5 years in venture capital: 10 key lessons learned | by Ernst Rustenhoven | Sep 2022

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Lots of wrinkles and gray hair, I joined Slingshot Ventures. And even if I could count them, I wouldn’t – it would be way too confrontational. Fortunately, counting the number of years is much easier: five to be precise. As a VC you always look to the future, but I think it’s actually a good time to look back and reflect. In the past five years, I have yet to jump on the VC writing blogposts bandwagon. And I do not plan to do it systematically. But like everything in life, sometimes it’s time to get out of your comfort zone. As such, I have reflected on the 10 key lessons I learned during my years in VC and have taken the liberty of presenting them to you in this blogpost (in random order by the way), hoping that you at least find it enjoyable to read them for the next five minutes. More so, they will hopefully enlighten you as you progress through your own startup journey.

Founders sell. Permanently. Whether it’s selling your product or service to a potential customer, selling your business to an investor, or selling your business to a great candidate: to me, a founder’s sales ability is what makes the difference. Especially in the early stages of building a business, people buy into a vision and need to be inspired by how the founders are selling it. After all, and more than often, there aren’t many tangible results yet that can prove that a founder is worth being associated with. I’d rather invest in a founder who inspires and can sell, than a great product that can’t.

Whether it’s explaining your product or service or structuring the terms of the agreement: simpler is always better. The best ideas are simple and easy to explain, you immediately see the value and quickly ensure that the market will adopt it. Simpler, less complex agreements (e.g. goal-based assessments, tranches, protection mechanisms, etc.) are concluded more quickly and, once implemented, are more efficient to manage and yield better business results, both short and long term.

While many VCs focus on evaluating execution plans, aligning with how founders view their businesses and knowing if you’re aligned is much more fundamental. It’s like politics: you can vote for a party that has — in your opinion — the best election manifesto but in fact you already know it will be compromised from day one. Voting for a party that aligns with your values ​​will likely increase the likelihood that the politicians you support will handle unforeseen circumstances in a way that aligns with yours. Investing in start-up companies is often the same thing. I’d rather spend time chatting with the founders of the company about their visions and how they make decisions to bring them to fruition than create a false sense of security because the project timeline and financial model seem so sophisticated.

We all know that dreaming big can change the world. But unfortunately, we also know that many dreams never come true. I’ve lost count of the billion dollar market opportunities and hockey sticks I’ve seen over the past five years, many of which have been presented to me by unsuccessful companies. . Unrealistic expectations scare off investors and the same goes for founders looking for valuations. Yes, you might think that’s easy to say coming from a VC that obviously benefits from a lower entry valuation. But it’s also true. The world is more unpredictable than ever and raising a solid tower based on a realistic plan may turn out to be the best decision in the life of your business. Especially in today’s market, where being well funded is a major competitive advantage.

Venture capital and venture capital building play the long game. While typical holding periods for private equity vary between 3 and 5 years, that for venture capital varies between 6 and 10 years. By comparison: the average length of a marriage in the United States is 8.2 years. As founders and VCs, you may have to deal with each other much longer than you deal with your life partner(s). So the VC/Founder relationship is similar to a marriage: you give and take and you push each other to get the most out of your relationship. And when you argue or even fight, apologizing and fixing things is the only way to move the partnership forward.

Doesn’t that sound refreshing coming from a VC? Luckily, we’ve been hearing it a lot more often lately, but at Slingshot Ventures, we’ve been telling the founders we’ve been supporting since day one. Growth, or even hypergrowth – or whatever fancy term you want to give it – is what VCs tend to go for. But unfortunately, I have seen cases where (hyper)growth at all costs turned out to be the worst thing to focus on. If you’re not ready to scale yet, don’t because there’s a good chance you’ll run into scaling issues. And a problem that grows exponentially larger is likely to become unsolvable. The best founding teams know when to consolidate, strengthen their new foundation before setting themselves up for the next phase of growth.

Don’t argue here that early stage investing should be done purely on hunch. Yes, an analytical approach helps, by calculating the numbers, assessing the market potential and the economics of the unit: everything is important. But the best VCs combine that with their instincts and follow it. The worst situation you can find yourself in is making a bad decision when your instincts sensed something was wrong beforehand. As a VC, you know you’re going to miss out on great deals. Sometimes you just can’t build the belief you need to move forward, and then you find out you’re wrong years later. Unfortunately, that also comes with the territory. Going forward with a deal that you consider to be no good does not.

Alice Deejay asks herself the question: “Do you think you’re better off alone” in her late 90s hit several times (it’s pretty much the only line of the song, by the way). In VC, the answer is undoubtedly: no. You are certainly not better off alone. Surround yourself with the right people, the right investors, and weigh very carefully what you can expect from everyone involved. The best founders know who they want to share their success with when it comes to key hires. The best VCs know when to team up with other VCs, bringing additional expertise and/or complementary networks to the table. And when times get tough, the saying “a problem shared is a problem halved” can be a real “lifesaver”.

I love electronic music. Particularly tech. Nothing beats oldskool, 90s techno rave (I know, it’s a matter of taste). And when it comes to investing, oldskool economic principles (or at least, the important building blocks of it) never die. Some markets, the companies operating in them and their business models are simply not suitable for venture capital. Perhaps to ride the hype and achieve a comeback along the way. But not to build scalable, defensible and highly profitable business models. For example, while there is a place for q-commerce in today’s consumer space, all the hype and massive amounts of capital flowing into it were – in my view – never justified given the limited correctness of the business model. We’ll definitely see more of that in the future – let’s see if VC has learned the lesson.

A counter-intuitive way to end this short article, because sharing these lessons is basically talking about me. However, it has struck me over the past few years – and in general during my time in business – that the people I rate highly and consider successful are curious (and humble). They don’t talk much, let alone about themselves, but they listen and ask questions. The best VCs I know ask me why we invested in a certain company, instead of telling me – without asking – whether they think it’s a bad or a good investment. The best founders are amazing at selling their business while being amazing listeners and asking the right questions, which helps them determine if they want Slingshot Ventures as a partner. For me, it’s quite simple: if you say anything, the time is consumed by something you already know. If you ask a question and/or listen, there’s a chance you’ll learn something new.

Thanks to my Slingshot Ventures team members for their contributions to this article.

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