I recently attended VC Unlocked: Secrets of Silicon Valley Investing, an investor training program run in partnership with 500 Startups and Stanford Center for Professional Development. The two-week program took place July 25th – August 5th, 2016, and a class of 28 participants dove deeply into the world of tech, understanding fund dynamics and hearing from seasoned experts.
My big takeaway was that along with all the attention and hype startups are garnering around the world, there is still a large gap in the knowledge available to investors entering the space.
We hear a lot about “dumb money” and to avoid it like the plague, but is that it? As a former educator I believe not – and so here are a handful of tips for new investors from VC Unlocked to make your money smarter:
1. Understand the market/ecosystem you are investing in
Copying and pasting a playbook from Silicon Valley directly into a different region will not get you the startup ecosystem you hope for. It’s taken a while for this message to make its rounds, but it’s important to know that building up the key components are what matters; Do smart founders, early and later stage capital, legal and other services, and exit opportunities exist in your market? If not, how will you as an investor traverse those voids?
2. Educate yourself and peers on good etiquette and best practices
Unless you imagine yourself solely generating your own deal flow and funding your companies throughout their lifetimes, you will find yourself working alongside and benefiting from the participation of the rest of the startup community. It is in your best interest to play well with others, and this applies to how you manage the interests of and your relationships with LPs, fellow investors, and entrepreneurs.
Good behavior could be saying “No” quickly and kindly to founders that do not fall within your investment thesis, having a discussion with your LPs about recycling management fees, or understanding which terms are investor vs. founder friendly.
Your responsibilities as an investor will include:
- knowing what you are buying
- how to navigate and properly negotiate terms
- what part you play in being a constructive board member beyond just writing a check
The good news is, there are many thought leaders and content around these topics that you can find online, and even better news is my colleague will be sharing a post devoted to the best ones!
3. Know your value proposition as an investor
“Why you?” is a question investors are often heard asking founders, but it is just as important for investors to ask themselves both for fundraising as well as deal flow. During one of the sessions, David Hornik of August Capital said, “If you don’t have dealflow, you don’t have anything.” Echoed by Constance Freedman of Moderne Ventures, she pushed for differentiating yourself from other investors.
Whether it is your industry expertise, personal network, or unparalleled access, investors should be able to articulate how their assets power their investment criteria. Jeff Clavier of SoftTech VC encouraged everyone to have “a clear schtick” because at the end of the day smart founders will optimize for investor-market fit.
4. Be transparent with others, honest with yourself
This tip will go a long way, allowing you to attract the best relationships, utilize your time efficiently, and build your brand.
“Be clear about your investment filters and make sure they are known by founders, investors, everyone.”
Dave McClure tells us, “Be clear about your investment filters and make sure they are known by founders, investors, everyone.”
This will help you avoid pitfalls of herd mentality or just falling in love with the problem the company is solving, as well as not wasting meetings with founders you would never back.
Another area of transparency that requires some introspection was brought up by Mary Grove of Google for Entrepreneurs, who said that while it’s widely known that diversity fosters innovation, she pushes investors with the question of “What are you doing to brand yourself or understanding of your own biases?”
Lastly, Jason Calacanis of Inside.com and LAUNCH spoke to always giving back to founders with something constructive, regardless of his investment decision. For each meeting, Jason shared that he takes time to thoughtfully respond to the founder(s) with feedback on what was positive and candid concerns around potential challenges.
While this is not an exhaustive list of how to be a more valuable investor, it’s a start to what is a long journey journey ahead should you choose to become one.
As far as 500 Startups is concerned, this is the way we have guided ourselves in our various ecosystems and how I’ve tried to reestablish our presence in New York. It was never about blindly setting up an office, but rather working alongside all the other great organizations that are building up the meaningful pieces of the tech scene. The response has been wonderful so far, and I’m looking forward to bringing some of 500’s larger programs and resources to New York.
Keep your eyes out in the coming months for more announcements!