VC-investing is a really particular job: most young companies out there do not need VC-money, and most companies invested with VC-money will fail. Yet, the right association between rocket-fuelled entrepreneurs and supportive investors will move mountains and reshape entire markets for good. This quest for outliers drives a VC-investor’s motivation on a daily basis, and has strong implications on its daily organization. Here’s what I have learned 1 year into the job!
First, let me introduce Aster: we are a 15+ year old Paris-based VC firm investing across Europe, the US and Israel in Seed and Series A. Our DNA is all about finding market leaders in the Mobility and Industry verticals; and helping them create business opportunities through our network of large corporate and SMEs.
I joined the team almost a year ago, which gave me the time to:
- Exchange with more than 200 entrepreneurs
- Help my colleagues on a hundred of other investment opportunities
- Deep-dive (sometimes unfriendly) markets such as Hyperconverged Infrastructures, Hydrogen for mobility, DevOps automation, Flight ticket distribution and Urban Logistics
- Map the whole UK incubator/accelerator/VC ecosystem
In the meantime, I also:
- Spent too much time studying some investment opportunities that we ended up dropping for basic reasons
- Missed some opportunities because of bad timing
- Lost myself into studying some market’s underlying structures and dynamics
From this, it may be the right moment to take a step back & give some of the first insights!
1. What is VC about?
Endless possibilities, limited time
The first thing I learnt during this VC-journey, is that time efficiency should be the absolute priority on a daily basis.
Firstly, because there are thousands of companies that may fit our investment scope out there, hundreds of events to attend each month and an infinite number of resources (reports, research papers, articles) available.
On top of that, the investment process itself is time-constraining: the best deals can be closed in the blink of an eye and entrepreneurs often have limited time to achieve their fundraising process.
And I am not even talking about supporting portfolio companies, which does not affect junior VC-investors; but this becomes the absolute priority of an investor after several years.
Asymmetry of information is everywhere
On average and if everything goes well, there are 5–10 weeks between the first meeting with a startup and the issue of a termsheet. This period is crucial for both the entrepreneur and the investor:
- For the entrepreneur, it is about “selling” his vision (1st) and his company achievements (2nd) to potential future investor(s), and to convince the most meaningful ones to go on board
- For the investor, it is about building trust on a startup’s potential to create and hold long-term value on a market
- For both, the objective is to align interests and lay the foundations of a future partnership
Unlike in poker, bluffing shouldn’t be an option, neither for the investor nor for the entrepreneur
A year in the job, this is what fascinates me the most about VC: it is really complex to evaluate the potential of a young company that is, by essence, a work in progress, without any cognitive biases. To make it simpler:
- It is not because you would (or wouldn’t) use a product/service that it will (or won’t) succeed
- It is not because you begin to get impressed by a founding team that the investment is worth it
- At the same time, our job is not (only) about evaluating metrics and financials; assessing the human potential of a team is one of the key elements we look at
This list could be long, but in the end it comes to reducing the asymmetry of information to an acceptable level and to acquire solid convictions about a potential to create value on the long run.
2. Are there any cheat codes?
Spend time meaningfully
VC-investing is about cutting through possibilities to find, understand and invest in the most promising companies out there. Doing so requires setting up time-allocation methods and choices; in order to ultimately spend 90% of your time with the 1% outliers you want to invest in.
I’ve discussed this topic with several VCs: Some of them spend hours reading about markets and discussing with experts, because they think deep-understanding of a trend is the most important thing to do. Others spend most of their time with people (founders, teams and future employees), because they think VC is only about people.
Of course, there is no secret sauce and both types are right. The one question an investor should constantly ask himself is: “How can I find the most promising startups out there; and bring the most value to them once I’ve invested?”
Acquire insights and thrive in contradiction
To end up with a more actionable feedback I’d say that at a junior level, practice makes perfect. The best way to build independent convictions is to confront your beliefs with opinionated people, should they be entrepreneurs, industry leaders or other VCs as often as you can.
I usually spend 5–10h/week diving into specific markets, either by reading or discussing with industry professionals. This is even more crucial at Aster, as we are mainly dealing with technical topics such as industrial automation, satellite networks or cybersecurity.
But in the end, being able to say “I don’t know” and to hunt for clarity will always be as important as building market expertise. Asking questions and truly understand their answers is key to avoid superficial reasoning and build meaningful relationships.