Dennis McWilliams 0:04
but maybe just a little context of kind of the thought when Scott reached out to us to talk about some of this research. You know, a lot of the subject here at LSI is really helping the entrepreneur decipher, you know, how they wade through kind of complicated investments and working with venture capital and in finding that investment. And so really, what we thought we would do is maybe a little education on, on how VC really works, how we structure our funds, how we're judged, in the hope that as you're out raising money for your company, you have a better set of context of who you should be looking forward the question you should be asking, and what they're thinking of on the other side as they're thinking about your company. So that's the goal today, we hope to maybe bring back a little inner workings of that and hopefully you'll find it interesting. So, again, I'm Dennis McWilliams, a partner at sante Massoud I was, my prior life was always an entrepreneur, though. So I spent 20, almost 25 years in biotech and medtech during startup companies, and only recently switched over to venture capital. And so with that, I'd like to maybe have our panelists introduce ourselves talking about them. And maybe if you wouldn't mind, just telling us a little bit about your the funds that you've been associated with and just a little bit of kind of their size, we get a context of the range of investment funds out there. Just for reference with sante, we're early stage investors. We're currently at a fund for which is $260 million in size. And just to give you a context of where we all sit and how our investment thesis differ because of that fun size, Nancy,
Nancy Hong 1:32
Hi, everybody, I'm Nancy Hong. I've worked with three venture firms. So the first one was probably around the 400 million. I don't think they invested in med tech, though, so it might not be that relevant today. The second one was interesting because it was a corporate venture fund 300 million, half of which was direct investing into med tech and biopharma. And then half was LP investments. And so I got a lot of exposure over the venture capital. You know, the entire kind of landscape really, we invested in early stage managers, late stage managers, a number of which had med tech practices. So I think that's going to inform a lot of my insights about kind of the bigger funds. The last fund I was with river VAs definitely had a med tech investment mandate, as well, as biopharma. They were on the smaller side. While I was there, we grew from maybe like 80 to 185 to 275.
Amir Soltanianzadeh 2:30
It's awesome. Hi, everyone. Amir Soltanianzadeh from solo artist health ventures. I also have the entrepreneurial operator background, was in the orthopedic space previously, and then post exit started so Artus health ventures last year. So we focus on early to mid stage medical devices and some digital health. We look at anything from seed to Series B. Did mostly syndicate SPVs last year, and then now launching our fund one actively raising so we're in 50 to $60 million size.
Owen Willis 3:06
Everyone oh and Willis, founder and GP of Opal Ventures. Opel Ventures is a $15 million precede fund. We're backing the next generation of healthcare infrastructure. Previously, I've been on the other side of the table. I think a lot of us were selected for operator experience. So we know what it's like to raise on the other side. I was at a company called osmosis. We were backed by felicitous and gray Croft before our exit. So we've been through a couple of rounds of that funding. And then I also ran a community for early stage health tech founders, called On Deck health, which was really focused on helping precede an ideation stage founders get to their first round of capital, right? So access to experts, access to investors, and then helping to those early stages of that process.
Thom Rasche 3:54
Yeah, hello, my name is Thom Rasche. I'm an early bird. Venture capital, which is, as the name suggests, a typical A and B round investor We are based in Europe. Our current fund is 173 million euros in size. We pride ourselves to be the only investor in Europe if not in the world who has public health insurances. As Cornerstone investors, we believe it's rather important to get the payers on board, which in the US is rather normal, but in socialized medicine markets, which most of it is in Europe era, it's more unheard off. We do fully fleshed their off because we are fully patient outcome focused. Therefore we do biotech medical devices as well as diagnostics and digital health Ottawa fine.
