Learnings From Year 2 in Venture Capital
Reflections heading into 2023
My second year in venture was filled with many highs, some lows, and plenty of lessons. While this post is the culmination of learnings from my second year as an investor in early-stage B2B SaaS startups, I’m confident these insights remain true across various verticals.
Let’s dive into my key learnings from year two as a VC.
#1: Augment your learning
Fixate on learning everything, from everyone
Continual learning is the foundational layer of success in venture capital. I spend the majority of my time talking with founders in pitch meetings, conversing with prospective customers in diligence follow-ups, and chatting with other investors who are inquiring or pitching me on a deal. Each conversation yields some sort of takeaway and about a year in, I began documenting these insights. My document resource started as a simple GDrive folder where I categorized my learnings by:
industry
stage
region
Today, this once simple folder has evolved into a dynamic Notion folder with hundreds of article links, podcast clips, industry reports, and excel templates. To accelerate your learning, I highly recommend creating your own “second brain” that serves as a data-lake for your professional learnings. As a junior VC you’re often speaking with founders and investors who are incredibly seasoned with unparalleled perspectives. Take advantage of these interactions and make them count. Eventually you’ll be molded as an investor with informed viewpoints that can be used to build or support a thesis, drive a deal forward, or even stop a bad deal from advancing.
Quick shoutout to my favorite YouTuber Ali Abdaal who gave me inspo for creating this Notion Second Brain.
#2: Get to “no” quickly
Build conviction fast or move on
Fundraising as a founder is a tedious, exhausting, yet rewarding undertaking that often times requires hundreds of investor meetings. Investors are notorious for taking meetings, seemingly expressing interest, and then ghosting companies for months instead of formally passing and saying no. It’s a terrible look and investors get blasted on social media for it all the time.
For founders, hearing a quick “no” from an investor is almost the best scenario because it enables them to free up time focusing/finding investors who have deeper conviction and are ready to deploy capital. Think about it from the perspective of the entrepreneur, if 60 investors string them along or ghost them to only follow up after weeks of radio silence just to pass, it wastes everyones time and speaks volumes about the firm’s culture and how they manage deals.
If you’re an investor who is guilty of doing this often, here’s a useful guide on thoughtfully passing. Use it.
#3: Relationships are 🔑
Create a valuable network
In my personal Notion CRM where I track relationships and people I meet, I interacted with over 1500 people as of December 5th, 2022. It’s painfully difficult to keep up with all these individuals but I’ve learned the value of meaningful relationships. The right connections in venture can get you into the best deals, high-quality referrals, and unique LP intros. One of our more recent investments and fastest growing port co’s came from an investor I’ve shared several high-signal deals with. Venture is an incredibly small world. Like VERY small. Your reputation is your most valuable asset. Be undeniably kind, hardworking, display empathy, and never be a liability.
#4: Data rooms are critical to deal velocity
The make or break factor of diligence
For those who don’t know, a data room is an all encompassing digital folder where the “facts” of a company are housed. Said facts are financials, sales presentations, product demos, cap tables, incorporation docs, and industry reports. This is not all that goes into a data room but these are bare minimum items.
Investors use data rooms to validate their early conviction, typically after 1-2 initial founder calls. An investor requesting data room access indicates a pretty high level of interest and usually signals if all “checks out” in the data room, they’d likely propose to invest. But to achieve this, the data room needs to be thoughtfully organized, categorized, and accessible to allow for efficient evaluation. I recall our team loving a deal that came across our desk but the data room was incomplete, contained locked documents, and outdated financials. It took us weeks to sift through the data, ultimately which led to us losing momentum and conviction in the founders ability to execute (amongst other things).
This is a topic I’ve talked a lot about with recent TechStars Founders and may do a separate deep dive blog on assembling an investor-ready data room.
#5: Discipline wins
Stick to your thesis and avoid group think
Valuations in 2021 were INSANE. Investors were riddled with fomo and we saw startups that were just an idea with zero product, IP, or revenues being funded at $25M valuations. As a result, many investors made poor investment decisions by following the hype, not facts. Highly speculative environments are muddy waters for investors who are not resolute in their thesis. Recklessly chasing “hot” deals almost always gets you burnt. Just look at the many startups that raised at elevated valuations in 2021 and see how many of them completed down or flat rounds. It’s not a predicament anyone wants to be in, so craft a thesis you believe in and stick to it.
Discipline is what wins.
Those were my more concentrated thoughts, below I’ll share miscellaneous learnings/takeaways in bullet-point form.
Strictly curate your timelines. Whether it be LinkedIn, Twitter, or other social mediums, you’re letting them influence your brain, and you want to indulge yourself with the most thought-provoking insights.
Develop opinions on sectors and continuously update your viewpoints
Now is the most competitive time to be a junior VC. Continuously seek to find your edge and refine it.
Learn marketing. Every interaction, post, podcast appearance is an opportunity to market yourself and firm.
You need a board at the seed stage.
Being too early in a market is equally as bad as being flat-out wrong.
A good Founder is a nice-to-have, but a good Founder with a unique insight is a need-to-have.
The best CEO is a jack of all trades, master of one or two — Garry Tan
The only real life hack: be kind to people.
Don’t glorify learning things the “hard way”, instead, use others’ successes as guide posts and failures as cautionary tales.
Resist the urge to believe you’re unqualified, too late, or need to be perfect to start.
If it’s not measured, its’ not managed. Build product to solve problems that have an internal “problem owner”.
My learnings were vast but these are a select few of the critical takeaways from year 2 as a VC. What have been your first experiences in VC? Feel free to share this post to other newbies in VC in case you liked it.