Tl;dr: Dave McClure wrote an interesting presentation for venture capital investors in 2019 on how to position your value add to build a brand and secure deal flow. I’ve then shared a bunch of random thoughts around his framework. Caveat emptor.
Twitter is a funny place. I can’t spend much time there due to the volume of morons, trolls, and virtue signallers. You do pick up on some funny things though.
It cracks me up how bitter some investors are because they don’t get enough clout, credit, and likes. The reality is that they just suck at marketing, just like I do.
I wanted to share this blog because I believe the topic is near to the heart of all investors, but likely don’t take a moment to reflect on how, what and why, they’re doing what they are doing (at least on the inbound side), rather than just being a VC and wondering why they aren’t famous.
Have to admit, I didn’t really read this presentation before I started to blog. I kind of read the title and was like, this looks interesting. So this is a massive random stream of consciousness, that might be worth reading.
The goal of VC is to get into the deals that you want. This requires that:
- Startups choose you
- Startups choose you over other investors
To some extent capital really is a commodity these days (though who turns down a tonne of capital from Softbank and Tiger…). Who is providing that capital matters increasingly.
It’s all very well to be the most amazing baker, but founders want figurative bread, not literal bread. How is what you can, willing to offer, and are able to “add value” to the startups. But bear in mind what they want and need can be different.
Some startups may want to expand internationally, but what they need to do is focus on the basics so they are in a position to do so. One investor may tell them what they want to hear to get into a deal, but will your real talk get the deal? Some founders may like it, some might want to hear what they want. There are impacts to you since it’s your money that will be spent.
If your value add is to help companies expand internationally then you will be best served only to target companies that are truly ready. Frankly, that’s something you should be in a good place to decide. Founders will likely come looking for you given your track record in taking Israeli startups to the USA.
Every single VC has an investment thesis. Some just don’t share them. Trust me, I’ve collected all the VC investment thesis‘ I can find, and it’s not many.
Fine, many VCs might think that startups don’t need to know about the thesis, or don’t really care, but when it comes to LPs that’s an entirely different story. They want to know why they are to allocate capital specifically to you and not someone else. One of my buddies at a fund of fund said that he loves VCs with a specific focus because it makes it a lot easier to manage exposure to sectors (ya know, portfolio management?).
Dave doesn’t pull his punches and he asks some good questions.
It’s one thing to want to do growth stage, but can you actually? No one really wants to do pre-seed investing- they might say they do, but come one. The reason people don’t have multiple funds across stages, fancy offices, and even an opportunities fund, is that they can’t raise the capital.
I asked one VC why he did it, and he told me that he figured out he was really good at raising, so why not?
Getting into the really hot late-stage deals is hard. I’ve had “hot” founders explain to me how they chose one investor over all the others that offered term sheets. And I have to be honest, he sure as heck wouldn’t have chosen me! I’m real about such things.
The big question I pose to aspiring GPs is “why will a hot deal accept your money over big name VCs?”
At the end of the day, you aren’t going to get unicorns, if you don’t get the prospective unicorns into the top of your funnel and are able to close them.
What do you stand for and what makes you different?
Congrats, you’re a gay-friendly, enterprise SaaS in New York focused, but you’re still a bear shitting in the woods if no one knows about you. At least the people you want to know about you.
I first got to remember Dave because of the horrendous ways that he formatted his presentations. I mean, he said upfront he was doing it, but it’s memorable. Mark Suster writes great presentations, but they’re sort of memorable because they were decent, just not in the same way. Hell Mary Meeker writes huge presentations, but I don’t feel like I know anything about her. Her brand seems to be a giant nerd to me… just saying.
The best-known VCs are known because in some shape or form you interact with them across media.
- Jason Lemkin just dominates Quora and his SaaS conferences are great
- Fred Wilson at AVC blogs like 17x a month. I actually don’t like a lot of the content, but seems like people do.
- Mark Suster blogs a lot (or used to) and puts out presentations
- Mark Meeker writes presentations I doubt anyone ever finishes
- Firms like NextView, First Round Capital etc put out solid content which makes the firm known, but less so the partners
- A16z just does a lot
- Chris Janz has a niche SaaS focus and makes some useful “napkin” tools which are easy to share and provide some quick value
- Gary Tan seems to be on fire at the mo with hiw Youtube channel etc
- Sriram Krishnan is on Clubhouse, and dabbling a little on Youtube recently
Then there are some that are famous, mainly because they just get into great deals
- Who hasn’t heard of Peter Theil?
- I don’t know what Chris Sacca and Lowercase capital is up to anymore
- Vinod Khosla has earned his stripes over decades
- Bill Gurley is a bit lower-key it seems these days
- Hans Tung, Lee Fixel, Alfred Lin, Peter Fenton, and many others only nerds would really know of
I studied pretty much every VC with a “value add” program a few years back. I question whether they help founders with what they need, more than help the firms get the deals at the end of the day. Tell me if you disagree?
I was talking to my buddy at a big brand VC and he said to me that every single good deal he got into, he found and reached out to them. He doesn’t blog or any of that shazam.
Another of my friends is a nerd. I mean he’d like to be better known, but I also think the introvert in him doesn’t want to. He just grinds it out and consistently finds good deals. Does a rich bear with returns care about shitting in the woods? Of course, they do, but less than the broke bear.
This is a great slide. It asks a lot of really tough questions. Everything has a consequence.
Define your help framework
For all interactions, I’ve found it incredibly useful to be really upfront about what you will do and what you won’t do. When I didn’t do this I would keep getting dragged into things that weren’t my job, or I didn’t want to do. I just say I don’t do 1, 2, 3 and I don’t get asked and no feelings ever get hurt. I can opt to do more if I’m in the mood, but I’m not obligated to do so.