Dennis McWilliams 4:39
Thanks very well. I thought maybe we could start with maybe a little venture. Maybe not venture one on one but maybe a little venture 201 and maybe have some of the firm's Have you guys talked through a little bit of how we generate everything everyone knows here knows that the money that we get that we invest in your companies, we've got to give it back with return. But you know, a lot of that varies by Sandhu, your limited partners, who are what your focus is. But maybe we could talk a little bit about you each of you all's historical funds like, how have you thought about building different what first maybe like what you're trying to target for return basis, and the to how you think about building a portfolio that's going to give you that return. So whoever would like to Nancy, I don't know, if you'd like to start.
Nancy Hong 5:18
I mean, in terms of like, plain vanila venture fund, I think a lot of LPs would like to see their managers returning 3x. Right, that's kind of a typical bar that they'll set. And that means that, you know, if we're trying to give 3x back to our investors, you know, we kind of have to have a lot of good outcomes, right, I mean, and that, I think, is a different thing that changes depending on fund size. So I think, for large funds, right, getting 3x overall is really hard. And you really need to have at least one or two, quote, unquote, unicorns that are returning 10x, if not even more, and their focus then tends to become on those kinds of opportunities. So those shapes of deals, that kind of market that you're addressing, you know, it has to be a very, very big outcome to make that math work. If there's a smaller fund, and you're trying to hit 3x, I think you have a little bit more flexibility around hitting a lot of doubles and triples to reach that overall blended kind of return. I don't know if anybody else has anything to add on that.
Thom Rasche 6:27
Maybe. I mean, the math is simple. I mean, if you say you want to hit a 3x on new fund, let's say our fund 175 million, just roughly do the math, we invest in companies to see we need to get at least like a 50 million return. So in order to get 50 million return, it's it's a quick question of how much ownership to have in that company. What can you have, in medical devices you have at the exit, I don't know, if you're lucky, you get 20%. Most of the times you have like 15 or something like this. So you can do the math what the exit needs to look like if you want to have a 50 million return. And you need to drive for that 50 million return most of the VCs would argue, but I think that's more theory that you need to have fund returners in your, in your portfolio as well. If you have them, you're lucky. But they'll most of the time, that doesn't happen. So to be quite honest. But at the end of the day, I think our investors are as you if you don't burn them money, and you give a decent return back which a decent return is kind of like I don't know, I'm just saying like a 10% annualized, which is not good for us, because then we don't make any money. But nonetheless, the your investors are not completely upset with you. I think then you're okay. But at what you drive for, it's a 3x on that. And that's actually what the math is. And then you can do the math, very simple, drive it down. And if you have 170 million 175 million fund, you need to look at how much money you need to deploy, what's the exit likelihood who's going to buy it. And if you look at the medtech environment, I think discussed at length here at the conference, you need to see like, Okay, you need to drive for like a 300 million exit. That's at least the minimum you need to think about. And that's something you need to believe can be achieved.
Dennis McWilliams 8:16
Yeah, no, actually, I want to transition to where and when and where that, because it brings up I think it's gonna be an interesting contrast. I think there's a common misperception misconception when companies pitch VCs, that we're focused on multiple. And a lot of times we really aren't, I mean, multiple is one way to measure the success of a deal. But Tom mentioned, he's looking for $50 million. Because like, if you have a larger fund, you know, that's a big, you know, we talked about strategics not buying something unless it moves the needle on billions of dollars revenues, the same thing in venture as you get bigger, it's harder to do that. So I'm curious, in your judgment, you're able to go early. And just do you think that gives you more flexibility in the types of returns? You can do? Or is, is the math works? Similarly, if you're a smaller size
Owen Willis 8:59
fund, yeah. So I think for smaller sized funds, just kind of building on what was said before, and we're going to, I think, talk about this a lot over the course of this conversation. Ownership really matters, right? And ownership percentage really matters. And so when you have a smaller funds, you're your fund size becomes your destiny in terms of where you can invest, right? So you'll generally see smaller funds targeting earlier stage, because that's where you can get outsized ownership for a much smaller investment. And so that's one of the things you know, when you have a smaller fund, generally, you're going to be focused a little bit earlier, you're going to be thinking about ownership, I think in a slightly different way than a larger fund, but it's still going to be really important. And what is especially important for those smaller funds then is dilution. Right? So thinking about the type of company that's being built, what are the funding milestones and kind of the funding expectations in order to get to scale or commercialization and then being able to kind of backwards plan that into your fun model to understand how is this going to work? If I put a check in a precede? And am I gonna get a return if the company is successful, so we can dig into that more later?
