Introduction
Assume No Onboarding Materials
Every VC has their own organizational structure, set of portfolio companies, list of investors, and most importantly, investment thesis. You should spend a lot of your time studying these critical parts even before entering the firm, as most analysts do not get the luxury of a senior team member holding their hand.
Most, if not all, VC websites have basic information on the firm (founding partners, venture partners, principals, associates), spend a few hours studying each of the higher-ups because this is part of what you’re selling to startups, bosses that have accumulated years of experiences to help companies grow.
Your portfolio companies are your partner, learn everything you can about them. Startups, media, and other VCs are constantly asking what portfolio companies you have to see if there is potential for next round investment or synergies. Learn the basics (founders, business model, traction data, press releases) then dig deep once you have access to the firm’s database/CRM.
Investment Thesis aka Your New Bible
Grill the firm’s investment thesis into your brain. This is the most important factor you must learn and devote yourself to in deciding whether a company is worth pursuing or not. Know what stage your firm invests in i.e. Seed, Series A, Series B. These various stages all have different valuations and requirements for investments.
Different stages of a fundraising round state how much an investor cares about certain aspects of the startup like founding team, the business idea, and traction. For example, Seed investors do not typically look for traction such as users and revenue as companies are relatively young at this stage. Seed investments are riskier since they put a lot of trust on a founding team without any numbers to back it up. Series A on the other hand typically needs financial data of users and revenue to determine if a company is ready for a higher fundraising amount. Series B investments open up more avenues of funding which include corporate synergies with conglomerates, private equity funds, and late stage VCs which all require more traction data as part of their due diligence process.
Others parts of your investment thesis can include specifications on industry, geography, profile of founding team, minimum market size, and valuations. For example, in Monk’s Hill Ventures we typically look at high-growth startups operating in Southeast Asia, with a preference to software companies compared to hardware for scalability, a minimum total addressable market (TAM) of $1 billion or above, and fundraising amounts between $1-5m.
Study the Terminology
GMV, CAC, TAM, MRR, DAU, SaaS, KyC, Unicorns? The VC/startup ecosystem uses terminology you might have not learnt during your college courses or tenure in previous jobs, make sure to visit websites and other resources to learn a few important ones during your first couple months. Refer to this website if you need any help on startup specific terminology.
I also recommend reading Venture Deals by Brad Felds, this is by far the most useful book I’ve read and most popular among newbies. The author goes in great detail to explain the different terminologies from the perspectives of the startups, venture capitalists, and the law.
Know the Job
As an analyst I am in charge of 4 main aspects: Deal Sourcing, Investment Analysis & Research, Portfolio Support, and Community Building. You might find your role to be slightly different, make sure you clear this up with your team when you start.
Below is a typical decision tree of a deal with a startup:
- Contact: You can get deals from multiple sources
- Referrals from other VCs (if startup conflicts with their existing portfolio or doesn’t fit their investment thesis) or your personal network that knows of a founder that needs funding
- Organic inbound cold-emails are very common, your VC should have a “contact us” email address stated on their website for this very purpose
- Events in big cities in any SEA country should happen once or twice a week. Join these events to meet founders who are not familiar with the active VCs and also to build rapport in the ecosystem
- Engage: If the nature of the startup is interesting and fits your investment thesis, you should schedule a meeting/call to find out more information. For your first 100 days I suggest meeting every startup that comes by your way to help teach you about the various business models and help build your ‘bias’ (what kind of strategy, founder style, valuations you prefer to make the screening process more efficient).
- Present: VC firms usually have a relatively flat structure, hence its important to bring your team up to speed, especially if they’re based outside of your country. Try to schedule a conference call to help founders explain the business to the firm and also for your colleagues to ask any pertinent questions.
- Term Sheets/Due Diligence (TS/DD): If you have the green light from the managing partners, then you or a corporate lawyer will start drafting the term sheets. If you are not included in this part, try to be proactive and start undergoing your due diligence on the startup and its founders. Ask for referrals from the founders and try to find some on your own. This is a critical step as you have to make sure you uncover any major red flags before wiring the startup any money.
- Invest: If the firm is happy with the deal, founders, and business model they will eventually wire transfer the money. Expect the duration from Contact to take 2-3 months (different VCs have different timelines, especially corporate venture arms that need a lot of approval)
- Support: Now that you have found, researched, championed, and successfully funded your prospective deal it's now time to help it grow. Some VC firms only help on a strategic level with monthly/quarterly reports and board meetings, some are more hands-on with active consultants or other corporate resources. You may be asked to help your portfolio companies with hiring, tax, legal, and financial support.
Track/Pass: At any time of the process, there will be a chance that the deal does not push through. Reasons could include conflict with existing portfolio company, founders having a bad reputation in the ecosystem, red flags from due diligence process, but most common is that they don’t fit your thesis on market size or vertical. You may also choose to track a company for 3-6 months if they are too early for your firm.
Network, Network, Network
There are a couple of reasons why networking is important. Firstly to understand the intricacies within a country’s startup ecosystem. Build relationships with founders, other VCs, accelerators, investors, coworking space managers, as they will all help with deal sourcing. As an analyst, the biggest mistakes you are prone to make include missing a good deal, rejecting a good deal (false negatives), and bringing up bad deals to team (false positives). Some VCs may offer you assistance during your early days to help you decide on whether a company should be looked at or not. If they do not, refer to your firm’s investment thesis. Also by building good rapport with the different stakeholders of the ecosystem, it will improve your chance of not missing any deals, especially potential unicorns.
Another key reason to have a lot of contacts is to fact check founders and startups. Someone will always know something that you don’t. Asking them will avoid time wasted pursuing a bad deal. In general, it's beneficial to have friends in any new job you're in to update you with latest market trends and other information.
Respect the Founders
During some point of your VC journey, you might experience a power-trip being on the buy side for the first time. It is imperative that you remember that you don’t own the firm’s money and that you’re simply a minion finding deals. Never treat anyone, especially startup founders, with disrespect. Always be mindful of their time when setting up meetings and conversing with them in person, even if you find out they don’t fit your investment thesis. As common courtesy, always reply to emails and requests in a timely manner because founders are more likely busier than you. Remember, you are just an employee, not the gatekeeper to a $100 million fund.
Conclusion
Like any job you will learn a lot and face hardships on your journey. For the first 100 days, always remember to keep learning, actively search for networking events, and most importantly respect everyone that you meet. Best of luck!
