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Author: David

Why So Many Small Emerging Managers Don’t Use Placement Agents

by David
This post is by David from David Teten's blog

The pros and cons of choosing a placement agent for small funds

It would make life a lot easier for emerging managers if they could outsource the entire fundraising process. But can you?

Empirically, few small emerging investment managers hire placement agents, particularly in venture capital. And even the firms that hire a placement agent almost always still have to run their own internal process. 

Homebrew doesn’t report hiring a placement agent for their Fund I, despite (or because of) a well-pedigreed team. Greycroft in 2010 also had an experienced team, but didn’t either. Instead, they hired an outside assistant – not a placement agent – to help in the process. 

As Greycroft said in an essay: “Since we were a small fund, it would have been overwhelming to us and our small administrative staff to set up the meetings and follow ups, fill out questionnaires (which for the most part fall into a dark hole), and respond to the myriad of questions which occur during the due diligence process. Although not a placement agent charged with raising the money, this person was an important and critical member of the team and was a key factor in helping us to keep track of where we had been and where we were going – ‘If it’s Tuesday, it must be Belgium.’ ”

Greycroft’s results give you a sense of the complexity involved: The firm said it  had 515 contacts with potential LPs; roughly 250 passed for various reasons and 100 were non-responsive. (Read more...)

Launching a Portfolio Acceleration Platform at a Venture Capital or Private Equity Fund

by David
This post is by David from David Teten's blog

I’ve recently advised a number of emerging private equity and VC funds who are wrestling with the question: What are the highest impact steps they can take to support their portfolio companies? 

Almost every private equity and venture capital investor now advertises that they have a platform to support their portfolio companies. The popularity of the model can be judged by the fact that the U.S. VC Platform community has grown approximately 120% in the last 3 years. Similarly, its European counterpart, the EU VC Platform, has tripled in the same period. 

However, most of us don’t have the budget of an Andreessen Horowitz to support almost every major need of emerging companies. You could spend an unlimited budget on all possible company-building resources.  Maria Palmer of RRE summarizes: “You can’t pick a platform strategy that’s unique, but you can pick a platform strategy that your firm can uniquely execute.” 

I propose here a framework for prioritizing your platform buildout. Once you have assembled the right core team, I recommend prioritizing as follows:

First, meet with your portfolio company management. As an agenda for each meeting, I suggest:

– How can we most add value, in addition to helping with financing? (This is an open-ended query and the most important question.)

– What are your fundraising goals?

– What is the profile of people whom you are most interested in meeting?  

– From which service providers have you received the most value?

Nick Kim (Read more...)

Does Your VC have an Investment Thesis, or a Hypothesis?

by David
This post is by David from David Teten's blog

(co-written with Stephane Nasser, co-founder of OpenVC, an open-source initiative to collect and analyze all VC theses.)

VCs love to talk investment theses: on Twitter, Medium, Clubhouse, at conferences. And yet, when you take a closer look, theses are often meaningless and/or misleading. 

OpenVC is a new, open-source initiative to collect and analyze all publicly available VC theses, to help founders more efficiently find the right investors, and vice-versa. For the first time, we are sharing here our initial learnings. We hope you’ll upload your own thesis to benchmark yourself. We’ve identified 6 common patterns of how VCs articulate their theses, and some best practices in doing so.

Our analysis is based on two complementary datasets: 

  • 125 theses so far submitted by investors into the OpenVC database
  • 36 theses pulled directly from US VC websites by David Teten and Sam Sabin, co-founder, Hireblue. 

Our four primary learnings:

  1. Public theses are often inconsistent with how firms actually deploy capital.
  2. VC theses are often so vague that they’re meaningless.
  3. We found six categories of VC theses, plus a 7th: the non-thesis.
  4. Investment theses are just hypotheses; the portfolio shows how accurate the hypothesis was.

For the sake of simplicity, we will consider “investment thesis” and “investment criteria” as equivalent terms moving forward, although we argue that the thesis leads to the investment criteria. We summarize how they interrelate in the table below.

1. Public theses are often inconsistent with how firms actually deploy capital.

A typical VC thesis: (Read more...)

Cheat Codes for Raising Capital from Venture Capitalists

by David
This post is by David from David Teten's blog

We love founder(s) who can say any of the following:

Mindset 

  • “Not sure, but we’ll get back to you shortly”
  • “We studied all of the past players who worked in this space, and here’s what we learned…”
  • “We accomplished something difficult that most people couldn’t.” Even if it’s not in a business arena–e.g., you ran a mile in 4:30–this shows ambition and focus.
  • “Only the paranoid survive, and we’re paranoid.”
  • “We have a history of being willing to defer gratification. Examples: ____.” Being a founder is not for the faint of heart.
  • “There are some unknowns in our vision. Here’s our plan for researching them.”
  • “We have a history of moving very quickly.” Note this applies in real time. If we meet you over a period of a month, we’ll notice what happens during that month.