Amir Soltanianzadeh 10:12
Yeah, I think I feel like the math ends up working in about the same way in which we're looking at hay for sub 100 million dollar fund, I mean, we're still looking at the same way in terms of this company needs to be generating at least a $15 million return. And so thus, if we're writing two to $4 million checks, and we're looking to get generate return, and a certain number of years, and you really, you self select the companies you can even look at. Because at the end of the day, it's it's very much that, especially speaking as former entrepreneurs, which most of most of us are, it's the same boat, I mean, you're talking to your LPs, just like you are talking to your investors. So I think the font size, auto selects the returns you need. But in the end, the math works pretty much same.
Nancy Hong 11:07
Just one exception, maybe, to that rule. Oftentimes, the big funds right have been around a long time, they're kind of namebrand kind of blue chip, safe harbors for these LPs to invest in, it's like, they're never gonna get fired for investing in some of these funds when we get fired for investing in IBM, right? That same concept. And so they're the actual numbers are a little bit less important, right? It's more about like, Hey, this is an awesome team, great story, illustrious history. So in a way, that gives them a little bit more leeway in terms of like, numbers, expectations, return expectations, like they kind of need to have this big story. But if it turns out like most of their portfolio doesn't work, they might still be able to survive write one, even maybe two fundraisers before any kind of chickens come home to roost. So that's just something to keep in mind when you're looking at, you know, these large investors, and really trying to understand like, hey, how much do they really need me to be a success? I think that's the other thing that we haven't touched on is really kind of portfolio size. Because some of these players are so big, they can have such large portfolios that they can have multiple bets in the same sector. And then that means they don't necessarily care as much if your company is successful, as long as one of them in that sector is successful. So that's another interesting thing to be thinking about when you're kind of evaluating and I touched
Dennis McWilliams 12:32
on this a little bit later. But I think it's a it's a great segue into, you know, I think what we're feeling a lot in this space right now. I mean, you know, you know, 2021 2022, I mean, the Fed was basically printing free money. And so when there's a lot of free money around, that gave the LPS tremendous amount of money to deploy into venture capital. And so venture capital was trying to deploy as quickly as possible. And there's just a lot of money flowing around. But what happens because you're unicorn hunting, it's really challenging if you if you if you realize that a company is not going to be a unicorn, we're seeing a lot of those companies being left to dry. I mean, they're examples of some people that were the biggest fundraisers even here two years ago, that are now out of business, because the big investors decided this is not going to be a fun returner, and we're not going to invest. You know, how come? Yeah, how
Thom Rasche 13:18
do you think actually, you made a good comment in in our fund retargeting like 13 to 14 investments out of the 170 3 million. When I compare this to our tech guys, earlybird. Some of you may know we're not we have different funds, we have two in digital technologies and one in healthcare, our attack goes to 30 investments. So they do much, much more willing to write off more. So we bet bigger tickets on single investments. We never do competing technologies, by the way. So when we have selected one and believe this is the right one, then we stick to it. And actually may be the wrong one at the end of the day, you never know. But at least we stick to it. We don't do competing technologies and is set on the same horse at the same time. So is this the right strategy, you could argue you go smaller and ticket size and increase volume of investments you do we don't feel that comfortable because that has a direct impact as described beforehand on your ownership percentage. So then you would have lower percentages, but you do need a portfolio. I think there's been a lot of research out there to say you need to have at least 12 in your fund in order to have a decent spread of portfolio and decent spread of risk. I think that's what we all follow at the end of the day as a minimum. And I have to say the other thing of course, there's nothing worse than a venture capital fund without money but I have yet to see the fund who's never has been who has been actually done right reserve planning. Most of the funds I have experienced in My entire life, and with our friends and competitors, they are all under reserved at the end of the day. And then you see those funny things like opportunities, funds and extension funds, and all of those things to then actually be able to finance the portfolio you have, and continue to finance is all you do crossovers, which most of the LPS don't like as much, we still do that, do it. So this is the kind of stuff we do. But at the end of the day, I think the understanding is really right. We do the same stuff as you guys do. The interesting difference, though, is you have something to show like a product, we have nothing to show, we can only show the rearview mirror is like trust me, it's like immovably look at the snake cause like, believe me, we'll do it.
