Mike Lazerow of Buddy Media recently wrote a piece for CNNMoney.com titled: “How to raise venture capital (without losing your soul).” In the piece, he tells the story of Buddy Media’s recent VC fundraising process, which culminated with Silicon Valley stalwart IVP leading a big round.
Although the focus of the piece is the actual fundraising process itself, Mike ends up putting on a CLINIC (yeah, caps are annoying, but Mike’s post is just that good) for junior VCs.
There are a bunch of lessons to take away from this post if you’re a junior VC:
1) Build meaningful relationships with entrepreneurs. Don’t just chase deals.
Here’s what Mike said about the associate, Jules Maltz, who ran the process on IVP’s behalf:
Jules Maltz started a company at Stanford in the social advertising space. We met at the time and I was impressed with him. Jules then joined IVP as an associate and attended a party we gave in New York in the summer of 2009. From then on, he continued to reach out to touch base and make introductions.
Jules wasn’t trying to sell IVP. He was trying to build a relationship more than a year before we were in the market for money. This is the single most important thing you should look for in a VC as an entrepreneur.
2) The entrepreneur’s time is more valuable than your own.
Mike gives some insight into how many entrepreneurs think about inbound sourcing calls from VCs:
They (VCs) can take 50 meetings to learn the landscape for just one deal. You can’t. You have a business to run and there’s a fine line between building relationships with VCs and giving them too much information.
If you’re the person doing the sourcing, and the company is not raising capital, see if you can add some value through advice or introductions to relevant folks(*) in your network. If the company does happen to be raising capital, but you don’t have an interest in investing after the first call or meeting, give them the quick ‘No’ and don’t waste their time.
(*) There is nothing worse than introductions for the sake of introductions. Make sure they are super-relevant to the company before offering them, otherwise you’re wasting everyone’s time.
3) You only have a handful of chances to prove yourself. Make them count.
Junior VCs source hundreds of deals per year, issue a small number of term sheets, and close an even smaller number of deals (one or two per year, tops). If you assume most VC firms are going to evaluate junior (analyst, associate) staff for promotion or termination after 2-3 years with the firm, there isn’t much time for the junior VC to make their mark. It also means most of your work will never see the light of day.
Mike puts a fine point on this when he talks about the junior VC – entrepreneur dynamic:
Associates bet their credibility and their future on the companies that they go to bat for. I clearly want my companies to succeed for what that means for my employees and me. But it helps to have your interests aligned with an associate who wants you to succeed so he can look like a stud.
As a junior VC, you have no track record as an investor, and you’re only going to get a few shots on goal before the “up or out” decision is made by your firm. No pressure :)
The Bottom Line
- Don’t get into the VC business to “do deals,” get into the business to help entrepreneurs grow their business.
- Take an entrepreneurial approach to your job, because as a junior VC, you’re more entrepreneur than full-fledged VC.
- Build relationships with the most interesting people who are willing to spend time with you. And remember that you’ll get what you give.
- Silicon Alley Insider: How To Raise $28 Million For Your Company Without Selling Your Soul (businessinsider.com)
- How to sell out to venture capital without feeling like you’re a sellout (tech.fortune.cnn.com)
- Pulling back the curtain – The Mess (informationarbitrage.com)