5 Years in Venture Capital: 10 Key Lessons Learned

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5 Years in Venture Capital: 10 Key Lessons Learned
5 Years in Venture Capital: 10 Key Lessons Learned
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A lot of wrinkles and grey hairs ago I joined Slingshot Ventures. And even if I could count them, I wouldn’t — that would be way too confronting.

Luckily, counting the number of years is much easier: five to be precise. As a VC, you’re always looking ahead, but I kind of feel that this is actually a good moment to look back and reflect. In the past five years I haven’t jumped on the “VC writing blogposts” bandwagon yet. And I’m not planning on doing so consistently. But like with everything in life, sometimes it’s time to push yourself out of your comfort zone.

As such, I thought about the 10 key lessons I learned during my years in VC and took the liberty to present them to you in this blogpost (in random order by the way), hoping you’ll at least find it enjoyable to read through them for the next five minutes. More so, they’ll hopefully enlighten you as you progress through your own startup journey.

Founders are selling. Constantly. Whether it’s selling your product or service to a prospective customer, selling your business to an investor or selling your company to a stellar candidate: to me a founder’s ability to sell is what makes the difference. Especially in the earliest stages of venture building, people are buying into a vision and need to be inspired by the way founders are selling it.

After all, and more than often, there aren’t many tangible results yet that can prove that a founder is worth partnering with. I’d rather invest in a founder that inspires and can sell, than in a great product guy or girl that can’t.

Whether it’s how to explain your product or service or structuring deal terms: simpler is always better.

The best ideas are simple and easy to explain, you immediately see the value of it and get comfortable quickly that the market will adopt it.

Simpler deals, with less complexity (e.g. target based valuations, tranches, protection mechanisms, etc.) get done faster and when implemented, are more effective to manage and yield better commercial results — both in the short- and long-term.

Whilst many VCs focus on assessing execution plans, aligning on how founders view their companies and whether you’re aligned is much more fundamental.

It’s like politics: you can vote for a party that has — in your opinion — the best election manifesto but in fact you already know it will get compromised from day one. Voting for a party that aligns with your values will probably increase the probability that the politicians you’re backing will deal with unforeseen circumstances in a way that fits with yours.

Investing in early stage companies is often the same. I’d rather spend time talking with company founders about their visions and how they make decisions to realize those than creating a false feeling of security because the project timeline and the financial model look so sophisticated.

We all know that dreaming big can change the world. But unfortunately, we also know that many dreams never make it into reality. I lost count of the billion euro market opportunities and hockey sticks I have seen during the past five years, many of them presented to me by companies that didn’t make it.

Unrealistic expectations scare off investors and the same goes for founders chasing valuations.

Yes, you might think this is easy to say coming from a VC that obviously benefits from a lower entry valuation. But it’s also true. The world is more unpredictable than ever and raising a solid round based on a realistic plan may prove to be the best decision during your company’s lifetime. Especially in the current market, when being well funded is a major competitive advantage.

Venture capital and venture building is playing the long game.

Whilst typical holding periods for private equity range between 3–5 years, that of venture capital ranges between 6–10 years. In comparison: the average length of a U.S. marriage is 8.2 years.

As founders and VCs, you might have to deal with each other much longer than you deal with your life partner(s). So, the VC/founder relationship is similar to a marriage: you give and you take and you stimulate each other to get the best out of your relationship. And when you quarrel or even fight, apologizing and making it right is the only way to move the partnership forward.

Doesn’t that sound refreshing coming from a VC? Luckily, we hear it much more often lately, but at Slingshot Ventures we have been telling this to the founders we back from day one. Growth, or even hypergrowth — or any other fancy term you want to give it — is what VCs tend to chase.

But unfortunately, I have seen cases where (hyper) growth at all costs turned out to be the worst thing to focus on. If you’re not ready to scale yet, don’t do it as there is a big chance that you might be scaling problems. And a problem that becomes exponentially bigger is likely to become impossible to solve. The best founding teams know when to consolidate, strengthen their new foundation before setting themselves up for a next phase of growth.

Not making the point here that early stage investing should be done just on gut feel. Yes, an analytical approach helps, crunching the numbers, assessing the market potential and the unit economics: it all matters. But the best VCs combine this with their instinct and follow it. The worst situation you can end up in is making a bad decision when your gut felt beforehand something wasn’t right.

As a VC you know you will miss good deals. Sometimes you just can’t build the conviction you need to move ahead and then you find out you are wrong several years later. Unfortunately this also comes with the territory. Moving ahead with a deal you felt wasn’t right does not.

Alice Deejay asks herself the question: “Do you think you’re better off alone” in her late 90s hit many times (it’s by the way pretty much the song’s only line).

In VC, the answer is undoubtedly: no. You are definitely not better off alone. Surround yourself with the right people, the right investors and assess very carefully what you can expect from everyone involved. The best founders know with whom they want to share their success when it comes down to key hires. The best VCs know when to team up with other VCs, bringing additional expertise and/or complementary networks to the table. And when times get tough, the saying “a problem shared is a problem halved” can be a real “lifesaver”.

I love electronic music. Particularly techno. Nothing beats oldskool, 90s rave techno (I know, it’s a matter of taste). And when it comes to investing, oldskool economic principles (or at least, significant building blocks of it) never die. Certain markets, the companies operating in it and their business models just aren’t fit for venture capital. Maybe for riding the hype and realizing a return along the way. But not for building scalable business models that are defensible and highly profitable.

For example, whilst there is a place for q-commerce in the current consumer space, the whole hype and massive amounts of capital flowing into it were — in my opinion — never justified given the limited defensibility of the business model. We will certainly see more of it in the future — let’s see if VC has learned its lesson.

A counter intuitive way to end this short article, because sharing these lessons is basically the same as me talking.

However, it struck me over the past years — and in general during my time in business — that the people I rate highly and see as being successful are curious (and humble). They don’t talk that much, let alone about themselves, but they listen and ask questions.

The best VCs I know ask me why we invested in a certain company, instead of telling me — without having asked for it — whether they think it’s a bad or good investment. The best founders are amazing at selling their business whilst at the same time are amazing listeners and ask the right questions, which help them to determine if they want Slingshot Ventures as their partner.

To me it’s pretty simple: if you tell anything, time gets consumed by something you already know. If you ask a question and/or listen, there’s a chance you might learn something new.

Thanks to my Slingshot Ventures team members for their contributions to this article.

Go to Publisher:

Entrepreneur's Handbook – Medium


Author: Ernst Rustenhoven