GoingVC https://www.goingvc.com Your go-to source for building a career in VC Thu, 13 Aug 2020 20:56:17 +0000 en-US hourly 1 https://wordpress.org/?v=5.5.1 https://i1.wp.com/www.goingvc.com/wp-content/uploads/2018/12/cropped-GoingVC_LinkedIn_3-1.png?fit=32%2C32&ssl=1 GoingVC https://www.goingvc.com 32 32 156903747 The GoingVC Late-Stage DCF Model https://www.goingvc.com/the-goingvc-late-stage-dcf-model/ https://www.goingvc.com/the-goingvc-late-stage-dcf-model/#respond Mon, 24 Aug 2020 10:00:00 +0000 https://www.goingvc.com/?p=67109 The post The GoingVC Late-Stage DCF Model appeared first on GoingVC.

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Introduction

Discounted Cash Flow (“DCF”) models are used to generate equity valuations for companies that are generating positive free cash flows. Given that the generation of positive cash flows is often achieved at later stages of a company’s development (notably this valuation technique is used by public equity analysts), DCF models are appropriate only for these later-stage companies.

 

 

Cash Flows vs Earnings

An important distinction must be made between cash flows and earnings. It is possible a company can generate positive earnings (i.e. income less expenses) and negative cash flows (and vice versa) due to the differences in how these metrics are calculated.

Earnings (or Income, Net Income, etc.) are simply the accounting calculations of all revenues minus all expenses, inclusive of non-cash items such as depreciation, amortization, or other non-cash expenses.

Cash flows, on the other hand, represent the actual increase or decrease in cash generated by the company over an accounting cycle and are calculated by starting with the net income and adding back non-cash expenses (to simplify things).

Why does this matter? The value of any financial asset is nothing more than the discounted value of all future cash flows. That’s what a Discounted Cash Flow model does: it projects the future cash flows and discounts them backwards to an implied value today.

DCF vs Multiples

Typically, early stage (i.e. pre-revenue or pre-cash flow) will rely on industry or competitor multiples, or other methodologies, that do not require positive earnings for cash flows. Given the highly variable nature and risk of early-stage companies, peer analysis and multiples are a more common and appropriate valuation estimation.

The GoingVC DCF model, therefore, uses current and past financial statement data to generate cash flows and allows the user to make growth and margin assumptions to project and then discount these estimated future cash flows to derive an equity valuation.

How to Use the Model

Inputs

Once you’ve downloaded and opened the model, navigate to the ‘Inputs>>’ tab. Here you can update the implied values used within the model:

  • Discount Rate = This is the rate used to walk-back the future values to today’s values. It essentially represents the (implied or opportunity) cost of investing, or can be thought of as the minimum required rate of return or estimated growth rate. Effectively, the discount rate can be used to determine the value of a cash flow in the future, today.
  • Terminal Rate = This is the long-term estimate growth rate of the company in maturity. Financial theory assumes that over the (very) long term, companies grow at the rate of inflation + a spread, and therefore most analysts use a low, long term growth rate to capture the cash flows from the end of the model into the essentially infinite future.
  • EBITDA Exit Multiple: Our model also includes an EBITDA valuation as both a check and scenario analysis estimation of value. We prefer using EBITDA in order to rid the valuation basis of accounting, capital structure, and tax affects — making comparisons across business models, sectors, and types more relevant.

The next three tabs, Income Statement, Balance Sheet, and Cash Flow Statement, require user input of previous financial statement data (up to five years). The orange cells require user input.

The last worksheet that requires updating is the DCF Model tab. Cell C1 enables the user to toggle between the Base Case and the Down Case. The differences between these two cases are derived from the inputs from the user in the relevant boxes below, in columns B through F:

Those highlighted above in blue text allow a user to input the assumed growth or margin rates during the first 1–5 years of the model, then the next 6–10 years. This allows for a two-step growth assumption: higher during earlier years and potential slower during later years, if desired.

For each value, the trailing 5 year average is calculated to present a baseline estimate, which can be adjusted as mentioned above. The ‘Adjuster’ value is simply the difference between the Base Case and Down Case values. For example, if you assume Revenue Growth of 10% as your Base Case and want a Down Case value of 2%, the adjuster value would be 8%. Similarly on margins, if you want a Base Case Gross Profit Margin of 60% and a Down Case Value of 50%, the adjuster for the Cost of Goods (% of Revenue) would be 10% (the model implied good vs bad in terms of positive or negative adjustments).

Outputs

Once all the inputs have been completed, the rest of the model updates:

  • Ratio Analysis: This calculates various ratios across the income statement, balance sheet, and cash flow statement.
  • Financial Statements: Clean statements from the input data.
  • Dashboard: The implied valuations using the assumed discount, terminal, and EBITDA Exit Multiple values, with an option to change the valuations for side-by-side comparison.

There are also a wealth of other charts that look at profitability, efficiency, financial health, returns, and cash flows with various estimated target metrics for analysis.

Questions and Feedback Welcome!

We would love any and all thoughts and feedback on the model! If you have any questions as well, please do not hesitate to reach out to us at Team@GoingVC.com.

 

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The GoingVC Founder Feedback Guide https://www.goingvc.com/the-goingvc-founder-feedback-guide/ https://www.goingvc.com/the-goingvc-founder-feedback-guide/#comments Fri, 24 Jul 2020 14:26:29 +0000 https://www.goingvc.com/?p=67102 The post The GoingVC Founder Feedback Guide appeared first on GoingVC.

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Download Our Guide to Conducting Due Diligence Calls

How do Venture Capitalists conduct preliminary due diligence calls, provide feedback to founders, and collect the relevant information when discussing an opportunity with founders? Look no further than our Founder Feedback Guide! Current and aspiring VCs can use this guide to develop a framework to walk through every aspect of due diligence – from the founder story to the company financials. Included in this guide are topics and questions related to:

  • The Founder Story
  • The Business Model
  • The Competitive Landscape
  • Key Metrics
  • The Team
  • The Product
  • Valuation
Download the Guide

 

 

GoingVC is a professional development program and community helping its members advance their careers in venture capital. GoingVC brings together experts in venture capital, entrepreneurship, and business and fosters a collaborative environment where future leaders of the industry can learn and build on the essential skills they’ll need for success in the field. Subscribe here.

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The GoingVC Venture Capital Interview Guide https://www.goingvc.com/the-goingvc-venture-capital-interview-guide/ https://www.goingvc.com/the-goingvc-venture-capital-interview-guide/#respond Fri, 19 Jun 2020 14:35:58 +0000 http://www.goingvc.com/?p=60372 The post The GoingVC Venture Capital Interview Guide appeared first on GoingVC.

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GoingVC Research Series

More than 40 pages of Q&A!

Over the past several months, we’ve spent countless hours researching, reviewing, and writing up answers to the most common Venture Capital interview questions. You will not want to miss out on reading this guide before your next one! Here’s what’s included:

  • How to craft the perfect ‘About Me’ story
  • Introducing data into your story
  • Background & Behavioural questions
  • Investment questions
  • Firm-specific questions
  • Past experience questions
  • Technical questions
  • Finance and economics questions
  • Questions to ask VCs

GoingVC is a professional development program and community helping its members advance their careers in venture capital. GoingVC brings together experts in venture capital, entrepreneurship, and business and fosters a collaborative environment where future leaders of the industry can learn and build on the essential skills they’ll need for success in the field. Subscribe here.

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An Introductory Guide to Venture Capital Term Sheets https://www.goingvc.com/an-introduction-to-term-sheets/ https://www.goingvc.com/an-introduction-to-term-sheets/#respond Tue, 09 Jun 2020 21:35:23 +0000 http://www.goingvc.com/?p=42281 The post An Introductory Guide to Venture Capital Term Sheets appeared first on GoingVC.

