For the 3+ years I’ve been in the venture business, my biggest challenges have been building credibility and finding quality deal flow. In many ways they are linked with the better the reputation, the higher quality deals that come across one’s desk. Speaking frankly, I’ve struggled mightily on both accounts and, until recently, relied on bankers and ‘friends’ at other venture firms for a decent portion of my deal flow. Not surprisingly, these channels have proven fairly unfruitful and generally provide deals of the following three varietals:
- The Supermodel: The sexy company that is doing really well and engaged a banker looking to gin up a competitive auction process. By definition, this will be a high-priced deal with investor-unfriendly terms, making it very difficult for new investors to generate reasonable returns. This is the super hot girl with little personality that leaves you with the check and not even a kiss on the cheek after dinner.
- Plain Jane: The company that is OK in every way. It has a decent product, business model and management team. That said, it doesn’t feel special and it’s hard to envision how it ever delivers extraordinary returns for you as investor. Going back to the dating analogy, it is the perfectly OK girl with whom you just never feel any spark.
- The Fixer-upper: The company that has been around for a while and has a tired investor base looking to bring on a new partner to share in the pain. It has latched on the trend-du-jour to explain how this business that has stalled for 2 years is now going to experience hockey-stick like growth. This is the girl who you haven’t seen in a while, but you hear from a friend looks good. The only problem is when you get together, she doesn’t look any better despite the new haircut/color and teeth whitening.
Partly because I’ve spent too much time wading through mediocre opportunities, I’ve only led two investments in my time at Hearst; TurnHere and HootSuite. Not surprisingly, these are deals that I found and developed a relationship with the entrepreneur myself so that we both could figure out if there was a match. Whether or not they will prove smart investments only time will tell; however, these experiences have taught me that the only way for a young VC to find truly promising investments is to go seek them out on your own.
Which brings me to social media. As any one who uses Twitter knows, it is an unbelievable discovery and relationship building tool. With investment discovery and relationships key for any VC, Twitter is a must for anyone starting out in the venture business. Not only can it help you find and engage compelling entrepreneurs, but it also is a mechanism through which to learn about industry events where you can have face to face interaction with these people. Social media is also a tremendous brand-building vehicle. Through growing your follower base and investing in a blog, the more you can let people know about yourself and areas of interest/expertise.
The challenge with putting your thoughts and personality out there is that they may not resonate and ultimately prove detrimental to your career. In my opinion, this isn’t necessarily a bad thing because it helps you discover that VC may not be right for you. I must admit that I am still early in my VC career and struggling with my place in the market. By becoming more public with my thoughts and persona, I hope to learn more quickly if what I have to offer, other than the money, resonates with startups. After all, life is short and if I’m not someone that quality entrepreneurs think will be valuable to his/her business, I’m not cut out for this job and should learn this sooner versus later.