Owen Willis 15:44
And I think like as building on that a little bit similar to how you all are out there trying to line up with investors that are aligned with how you're thinking what you're wanting to build, and kind of the vision for your company. On the fun side, we're doing the same with our LPs, right? There are some LPS out there who want a really concentrated portfolio, right? So they won't back any fund that has more than 10 investments. There are other LPs that say, you know, hey, we're doing a fund of funds, we have, we want to as much exposure as possible, we won't do anything, any fund that has less than 40 investments, right and so on it on our side, it's about matching up that model, what we think is going to drive the best returns for our investors with the LPS that are thinking about it in a similar way. And so what that ends up meaning from a portfolio construction perspective, you know, for me, it's, you know, most of my LPs are really interested in access, right? We're doing mostly software. So we're doing about 25 investments out of our funds. And it means that we have to be think about kind of that investment process, the investment speed all of those things a little bit differently than maybe a fund that's doing two to three investments a year. And the other
Amir Soltanianzadeh 17:04
thing, you know, besides just the fund allocation, how many companies we can invest in financially, the biggest aspect, especially for pretty active GPS is just bandwidth. So the reason our funded will only look at a nap Max nine or 10 companies is really just bandwidth, you have to be so involved in companies to really make a return to really guide them through the different, you know, shortcomings and challenges that they're going to have to really then end up generating the exit generating the return. So unless we're able to have the bandwidth to sit on the board to work with companies week in week out, going through anything from a budget to a clinical study, protocol to discussions with strategics, we can execute very well, if we're investing, you know, across so many companies, especially as a small fund, you have very small team, limited time. So that's a key thing that most entrepreneurs don't realize till we tell them we just can't. But then
Thom Rasche 18:12
I would argue the real successful ones need the least coaching. Only the ones who need and take the time are the ones which are usually the problem, Charles deal.
Dennis McWilliams 18:30
That was actually a big thing that I noticed when I switched over from being an operator raising money from venture capitalists. But, you know, having spent a lot of time pitching to VCs, you know, I thought I knew VC. And when I switched over, one of the big things I didn't appreciate was just, you know, I understood how you know, that that a VC fund may may pass on my deal, because I wasn't a fit for stage or for folks or whatever. They didn't realize how also important the bandwidth that the partner you're working with at the time that you pitch it is so important as well. You know, if you're in the middle of fundraising for all of your existing companies, I think it was mentioned on the earlier the previous panel by by Vinsanto. Like, if you're spending all your time doing that the last thing you can really open your brain for is thinking about yet another problem childhoods are going to admit into your fund. So how do you guys manage that in the context of your fund size? I think particularly on the seed side, because I one of the things we find is early stage investors? Well, it's a lot of heavy lifting on the investor side as well. Because usually the seed companies, they don't have a lot of capital, they don't have, you know, big teams, and so they need a lot of extra help. So how do you think about that in terms your bandwidth management? It's
Nancy Hong 19:34
challenging, right? Because just like Tom said, it's often the less experienced, right that take more work and like, those could be very early stage and you know, you're not putting that much money to work initially. And so there's sometimes this real disconnect between Yeah, amount of capital outlay and effort, right. So I think that's a real challenge. We'd love to hear with these early stage, folks like how do you really address it?