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GoingVC Research Series

Every Venture Capitalist needs to know the basics of Term Sheets. Download our guide to get up to speed on the relevant topics and terms you’ll need for any interview or term sheet review. Here’s what’s included:

  • An introduction to term sheets
  • What is a pre-money valuation?
  • An overview of liquidation preferences
  • Building the board of directors

GoingVC is a professional development program and community helping its members advance their careers in venture capital. GoingVC brings together experts in venture capital, entrepreneurship, and business and fosters a collaborative environment where future leaders of the industry can learn and build on the essential skills they’ll need for success in the field. Subscribe here.

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The Complete Guide to Venture Capital Due Diligence https://www.goingvc.com/the-complete-guide-to-venture-capital-due-diligence/ https://www.goingvc.com/the-complete-guide-to-venture-capital-due-diligence/#respond Thu, 21 May 2020 10:00:00 +0000 http://www.goingvc.com/?p=2412 The post The Complete Guide to Venture Capital Due Diligence appeared first on GoingVC.

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GoingVC Research Series

Over the past year we have documented the entirety of the Venture Capital Due Diligence process on our blog and we wanted to share it with you in it’s entirety, so we have developed a complete guide. Let us know what you think at Team@GoingVC.com!


What’s Included:

  • An introduction to the VC Due Diligence Process
  • Deal Flow Screening and Market Size Test
  • Management Team Due Diligence
  • Product Due Diligence
  • Financial Due Diligence

GoingVC is a professional development program and community helping its members advance their careers in venture capital. GoingVC brings together experts in venture capital, entrepreneurship, and business and fosters a collaborative environment where future leaders of the industry can learn and build on the essential skills they’ll need for success in the field. Subscribe here.

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The Superinvestors of Life Sciences: Studying Investment Decisions https://www.goingvc.com/the-superinvestors-of-life-sciences-studying-investment-decisions/ https://www.goingvc.com/the-superinvestors-of-life-sciences-studying-investment-decisions/#respond Thu, 14 May 2020 10:00:00 +0000 http://www.goingvc.com/?p=2464 The post The Superinvestors of Life Sciences: Studying Investment Decisions appeared first on GoingVC.

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This post is authored by Axial has been republished on GoingVC with permission. 

Axial invests and partners in early-stage life sciences companies. If you or someone you know has a great idea or company in life sciences, Axial would be excited to get to know you and possibly invest in your vision and company — info@axialsprawl.com.


The Superinvestors of Life Sciences

In 1984, Warren Buffett wrote an article to promote value investing called The Superinvestors of Graham-and-Doddsville. The piece was based on a speech he gave in honorarium of Graham and Dodd’s book, Security Analysis, and in response to the efficient-market hypothesis, a fashionable theory at the time. The article’s introduction refutes the idea that outstanding results in investing can be explained by a simple coin tossing experiment when so many great investors are value investors, who assess a business’ intrinsic value then decide whether to invest. Similarly in life sciences, there have been a series of investment firms that have been able to make great investments and multiply their capital. Just as a coin tossing experiment cannot explain the success of Buffett, Munger, Schloss, and Ruane, the same is true for a set of life sciences investors.

Life sciences is a very impactful but treacherous place to invest. The opportunity to develop a new medicine for say AML is intertwined with the possibility the underlying data is flawed. The field constantly has brought in new entrants who come in with the excitement of transforming healthcare and often leave with the realization that they may not be the best person to do it. Not only does an investor in life sciences need to have the ability to assess the science and analyze the business but the ability to value these companies that often have no or little cash flow and identify where there is a deal. Each of these firms and the individual investors behind them all have produced outsized returns over multiple cycles. Firms like Sequoia, Founders Fund, and Lux Capital do life sciences and are building up the capability to fund more companies but still need a few more exits in the field (especially on rounds they lead). Other firms like Greylock, Bessemer, Mayfield, and Menlo had strong life sciences practices and are rebuilding them now — Menlo backed Gilead and Greylock backed Vertex. Also, this analysis does not include every great life sciences investment firm — sixteen was a tractable number for me. Versant, Canaan, and Alta are great, Redmile, Hillhouse, and countless others. Axial collaborates with several of these emerging firms and superinvestors focusing on founder-driven life sciences companies. Ranking them is probably useless where each of them has their own unique style. They all share the commonality of following their circle of competence, having the patience and discipline to see these companies through, and the ability to operate outside the crowd. As the opportunity within life sciences continues to grow larger as demand balloons and new tools emerge, many new firms, some of them already operating, will emerge over the coming decades following the path of these superinvestors.


Founded by Mark Lampert in 1992, Biotechnology Value Fund (BVF) was one of the first biotechnology-focused hedge funds. With the premise that a value framework can lead to outstanding returns in biotech, BVF has put up incredible returns. The bread-and-butter of BVF is finding unloved or mostly underloved drug companies and taking concentrated positions, either creating an event themselves (i.e. XOMA, Ligand) or patiently waiting for the underlying potential to reveal itself (i.e. Blueprint, ChemoCentryx). 

Particularly for the hedge funds or firms that rely a lot on public investments, I am not going to give up their secret sauce — I would rather keep that to myself and use it for my own means. If you study BVF’s track record, going through old 13F filings and studying the logic of their biggest wins, the firm took the early stance that the intrinsic value of a biotech company can be ascertained. This problem in life sciences, that is also found in say energy, materials, and other fields with high technical risk, was seen as almost foolish in the mid-to-late 1990s but BVF and a few other firms had the conviction and talent to solve it. BVF is a pioneer in life sciences investing and has a bright future ahead.

On a personal note, Mark Lampert is an incredibly helpful person. I’ve always liked investing in stocks and when I was in grad school, I went down to visit the executive team at XOMA. The company was one of two public biotech stocks in Berkeley. I took the bus from the campus down to the headquarters (grad students at Berkeley get unlimited bus rides; hard to pass up for me) and had a nice chat with the team there. We had a mutual connection through an Australian rowing buddy I had in college. XOMA had burned through $1B with no drugs to show for it but they did have an incredible library of antibodies. Given the company’s track record and the fact I got a little spooked because the headquarters was kind of like a ghost town, I didn’t buy the stock despite the underappreciated value. I was hoping some sort of activist would show up to shake XOMA’s tree and have some of its fruits come down to investors. About two years later, I was curious why XOMA’s stock was up so much. I figured out that BVF took a large and active position.

I learned the lesson to maniacally track every interesting private and public investment even if they aren’t actionable immediately. Since then, I’ve always admired the firm’s ability to invest where others might not dare and get rewarded substantially for it.

EcoR1 Capital is descended from BVF with its founder Oleg Nodelman founding the firm in 2013. Where investors like Mark blazed the trail, Oleg and others are expanding it. Since its formation, EcoR1 has put up some of the industry’s best returns and still has so much left to do. In the backdrop of the ups and downs of biotech over the last few years, mostly up in general, EcoR1 is perfecting the art of value investing in life sciences. Rather than purely obsessing about the underlying science that may or may not work and is often hard to predict, EcoR1 looks at opportunities with unfollowed clinical results, a misunderstood pipeline (i.e. Ascendis), or inefficient capital structures (i.e. Ironwood). The success of EcoR1, particularly in public markets, shows that repeatable success is not driven by hot science but by the ability to translate work into new products. With a focus on a margin of safety, EcoR1 has built up a process to identify new opportunities in life sciences and produce outstanding returns.

