Becoming a VC Insider
Kids may grow up wanting to be entrepreneurs, but “no kid dreams of growing up to be a venture capitalist,” says Jeffrey Bussgang (MBA ’95). Thankfully, Bussgang has managed to do both and write about it, too. His recent book, Mastering the VC Game (Portfolio), is the best I’ve read explaining an industry that is well known but not well understood. Bussgang should know the material: He is general partner at Flybridge Capital Partners in Boston and currently an Entrepreneur-in-Residence at HBS.
The book explains the different ways VC firms organize, strategize, and make money, including a clear look at how a firm’s percentage of profits, or carry, is calculated and distributed. Then comes the heart of the matter: a number of insider tips any entrepreneur seeking funds must learn. For example, Bussgang advises money-seekers to ask a key question of the VCs with whom they are talking: “How is the carry divided within the partnership?”
If the carry is divided equally among senior and junior partners, that speaks to a firm where everyone has a voice on decisions. But an organization where most of the carry goes to senior partners suggests a hierarchical group whose key decisions are made at the top. “It’s a reasonable question to ask and will provide revealing insights into the partnership’s culture and division of decision-making authority.”
A full chapter is devoted to creating “the pitch” that will make your presentation the one out of hundreds that wins funding. Bussgang recalls his first major pitch, made before no less than VC legend John Doerr (MBA ’76) and partners at Kleiner Perkins. In a scene guaranteed to produce an empathetic sweat, the author relates his fear while being peppered by “killer questions” on four-year gross margins and break-even points. Bussgang, just a week on the job, floundered for answers, but Upromise, an online college savings vehicle, received funding anyway.
The author recommends you shop for VCs like shopping for a car, looking for a style, brand, and model you are comfortable driving. Decide beforehand whether the firm you want is globalor local, an early- or late-stage investor, confines itself to certain industries, and what size fund best meets your needs. The proper homework can also tell you where a firm sits in its funding cycle. In other words, is there money available?
Most of all, Bussgang says, don’t be shy. “Venture capitalists admire tenacity and resourcefulness, both qualities that an entrepreneur can and should exhibit from the first e-mail, phone call, or handshake with a VC.”