Owen Willis 20:00
So I think there are two things that we do. So number one, we're generally meeting founders at that earliest possible stage. So we're meeting founders at the point of ideation, generally before they've raised capital. And so we actually spend a couple of months with them before we write a check. And that is really beneficial to us. And just seeing how they operate, seeing some of the cycles that they're running through watching something not go well, which I think is actually really important seeing how they respond to that. And then post investment, we're really capping that hands on support in the first 90 days, right? So it's understanding what are the things that we can plug in and support on really, really early on, often it's tied to hiring, often, it's hard to go to market support. And for us, you know, what we promise are kind of the expectation setting and what we promise our portfolio companies is access to our network, right and making those introductions. And oftentimes, especially when it relates to go to market, there's almost certainly someone in my network who is way smarter about whatever specific thing this founder needs help with than I am, right. And so by making that connection, and focusing on that, being that connector versus doing all of the help myself, that's how we're able to make it scalable.
Amir Soltanianzadeh 21:14
Yeah, I feel like, no matter how amazing the pitch deck is, and our market and our exit opportunities, and our comparables all look amazing, I never look at a deck and assume this company won't be hard. So I think, I think the entrepreneur is recognizing that and knowing that the investors are also signing up for a wild roller coaster, in a ton of work is where I think the discussions end up becoming a little bit more fruitful, I kind of almost look at it like, hey, the average company is probably gonna cause five, six gray hairs. So maybe that's a good way to like threshold, how to invest in companies, like if it's past 10, that's just not worth it. I
Owen Willis 21:57
mean, just as an example, in the last half day, I've been meeting with the founder helping them fundraise raise for their seed round, I've been helping to have the our portfolio companies negotiate contracts, right? I think there's, there's always stuff to do. And what is really important is establishing the boundaries of like, what are the things that you can help on? What are the things that you want to bring in outside people to help with and just being able to communicate that to the founders, before you make the investment? Right, so they know what they're getting from you as well.
Dennis McWilliams 22:28
I think it's a really great piece of practical advice for entrepreneurs, when you're picking a venture fund for your companies thinking about, you know, I think there's this bias that I really don't want the VCs in my business on the board. But like, you just have Rohan. I mean, like he's reviewing contracts. I mean, we interview candidates for our team, we make introductions, we help them fundraise. So I think it's really important, as you're, as you're an entrepreneur out there, to think about Be realistic about what type of help you need, and what type of partner do you want from financing? You know, I think there's a perception. You just want the money, you don't care where it comes from. But you know, there's real implications are starting to hear in terms of what you're going to get positively from from that. And I think that's important to keep in mind. And
Owen Willis 23:08
it's okay to do reference calls. Oh, yeah. On your VC is like, as you're like meeting them. And you're listening to the saying, we do this, this, this and this, you can ask them if they can introduce you to some of their portfolio companies. And one of the things that we did when we were fundraising is, we actually asked them to introduce us to a company where things went wrong. Right, it didn't work out just to understand kind of what that relationship looks like as well. I
Thom Rasche 23:30
think so what it boils down to is people at the end of the day, I think we do actually quite long due diligence. So we don't, I mean, have six months minimum, probably like three quarters of the year. So we like to understand a lot on what are the people we dealing with? How cooperative are they? Are they much do they listen, it's really more on a personal level. So it's a quite a long journey usually take, like 678 years. So you need to understand who you're dealing with number one, number two, as important and I think most of us sitting here can talk about this your syndicate? Who are your co investors. And I mean, we have had experiences I think everybody had which is like this thing is gone really sour because you have picked the wrong co investor. So as a startup, you may say, Money is money. I don't really care. You should. I think it is actually for me, it's the pastor Destiny really is really important to say like who you're working with, how much funds do they have, but that's not only it, it's actually more, how much are they willing to help step in and help you fundraising, bringing the context and all of that stuff. All funds will come to at some point in time most of the time to his cash squeeze. So then the question is do you push them out or will they be pushed out or do you find collaborative ways and get this organized? At the end of the day, we are as much in a roller coaster with our funds. As you are within your portfolio companies, it's we are in the same boat 100%. So I think we have a different duty, just imagine the people we raise funds with when you lucky, when you lucky they understand a little bit about healthcare, most of them don't, not a thing. And then you come and as in, let's say healthcare enthusiasts and talk about your portfolio companies and the stories and they couldn't care less. Which is quite frustrating, by the way. But none of