The Column Group is one of the best (or top 10) performing VC funds ever. That is performance to aspire to. It’s equivalent to being on the 95/96 Chicago Bulls team or the 1998 New York Yankees. I wake up everyday working toward achieving the type of performance The Column Group has put up. Founded in 2005, the firm is very science-driven and takes an active role in companies at the earliest stages. Having backed companies like Immune Design, Aragon Pharmaceuticals, and Arcus Biosciences, The Column Group uses focus as its main advantage. Instead of dabbling in public stocks, doing some growth rounds, dipping their toes into digital health, and investing in a hundred companies, the firm dedicates its resources to backing early stage drug discovery companies. The key lesson from The Column Group’s success is that a focus on the underlying science and its soundness is probably the most important problem an investor can solve at the earliest stages of development.

Baker Brothers

Felix and Julian Baker are another brother duo with high levels of success in their field in line with the Disney Brothers, Wright Brothers, and one of my favorites, the Marx Brothers. With a similar elusiveness as the Rales Brothers of Danaher, the Baker Brothers have relied on multi-decade investing (enabled by having LPs like the Yale Endowment and the Tisch family) and taking active positions in companies to their success. Not many investment firms can hold a stock for over a decade. With big winners in companies like Seattle Genetics and Incyte, the Baker Brothers now use their deep bench of scientists and executives at the companies they have previously invested in to form new companies or sit on these new companies’ boards.

Perceptive Advisors is a firm focused on investor psychology just as much as the science and business model. Perceptive got a lot of attention from outlets like CNBC a few years ago due to their gaudy returns from winners like Amicus Therapeutics and Global Blood Therapeutics but have been putting in a great performance since its founding in 1999. Given this success, to scale up its AUM, Perceptive has moved toward credit and venture investments. Perceptive’s approach can be summed up in a quote from a pitchbook that was made public: “We gain a competitive edge by understanding the ‘perception’ of these events and then only investing in ‘reality’ after conducting in-depth research.”

Joseph Edelman, the founder, is trained as a psychologist and an equity analyst growing up with a father who was a biochemistry professor, he has built Perceptive centered around understanding how the market perceives a set of events and investing in the reality of a business. This methodology is particularly suited for biotech investing where over a 10 year period there are maybe ~10 events that can really move the price of the stock and the other 99.7% of the time, the market is anticipating the actual event. Some of Perceptive’s biggest winners have been when the firm doubles down when a company is doing well since other investors probably are still underestimating its potential.

Kleiner Perkins is one of the best venture capital firms in general. For life sciences, the firm cemented its reputation early on with its backing of Genentech that set the firm up to invest in companies from Tesaro, Genomic Health to ARMO. Genentech had the magical starting input of a world-class scientist (Herbert Boyer), a desperate man (Robert Swanson), and a risk-junky (Tom Perkins) to create one of the most defining drug companies ever. Genentech hired the best scientists allowing them to publish their research and pioneered a business model where larger companies underwrote the costs of clinical development for a royalty. Perkins would say Genentech was his greatest investment and consequentially, the company has defined Kleiner Perkins’ legacy in life sciences investing.

Third Rock Ventures has led the way on the power of the investor-operator model in life sciences over the last decade. With a great founding story led by Mark Levin (he wears the best shirts) and Kevin Starr, who worked together to build up Millennium Pharmaceuticals, since 2007, Third Rock has formed numerous companies from Bluebird Bio, Agios, and Blueprint Medicines that are transforming healthcare.

Personally, I remember visiting Third Rock’s office in Back Bay during college when I ran the biotech club. Sitting in the lobby, nervous as hell, hearing a smoothie being made, and seeing a drug company pitching, me and my buddy David (who’s now a Yale MD) met Mark Levin. In his messy office behind his stack of research papers, Mark spent an hour with us to talk about his career — it was pretty inspiring for a set of college kids. At the time, I didn’t know how important he was especially since he was wearing a weird shirt (rarely have I outdressed anybody). Alexis Borisy gave a talk later that year to our club. The more I studied Third Rock over the years, I realized they have built a machine to take breakthrough research and create billion-dollar, public biotech companies.

Formed around a time when biotech investing was seen as foolish due to long timelines and low returns, Third Rock had the conviction that a fund could systematically build biotech companies from scratch. The Third Rock team saw a shifting tide where large biopharma were slashing R&D budgets and would correspondingly need to fill the growing gap with small biotech companies. Using the playbook they created at Millennium, Third Rock designed a machine to sift through scientific research, form an idea that could generate clinical data in ~3 years, finance a company, and place one of their partners as an (interim) CEO. What has set Third Rock away from the pack has been their ability to recruit some of the world’s greatest scientific and executive talent to their companies. The results speak for themselves; Third Rock’s machine is set up to continue to churn out financial successes and hopefully companies that can transform patient lives like Agios and Bluebird.

Atlas Venture has been investing in life sciences companies since 1980 albeit only recently has the firm made it their sole focus. With a maniacal focus on ownership and clinical demand, the Atlas team has generated incredible and sustainable returns backing companies like Actelion and Alnylam. Atlas would raise ~$200M funds and split it 50/50 between biotech and tech. In 2015, the tech practice spun off as Accomplice, leaving Atlas to continue its leadership in investing/operating early-stage biotech companies.

Atlas’ main advantage is its rotating bench of executive talent in the form of EIRs, venture partners, and friends-of-the-firm. The firm is one of the best in terms of venture creation with the consistent returns to keep them around for a long time. In the backdrop of a difficult era to investing in biotech during the late 1990s/2000s, Atlas focuses on gaining ownership and tranching capital as specific scientific and clinical milestones are met. With strong relationships with biopharma, many of them as LPs, Atlas has the advantage of getting first dibs on potential asset spinoffs and socializing their deals to industry.

Founded in 1994, Deerfield has evolved into a truly unique investment firm with strategies from public equity, credit to private investments, academic collaborations, and philanthropy. Deerfield has created a different business model worth exploring in a separate case study to understand its future potential. With major winners in Spark Therapeutics, Nektar, and AveXis, Deerfield has the multi-decade track record worthy to put next to anyone one else. Focused on connecting the underlying science of a company with its market potential, Deerfield is a multi-strategy firm, a rare breed in life sciences, that uses its flexibility to discover and invest in unique opportunities.

ARCH Venture Partners has been one of the boldest investors in life sciences since its founding in 1986. The most admirable part of the firm has been their ability to whether through several storms especially around the dot-com bubble, which saw ARCH lose quite a lot of money investing in Internet companies and stick to their original mission to back companies from Juno to Receptos to Denali.

ARCH started off as a project at the University of Chicago to commercialize the intellectual property from the university and the Argonne National Lab — ARCH started off as Argonne-Chicago (ARCH) Development Corporation. Steven Lazarus was the project lead and soon recruited a young group of individuals, Bob Nelsen, Keith Crandell, and Clint Bybee, to spin off companies. They raised their first fund in 1988 and as they raised more capital, ARCH moved upstream. ARCH has pioneered the private megaround, sometimes $1B rounds, for companies like Sana, GRAIL, and Lyell.

Venrock was formally founded in 1969 as an offshoot of Laurance S. Rockefeller’s VC/family office. With a broad mandate, Venrock has backed companies from Illumina, Gilead, and Idec to 10X Genomics, Ironwood, and Millennium Pharmaceuticals at the earliest stages. The firm began investing life sciences in the 1980s with a focus on scientific breakthroughs and unmet need. With an LP base the imbues Venrock with a long duration of capital and the ability to be stage agnostic investing in both private and public companies, the firm focuses in on a few companies similar to The Column Group and sticks with them over decade-and-longer periods.

Polaris Partners is one of the stalwarts of the Boston ecosystem. Founded in 1996, the firm’s life science practice focuses on university spinoffs — often out of MIT and Harvard (mainly the Langer Lab) —  investing in companies like Receptos, SQZ, Cubist, Acceleron, and Adimab. With Terry McGuire leading their life sciences practice, Polaris’ focus has always been cultivating close relationships with a handful of Boston inventors, Bob Langer at MIT and Tillman Gerngross at Dartmouth, to invest in their spinoffs.

