As I walked through the glass doors of the sleek and modern building, my heart raced with anticipation. It was my very first day at a venture capital firm. One month later, it’s safe to say that what I had expected going in was completely different from what really happened. An experience filled with challenges, learning, and moments of clarity, let me take you on this journey but first let’s give you a background about what’s in store for you.
KYP (Know Your Portfolio):
Before we get started on all the things you imagine a VC analyst would do, we need to get acquainted with the portfolio companies. Yes, while you may think you already know about all the startups in detail, you probably didn’t have complete data and most certainly didn’t have the necessary frameworks for evaluating startups. Think about it this way: if you don’t know why your firm has invested in a particular startup, do you really understand their investment thesis and can you make investment decisions in the future?
Research: Everything, Everywhere All at Once
Venture capital is all about identifying opportunities and investing in startups with high growth potential. To do this effectively, you must do three things:
- Research
- Research
- And yes more research
Covering the portfolio companies was just the tip of the iceberg. Research is what provides you with the insights to make informed decisions. As an analyst I had to learn, relearn and unlearn everything from scratch. Here are some tips that helped
- Market Analysis: I started by researching the market size, trends, and growth potential of the industries the firm was interested in. I learned how to use tools like industry reports, databases, and news sources.
- Competitive Landscape: It’s crucial to understand who the key players are in a specific industry. I learned to identify potential competitors, their strengths, and weaknesses.
- Macro Trends:Staying updated on macroeconomic trends can provide valuable insights. For example, understanding how a pandemic, economic downturn, regulation or social influence can impact specific industries.
- Networking: Nurturing and building a network both in and outside the industry is invaluable. I reached out to experts in specific fields, talked to friends about various products and tried my best to get insights from a variety of people.
Evaluating Startups: Finding a Diamond in a Coal Mine
Once I had a good grasp of the industries, it was time to evaluate startups. Here’s what I learned about this critical aspect of venture capital:
- Team Assessment: One of the first things we look at is the startup’s founding team. A solid, passionate, and experienced team is often a good indicator of future success.
- Market Fit: Does the startup’s product or service solve a real problem in the industry? Evaluating the market fit is essential.
- Scalability: Assessing whether the startup can scale its operations and capture a significant market share is crucial.
- Financials: While startups may not have extensive financial data, we analyze what is available to assess the company’s financial health and growth trajectory.
- Due Diligence: Thorough due diligence is a must. It includes legal, financial, and operational checks to uncover any potential red flags.
Preparing Communication: Articulating Investment Opportunities
As an investment analyst, effectively communicating my findings and recommendations is a key responsibility. Here’s how I honed this skill:
- Storytelling: Good storytelling is essential in conveying the startup’s journey, the problem it’s solving, and its future potential.
- Risk Assessment: We must be transparent about the risks involved in any investment. Addressing these concerns upfront builds trust with our investors.
- Customised Messaging: Customising the communication to the audience is vital. Investors, founders, and fellow team members may all require different information and insights.
First Month: A Rollercoaster Ride of Learning
To conclude, my first month as an investment analyst in a venture capital firm was indeed a rollercoaster. I’m looking forward to the opportunities and challenges that lie ahead,for as Peter Drucker put it, “The only thing we know about the future is that it will be different”.
Author:
Aditya Golani
