Venture capital (VC) is an exclusive field.
Starting at the analyst level, hiring managers seek candidates with the most rigorous analytical skills, often sourcing from investment banking or consulting backgrounds.
Don’t come from one of these jobs? Tough luck getting in.
It doesn’t get easier on the way up – the number of openings get smaller and smaller as one advances towards partner level, a role focused more on navigating networks versus analyzing companies. Most partners are former founders, with the rest having started out in VC.
While the barrier of entry to VC may be high, there’s still lots to be done to break in without a founder or investor background. That is, through doing the work on the side – one way of how to be a vc without being a vc.
As someone currently working in the space and with direct experience from my side projects, I thought I’d share my take on this topic, providing an overview of the functions within venture capital, what it takes to perform them well, and helpful resources.
Conducting Due Diligence: screening company after company
A primary function of an analyst or associate, due diligence involves evaluating a company for investment – analyzing factors including the growth potential of the company, financial soundness, and risk factors. Such work requires stringent analysis, conducting qualitative and quantitative research to form a thesis that often involves valuation via comparable company analysis or financial models.
A number of free online resources are out there to help one develop these analytical skills, such as Coursera’s “Valuation and Financial Analysis for Startups Specialization” by Yonsei University. Other online resources such as the Kauffman Fellows Venture Deals course and Bloomberg Beta’s Investment Documents provide helpful context, with the former walking through the venture deals process and the latter showing actual deal documents.
Personally, I got to experience a full diligence cycle in the span of two weeks as part of a decentralized angel syndicate (I keep this vague but this was an organization set up to enable community builders to act as VC’s, bringing screened companies to the group’s network of angel investors for fundraising).
The diligence process we conducted was as follows:
- Week 1: document request and research
- The company shares the data room and relevant information for diligence team to generate strategic funding direction
- Due diligence occurs, reviewing documents on business, financial, and technical areas
- Sample checklists: YCombinator, Angel Capital Association
- Research occurs in parallel, obtaining the external information that will be used to populate the investment memo
- Week 2: call with team and creation of investment memo
- Diligence team has a call with the company team, asking any clarifying questions and agreeing on recommended funding strategy
- Using this information, diligence team crafts the investment memo, the document used to present the deal to investors. The investment memo provides information on the company, provides information on the deal itself and the terms, plus any additional information
- Illustrative fields for investment memo: Deal Terms, Use of Proceeds, Team Background, Market analysis, Revenue streams and KPIs (key performance indicators), Technical synthesis, Product roadmap
- Sample investment memo: While most of these are confidential, a quick Google search provided Sequoia’s investment memo on YouTube. Take a look at how the pros do it here
Once the investment memo was created, we worked to circulate this deal to potential investors, which is a whole other story there.
Connecting: _, please meet _
VC’s provide not just capital to their portfolio companies, but also access through their networks, supporting founders with relevant introductions.
Connections can be categorized into customers, partners, and other investors:
- Customers are the end buyers. Connections come in handy in getting the company in front of the right decision makers and bypassing gatekeepers, particularly at large organizations (no need to play a game of “who’s who”
- Partners take the form of any collaborator, be it a sales channel to access new customers, service provider in providing any missing capabilities, or participant in a joint venture.
- Additional Investors provide more sources of capital and strategic value
Having it’s helpful to have an established network to choose from, one way to expand one’s network is via participation in different communities.
I built my network by attending events as a community member, becoming an active member in one community, and maximizing my time spent at events. It’s one thing to transiently jump from one event to event; it’s another to become a regular member of a group – I frequented events hosted by Firneo, a community for business development professionals. Above being an active participant in a community, I helped CryptoNYC with partnerships, community management, and strategic projects, establishing credibility and building my network within the blockchain space. Finally, I made sure to take full advantage of events, following up with those I made connections with at the event, turning several weak-tie connections into friendships.
Take the approach of offering value first when meeting new people. Ask them if there are ways you can help. Send them relevant articles, people they may want to meet. Ask startup founders if they would like your feedback – as Techstars puts it, “give first”.
Advising and Executing: Sometimes you have to roll up your sleeves
When it comes to helping startups, sometimes you just have to get on the ground floor, lending your expertise and labor.
Startup advisors provide companies with domain expertise, offering ideas, feedback, and specific knowledge – either functional or industry. Typically experts in their fields, advisors apply what they know to the company’s situation and help shape the firms’ strategy.
Helping a company execute covers a much wider remit, one involving whatever can be done to “move the needle” on the current situation. This opens up opportunities for anyone motivated enough to help out, be it through unofficially engaging as a community member on the company’s online mediums or volunteering to help out with tasks such as event organization or social media management.
Having served as a springboard for an edtech founder to bounce ideas, a social media manager for a sustainability-minded food startup, and a community supporter of an online bootcamp, my contributions cover the spectrum. Going forward, my focus will be on specializing in what I do during the day, helping companies think of ways to work with other companies through partnerships.
Bottom Line: You don’t need to be a VC to help startups. In fact, you don’t need to be an ex-consultant or banker to screen companies, a “superconnector” to establish community around the company, nor an ex-founder or expert advisor to help the company move the needle.
Of course, your personal contribution may vary according to the alignment between your skillset and the company’s needs, so be flexible.
However, do take the approach of being open to feedback, unhesitant to put yourself out there, and disciplined in documenting your experiences. These themes apply all around.
You may not have the title, but you do have the free time to become that title. And nobody can tell you what to do with your own time.