RTC #10: The unspoken truths in venture capital

Why today’s issue is valuable to you 💎

1. Headlines: There are 5 areas where seed investors are most active, Nvidia - crash or sky is the limit, the 71 Excel shortcuts you should know (and you will “fly” through your sheets), first-time VCs are in trouble, and more (also from Elon)!

2. Today’s Deep Dive: Venture capital is a special industry with its very own rules and practices, learn about about these unspoken truths in our new series “The unspoken truths in venture capital” (before you have to learn it the hard way)

3. There are two VC/PE fund metrics you should know to assess fund performance

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Headlines 📢

• Where do seed investors invest most? These are the 5 areas

• The mother of all capital questions: bootstrapping or raising venture capital? Listen to Dalton and Michael from Y Combinator

• Guess who owns OpenAI’s venture capital fund? The answer is…

• Nvidia is nuts, when’s the crash? “To get to a $740 share price simply requires NVDA to maintain a monopolist-like operating profit margin of 55% for the next decade, while also growing sales 10x to more than $600bn. For context, the entire industry sold $527bn worth of chips last year.”

• Elon Musk Neuralink’s, the first human patient able to control a computer mouse by thinking

• SoftBank raising $100 billion to compete against Nvidia

• PE firms need to double down on adding value

• 71 Excel Shortcuts that you NEED to know

• Y-Combinator updates its 'Request for Startups' list (the full list for the first time since 2018)

• 37% of first-time VCs will not be able to raise a second fund

🤿 Deep Dive: The unspoken truths in venture capital

Venture capital is a special industry with very basic dynamics at its core

• (Venture capital) investors want to secure the best investments and maximize the returns

• (Startup) founders want to secure (the maximum amount of) capital at the best terms with the best-fit investors

There are many ways for both sides to achieve this but what I have learned over the last years is that there are certain (unspoken) rules and practices nobody tells you upfront when you enter “the game”.

Knowing those is key to making or breaking your funding/investing journey - if you know, you know.

So, let’s start unveiling those untold aspects, exploring the nuances and complexities that shape the venture capital ecosystem. Join me as we dive deep into the truths that don’t always make the headlines but are crucial for every founder and investor to understand!

The VC side (aiming to secure the best investments)

Most (Early Stage) VCs claim “We’re Very Hands-On”…

…but it seems like that quite a few investors fall far short of that. According to a report by Forward Partners, 92% of VCs interviewed described themselves as value-add investors BUT 61% of founders said the VCs they worked with brought less added value than they’d promised. 😳

Vinod Khosla’s (Founder of USD 15bn Koshla Ventures) points out “that a very limited number of investors bring value to the table. His argument: few VCs who are active today have been through hard entrepreneurial times. They can’t effectively advise startup Founders on how to manage their companies.”

But there are also (slightly) different views and according to a (prominent) survey from a group of Kauffman Fellows, the answer is: VCs add value (sometimes).

Venture Capital has FrieNDAs and not NDAs

VC is a gossip industry.

But as a VC, you have to know who to tell information to, when to tell it, or if something you hear is a secret that will get taken to the grave. You need to gossip, but you don’t want to betray anyone or create awkward situations.

And that is why VCs have “The FrieNDA”: the unspoken promise that VCs have between each other to never tell the wrong people gossip.

FrieNDAs form the foundation of a VC’s reputation and reliability. Venture capital is a relationship business, and the FrieNDA is the defined representation of trust. If people can’t trust you, they won’t pass your deals, they won’t co-invest, and founders won’t want to take your capital.

Thank you Andrew Chan for creating the term “FrieNDA” - love it 🙌

The startup side (aiming to raise capital)

It has to be the CEO that pitches the VCs

It just has to be. COO or CFO or whatever can come along but, again, if your CEO isn’t pitching to VCs, you’ll never raise money. For most investors, that’s almost an immediate “No”.

Relentless follow-up

If they wanted to, they would. Follow up 2-3 times - it will show commitment. Then move on and don’t waste your time.

Don’t make anything up

“Fake it till you make it” is no good advice for VC meetings (might work in other situations).

If you don’t know the answer, just say that. It is fine (even if you should know the answer). Obviously, not to every single question 😂

Worst case: you make something up and the VC knows that the answer is otherwise…OVER.

Do not use the fundraising process as an “excuse” for less growth or any other operational (not-)achievements

VC can only invest in outliers. You can not make money outside of outliers. So any signal a company might ONLY do great but is not an outlier is a NO. The signal “I couldn’t do [insert anything] because I was fundraising” is a very strong indicator of NOT being an outlier.

📖 Understanding VC term(s)

📅 Calendar of main VC events in the upcoming weeks

👉 Networks and relationships are key: start building them

February
• Finovate Europe | London, UK | Feb 27-28
• 4YFN | Barcelona, Spain | Feb 27-29
• Web Summit | Qatar | Feb 26-29
• 0100 Conference DACH 2024 | Vienna, Austria | Feb 28-29

March
• PEI Nexus | Orlando, US | Mar 6-8
• SuperReturn Private Credit Europe | London, UK | March 11-23
• Mind the Tech | New York, US | Mar 4-5
• Hello Tomorrow | Paris, France | Mar 18-22
• GPC Conference | New York, US | Mar 25-27

👉 Get the full list of events in 2024 here 

🛑 Before I finish…

AGAIN - do not use the fundraising process as an excuse:

"We didn't grow fast last month because we were fundraising" is death in talking to VCs.

Watch the full video with Jason M. Lemkin

This was it for today.

One last question:

What other “unspoken truths” did you come across and discover?

Write me or leave a comment - excited to hear from you and will definitely include them in my second part of “The unspoken truths in Venture Capital”.

One last comment:

If you find Road-To-Capital valuable, let ONE friend know (each week 😂)

See you next Tuesday,
Stephan 👋

Issue #10 | 20 February 2024