Venture Capital
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Venture Capital

What is this?

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High level overview of venture capital and how to use this page as a resource.

[Explain, include history of the asset class and how it's evolved] include things like barbarians at the gate, and history of VC]

Introduction & stat about how 80%+ of VC dollars goes into technology. There are other kinds of investing.

  • Overview of other markets
  • Examples of companies in the space
  • Important things that investors look for in this space
  • Typical exits / acquirers in the space

The required skill sets can be wildly different depending on the stage of a company, whether you're investing at seed, early stage, or later stages.

How venture capital requires different skills from PE because the work is fundamentally different. PE deals more with numbers, where VC has fewer numbers that make sense.

Importance of being up to speed on a market and current trends

  • Newsletters
  • We should definitely have some sort of resource in here about being on Twitter

Stages of Investing

There is a very marked difference in the culture of investors at different stages. If you believe you want to invest in high-growth companies with high risk of failing and large market opportunities then venture capital can be a good fit.

Once you settle on this type of investing it's important to dig in and understand the different stages of investing and what it means for the kind of work you'll be doing.

There isn't exactly a hard fast rule but a typical breakdown of each:

  • Seed Stage: Focused on early product and monetization, typically pre-product and pre-revenue. Includes institutional investors / funds and individual angels
  • Early Stage: Series A to B companies, typically sub $10M of revenue
  • Growth Stage: Series C to pre-IPO; very broad range but mostly focused on companies with more advanced finances.

Growth Stage

Early Stage

[Description]

Resources

Seed Stage

[Description]

The Investing Vehicle
The Investing Vehicle

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Resources for understanding how venture capital works as a business. Where does the capital come from? How do VCs make money? How is a fund structured? How do VCs think about building a portfolio of investments?

Limited and General Partners

A fund is a collection of other people's money that is pooled together to invest in companies. These "other people" are called Limited Partners (LP's) and they are typically (1) wealthy individuals, (2) family offices, which are just the organized efforts of wealthy individuals, and (3) institutional LPs (e.g. pensions, endowments, etc.)

These people commit money to a fund that is run by General Partners (GPs). These are the VCs running the fund. Their arrangement looks like this:

  • LP's give their GP's $10M
  • The GP's take 2% of that money each year to pay their salaries, rent office space, travel to meet companies, market their firm, etc.
  • The GP's invest that $10M into a group of companies
  • Over the course of 8-10 years those companies go on to make the VC's ownership in them be worth, collectively, $100M.
  • The VC's return the original $10M back to their LPs
  • Of the $90M left over the LP's get 80% ($72M)
  • The VC's get the remaining 20% ($18M) as their reward for being successful investors

Investing in Companies

As VC's evaluate companies they're determining a Pre-Money Valuation and a Post-Money Valuation. They met a startup and they say "based on the work you've done to come up with an idea, validate it, maybe build a product (depending on the stage of the company) I believe your company that you've built through your blood, sweat, and tears is worth $9M."

$9M is the Pre-Money Valuation.

Then they offer to invest $1M in the company. The $9M company + their $1M in cash is worth $10M.

$10M is the Post-Money Valuation.

Of the now $10M company the founders own 90% ($9M) and the VC owns 10% ($1M).

If the company goes on to become worth $100M and sells to a bigger company (assuming the company doesn't raise any more money) then the VC will own 10% of the outcome ($10M).

The VC has been successful because they invested $1M and generated $10M of returns (e.g. 10x their money).

Summary Learning: The Investment Memo
Summary Learning: The Investment Memo

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Exposure to investment memos that are most common to VCs and what the critical components are when writing one. Also includes a number of example memos.

Overview

In venture an investment memo can extend from a multi-page written document, a 20+ page slide deck, or a 1-page summary. The goal of the memo is to communicate everything you've learned about a particular investment including:

  1. What does the company do?
  2. Who is their customer?
  3. How big is their market?
  4. How does the company make money?
  5. Who are their competitors?
  6. How does their product / service differ from their competitors?

There is no limit to the sections you can have in an investment memo because the focus is on understanding the questions you have about a particular business and then setting out to answer those questions. The key here is not only to understand it yourself but to communicate it to other people.

Examples

A Day In The Life

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Walking through a typical day of a VC and the most common activities that they're expected to do well in order to succeed.

Overview

Common Activities

Other Resources

Investing Curriculum
Investing Curriculum

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A more specific overview of specific skills that are relevant in venture capital. Includes soft skills (networking, building industry expertise) and hard skills (financial modeling, TAM analysis, etc.)

Analytical

Understanding Broad Markets

Software: a Technology Primer
Software: a Technology Primer
Consumer Internet: a Technology Primer
Consumer Internet: a Technology Primer

Understanding Specific Markets

Sourcing

Technical Skills

Relevant Metrics to Understand

Financial Modeling

Getting a Job
Getting a Job

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Resources for breaking into venture and getting a job at a VC firm

[Explanation]

Recruiting in Venture Capital
The Why and How of Wanting To Be a VC: a Thread of Threads
The Why and How of Wanting To Be a VC: a Thread of Threads

What People Are Saying

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What people are saying about venture capital and VCs

Investors To Know
Investors To Know

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Lists of venture investors who are earlier and later in their careers

1️⃣
List of Leaders

2️⃣
List of Up-and-Coming Investors

Types of Firms

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Laying out different firms to know about and follow and the strategies that they follow. This can drastically impact the type of deals they do and what its like to work for them.

Examples

People to Follow

Twitter recommendations

Recommendations

Venture Capital Jargon Buster

Primer on VC for Academic Entrepreneurs