One of my venture-building friends makes it really clear how they support. He’s in there full time for 6 months, then for 6 months he’s on 1 day a week, then they are on their own other than VC type oversight and fundraising help.
As a VC though, I firmly believe startups need to be able to be successful without you. You should only add some zest.
I would also be stern if expectations are not met on the first infringement. If a founder asks for an intro, you make it, and the founder doesn’t contact them, you look like a tit. Your contact/friend will message “Dude, Jim didn’t contact me?” and what do you say? Well, you need to call the founder and put things straight to align expectations so it doesn’t happen again.
I don’t know what Dave means by “tell them what you expect to get back”? You said you were a value add VC…
Why help companies?
Everyone gets jaded over time (or maybe just me), but if you’re the kind of person who likes helping, you don’t lose that. You might just become a little more pragmatic and direct about matters.
One startup had two term sheets. One was from a “nice VC” with low expectations. The other was from a “big name, bad-ass firm in the valley”. The bad-ass said straight up “I’ll make intros, help you grow like a rocket ship, but I’m not going to teach you anything. If I ask for a business plan, I want it delivered“. The founder ended up pussying out and taking the nice VC that wouldn’t push him. Whilst debating the options he said if he tooko the bad-ass VC term sheet he would have to relocate to the Bay and really up his game. They got a smallish exit.
You do not scale. And bought help only scales as large as your AUM does to fork out management fees to pay salaries.
Word of mouth from founders matters. If you plan to be around a while you need your founders to sing your praises for reference checks and inbound (top founders know one another). Especially if you want your pro-rata in the short term.
Who to help and for how long?
The best example is sidewards deals and sidewards founders. When do you call it a day?
I’ve tried to help a company for ages, but the founder just wasn’t good. Years later my VC buddy says “he’s trying again, and he just pivoted, again. Someone really needs to tell him to get a job“. I know that’s sooooo not a “founder friendly” thing to say, but honestly, what happens when you really make a bad call? And that founder is reaching out for advice on another startup? Do you continue?
The thing with sidewards deals is that it’s a hole that you can just keep digging. Is it better to help the rocket ship fly higher, or to help the sidewards one build a fire?
The rationale logic is you allocate your time where you, along with your fiduciary responsibility, maximise shareholder value whilst also maintaining a semblance of a brand. Allocate time to the top performers when you can add real value.
For everyone else, set expectations once you see how they respond to help. Some are great and action on everything you say, so you’ll help more. Some… don’t and won’t so you cut the gas.
Set out with teams how you are going to help, the process for it (specific bullet point ask with LinkedIn URL via email) and your expectations for that to be actioned on. This has to match your personality.
What is your unique help superpower?
I feel that founders tolerate VCs when they aren’t getting 10x value. It’s like “with great money, comes the need to suck up”.
The most valuable things to most startups are:
- Recruiting key talent (Such a ball ache!)
- Big intros that make money (not the ones your AE can get as part of like, their job)
- Getting more money (Which Dave says is not unique. I agree, but it’s still a huge deal if you can help get big rounds done)
After that, there are lots of super useful things, but it needs to be actionable and specific or ideally done for you. The issue with the latter is that you effectively need operating partners who really dive in.
I’m sure this slide makes a tonne of sense if Dave is presenting it, but I’m just looking at slides and vomiting out of my brain here.
Ok. So. You don’t exist as a GP without LPs. They all have different needs.
- Established FoF/Endowments with professional managers want returns. They’re not going to invest into fund 3 unless you worked with them as an investment manager (e.g. Yale)
- New LPs can have weird goals. Some like Barclays might put money into TechStars accelerator so that the CMO gets to go on Bloomberg and pretend they do innovative shizzle. Some might have an agenda to show they give two shizzles about impact, so chuck money into a fund to illustrate that at a shareholder meeting. The hustle is real with corporates
There’s actually potentially a lot to unpack here including hand-holding, providing direct deal access, etc. Then there are the whole will LPs invest in your impact fund in Zimbabwe thing. Hm, nope. So your investment thesis needs to match up with LPs, but like this is a series of blogs.
I’ve written a few VC decks and helped a few more write theirs. And do you know what, writing decks for startups is exactly the same (only a few slides are different, do grossly simplify). When you have amazeballs things to talk about, and your thesis is lucid, it’s a lot easier to write them and be “impressive”.
There are amazing people in the world and when you ask them their superpower, they may be modest, but it’s easy to present that in a modest way that implies “Yes, I’m kinda of a big deal”.
When you don’t have things to say, well it’s harder. Ask someone what their superpower is, and well, there’s a reason that average exists.
There is a difference between talent and potential. I’m reading a book on “Grit” at the moment, so I’ll call it grit.
Dave recommends you promote your history if you have it, and your grit if you don’t.
This is a usual summary slide, typically in the terms/give me money section.
Interstitial slide! I hate these.
It’s really hard to make money.
I don’t know, but Dave normally sells the “invest in lots of companies” thing as was his 500Startups thesis.
Models like these are super useful to do to force you to think through your model, but it’s BS in BS out. Predicting outputs are just so pie in the sky.
It is useful to consider your reserves, how many checks you do etc, as I know for a fact less experienced investors always lament the basics. All of them.
Running a VC firm isn’t cheap. Your fund admin and the like is an easy $200k. My math from like 7 years ago was how can anyone run a value add fund with less than $80m and no trips to tropical islands. I have friends that started with a $10m fund and just think wtf…
Eh, what do you think?
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