I’m suprised how many founders – even multiple time entrepreneurs – are unfamiliar with the institutional investors that back most of the major venture funds. At Homebrew’s first annual meeting this past spring we invited founders and fund advisors to a dinner with our four major LPs. Those three constituents are our foundation and it was joyous to see them all dive into great conversations about technology, Silicon Valley, and their analysis of the venture industry. I don’t think we’re unique in encouraging this mixing (True Ventures & Khosla Ventures do something similar) but it doesn’t seem to have historically been standard practice for venture capitalists to talk about their investors or their economics. Fortunately that’s all changing.
Some recent notable posts which are healthy views into VC fund construction:
- Charlie O’Donnell sharing economics of Brooklyn Bridge Ventures
- Fred Wilson doing similar for Union Square Ventures
- Jeff Clavier announcing SoftTech IV
When we launched Homebrew in 2013 our commitment was to discuss anything that wouldn’t violate someone’s trust. So we’ve blogged openly about our own fundraising process and dealflow analysis. Writing helps us think through our own principles and processes; creates a forum for feedback/lessons learned to be shared; and also hopefully helps entrepreneurs figure out whether we’d be a good partner for them (or not).
The increase in content marketing by VCs means there’s lots of information being put out there for founders to read. Much of it is quite valuable but I’d suggest entrepreneurs still try to find the opportunity to meet fund LPs (usually large institutional investors, foundations, endowments, family offices, etc). By understanding their needs and perspectives you can take away insights into how VCs behave: what portfolio modeling looks like including mortality rate; what returns distribution is expected to yield the multiples that would be considered acceptable; how firm fundraising impacts ability to make new investments. These are all subtle influencers behind the motivation and advice you’ll hear from venture investors.
If you’ve only eaten at a restaurant but never been to a farm, it might be difficult to imagine where food comes from. Same with the value chain of venture, just no slaughterhouse metaphors please…. 🙂
- Post on VC economics from Andy Radcliffe of Benchmark/Wealthfront