How a Venture Capitalist Thinks
Getting your business off the ground can take time and effort. One option is to seek venture capital investments. Venture capitalists value startups with strong traction, differentiation, and a distinct market opportunity. They also consider financial data that is past and future-looking. Understanding how to think like a venture capitalist can help you prepare for discussions with potential investors. This course will give you insight into the valuation process from a VC perspective.
Don’t Be Afraid to Fail
Whether you’re looking for investment or need to get your idea off the ground, there is a way to do it. Venture capitalists are a great funding source, but they’re fully prepared that 8 out of 10 startups they invest in will fail. But the one that makes it will compensate for all their losses, so don’t be afraid to take risks. VCs are looking for market leaders, which means they need to understand your competitors well and how you differentiate yourself from them. This lecture explains how to evaluate the competition from a VC’s perspective and why that is important for your success as a startup. Brad Kern has a unique insight into the world of VC that will help readers understand what drives people to succeed in this highly competitive industry.
Focus on the Future
Investing in new ideas takes time, money and social capital. It is risky, but the upside can be outsized. VCs embrace uncertainty and experimentation to solve society’s most pressing problems. We can learn a lot from them about researching before making decisions, being willing to fail, and staying flexible. VCs evaluate the competitive landscape very carefully. They subscribe to respected daily publications and websites offering information on potential leads, new companies and marketable goods and services trends. Founders should emulate this approach to focus on the big picture, not getting bogged down in the details of their products or services. It helps ensure that your innovation board can remain objective when deciding to fund or kill ideas. It also helps your board avoid focusing on individual project returns and instead secure funding based on expected returns on the portfolio. It is how VCs manage risk and make the best decision for their funds.
Be Flexible
As you work to get your foot in the door of venture capital, don’t be afraid to change course if the first few paths don’t lead to a VC job. For example, if you realize that working in venture capital is not for you, feel free to move into something else in the finance industry and try again. You can also show your flexibility by highlighting that you’re comfortable taking risks and being open to new ideas. It is especially important to prove that you have the “VC mindset” during interviews. Last, you can stand out by demonstrating your enthusiasm for the startup ecosystem and willingness to do all it takes to succeed in the industry. For example, if you’re a student or recent grad, start a podcast to interview startup founders and gain valuable exposure. It can also help you build relationships with VCs who might one day be your mentors or employers.
Keep an Open Mind
VCs are often drawn to startups that offer unique products or services. They search for novel approaches that give the business a competitive edge over rival companies, making it hard for competitors to copy it. VCs are also looking for step-change events that can create explosive growth for their investments. Unlike banks, which only finance tangible assets like receivables and inventory, venture capitalists are willing to invest in startup businesses with intangible assets such as intellectual property or research. It allows them to reap outsized returns on their investment. But VCs need to be able to distinguish between a startup that will probably succeed and one that won’t. Otherwise, they will succumb to the sunk cost fallacy and continue pouring money into a loser while waiting for it to turn around. It can be detrimental to the VC’s portfolio. Hence, they must be able to make decisions in the blink of an eye and quickly recognize whether a company has potential.