosystem is too often amplified and exaggerated, mostly due to my industry having over-marketed themselves for years. In my attempt to demythicize VCs, in a previous post I concluded how we are no fortune tellers 🔮, and here I want to share an honest explanation about the most critical part in the job of a Venture Capitalist.
To start with, if you were to look at a job description of a typical VC it would roughly compile responsibilities across the following domains:
- Deal sourcing
- Research and market/investment thesis projects
- Evaluation and detailed investment due diligence
- Negotiation and deal execution
- Portfolio support incl board responsibilities
- Fundraising and management of LP relations
- General ecosystem networking with co-investors, service providers, corporates, etc.
- Firm operations incl back office and team management
A Misguided Perception.
Like any other job description, time isn’t evenly distributed across the range of these activities. Many people with limited exposure to VC have a misguided perception of where the focus of the job really is. The reason for this is because VCs are fantastic content marketers (note: not referring to myself as fantastic rather “aspiring”…🤓). The vast majority of content created refers to one of two categories. Either it contains powerful ways to understand your business fundamentals, which could be categorized as investment due diligence. Or it contains valuable best practices around building your company, which can be labeled under portfolio support. Because of this many people believe VCs job start and end with doing deep analysis combined with telling founders how to run their companies. I say fake news!
Surely, VCs very much engage in data crunching analysis which is an essential and important framework used. But as mentioned previously, this analysis is often incorrect.
Furthermore, VCs naturally do spend time with founders trying to figure out how to scale their businesses. However, these conversations rarely involve VCs being the all-knowing oracle telling founders what to do. That is a recipe for disaster. Instead, at Creandum and most modern VCs, we try to help companies figure out their issues by tapping into experts who recently faced similar situations. In fact, the operational experience VCs bring to the table is often outdated considering how quickly startup evolution happens. Most of us, rather than thinking we have the right answers, believe it’s more effective to leverage people in our ecosystem to triangulate and to come to informed conclusions.
Sell. Sell. Sell.
The essence of the VC job is rather enterprise sales. Enterprise sales is defined by long and often complex sales cycles, involving multiple different stakeholders and decision makers. It is also a process which to a huge extent is built upon trust. This is fundamentally the dynamics of how founders and VCs evolve their relationships.
In fact, the average startup + VC partnership usually lasts longer than the typical marriage, and we know from data startup financing is a relationship driven business. Building trusted relationships take time, which means it’s not unheard of for us to have known founders for years before partnering with them. Oftentimes, to establish the necessary trust and sell the value of our firm, VCs have to use sales tactics to prove themselves to founders before investments happen. This could be things such as making hiring introductions or giving input on product strategy.
Furthermore, just like any other enterprise sales process, VCs do not only have to sell to and build trust with only one stakeholder, but it usually involves co-founders, key employees, as well as existing investors of the company. And just like a typical Request for Proposal (RFP) which outlines the major structure of a partnership, VCs and startups have chosen to call the same thing a termsheet. Selling as a VC also extends far beyond an initial investment. VCs continue to sell to key execs considering joining portfolio companies, to downstream VCs investing looking at doing later rounds in portfolio companies, and not the least to LPs (= investors in VC funds) about why their specific firm will win the hearts of the best entrepreneurs in their ecosystem.
The great privilege.
Some say that in the world of startups there are fundamentally only two things you do — you either build or sell. VCs don’t build, we sell. And as far as sales jobs go, I would argue that VC is the world’s most privileged one out there.
Carrying a VC business card opens up possibilities to interact with the brightest minds from academia, large corporates, and of course startups. Every day we get to listen to founders sharing their dreams and ambitions and we get exposed to the next generation’s products and services. To any curious mind, this is heaven.
Surely, VCs need sharp analysis and capabilities to support their founders. But ultimately, we’re salespeople. If we’re really lucky, and skilled enough in this sales process, we are allowed a seat at the table to partner with the true heroes of our time — the entrepreneurs. Any VC should be humbled and grateful for such a privilege. Now let’s go sell! 💪👊