RA Capital Management is one of the premier crossover life sciences funds. With a founding story where Peter Kolchinsky built a relationship with Rich Aldrich, an early employee at Vertex, to manage the latter’s personal portfolio that converted into a proper fund in 2004, RA has built up a great track record formed around scientific and intellectual integrity with big winners including Synthorx, Wave Life Sciences, and Zogenix.

With a method focused on figuring out if a drug or a technology is likely to work and whether it will prove to be valuable with the current runway, RA has made a business investing across private and public companies almost in a half-and-half manner. Over the years, the firm has built out their internal brain called TechAtlas to map out scientific research and drug development programs to identify gaps in the market to pursue.

Foresite Capital, formed in 2011, is centered around a data-driven process to back companies like 10X Genomics, Voyager Therapeutics, and Aerie Pharmaceuticals. With an engine to ingest data ranging from clinical data and scientific research to marketing information and regulatory changes, Foresite identifies unique companies in a wide-range of industries from drugs to devices, diagnostics, services, and tools. With a data-driven approach since its founding, the firm has been the pioneer in relying on both relationships and large-scale data to invest in emerging companies. Using a flexible investing strategy, Foresite invests across all rounds. This has driven Foresite’s success is the firm’s ability to invest in successful companies that others have missed out on.

OrbiMed is one of the oldest investment funds in life sciences — founded in 1989, the firm is equivalent to the New England Patriots of biotech investing backing companies like Arvinas, Adimab, and Alector. With a logo and a name that could work in a James Bond Film, OrbiMed has consistently shown the way for investing in life sciences companies everything from small-cap equity to venture investments and debt. Being the largest fund on the block, OrbiMed has a strong gravitational pull, often pulling many opportunities within its orbit. Given its track record across several cycles of bull and bear markets, OrbiMed has the ability to construct any type of deal.

5AM Ventures helped pioneer the investor-operator model in life sciences — a West Coast firm, since 2002, 5AM has operated relatively quietly, mainly enabled by their substantial returns. With investments like Arvinas and Ikaria, the firm invests in drug and tools companies. The firm survived a decade-long lull in biotech investing still outperforming and is set up over this decade to refine its style of venture creation. Similar to Atlas, but 5AM’s home stadium is San Francisco.


GoingVC is a professional development program and community helping its members advance their careers in venture capital. GoingVC brings together experts in venture capital, entrepreneurship, and business and fosters a collaborative environment where future leaders of the industry can learn and build on the essential skills they’ll need for success in the field. Subscribe here.


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White Paper: Is the VC Juice Worth the Squeeze? https://www.goingvc.com/white-paper-is-the-vc-juice-worth-the-squeeze/ https://www.goingvc.com/white-paper-is-the-vc-juice-worth-the-squeeze/#comments Thu, 07 May 2020 10:00:00 +0000 http://www.goingvc.com/?p=2391 The post White Paper: Is the VC Juice Worth the Squeeze? appeared first on GoingVC.

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The Venture Capital industry is appealing for many reasons — the opportunity to generate wealth as an investor or as fund manager, help world-changing startups grow, and learn skills that are rarely able to developed by working in any other industry, to name a few. But is the image we commonly conjure a true reflection of the industry?

While keynote funds and headlining unicorn exits have created a rosy picture of the VC industry, the truth is that the average investor experience in VC has been remarkably poor over the past two decades. In this paper we present potential risk management practices and alternatives to the traditional VC business model in order to create a more sustainable industry practice.

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GoingVC: Cohort 6 Admissions and Highlights https://www.goingvc.com/goingvc-cohort-6-admissions-and-highlights/ https://www.goingvc.com/goingvc-cohort-6-admissions-and-highlights/#respond Thu, 30 Apr 2020 10:00:00 +0000 http://www.goingvc.com/?p=2448 The post GoingVC: Cohort 6 Admissions and Highlights appeared first on GoingVC.

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By Nomzana A. Augustin
(Admissions & Diversity Lead)

While it has been a challenging time for individuals around the world in the VC industry, and across markets, GoingVC remains proud to welcome its 6th cohort, who began their session in early April!

Our team has gone above and beyond to source, recruit, and select the next wave of top investment professionals. Our candidates came from many different sectors, with experience as consultants, pre/current/post-MBAs, founders, startup operators, and aspiring GPs.  We’re also proud to say our candidates came from many different social and cultural backgrounds. With this in mind, we’re excited to share some of the program highlights and outcomes of the first phase of our diversity strategy.

Gender: Growing Female Representation

Figure 1: Deloitte-NVCA Female National Averages of the VC Workforce


According to a survey completed by Deloitte and the National Venture Capital Association (NVCA), women’s representation in VC investment roles (slightly) increased by 250 women over a two-year period. As seen in Figure 1, in 2018, the survey showed that 21% of investment roles were held by women as compared to only 15% in 2016.

Figure 2: GoingVC Cohort 6 Ethnic Breakdown

Assuming that all members of Cohort 6 secure a VC investment role in the next 1-2 years, GVC’s Cohort 6 female representation of 30% exceeds the 21% national average of women who are in investment roles, as seen in Figure 2. 

The 2018 Deloitte-NVCA’s national averages also show that 14% of investment partner roles were held by women – a smaller portion than the overall workforce represented by women. Holding the assumption that Cohort 6’s 30% of women will secure a VC role, it is also more likely that some of these women will eventually become partners at firms with the lifelong membership and support system GoingVC provides. 

GoingVC women do not only gain easier access to VC jobs through our network, but they also have the ability to develop peer-level contacts that they can lean on while gaining ongoing support from the larger VC community of professionals who can endorse their industry outputs and successes. As Heather Gates, the managing director of emerging growth practice at Deloitte & Touche, told CFO Magazine: “Studies have shown that hiring more female investment professionals is correlated to enhanced returns, better recruiting, and talent retention, as well as more profitable exits and overall improved financial health for funds.” Cohort 6 alone saw a 14% increase in women from our last cohort, demonstrating GVC’s intention to make VC accessible while training and developing the best talent.

Ethnic Background

VC, unfortunately, remains ethnically imbalanced with White and Asian ethnicities – and specifically White and Asian men – predominating industry representation. Similarly, as shown in Figure 3, GVC’s Cohort 6 is represented by 40% White, 36% Asian, 11% Black, 9% Latinx, and 4% Other or individuals who preferred not to disclose.

Figure 3: GoingVC Cohort 6 vs. Deloitte-NVCA VC Industry Averages

In attempts at making the industry more accessible to underrepresented ethnicities, GoingVC rolled out the first formal phase of its diversity strategy that included a more inclusive admissions rubric as well as scholarship disbursements to underrepresented ethnicities. As previously seen in Figure 2, the Deloitte-NVCA survey depicts a national average of 3-5% Black and Latinx investment professionals in the industry, while GVC C6’s Black or Latinx members were between 9-11% (again, assuming that all of these members secure a VC role in 1-2 years). 

Cohort 6 demonstrates consistency in remaining above national averages where C6 did not only see an increase in women, but 20% of Cohort 6’s representation comprises Black and Latinx members, as shown in Figure 3. When selecting these candidates, GoingVC not only considered top MBAs, but individuals who had a track record of strong leadership and business practice in their respective communities, in strategic roles at top companies, and/or through the successes of their own startups; maintaining the high-quality talent standards typically seen in VC.

Geographic Location

Further, because GoingVC is a remote professional development program, it affords us the opportunity to reach regions globally. 

We’re proud to say that while 87% of GoingVC’s Cohort 6 is based in the US, it also includes members based in Asia, Australia, Canada, Portugal, and the UK. And while still a smaller portion of our cohort, this geographic diversity has afforded our members the opportunity to understand off-shore markets and hear about trends in other regions that have the potential to be replicable and adaptable.

