VCs are nothing but really weird HRs and other thought rambles
My two cents on VC after 34 interviews of other European principals and partners over coffee during my firsts months at Serena. The aim here is not assess a truth, but to reformulate the pieces of advice I heard and found most interesting. It helped me somehow, and I hope it will help some of you too ;-)
Here we go:
Finding #1: Dealflow, as a VC, is a question of pattern recognition. All the questions we ever ask ourselves are benchmark questions :
- “Is this company better than its competitors”
- “Is this emerging market going to be as big as this other market and therefore generate good M&A deals?”
- “How do these company’s metrics compare to the best companies with a similar business model?”
- “How does this team compare to the ones I’ve seen before?”
That’s why some VCs are deeply analytical, and cross/ratio everything and some others are deeply intuitive: there are only two strategies that work to do a benchmark: an objective one (powered by analysis) and a subjective one (powered by intuition and experience).
Funny thing is that: (1) everyone seems to quite agree on the fact that intuition beats cold analysis but also that (2) most people have a really bad intuition and should stick to analysis.
Finding #2: dealflow in VC is not dealflow in LBO or any other part of finance
Another analysis I liked is how VC and PE, although they seem to be about the same thing (investing in private companies) are actually opposites.
Most financiers’ jobs (in LBO, mezzanine…) is to check whether or not a deal is “solid/good enough” to reimburse a debt at some point. The difficulty in these jobs is more to actually get a deal than to figure out if the deal is a good opportunity. That’s why M&A banks like Lazard, Rothschild… and their clients are the ones with the upper hand in this ecosystem, not the investors: because they provide the rarest resource: a steady source of good enough deals.
VC is nothing like that. We are buried in opportunities. And it’s not at all a “good enough” thinking process because the risk profile is really different. You have to look for “top 1%” entrepreneurs. And it’s like looking for a needle in a stack of hay.
You know the deal with stacks of hay: the right thing to do to find the needle is to burn them. The advice I got from a few really respected partners on how to deal with time pressure is to promptly stop working on deals that inspires you only lukewarm feelings, and focus 100% on proving yourself right or wrong on start-ups that made a massive impression on you.
Finding #3: the defining criteria is the team — the rest is close to irrelevant, especially in early stage
The dealflow process shows striking similarities to a recruiting process for a key person. In both cases, it’s easier to trust someone you’ve worked with before, or known for a long time or who is referred by people you trust because information and trust are key.
Idea: apply HR proven successful theories to VC. Oh but wait, there are none.
And like any other recruiting process, dealflow is critically flawed (that’s why we have the cliche about the first “oh shit” board meeting).
I’ve been told by a few different VCs that it’s often a bad idea to make a decision on a “picture” of a team (meaning to invest in a company that you’ve never heard of before), compared to a decision taken on “a movie” of the accomplishments of a team that you’ve followed for quite a bit before investing.
Finding #4: the rule is that there are no rules
From people who have financed success stories I’ve heard the same thing over and over again. “The definite rule about a success story is that it somehow worked out despite breaking one or several fundamental laws of physics”. Criteo pivote three times and usually, it is supposed to mean death for the company. Blablacar was a non special company in a crowded non-existing market that everyone deemed doomed.
Corollary: the really, really good deals are not the ones adopted unanimously at the Monday meeting but will generate a lot of adversity.
Same goes for the people: entrepreneurs wired to build success stories are often weird in a way. Even unlikable, sometimes, but that’s offset by their execution capability.
Plus, they are always somehow extreme (or extreme somehow).
Hope this was helpful.
If so, thanks for sharing and recommending ❤
Have a great week,
About Serena Capital
Leading Venture Capital investor with 250 M€ under management, dedicated to support great innovative startups.
A few words on our philosophy of being a capability-driven investor: https://blog.serenacapital.com/join-the-dark-side-971de57fa73
At Serena Capital, we are early-growth investors, investing in European companies which have proven business models and the capacity to grow quickly and become market leaders.
Our investment range goes from €3 million to €15 million with a focus on a variety of technology sectors including internet and media, big data, software, telecom and mobile, consumer electronics, IT services .
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Work4, FinalCAD, Qualtera, Dataiku, TextMaster, Habiteo, Cheerz, Lengow, Evaneos, Icontainers
Find out more about us at www.serenacapital.com
ps: sorry if you expected a reason for the duck picture