entreprenuership

Winning deals as a new venture capital fund

This is my third time linking a new company and second time beginning one of my very own. An individual would believe that I would remember the struggles of building up a new company, like a kind of muscular memory, but I always forget how hard it’s to stay relevant and have a chair at the table to get top-tier deal flow.

2017 could be characterized as the “Year of the new VC,” with millions of new managers. As per a mid-year report from Fenwick & West, 2017 is on pace to see the highest amount of first-time venture capital funds formed in more than a decade.

And based on a PitchBook-NVCA Venture Monitor report, first-time micro and funds funds are visiting a lot of achievement: as of 3Q 2017, $2.4 billion had been raised across 25 first-time capital.

TechCrunch sums up the resulting challenge well: “The large number of new venture capital funds may signal at wider structural changes in the startup ecosystem, but for its young and excited partners at the helm of many of these funds, all of the rush of cash means is more competition. ”

Arguably, it has never been better to get an entrepreneur with the abundance of funds sourcing alternatives, but for finance managers, how can we differentiate ourselves and win the best prices?

There are a few ways to answer this question, but among the key things for us was to develop a reputation at the local startup community for approachability and helpfulness and attempt to maintain the exact same relationship with co-investors.

Two of our recent deals came from these ancient built relationships. Eva, my co-founder, mentored an amazing engineer at one of her prior businesses who ended up opening a new company, which we were fortunate to participate in. The second deal came after our entire team spent six months with a MBA student exploring two different thoughts before he chose the perfect one. Both prices got competitive toward the conclusion, but the early bedrock we laid along with the value we exhibited finally gave us the advantage.

While relationships with founders are helpful, relationships with co-investors can be even more so. Close to 50% of Fika’s deal flow comes in different shareholders. Many people take for granted that other investors will remember you simply because you’ve co-invested with them in the past. The simple truth is that in case you’re not in their immediate radar (i.e. one of the best few funds in their call list), they tend to forget about you.

We drafted a contact listing of our favorite co-investors (VCs and individuals) and guaranteed that one of us keeps in touch with them on a monthly basis. Speedy text messages or monthly calls are a fantastic touch point, but you want to hold your own and demonstrate that you can offer mutual worth to them, as well. This may take the form of sharing proprietary deal flow in return or helping their portfolio companies.

Another crucial component is to actually be differentiated from your potential competitors on the marketplace.

We are an enterprise software-focused seed fund based out of Los Angeles. Sound distinguished enough? Not quite.

To rise above the crowd, you want to go deep on among 2 measurements — either practical (operations, promotion, etc.) or sub-sector industry expertise (supply chain software, fintech infrastructure, etc.). I was recently reminded by Jeremy Schneider, manager of WIN Funding, this requires constant effort, while it’s fostering relationships with senior executives within a certain business or obstructing time daily to get smart on a certain topic. I’m grateful this push has helped two of our staff members develop deeper competencies — Arteen in real estate technology and Matt in sales leadership. Our aim is to have the Fika staff continue to develop these deeper capabilities over time.

In my early days as a VC, I admittedly relied on investment signals and diligence of additional “leading seed capital,” which sometimes led to sub-par decisions. I’t also come to appreciate the very best and most enviable entrepreneurs respect investors who put in the work, conduct a thoughtful diligence process and are eager to follow their convictions and swim against the tide. I have been pleasantly surprised that despite being a new finance, we have been able to win prices, as entrepreneurs were impressed that we provide unique perspectives, an expedient diligence process and decisions which are not based on popular belief or marketplace trends.

We’ve also used some creative strategies to make sure we’ve got a chair at the table.

When restricted partners evaluate first-time finance managers, they are not as worried about ownership and care more about access to the best prices.

Having been shareholders for a while, we’re now focused on ownership nowadays, but at our prior funds, we heard that being slightly elastic with your test size/ownership goals permits you to access more bargains and poses an opportunity for you to build relationships with other fantastic co-investors. We still make these exceptions, but with the caveat that we’ll work challenging the moment we put in to show immediate value with the objective of increasing our ownership down the road.

The “get in while you can and purchase up” strategy works, but I will let you in on a fascinating strategy that we’ve used a few occasions at Fika: the battle an entrepreneur often has is whether to choose a term sheet from a new investor and risk not having enough space in the round to get a more recognized brand.

When we sense that this is the case, we have added an interesting clause in our expression sheet, where an entrepreneur is allowed to “shop” to get a better deal within a particular time frame, but if she choose to, Fika would be entitled but not the duty to commit a certain quantity. This is among the several ways we get creative and also stay as entrepreneur-friendly as you can because it helps further build  our reputation.

Read more: https://techcrunch.com

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