Professional Background and Previous Experience

GoingVC’s Cohort 6 members come from a diverse array of professional backgrounds, seizing opportunities to learn, but also adding significant value to their peers and the larger GoingVC community.

Academic Range

Our C6 members range from undergraduate seniors to post-MBAs from schools like Wharton, Columbia Business School, NYU, Northwestern University, Vanderbilt, University of Michigan and more. Several have noted their upcoming enrollments at top business schools while others have expressed their interest in pursuing an MBA to strengthen their VC career paths.

Professional Experience and Skill Set

C6 members also come from consulting firms like Deloitte, McKinsey, and LEK Consulting; investment firms like BlackRock, Citi Ventures, and FHI Ventures; corporations like WeWork, Uber, and Bank of America; and, some, from their own startups. The average experience level is at the associate to mid-career level while a few are senior and experienced leaders with an interest in becoming GPs and setting up their own funds.

VC Convictions

Finally, C6 members are interested in a range of fields, including AI/ML, blockchain, cleantech, consumer, e-sports, fintech, foodtech, healthcare, impact investing, and more. Our members seek to cover a range of geographic regions too – from the US to Asia, Africa, Latin America and others.

Reflections

Figure 4: Recommended Human Capital and Diversity Strategies for VC Firms”

In Figure 4, we see the key components that catalyze investment firms to operate at an optimal level when leveraging their human capital. Not only should firms be strategic about their hiring processes to recruit the best talent they should also incorporate diversity strategies to retain top professionals for long-term results. GoingVC members are not only representative of the top talent venture capital can tap into, they also represent the future markets being built – economic and inclusive.

Program Energy

With a month into the program, our Cohort 6 members are diligently working on their first few assignments, getting to know each other, and engaging with the guest lecturers. Renato Merino, for example, is a Hispanic woman proud to partner with Adrian Maloy, joining BlackRock this summer, on their investment thesis, noting their team as “The Dream Team”.


GoingVC is a professional development program and global community helping its members advance their careers in Venture Capital. GoingVC brings together experts in venture capital, entrepreneurship, and business and fosters a collaborative environment where future leaders of the industry can learn and build on the essential skills they’ll need for success in the field. Subscribe here.

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Breaking into Venture Capital: VC Interview Tips and Templates from GoingVC https://www.goingvc.com/breaking-into-venture-capital-vc-interview-tips-and-templates-from-goingvc/ https://www.goingvc.com/breaking-into-venture-capital-vc-interview-tips-and-templates-from-goingvc/#respond Wed, 22 Apr 2020 22:30:02 +0000 http://www.goingvc.com/?p=2443 The post Breaking into Venture Capital: VC Interview Tips and Templates from GoingVC appeared first on GoingVC.

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This post originally appeared on the Femstreet blog and has been republished with permission.


Despite the job market being in flux currently, most venture capital firms’ hiring plans remain relatively unchanged for the remainder of the year. Venture Capital (VC) is a notoriously tough industry to break into — but the current climate may present as many opportunities as challenges with the right preparation.

Getting hired at a top tier VC is highly competitive. There is no formula: no specific college major work experience or skill set that is clearly a significant factor in contributing to success in the industry. This, in turn, makes the VC interview process a challenging one for which to prepare.

I myself had to go through the interview process just two years ago. I started Femstreet before I entered VC, and although the newsletter certainly helped me to get on VC radars, it was still not an easy ride and required endurance, the right resources, and preparation. Now that I am on the other side, I want to pay it forward — providing our members’ community with the insights and information they need to put their best foot forward into the VC process.

To start, here are my top five tips for getting a job in venture:

  1. Give, give, give before you ask for anything. Send VCs deal flow, host dinners with founders, organize virtual meetups with industry experts or try to support firms with diligence calls when they have questions that are aligned with your experience. Show a freemium version of yourself.
  2. Showcase the calibre of your thoughts publicly. A lot of people get in through content creation, including memes (not sure I’d recommend that route). Harry Stebbings got into VC through podcasting, just as I did through a newsletter. There are loads of blogger VCs, and even if you are just curating content, people love newsletters with a personal touch.
  3. It’s all about relationships. Venture capital is an industry built on trust and reputation. Lean into your existing networks and build them out.
  4. Do your homework. If you are interviewing at a SaaS focused or consumer-focused fund, make sure you have a good understanding of the standard SaaS and consumer metrics, exit multiples and go deep in your research in one sector. Make sure to check the partners’ background, know their portfolio companies and prepare specific questions. I’d also recommend speaking to founders they have backed.
  5. Practice makes the master. Don’t expect to get a job offer after your first interviews. Instead, use them to learn about the industry, build relationships and then practice, practice, practice.

The key to creating a framework for preparing for interviews is to ensure you are prepared to answer questions that cover each of the below elements:

  • Who: Who are you and why are you a good fit for the role and the firm?
  • What: What makes you qualified for the role? What evidence can you provide to support that?
  • Where: Where have you succeeded and struggled? What did you learn from those experiences?
  • Why: Why this role at this firm? Why did you choose your past roles?
  • How: How will you contribute to the firm?

I am here with Austin Guy and JJ MacLean from GoingVC, a professional development program and global community helping its members advance their careers in Venture Capital. GoingVC brings together experts in venture capital, entrepreneurship, and business and fosters a collaborative environment where future leaders of the industry can learn and build on the essential skills they’ll need for success in the field.

While they prepare to release The GoingVC Venture Capital Interview Guide, we wanted to go over some of the most common questions that come up in VC interviews and how to get ready for them.

Femstreet (F): Let’s start with the basics, how would you answer: ‘Why do you want to work in venture capital? Why right now?’

Austin (AG): Great start. This is one you can almost guarantee will be in any interview. A key here is to express what excites you about the VC industry. Is it getting to work with a variety of startups? Or help bring new companies into the world? Jot down a few things alongside the skills you’ve acquired thus far throughout your career and then tie them together into an upward arc that ends with VC being the next logical step. Here’s what this might look like:

“I want to open doors for founders and have a general interest in understanding the challenges that entrepreneurs in tech startups face. VC is a people business and it’s a privilege to be meeting and working with exceptional entrepreneurs, building relationships with founders, talking with them about their products and vision and our future. I am curious about disruptive technologies, companies, business models, people and ways to create sustainable value.”

JJ: If you can, talk about past situations where you had to quickly identify and evaluate new opportunities, assimilate new information and other skills that are at the heart of what VCs do.

Of course, it also goes without saying that you should have a solid grasp of the basics of the industry before going into any interview. If the firm has a blog, be sure to read it to understand their perspective of the industry as well and find ways to align your perspective with theirs to show how VC is not only a fit for your skills, but you are a fit with their firm.

F: Expanding on that, what about: ‘Why VC as opposed to an operational role with a startup or launch your own company?’

JJ: This question, I can almost guarantee, will be asked in any interview. A lot of what we said above will definitely apply but this is a really great question to ask yourself before you even begin applying to roles in VC because having an understanding of how VC works often comes from having hands-on experience running the operations of a company. So ask yourself first if you feel like you have that experience (whether directly or indirectly), and if not, consider that as a first path to VC.

AG: If you do, you should be able to articulate why moving into the more general realm of VC makes sense. As we mentioned earlier, it’s an opportunity to help more founders, build new skills, learn a new industry and from a different perspective.

F: What about ‘where do you want to be in five-years?’

JJ: VC has a typical career path in terms of starting from Associates to eventually becoming a partner. Junior VC roles typically come with fixed lengths. You’re not committing to anything here, but you should give it some thought. Do you want to stay in venture? Join a startup? Get your MBA? Think about what you might want to focus on at the firm and where that would lead to next. If it’s a pre-MBA role going to get your MBA next is an easy answer, but it’s still a good idea to take some time to think about why you’d want to do that next.

