The overarching driver of becoming successful as a young VC is to bring in companies that ultimately lead to an investment by your firm (aka getting deals done). This is an intimidating goal because you can work tirelessly for many months and not have an investment come to fruition. I have personally gone an entire year without having successfully led a new core investment for our fund. I’ll tell you that that year sucked.
That said, if you don’t like it, you might want to think about a different career, because as a partner, getting a deal done is just the beginning of a multi-year journey.
But as a new associate or principal at your firm, you want to figure out how to put points on the board to start to prove yourself and establish your reputation in the industry. Here’s the progression that I’d recommend most folks to follow, along with a few watch-outs at the end.
Step 1: Spaghetti on the Wall:
The first step when you join a firm is to focus on volume. Most partnerships will understand that your filter probably has not yet been tuned, so a lot of the opportunities that you surface might not end up being interesting. But that’s ok. It’s much easier for your partners to help tune your filter than it is for them to help you expand your deal flow. So the first step of showing forward progress is to start throwing spaghetti on the wall and see what sticks. This involves a few things. First, that you actually have spaghetti to throw. Two, that you get good at very succinctly describing a new company and explaining why it might be of interest (a topic for a future post). Three, that you start to learn how your team is going to make sense of your deal flow, and what different partners care about or what elements of an investment pique their interest. Throwing spaghetti on the wall is a good thing early in one’s tenure, but after a period of time, you want to shift towards more of a targeted approach.
Step 2: Find a Horse for the Course
The second step is to start to tune your filter and sourcing towards the specific interests of your partners. Until you are in a position to lead an investment, you are dependent on getting a Partner at your firm excited enough to lead a deal themselves. So a lot of it is playing matchmaker, and trying to find opportunities that connect with a specific investor. This is a pretty hard problem as it’s much more than just looking at a Partner’s prior investments online and then trying to pattern match. Most of the patterns are hard to decipher. Some Partners tend to have a prototype founder that they like working with, and you won’t get a feel for that profile until you’ve met a half dozen founders like them. Other Partners will be sector driven, doing mini deep dives into specific areas or verticals in search for the best company in a space. In that scenario, a Partner’s existing portfolio might be a contra-indicator, since the Partner already found the company in the spaces that she was looking for in the past. Others have comfort with a specific type of business model or go-to-market motion, and can get very excited about businesses that map really well with their knowledge of those models. Use your “spaghetti on wall” period to develop your deal flow and develop a better feel for what kinds of investments your partners get excited about. And also remember that capacity is a huge driver of their bandwidth to dig into opportunities. And also remember that one thing that all investors tend to like it traction :)
Step 3: Pound the Table
At some point, the Partners at your firm are going to be thinking about elevating you to your next role. Whether it’s a Principal or a Partner level, the question that I tend to ask is “has this person demonstrated the ability to change our thinking?”. This usually means being willing to pound the table on something and end up being right. The challenge is that you can’t just walk into a new role and start pounding the table to get a new deal through. You don’t have the credibility nor the political influence internally to make that happen. You also realistically don’t know enough about the business to do this, and so if you do try to pound the table too early, it will be seen as a massive lack of self awareness. Pounding the table will take time and should be done with care. One way might be to develop credibility by pursuing your own deep dive into an area, and surfacing companies in that space along the way that other firms end up investing in. Or, it could be establishing really deep relationships with founders that you know are special and that you’d be willing to bet your career on. I heard a story once about a junior partner at a VC firm that pulled together a very controversial deal for his firm. Not only was it one of their biggest investments, it was also one that involved LP capital as well. After the deal closed, one of the senior partner remarked “how does it feel to bet your entire venture career on this one deal?”. Joking, not joking :) That investment worked out, and that investor is now one of the senior partners of his firm.
There are several pitfalls along this path that are worth pointing out.
Doing these out of sequence or trying to rush through them. You have the freedom in the beginning to throw things on the wall, so use that freedom. If you keep doing that too long, you’ll look like you have bad judgement. You don’t want to pound the table until you actually have the credibility to win an argument, otherwise, you just seem like a pain. And you don’t want to be too targeted about matching a deal with a partner early on because you might not have a good enough sense of their preferences, and miss an opportunity to get a different partner excited about that same deal.
You really don’t want to make it feel like you are “trying to get a deal through the Partnership”. This could happen both by the way you share information about an investment as well as how you try to grease the wheels during the process. If your partners get the feeing that you are too fixated on “getting a deal done” vs. “making a good investment”, they will stop trusting you. They will wonder if they can trust your opinion or whether you are sharing the full information that you have. They will wonder if you are artificially making it seem like there is more heat than there is around a deal to trick them into getting involved. This might be a good way to get deals done and and put points on the board, but it will hurt your longer term prospects and put a ceiling on your career at that firm.
There is always a question of how important it is to help portfolio companies in addition to bringing in new opportunities. The answer is that it’s like the seasoning to a dish. Seasoning makes a dish taste better, but without it, you won’t starve. Conversely, you can’t season your way to a full stomach. Getting actual investments done at your firm is the biggest driver of forward progress in a venture career. Spending time with portfolio companies is always welcome and can have a very positive impact, but never do that at the exclusion of bringing in new opportunities.
Finally, remember the time and commitment asymmetry between yourself and the Partners at your firm. Chances are, you are going to be at a firm for 2-4 years. You want to help the firm see and make good investments that drive fund performance and your own track record. But to some degree, if an investment doesn’t work and you are no longer with the firm, it doesn’t matter that much to you. You can move on. But if you are at a firm that leads investments and takes board seats, the Partner is more or less stuck. So when a Partner is trying to build conviction, they are also carrying the baggage of all the investments that they have made that did not work out and ended up taking up a lot of their time. It’s hard to make that commitment, and that is why you really don’t want to try to talk your Partners into a deal that they are lukewarm on. It’s definitely a frustrating place to be as a VC that can’t make the final call, but that’s because you don’t usually have to live with that call for the life of the company.