You have to create the networks and connections within the startup community, and within the technology community, to be able to have access to the really incredible deals. Start by going to conferences. Start out in organizations that you are already apart of and ask who here is interested in building tech companies. That is a prime opportunity to voice your interest in technology.
Understand a cap table (capitalization table). It’s a process learning how to deploy smart money. It’s about knowing, not just the right deal, but once you find a deal, understanding how much money you should put behind that company and those entrepreneurs, and what is a fair valuation for what they are building at this stage of the company. You can certainly find deals that you think are promising, but are you over paying for an opportunity, or is it such a fair valuation that you should put more money to work? Those are things you learn from being in the business or from making enough investments.
Increase your expectations. I see a lot of businesses that are great solid concepts with decent traction and a good team. It is a solid investment for friends and family. But a venture capitalist doesn’t put money behind a company to net two to three times the money over the life of an investment. In tech startups, VC’s want to see that there is very high probability for them to return to their investors and to their fund anywhere between five to eight times their money within the next five years.
Investigate the team. In the team, I don’t look for one thing in particular in the CEO. I try not to get caught up in titles. Someone always wants to be a C-level title. In the startup world, I don’t care if you’re the CEO or CFO. The CEO will do CFO-type duties, and the CFO will do CEO-type duties. I care more about well-rounded teams. I care about seeing teams that have experience that is complimentary, and who have long-term value to the company.
Look for great advisory boards. I want to see companies that put the time and energy into rallying the support of other people who have significant experience that can be advantageous to their startup, and who have taken the time to dedicate to supporting that company. This signals to me that there are other people who find you and your company promising. That there are other people who are willing to put their social capital behind you and believe what you are doing is really important. If you are able to snag a C-level exec of a [world renowned] company to be your adviser, that says to me that you’ve not only done your homework but they’ve done their homework and they believe in you.
Don’t place too much weight on the product. People always want beautiful seamless products. A lot of venture is being a good judge of people and opportunities. Companies pivot all the time. You have to feel like you’re investing in a team that moves as fast as the market moves. A lot of it comes down to timing. I spend a lot of time making sure we are investing in the right people. I look for people who are able to evolve and adapt themselves. At the end of the day, if they pivot into something not based on the original company, I still feel good enough about that team that they can execute on the second iteration of that company.