Nancy Hong 25:35
them. Tom, I just wanted to follow up on you know, the fact that we're all people too. And I don't know that entrepreneurs always appreciate how much emotion and irrationality is actually involved in venture capital, right? The point about, like, you know, this down cycle, and it's like, Wait, isn't this the time we're supposed to be really active and investing? It's like, Yeah, but nobody else is, you know, there's this there's lack of FOMO. There's lack of competition. So I think that you know, exactly what you said, like a big fund actually has like, amazing ability to have reserves and be deploying capital, when other small funds may be, you know, cash strapped. But there's still the psychology, right, that they have to overcome of like, hey, nobody else is working, you know, should I be working. So I think that's another interesting aspect of, you know, fun size, like, it could give you more freedom to be out of a cycle, I don't know that it actually happens. And then on syndication to fun size, if it's a big kind of blue chip brand, you would think they would be able to build a syndicate really well really easily. And that could be good. If those are the right, you know, people again, on in that Syndicate, or it could be a little bit bad, because you're not going to have as much saying really about how to shape the Syndicate, if you have this giant gorilla in the room. So yeah,
Dennis McWilliams 26:57
I mean, maybe it does anybody have any examples on syndicate Hsuan? Were you had a big difference in font size, and some of the challenges that they gave that you're you don't have to name names, but you're willing to talk about some of the tension,
Thom Rasche 27:09
I think, actually is not necessarily fun. sighs it's more like, Who do you have on your board? How much? How supportive? Are they? How much knowledge operational knowledge? Do they really have? A they run the company? Or do they actually know what they're talking about? Always is more coming out of the consulting business to say, I think I know how this works. And actually they don't. So it's all about the people you have on your board and how much they so this is going to be the Night of the Long Knives when one of the funds shows weakness, because they may not be able to invest anymore. So are you building on that weakness? Or is this more collaborative approach to say, let's make sure that this company is gonna get financed? And not let's not fight this out on the board level where we actually have all different motives and sizes, and, of course, the spans as well, we spans 10 years plus two years, most of the funds use that because portfolio companies need longer. And so you need to say like, Okay, how late as a fund syndicate partner comes in, and when do they look for an exit or trying to drive for one, even though that's kind of hard to anyway, because companies get bought rather than sold. So so but there is a lot of dynamics. And I think, what again, I really believe it boils down to the personalities, if you believe you have a team of syndicate partners come together where you on a personal level can work with and go through bad times, which will happen. as well. If everybody sticks together and supports the company, I think that's the one thing you should be trying to figure out when you select your investors. So it's not only money,
Owen Willis 28:44
I would say like, when you are bringing investors onto the board, one of the things you really want to focus on is whether or not they actually understand the dynamics of the type of business you're trying to build. Right. So if you have especially maybe a larger generalist firm coming on, maybe they mostly do software, if for whatever reason, you know, they've invested and they're joining the board of your company, you need to make really clear to them what growth looks like in your space, right? It's, it's not going to be you know, if you're still kind of going through FDA clearance, you're not going to 10x revenue in the next 12 months, right. And it just like things like that just like aren't going to happen. And that's kind of a ridiculous example. But those sorts of misalignments do happen, that creates a ton of conflict within the board. And those are the types of interpersonal conflicts that can ultimately, you know, either cause the CEO to be kicked out, or lead to the company, not reaching its full potential. So that alignment is really important, ya know, and
Dennis McWilliams 29:44
it ties back to what we were talking about earlier. Like, you know, if you're a unicorn Hunter because you're trying to drive a really, really big exit for your fund. I mean, when you're not seeing that revenue growth, and that's what's happened to a lot of companies coming out of the, you know, the drunken You know, spec fest party that we had over the past couple years, is that, you know, you're sitting at a post money valuation of 200 300 $400 million on a company that's maybe doing five to $10 million. Like, you know, companies are typically value whether they eventually valued on profit, but they're, you know, you ever proxy as at least a revenue multiples, where they just see you're not going to hit that for them. They know it's done on company, a lot of perverse incentives set up then and you've seen a lot of companies kind of become almost walking zombies, where the investors really don't want them to go out and finance again, because they don't want to have it, repriced. But they've given up on them because they realize that, you know, it's it's never gonna hit that that tangent. I mean, I, you know, I don't know if any of you guys have experienced that with when you've had bigger companies portfolios command, but it's been, I think it's a real problem that we're gonna have to kind of still work through in the market.
