2020 is a challenging time for venture fund managers, but it’s a competitive business at the best of times. It never hurts to gain a little bit of advice from those who’ve experienced the ups and downs of every shape and size of VC.
The majority of GCG’s executives are venture capitalist professionals with extensive experience in multinational investment partnerships. We’ve worked with more than 200 Venture Capital Firms and over 800 Silicon Valley tech companies and have picked up a few important lessons along the way.
We’ve distilled some of our collective wisdom in this blog post so you can benefit from our years of experience.
1. Time Management
People working in VC need to be using their time wisely and ensure priority is given to tasks that push the needle. Being buried in unnecessary meetings or attending too many conferences can easily derail important players from actually getting down to brass tacks.
Everyone in the organization must know where everyone else is, so a public calendar and other workflow tracking tools are a must. This allows senior staff to have an eye on what everyone is working on and ensure that they’re moving the ball forward.
2. Decision Fatigue is Real
Most established VC firms analyze 80-100 new investment and follow-up investment pitches a month, and decision fatigue is real. There are many different ways that firms make decisions, but all of them require some sort of consensus – sometimes between the entire partnership, sometimes only between key partners.
Involving the entire partnership in decision making (usually with a majority rules system) can slow down the decision-making process – but everyone is a part of the discussion. Involving a segment of partners in pitches can make you more agile, but those partners must be representative of different groups.
There’s no right answer here – but the method used needs to fit in with your VC firm’s culture.
3. Culture Fit
The competitive VC market means that all the employees of a VC firm must be driven and work together towards a common goal. It’s becoming more and more common for VC funds to have a mission, vision, and values statements, and incorporate those ideals into every process. A firm is defined by its people and how well they work together; choosing staff whose experience and personality matches those criteria helps set you up for success.
4. Find Your Focus
In a crowded landscape, you need to emphasize what sets you apart from the competition to attract both Limited Partners (LPs) and prospective growth companies.
Your differentiating factor could be in your team’s collective resume or a vision for a better (and lucrative) future that involves investing in seed-stage startups in specific growth areas. For example, some funds are making names for themselves by focusing on investing in early-stage companies focusing on digital media, RegTech, or blockchain. In contrast, others focus on social responsibility initiatives such as climate change or a focus on emerging markets in developing countries.
5. Transparency with Limited Partners is key
Ensuring your fund is providing real value to LPs means that General Partners (GPs) need to be investing more oversight into their portfolio and investing in better reporting tools.
Transparency between General Partners and Limited Partners is more than just a legal requirement – it also provides dividends as well. A study by investment software company eFront reveals that funds that offer more transparency to their LPs are also the highest performing. Funds that utilize standardized templates provide 70% more info to their LPs, including the number of investment professionals and exposure to geographies and sectors, and a breakdown of both fees and portfolio companies.
Most GPs have annual meetings with LPs, and some conduct regular reviews. If we can offer one key piece of advice when attending pitches or meetings with LPs, it’s this – stay off your phone and laptop. Despite the often overwhelming nature of the job, you build your entire reputation on your relationship with all of your stakeholders and are likely to frustrate those whose buy-in you need the most.
6. The Rise of Micro-VCs
First Republic Bank reports that they are currently tracking 900 active micro-VC firms in the United States, with approximately 100 being funded every year since 2015. It’s not an easy gig. An Israeli startup investor told TechCrunch that “Ninety-five percent of VCs aren’t returning enough money to justify the risk, fees, and illiquidity their investors (LPs) are taking on by investing in their funds.”
You can support yourself, and your team on the management fees paid by your LPs to the management company even if your fund breaks also – but the “gold standard” for a micro-VC is to generate at least a 3x return. The journey to true profitability is an uphill battle. If you’re not in it for the passion of fundraising and helping businesses succeed, it makes the slog all the more difficult as there is no shortage of exuberant VCs out there.
7. Making The Most of Talent
Early on in a firm’s life, it’s not uncommon for the managing partner and other key staff to be involved in operational tasks that divert their attention away from strategic initiatives that help push the needle.
It’s generally accepted that employees in bootstrapping VCs should be willing to go the extra mile. As your fund grows, however, it is essential to step back and decide if your business will benefit from you splitting your and your employees’ time on different functions or focusing on your product/service and revenue. Some of the critical roles that can be handled by an outsourced services firm include business administration, HR, and finance.
Often you don’t need a full-time employee to fill these roles. Many VCs such as Oceanshore Ventures look to outsource their VC firm’s accounting and other back-end functions to dedicated experts so strategists so they focus on building a solid portfolio of businesses and providing ROI to your LPs.
Let your employees do what they were hired to do and bring in specialists to fill in the gaps.
About Greenough Group
At GCG, we’re in the business of helping investment funds succeed through strategic financial and back-end management.
Greenough Group helps its micro-VC clients overcome their unique challenges in ways other outsourced financial and accounting firms do not. More than 200 Venture Capital and Top Private Equity Firms have found that our back-end financial and administrative services save them time and money by providing the high-level executive insight they demand but don’t need as a full-time employee.
VC firm, 500 Startups, offers seed investments and a new micro-fund model along with design, data, and distribution expertise via its network of mentors with strong ties to prominent Silicon Valley companies. Founder Dave McClure engaged GCG early, even before his fund’s first close, recognizing the significant assistance a trusted advisor and colleague could make at that stage. “As a startup ourselves, we needed a partner who could both help with our complex fund issues as well as with our portfolio companies. GCG’s guidance and counsel began when 500 Startups was just an idea, and it continues to this day. In a fast-paced environment like ours, I need to know that I have reliable and professional support. We couldn’t operate without that.”
If you’re looking for support in managing the finances or processes at your venture capital, reach out to our VC consulting services specialists and we’ll get right back to you.