Secrets of Sand Hill Road and Aldgate Tower

"Put me anywhere on God's green earth, I'll triple my worth"

Venture Capital is the engine and catalyst for economic growth and it plays an important role in powering the innovation economy – the injection of capital in startups catalyses their growth which in turn leads to innovation and economic growth. Companies such as Facebook, Google and Apple did get their start with a check from venture capital.

How different - for the better or worse - our world would be today without these companies?

 If necessity is the mother of innovation then venture capital has been for the last five or six decades the lifeblood of innovative companies.

The returns generated from the incredible achievements of successful entrepreneurs make a massive difference in almost all aspects of our lives.

As you read this piece, venture capital is funding the future and it’s in my opinion the quickest way to make a lasting positive impact in the world.

Venture Capital as many others sectors of the economy, still has a long way to go especially in regards to democratising access to capital and making sure that the VC ecosystem is meritocratic, diverse and inclusive.

I worked in the past in two venture capital firms and startup generators and I did see and experience first hand the good and bad sides of venture capital.

In 2017 male founders raised more than $66B in venture funding but only $1.9B went to female founders.

In 2018 companies raised more than $80B in venture funding however only 1% went to Black founders.

As you can see the flow of capital to underserved founders is at its best very limited and at worse non existent.

Venture capital will achieve its optimal state when it fosters and nurtures the untapped human resources of our societies which will lead to a more equitable world and better returns to their LPs.

VCs shouldn’t invest in founders from diverse backgrounds just because it’s the right thing to do but also because research has shown that returns from diverse founders are usually as good or even better than those from typical founders. We must keep in mind that VCs have a fiduciary duty to their limited partners (LPs) to make them good returns.

Venture capitalists and computer scientists clearly have one thing in common: they speak their own language characterised by jargons and acronyms.

Therefore it's not surprising that those new to the field just myself last Summer were often recommended books and articles to read, and immersed in long hours of masterclasses and fireside chats with well accomplished entrepreneurs and VCs in order to get up to speed.

It showed up in my newsfeed that Scott Kupor the managing partner at Andreessen Horowitz - one of the most successful venture capital firms in the world which counts among its portfolio of companies the likes of Facebook, Airbnb, Twitter and Skype -had just released a book about venture capital titled Secrets of Sand Hill Road - Venture Capital and How to Get It.

The book did turn out to be an excellent introductory book for anyone interested to learn about the venture capital world.

Scott is a lawyer by training and how one would expect he's a master both of the spoken and written word, throughout the book he patiently and diligently breaks down in a simple manner the complex terms that are part and parcel of venture capital.

He starts by explaining what is venture capital, the investment criteria that VCs use when deciding to invest in startups, who funds venture capital firms (LPs), how to pitch for investment, among many other valuable information.

There's a little bit of everything in the book for everyone but you’ll find the book even more useful if you're an entrepreneur seeking to raise capital, a venture capitalist raising for her VC fund or a limited partner (LP) seeking to invest in a VC fund.

A chapter which should be of interest and of utmosts importance to founders is the Raising Money from a VC chapter.

To the question: How much money should you raise?

Scott advises: "... think about your next round of financing. What will you need to demonstrate to the next round investor that shows how you have sufficiently de-risked the business, such that that investor is willing to put new money into the company at a price that appropriately reflects the progress you have made since your last round of financing."

He further adds:

"....if you accomplish the objectives that you laid out at the time of your A round, your B round investor will pay you for that success in the form of a higher valuation."

Scott warns entrepreneurs of the danger of over raising:

"Scarcity is indeed the mother of invention. Believe it or not, having too much money can be the death knell for early-stage startups."

Another excellent chapter is the one about how to pitch. Scott lists the essentials of a good pitch: the market size, team, product, go to market strategy and the planning for future fundraising.

Out of these I believe that team is the most important one. Scott reiterates an old adage: "execution is what sets the winners apart from the pretenders."

In his eyes a CEO should relate her prior accomplishments or experiences to the current business and shouldn't shy away from talking about past failures.

A good founding team is one which has either some or all of these:

1- A deep technical understanding of the problem to be solved.

2- The knowledge of go to market, this is how to best develop the right sales and marketing strategies.

3- The solution is derived from a personal experience of hardship, around which the entrepreneur felt compelled to build the company.

He finishes by asserting that being a good storyteller is often a good indicator of potential success in an entrepreneur, and that entrepreneurs should have strong beliefs which are weakly held, that is that they'll adapt to the changing needs of the market but remain informed by their depth of product development experience.

Hasta la vista.

Dauda Barry