Team

  • “We hired a coach to help make us a world-class team.”  
  • “One or more of our past coworkers are joining us in this new business, and working for sweat equity.”
  • “One of our past colleagues / managers is investing.”
  • “We want you to invest because we think you have resources that can address some of our biggest challenges, which are…” 

Experience 

  • “We think almost everyone else in the sector is missing a key insight we have earned, a secret. We earned our knowledge because ____. When we talk about our secret with other industry players, they say ___.”
  • “We built a similar business in the past, and here are our (Read more...)

Hey, founders between gigs: What now?

by David
This post is by David from David Teten's blog

Hey, founders between gigs: What now?

If you exited your last company for airplane money and are now independently wealthy, congratulations!  You can sit out the pandemic in New Zealand, or if you want to build another company, just self-fund.  If you want outside capital, VCs will gladly take a meeting.

We have added a large new section to the Versatile VC website with a suite of resources for founders researching their next move.  This will be the backbone of our upcoming selective, complimentary community for founders researching their next move.  I’ve been in this situation myself, both after an exit and after shutting down a failure. We suggest you have 6 main options:

  1. Launch a new company
  2. Angel Investing and Venture Capital
  3. Get a job
  4. Consulting
  5. Sell Information Products
  6. Education and Self-improvement

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The iconic VC-Backed founders are all White & Asian men. So why invest in diversity?

by David
This post is by David from David Teten's blog

(co-written with Katherine Boe Heuck, a MBA candidate at MIT Sloan (class of 2022); past intern at Versatile VC; and a current intern at Metaprop NYC.)

What can we learn from the best 40 venture capital investments of all time? Well, we learn to invest exclusively in men, preferably white or Asian. 

We reviewed CB Insights’ global list of “40 of the Best VC Bets of all Time.” All of the 40 companies’ 92 founders were male.

  • Of the 43 U.S.-based founders, 35 were white* American; four were white immigrant/first generation, from France, Ukraine, Russia and Iran; and four were Indian immigrant/first generation.
  • Of the 19 Western Europe/Israel-based founders, all were white.
  • Of the 30 Asia-based founders, all were natives of the country in which they built their businesses: 23 Chinese, three Japanese, two Korean and two Indian.

Of course, this dataset is incomplete. There are numerous examples of founders from underrepresented backgrounds who have generated extremely impressive returns. For example, Calendly’s Tope Awotona is Nigerian American; Sendgrid’s Isaac Saldana is Latinx; and Bumble’s Whitney Wolfe Herd is the second-youngest woman to take a company public. 

That said, the pattern in the dataset is striking. So, why invest in anyone who’s not a white or Asian male?  

The conventional answer is that diversity pays. Research from BCG, Harvard Business Review, First Round Capital, the Kauffman Foundation, and Illuminate Ventures shows that investors in diverse teams get better returns:

The iconic VC-Backed founders are all White & Asian men. So why invest in diversity?

by David
This post is by David from David Teten's blog

(co-written with Katherine Boe Heuck, a MBA candidate at MIT Sloan (class of 2022); past intern at Versatile VC; and a current intern at Metaprop NYC.)

What can we learn from the best 40 venture capital investments of all time? Well, we learn to invest exclusively in men, preferably white or Asian. 

We reviewed CB Insights’ global list of “40 of the Best VC Bets of all Time.” All of the 40 companies’ 92 founders were male.

  • Of the 43 U.S.-based founders, 35 were white* American; four were white immigrant/first generation, from France, Ukraine, Russia and Iran; and four were Indian immigrant/first generation.
  • Of the 19 Western Europe/Israel-based founders, all were white.
  • Of the 30 Asia-based founders, all were natives of the country in which they built their businesses: 23 Chinese, three Japanese, two Korean and two Indian.

Of course, this dataset is incomplete. There are numerous examples of founders from underrepresented backgrounds who have generated extremely impressive returns. For example, Calendly’s Tope Awotona is Nigerian American; Sendgrid’s Isaac Saldana is Latinx; and Bumble’s Whitney Wolfe Herd is the second-youngest woman to take a company public. 

That said, the pattern in the dataset is striking. So, why invest in anyone who’s not a white or Asian male?  

The conventional answer is that diversity pays. Research from BCG, Harvard Business Review, First Round Capital, the Kauffman Foundation, and Illuminate Ventures shows that investors in diverse teams get better returns:

Free Money for Startups

by David
This post is by David from David Teten's blog

We have added a large new section to the Versatile VC website with some of the best sources of free money for tech-enabled founders. That’s free as in “free beer”, not free as in “free speech”.

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Reading list for analysts and associates in private equity/venture capital

by David
This post is by David from David Teten's blog

Whenever we hire someone new to join Versatile VC, I tell them:

Welcome!

As background, I suggest you read:

VC-specific resources

General career resources

I also recommend you join the most relevant online communities for you, since building a network is so fundamental to VC. I recommend join the communities I list at Microcredentials for the Effective Venture Capital or Private Equity Investor, in particular Confluence and GenZMafia. I also suggest for the other most relevant major online communities. (We keep a proprietary list of high-value online communities, but I can’t post it publicly here in order to keep a high signal-to-noise ratio.)

Lastly, I suggest use Feedly to follow the newsletters/media (Read more...)