AG: Look at how VCs spend their time. While the obvious is the day-to-day as it relates to working with portfolio companies, raising new funds, and deal sourcing, VCs often acquire board seats, work with philanthropic causes, author content, and more. How would those ancillary roles fit into your career over the next five years?

F: What about past roles? How would you prepare for questions like: ‘What were you responsible for in your last job?’ or ‘what did you like/not like about it?’

JJ: Practice your storytelling! All great VCs are excellent storytellers. There’s no right or wrong approach to approach these sorts of questions, but one way we find helpful at GoingVC for any ‘tell me about a time when…’ is the STAR-(L/P) Framework.

  • Situation — what was the event or challenge?
  • Task — what were you responsible for?
  • Action — what steps did you take, or how did you solve the problem?
  • Result — what was the outcome of the event/problem?
  • Learning/Planning — what did you learn from the situation or how planning on exploring it further?

Write down a few points for each section of the framework and then assemble them into a cohesive answer. Your time in the interview will be limited so stick to the main points and don’t get bogged down in the details.

AG: Yes — brevity is important!

F: How should people talk about their most significant strengths and challenges?

AG: Another great one, and glad you brought up challenges here because no one is perfect, and the VC industry is one that is often defined by its failures.

Be genuine, and don’t pretend your career has been easy up to this point. Get specific about why the challenges you faced were challenging and end with a positive take on the situation. If the startup you worked on failed, go over the lessons you learned. If investments (whether real or paper) didn’t turn out as expected, talk about any flags you retrospectively missed. Owning your failures and challenges and talking about how you overcame them demonstrates resilience and an ability to course correct both critical skills in an industry often shaped by failure.

JJ: When it comes to your strengths, it’s time to be proud and wave the flag! Where do you think you excel? Try and relate it to the job, but VC roles are pretty multidisciplinary, so don’t worry too much if you’ve got some non-traditional superstar skills to highlight.

F: Continuing on that last comment, another common question is, ‘tell us something we don’t know from your resume?’ Can you talk about why it’s essential to get that one right?

JJ: Totally! It’s pretty simple, actually. VC teams are often pretty small, making it critical that they’re all able to relate to, work with, and grow with each other. It’s also an industry that thrives on betting against conventional wisdom. Talking about your life outside of your professional experience can help fill in your potential teammates on the person they might be working with. How fun and rewarding it’ll be, as well as the different point-of-views you’ll bring to the table — so be honest, bring your whole self, and (of course) come prepared with some stories to share.

AG: At GoingVC we actively recruit people from different backgrounds because we value the diversity of ideas and experiences it brings to the collective community. Great VC firms operate in a similar way, so be sure to express what you’ve done outside of the day-to-day of your professional roles that would apply. These are things like side hustles, attending networking events, enrolling in online classes, learning new technologies — what outside of work do you do that you might be paid to do as a VC?

F: How about: ‘what do you expect your day today in the role to look like?’

JJ: Do your homework! If you can, try and meet up with a past or present associate from the firm for coffee. Read the firm’s blog, check out people on the team on social media, subscribe to their newsletter, and look for clues. What processes do they talk about, what conferences do they go to, what have they been funding recently? Try and put together a picture of what that means in terms of how they spend their time.

F: Yes! Doing your homework before each interview is an essential part of the process. Another common type of question you should prepare for is: ‘Why our firm?’ or ‘How are we different from our competitors?’. How would you prepare for that, and why is attention to detail so important?

JJ: Great question! The important thing to remember with these sorts of questions is that there’s no right or wrong answer. The interview is an opportunity for you and the fund to find out if there’s a match between your interests/desires/skills and what they need.

AG: Read up on the firm (and as JJ said, best if you connect with current or former employees) and ask yourself what’s attractive about it? Their culture or reputation? The geographies or types of companies they invest in? Is there a certain individual that embodies the type of career path you have in mind or would like to work with or have as a mentor? Keep in mind, however, that while most VC teams are small, you may not interact with that person on every deal or project, so be sure the broader culture is one you resonate with. In terms of a checklist of items to ensure you have researched, we recommend focusing on fund performance (IRR or estimated historical returns), the reputation of the fund partners among founders, and the philosophy of the fund and the fund’s focus.

JJ: Every VC will tell you they have some sort of competitive advantage, but few rarely do. There has been lots of research documenting the fact that the majority of returns in the industry are earned by the minority of VCs. What do those GPs do better than the rest? Does this firm have something similar? This is where doing your homework on their process, their management, the portfolio companies, and what is essentially their brand pays off.

AG: A lot of this is anecdotal and can be obtained through networking within the community but a lot can be learned from their own content if it’s available.

F: Another firm-specific question I always prepared for was: ‘which of our portfolio companies are you most excited about?’ it’s flipside, ‘which would you have passed on?’ was often a little harder. How would you approach those?

JJ: Pick out a couple of portfolio companies, ideally in a sector you’re excited about, and develop your own opinions. Play around with the products, if you can. What differentiates them from their competitors? How fast are the markets growing? What are the potential roadblocks?

Next, ask yourself if there’s anything you would have missed or misunderstood in the past? Hindsight is 20/20, but try and put yourself in the shoes of someone without what you know today. How big did the market look when the company was founded? Was the problem obvious? Did the solution seem infeasible either technically or because it required a big change in behavior?

AG: Here’s an example:

“I probably would have passed on BigCityTech because their target market was real estate brokers. My thoughts would have been that the increasing number of homebuyers looking online, combined with giant property aggregators pushing commissions down, would have been a huge barrier to strong rapid growth. What I would have failed to see though was how the company was creating an entirely new business model around home selling with significant benefits to both buyers & sellers. I’d love to learn more about their go-to-market strategy and how they approached creating and scaling the business now that I can see the huge problem they’re working on.”

F: What about questions around sector expertise?

JJ: This line of questioning can be intimidating for a lot of people. It can feel like the only way to be prepared is to spend hours and hours researching a dozen exciting-sounding companies across a handful of sectors.

AG: At GoingVC we strongly recommend a different approach: Go for depth, not breadth. Pick a single sector you’re excited about (and is within the firm’s comfort area) and dive into a couple of companies in the space. Try their product, talk to the founders if you can. Come prepared to articulate why you think they’ll grow rapidly. If you have enough time, we’d definitely recommend putting together an investment thesis. When pitching a sector, focus on these items: an introduction to what it is and what types of businesses operate within it, one to two area(s) of opportunity (i.e. the problems) and why they matter, the solutions, who is leading the efforts to solve the problems, and a couple of reasons why they’re the best bets in the space to emerge as the leaders. Here’s how I might pitch a sector, sticking with Proptech:

“I am very interested in the Proptech industry. Real estate is the largest asset class in the world but suffers from outdated technology and particularly when buying and selling homes, a lack of transparency and speed. A company that is making serious progress in this space is Qualia, a platform that enables agents, their clients, and title companies to share in the closing process, making it easy for everyone to stay on track, record transactions, and reduce friction to what is often a very challenging process. They have already integrated with many of the largest title companies across the country and are continuing to expand.”

F: And pitching a startup?

JJ: Similar to the above, come prepared with two or three different answers. Dig deep and try and find something beyond the big names or ones that have recently been in the news headlines. Bonus points if you can articulate why you think others might be undervaluing the company or its growth trajectory!

Your pitch will vary a little depending on the type of company you’re talking about, but at a minimum, we’d recommend you include:

  • The problem they’re working on, their solution and why you think it’s significant
  • The core team
  • Why now? Why hasn’t anyone solved this problem before
  • The target market, and key competitors
  • Their traction so far
  • What excites you about the company and potential flags/negatives
  • How you think it fits within the firm’s strategy

Make sure you talk about the problem the company’s working on (and why you think it’s significant), their team, traction, competitors, what excites you about it, and how it fits within the firm’s strategy.

