Make sure your legal team leverages your fund formation documents to the max. Engage your banking partner for financial advice in addition to standard banking services. See if your accounting team can report for every penny involved in your VC. These are the three pillars of new venture firms under the Silicon Valley Bank version.
There are manymore pitfalls in the investment world, however. We've analyzed what sages recommend, so meet seven hard-won and inspiring tips to look out for as you build your VC.
Venture capital is an apprentice business. You can't avoid making mistakes, no matter how many books or mentors are at your disposal, so your best partner is patience and experience. That means working regularly and smoothly is much more effective than jerking and putting all the effortinto one-off battles.
As AfterWork Ventures, a community-powered venture capital fund, says, success comes with "consistently filling the pipeline with leads, running a disciplined process, and turning up every day — ready to smile, listen, and answer questions until your face aches."
Yana El Dirani from Modus, with over 15 years of investment experience enourages not to allow your ego to stop you from inquiring. Questions can open up doors that you may not have noticed at the very beginning. Even absence of a reaction to your question can show what kind of person is in front of you.
Yana also recommends to be audacious enough to contradict because "having two opposing points of view is what surprisingly leads to understanding and solutions in the future."
Along the lines of what Yana has shared, it is vital — especially for a venture capital fund founder — to be open-minded. "Once we are biased towards an idea, we find ways to defend it at all costs and stop hearing the voice of reason even if we are wrong. When meeting with a startup, you should be fully aware of what your biases are and keep an open mind. With that, you will be so much more receptive to innovation and have a higher probability of picking winners."
In addition, it is possible to meet market expectations and stand out among other investment funds only considering the diversity — and for this, you need to be beyond stereotypes.
Delegating is everything, but if you're starting your own VC, there is no way around multitasking all things business: attract investments, control operating processes like recruiting and auditing, deal with CEOs,assist in business development, and much more.
"If you're someone who can only focus on one thing at a time, don't go into the venture capital business," warns Alan Patricof, a legendary venture capitalist who has been blowing up the industry since the seventies.
While looking to slide into the venture party, ask yourself, "am I drawn to the project or the person? Patricof believes that people are more critical in this instance, and the first thing to invest in is the founder’s talent, not the product per se. The product can always pivot, but the team and vision remain.
By the way, this is about more than just the companies you want to invest in. "It also applies to the people who work with you, fellow venture capitalists and employees. Surround yourself with good people," Patricof advises.
The desire to control investments can backfire. Venture capitalists are often tempted to meddle in a startup’s life.
Stop in time, listen to the founders, and do not mix roles and responsibilities in one seething cocktail. "If you get too aggressive, the entrepreneur may just give you the key to the front door and say, 'Here, it's your business.' While the best venture capitalists are partners, not overlords." — one more piece of wisdom from Patricof.
Generally accepted rules can become grit in the oyster. Based on the experience of AfterWork Ventures, "inconsistencies" can turn out to be unique features that attract attention, capital, and audiences.
For example, when their GPs were launching their first VC, they created a microfund to test hypotheses, analyze portfolio projects from all angles, and publishe investment reviews. The advisors said they were able to do less detailed due diligence for such small amounts, but it helped the fund earn a reputation for being very engaging and careful.
Should the time and cost matter — reach out to Uniborn. We are here to help you launch and run smoothly and efficiently.
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We are not intended to be a substitute for legal, tax or financial advice.