Thom Rasche 30:50
I mean, a little story. I mean, we have now dedicated healthcare fund. And the reason why is because our dynamics in healthcare are very different. So I remember well, the times, when I got to ask us, like, when is When are your companies scaling, and I said, I hope to God, not as long as we are investors, which will our tech guys is the only measure they have, the only measure they have is when it is scaling a revenues. For us, to be quite honest. And I will say, I'd rather prevent revenues, because I know there is a point when the company is not sold anymore, or bought anymore on the promise rather than on numbers. And that's usually a pretty bad thing. Because we all know, all of us. Healthcare does not scale fast. If it's a really, truly innovative technology is takes forever to convince the physician. If it's only me, too, you don't get a high exit, because it's rather me too. So it's more competitive play. So at the end of the day, as soon as you get into the revenue generation path, after your regulatory path, your valuation generally drops quite significantly, because you're getting measured on revenues rather than on the promise, unfortunately, so as a venture fund, if possible, not always, you're trying to exit before that actually happens. So that before that inflection point, but that those are all kinds of things, when we select the companies, which we are trying, as good as we can to anticipate, as I said, I mean, don't believe that we have the wisdom here. Because not it doesn't work out all the way. But at least it's what's going on in our heads to say like, Okay, how big is this going to be valued on multiple on revenues? Or is it rather like a disruptive technology which somebody can take in? And all of those things, so I think there is an to your point, alignment on the board on those steps, is absolutely vital. We have adventure as well, rebel board members, like you have in big public companies, you usually don't know that upfront, but they can be really disruptive and actually disruptive for the company as well.
Dennis McWilliams 33:01
So maybe in the last few minutes, you know, maybe we can, Nancy, if you don't mind starting just for the entrepreneurs out there, as they think about you trying to if you have the ability to select your investors, like what's some practical advice you guys would give investors in terms of before they approach a venture fund, you know, how they can decide if that's the right font size and font fit for, for their company,
Nancy Hong 33:23
I'm always a bit surprised when, you know, I've been approached by entrepreneurs that like really haven't looked at the portfolio, right? Because that is the concrete example of where we have a mandate to invest, where we've been successful or not successful. Maybe it's a lot of work, because our websites are not generally well designed. And like you have to click through and like figure things out. So maybe it's not laid out nicely. But I think it probably is worth, you know, some investment in really understanding, you know, where have they had success, and therefore have the mandate to invest again. And if you can figure out Yeah, the sizes of the tickets and the sizes of the exits, you know, hey, I slot in there perfectly, and I can be there next. So and So winner, I think that's just a very efficient way to start your target list of like, I know that these VCs have been successful in my space, not to mention that they're going to have a great network there to them, right. I mean, we didn't talk explicitly about this, but like, you know, big firms, you know, they should have sometimes they even have HR in them, like they can actually do a lot in terms of helping companies helping entrepreneurs with the back shop operations. But will you have access to that? Will you have your partner there? I don't know if there's data on big firms in terms of like turnover, right, there must be more people turnover. And if you lose your champion, what happens then? Right. So just understanding more about the venture capital firm and their history, which is generally available. Pub Luckily, I think that's some upfront work that usually is probably worth it.