F: Expanding on that, how would you prepare for questions on due diligence? What critical things do you look for?

AG: Really great question. The due diligence process is part science, part art. There are certain things you’ll almost always want to look at, but it’s not just a simple checklist. Different aspects of a company will be more or less important depending on the sector or type of company, and every firm has its own strategy as well.

Read up on diligence in the sectors you’ve prepared to talk about, and see what you can glean about the firm’s approach as well. Can you spot any patterns in their portfolio companies when it comes to things like traction, market, future funding requirements, or technology? What seems to be the key factors for them? At a minimum, though we recommend you include:

  • An initial screening process to ensure companies fit with the fund’s views on any sectors, geographies, and/or stage
  • An estimation of the Total Addressable Market size
  • A review of the strengths and weaknesses of the founding team
  • Assessment of the product and relevant KPIs and metrics
  • Uncover if there are any potential competitive advantages being developed
  • A review of financial projections for reasonability and soundness

F: And your top questions in a first founder meeting?

JJ: Like the rest of the diligence process, this will vary from company to company, but for an initial first meeting, there will be a few questions you’ll always want to ask. Run through the typical screening questions like the problem/solution they’re working on, how big they think the market will be (and how they came up with that), but then dive deeper. How did the team meet, what are their backstories, how do they intend to build a durable competitive advantage? Another great one is ‘why now.’

AG: Because I think a natural follow up might be, “Where should candidates focus” let me add that questions about the team should be primary. A company is always the sum of the efforts of a team. Especially when investing at the earlier stage of the spectrum, the team may be all that exists. Talking to the founders about the team makeup, the skills, the fit, and the experience can help determine who might be best equipped to not only solve the team problem they have identified but handle unforeseen challenges that face every startup.

JJ: Take some time to think about what you’d want to know to decide whether to spend more time digging into the company. A typical VC will look at hundreds of companies a year, and like Beyoncé, they too only have 24 hours in a day. Building up an ability to quickly figure out which companies to look into more is an important skill.

F: Lola from Hummingbird VC published this great list of VC resources: what other resources would you recommend?

AG: We’re avid readers of who we think are the best thought leaders in our industry, many of whom are covered in that list (especially Andrew Chen, Benedict Evans, StrictlyVC, and Stratechery, to name a few). Outside of that, The Secrets of Sand Hill Road by Scott Kupor and Breaking into VC by Bradley Miles are great VC books.

I’m a big fan of trying to read up on a bunch of different genres and topics, and some of my favorites the last couple years are Crossing the Chasm (Moore), Invisible Influence (Berger), Atomic Habits (Clear), Platform Revolution (Choudary), The Culture Code (Coyle), Machine, Platform, Crowd (McAfee), and How To Create A Mind (Kurzweil). Those should give anyone Amazon recommendations for years on all relevant topics from better work habits to the future of AI!

JJ: Love all those! Another book that I think is an absolute classic is Venture Deals by Brad Feld and Jason Mendelson and if you’re looking for something with more of an academic spin the Business of Venture Capital by Mahendra Ramsinghani. If you like history, Creative Capital by Spencer Ante is also a great read and gives a compelling background on the development of the industry. I’m also a really big fan of Shane Parrish at Farnam Street, especially his book series on Mental Models and Tom Seides podcast Capital Allocators if you want some insight into the LP perspective.

Finally, Sarah earlier touched on the importance of sharing your thoughts publicly, if you’re not sure where to start one resource I think is really great is the Holloway Guide to using Twitter.

F: Core to a VCs job is being able to pick out and invest in the most promising startups. However, you can’t invest in the best if you never have a chance to meet them leading to the common question: ‘how would you source companies?’. What do firms want to hear?

JJ: The obvious (and important) answer is to start or continue building out your network. Great VCs are known for having incredible networks and relying on them to source credible deals. Think about who in your current network could help provide deal flow, and how could you bolster it.

AG: Don’t forget to think about ways beyond your network as well! Could you build a tool, or start a newsletter? Help new entrepreneurs by offering to lend a hand if you’ve got relevant skills? Take some time to see if you can think up any different or unique ways of building a relationship.

F: What about the other end of the investment lifecycle — how do I prepare for the questions about the IPO or M&A market?

AG: Signing up for newsletters and staying informed can be helpful here. Publications like TechCrunch, Hacker News, Crunchbase, and CBInsights do a lot of reporting on deals, exits, and the general condition of the IPO/exit marketplace. The best idea is to read the S-1s of companies that have recently filed to go public. Don’t let yourself get bogged down trying to read them all, however. You can get to the salient points pretty quickly in those documents that cover the goals of the company and the historical financial performance.

JJ: Beyond developing a general understanding of the IPO/M&A landscape, we’d also recommend picking a couple of recent exits, ideally companies you’ve followed for a while and diving deeper into them. Come prepared to talk about their progress and how they’ve evolved. Shout out to Tomasz Tunguz and his newsletter here, too.

F: Before we wrap up, every interview should leave time for the interviewee to ask some questions. What questions would you recommend asking the interviewer if given the opportunity?

JJ: Thank you for this question. It’s important to remember here that the interview process isn’t a one-way street. You’re taking the time to learn more about each other. Ask yourself what would be important to you in the role that you don’t know already? That said if you’ve done your homework and feel pretty well informed already here are a few of our favorites:

  • Is there anything about the role and/or firm that I should know that we haven’t talked about?
  • Which companies are you most excited about within the portfolio?
  • What non-obvious competitive advantage do you feel your team has?
  • Have you considered expanding beyond the verticals, stages, or other specifics to expand deal flow?
  • How do you think about ownership when it comes to the term sheet? What are your views on determining equity allocation, caps and discounts, hurdle rates, etc?

Trusted by readers at leading tech companies and venture capital firms globally, Femstreet is the go-to, curated editorial featuring must-read content by female founders, operators and investors. Femstreet’s online community allows professionals to connect with and learn from peers and experts, leverage resources and discover career opportunities.

GoingVC is a professional development program and community helping its members advance their careers in venture capital. GoingVC brings together experts in venture capital, entrepreneurship, and business and fosters a collaborative environment where future leaders of the industry can learn and build on the essential skills they’ll need for success in the field. Subscribe here.

The post Breaking into Venture Capital: VC Interview Tips and Templates from GoingVC appeared first on GoingVC.

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Venture Capital Due Diligence: Technical Due Diligence https://www.goingvc.com/venture-capital-due-diligence-technical-due-diligence/ https://www.goingvc.com/venture-capital-due-diligence-technical-due-diligence/#comments Thu, 16 Apr 2020 10:00:00 +0000 http://www.goingvc.com/?p=2408 The post Venture Capital Due Diligence: Technical Due Diligence appeared first on GoingVC.

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Co-Authored by David Awad


This is part of GoingVC’s Research Series on Venture Capital Due Diligence
Introduction The Screening Process | The Market Test | The Scorecard
The Management Test | The Management Team
Product KPIs | Building Product Moats
Accounting 101 | Financial Valuation
Technical Due Diligence

What is Technical Due Diligence?

Many VCs and founders consider the company’s technology a potential competitive advantage. For VCs performing due diligence on companies that rely on a tech platform as the primary company offering, technological due diligence is something to consider. It is important to include a caveat here that at the earliest stage of a company, the product is likely to be incomplete (if existent at all) and have with it the highest probability of being different than what the go-to-market product looks like, so always take technical due diligence with a large grain of salt.

A key to technical due diligence is a bit of juxtaposition in that it is more important to assess the execution risk of developing and bringing the technology to market than it is actually assessing the technology itself. It can be the best piece of technology in the world, but if people don’t like it or it doesn’t solve a problem, it’s not worth anything.