Amir Soltanianzadeh 35:06
Yeah, I think just like Nancy put beautifully, I think the best thing is to know, the fund and know the, you know, the managing partners get to know, what really is areas that they're looking at what excites them? What are their limitations or concerns about your space and get to know them? Because generally, even in deals that you end up executing on the early days, it was oh, you know, let's see how it goes. And really, the other big pitfall that I see is, companies not really having a great sense of why they're raising the certain size and what they're going to do with it. Anytime I hear, hey, yeah, we're raising 15. And it's to grow towards next milestones or like just FDA. I, I'm very close to just passing, because because it doesn't show a lot of sophistication of, do you really know what you're trying to get out of this? Not just the round itself, but then out of the company? And how does that really align? Because then we end up seeing companies that, hey, we raised 10 $20 million. And now we're raising three under probably recapping, because basically all the money prior, we didn't have a great direction of what we're doing with it. So I think that's kind of table stakes to have a discussion.
Owen Willis 36:26
So one of the things that's actually pretty surprising to me, as I've sat on this side of the table is actually how few questions founders actually ask for funds. Right? It's, you are getting into a relationship with a firm, that is essentially like a marriage, right? And it's going you are going to be working together for a really, really long time. And so it's totally within your right to ask questions. It's really, you know, some things that are always helpful to know are where are they in their deployment cycle for the fund? You know, how do they think about follow on capital and pro rata, if they do have prorata isn't guaranteed? Or is it something that they're going to pick and choose as, as they follow on and kind of help you with the Syndicate, kind of moving forward. And so what I would say is in your first meeting with a fund, treat it like a customer discovery call, as much as anything else, right? Like you want to get to know them, and make sure that this is a really, really good alignment, before you move forward with all of the conversations and start sharing all that information. Because once the fun starts ticking in, that's a tremendous amount of work for you, as they're going through the diligence process, and you just want to make sure that it is it is set up for you to be successful from that first conversation.
Dennis McWilliams 37:53
Tom, you wanna take us home?
Thom Rasche 37:54
I don't know, is there anything to add? I think it is really important to get to know the entire venture capital company, because usually you have, you're dealing with one individual who is the champion, that champion has to sell the idea to his other partners too. So don't believe it that stops there, because he or she may be very convinced about that investment proposal, but maybe others are not as much. And you may find that you actually will have skeptics within the fund, about that investment proposal. So it's really important to understand the entirety of the company, or at least who are the decision makers within that company? Mostly, it's the people with a gray hair. Most of the times not always, but actually it is and it's rather important to understand is like, how much support are you having within the company within the venture capital company for that investment. And because as you said, sometimes people leave. And then this investment is handed over to somebody else, who definitely is not being the original champion, and may like it or not, or is just managing it, which is the worst that can happen to you. Because then it's kind of like I don't care. So I think that's one of the key things and I can only support the saying just like do as much diligence on the on the funds than we do on you. And we take our time on purpose you should do too. I know money is a scarce shores source skies, sauce, but you shouldn't be trying to take your time and go out early. I mean, we generally say to our companies before a year before the funds run out you should be starting to go out to get your properly time because that's the time you need at least in Europe. I think it's actually pretty much the same year to
Dennis McWilliams 39:49
some while I think our panelists was a fun discussion and
Nancy Hong 39:53
venture capital scale. I think it's a no
Thom Rasche 39:56
we haven't heard anything from Dennis yet.
Dennis McWilliams 40:05
Like, check, make sure he's in the room because we'd love the big venture funds to come in and invest in our companies when we need it but no thanks everybody for the conversation and it was a fun talk thanks
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