As Point Nine Capital alludes to, two axes on which to assess the tech and product team are:

  • Speed: An ability to iterate quickly enough to get the product into customers’ hands
  • Reliability: An ability to build a product that works at scale

To understand where to plot companies on this scale, due diligence should cover the following:

  • Who: VCs need to start by understanding the capabilities of the individual(s) and who is responsible for building what.
  • What: In what state is the product today (idea, MVP, Beta, At Market, etc.) and what are the immediate next steps for the development, testing, and feedback cycle?
  • Why: What technology stack has been implemented and why? What trade-offs were made with these decisions and what is the degree to which these trade-offs and choices might introduce risk or need for changes?
  • How: What has been the development path to this point and more importantly, what is the product roadmap moving forward?

Within all of these needs to be an attempt to understand what potential competitive advantages may exist within the technology. Typically, those who reach market first and establish product-market fit increase the odds of success, so how likely is the team in being able to achieve that given the answers to the above? Are the right people in the right roles? Does the roadmap make sense in terms of solving the critical problems facing customers?

Some examples of red flags may be SaaS companies that have only thought through developing a product for one set of users (i.e. one side of the platform), engineers developing on older technologies (i.e. developing websites in PHP), or product teams incorporating features without listening to end users (product bloat and out of scope).  Are these absolute company killers? No. But having a framework to effectively scan for landmines can avoid major blowups down the road.

“Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, ‘If I’d asked customers what they wanted, they would have told me, “A faster horse!”’ People don’t know what they want until you show it to them. That’s why I never rely on market research.”

Steve Jobs

Another balancing act to keep in mind exists between trying to get a product into potential customers’ hands quickly and working too quickly, making too many shortcuts and putting out a product too soon. VCs should look for product development iterations that make sense. How much of the product development has been driven by user feedback versus internal dialogue? Not everyone can be as forward thinking as Steve Jobs when it comes to product development.

A Framework for Technical Due Diligence

As a general rule, given a startup is a combination of a team, a product, and a market for that product, what we want to determine with technical due diligence is “Is this team technically capable of building this product, for this market?”

This means it is okay  for the processes and infrastructure to be unrefined, as we only need to be confident that the founders have the technical understanding and knowledge to quickly iterate on the product as it needs to exist for the market. 

Therefore, there are three possible determinations when assessing the technology within the product: technically sound, workable, and what we’ll call ‘Here Be Dragons’:

  • Technically Sound: The product is well maintained, there are good automated tooling and build processes in place, there exists a good infrastructure, a clear delegation of responsibilities among team members, lots of documentation, and low bus-factor. 
  • Workable: This is where most companies fall as there is significant technical debt but the knowledge to improve on it and the team is most certainly able to do the work. 
  • Here Be Dragons: Where there are teams that really do not  have the technical knowledge or infrastructure in place to be able to successfully iterate on their product for the market they wish to serve. 

Below is a basic set of criteria VCs can use to assess a company’s product technology, capabilities, and roadmap. In addition to the below, it is prudent to write a short summary detailing the average monthly cost of running the technology (i.e. cloud and domain hosting costs, data center costs, etc.) and  how customers interact with the product (i.e. via web, mobile, API, hardware, among others) to create a customer touch-point or journey along with the associated costs with supporting those customer needs. 

Technical Infrastructure (Detailed) 

Next, we develop a framework for assessing the technical infrastructure, drawing on the Assessment, Learning, and Teaching methodology ascribed by VC by Rodrigo Martinez of Point Nine Capital.

Assessment   

The Assessment concept begins the analysis by understanding how the product was built. It is important to take into consideration not only the progress and technology but whether or not the business model works for the market, and if the technology and product support that model. For example, how critical is a native mobile app in addition to a web app? Does the team need both or would a mobile-responsive website suffice? Below are the critical points to assess and key questions to ask:

Code ownership: Inhouse vs Outsourcing

  • Are they using contractors or outside developers to build their product?
  • How do they think about code quality? 
  • Do they have technical specifications in place?
  • What are the agreements when it comes to ownership of the IP when it comes to outsourcing?

Agility: Speed vs Reliability

  • Are they using version control?
  • If so, does it allow for rapid deployment of product changes?
  • Do the tech stack and programming language(s) have a large community of supporters?
  • Is the tech stack open source?

Monitoring: Understanding All vs Little

  • How much clarity and insight do they have into how the product is being used out in the world?
  • Does the product include tools like Mixpanel to track and analyze beta users and segments?
  • If the product gets taken down, how quickly can they find out why? 

Compliance and Security: Risks

  • What kind of information and metadata will the product collect, use, and/or recycle? 
  • What is the level of security that this product needs to have?
  • Does this team have that level of security knowledge?
  • What kind of rewards does a potential adversary gain by getting access to this information?

Scalability: Ready Now?

  • How scalable is the product today and what is the plan to make it scalable?
  • If the product hits #1 on Hacker News tomorrow, are they ready for that?

Learning

Startups are constantly learning from a myriad of sources. Those that can most efficiently distill the information and develop actionable plans will get to market first and develop products that incorporate all the necessary feedback. The learning aspect of Technical Due Diligence covers how rapidly the team can operate within that cycle.

Intellectual Curiosity and Thoughtfulness: Ability to Perceive and Handle Challenges

  • How aware of the challenges to come is the team and how prepared are they to be ready to solve problems in the future?
  • How can the product be misused?
  • Are there safeguards in place against misuse?
  • What do they do in response to production downtime?

Processes and Tools: Setup for Success?

  • Is the product in a place to achieve high productivity? How is that measured (what goals and OKRs are in place) and how far into the future have goals been set?
  • How adequately have past goals been measured and to what degree have they been met? Why?
  • What does the development environment look like? Do developers use code formatters or similar interfaces?
  • Is there a style guide in place?
  • How many different programming languages are in use?
  • What code quality measurement tools are in place?
  • Where do they host their code base? Who has access to it?

Organization: About Stability

  • Is the organization setup to avoid friction and align goals?
  • Is it obvious who makes technical decisions at the company?
  • How are the responsibilities over different parts of the infrastructure divided among the existing team members?

The Complete Guide to Venture Capital Due Diligence

Introductions to the Due Diligence Process, Management, Product, Financial, and Technical Due Diligence

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Teaching

Many technical leads might scoff at the notion of developing talent in addition to products. Having technical leaders who can teach, coach, and mentor can be an important factor for success. 

Leadership: Teaching by Example and Communication

  • Is the technical founder able to, for example, sit down and teach you how Linux file permission bits work in an effective manner?
  • Do the technical leaders have a strong ability to communicate technical terms to laymen?
  • How important is technical documentation and version control to the technical owners?

Hiring: Attracting Great Talent

  • Understand what the key needs are (and why) and how the technical leadership intends to fill those needs.
  •  What hiring resources and talent pools are available? How likely are they to be able to bring on top talent?

Managing: Motivating and Keeping that Talent

  • What incentives are in place compensation-wise and non-compensation wise (i.e. personal fulfillment within the job)?
  • Is there a clean plan for setting goals and reviewing progress over time to identify future leaders?

The Takeaways

In summary, keep in mind that technology itself is rarely a needle-mover. As tech continues to move towards an open-sourced, API-driven environment, having a technology infrastructure that is ‘closed’ is rarely an advantage to developing products – technology is best used as the means to an end.

So how critical is technological due diligence? At the earliest stages, it is less so than later stages (when it needs to prove it can scale). It is more important to be able to assess the quality of the teams, how aligned the product is to the customer’s ability to solve their problem, and how scalable the infrastructure is more than how advanced the technology is in most cases.


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The post Venture Capital Due Diligence: Technical Due Diligence appeared first on GoingVC.

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