Venture capital funding is a popular source of funding for start-ups and businesses that may not qualify for finances with traditional lenders. Additionally, entrepreneurs with an eye on quick growth and (hopefully) a lucrative exit are also drawn to it. However, for all its popularity, venture capital is often marked by technical terminology, marketing buzzwords and continuously changing definitions. For a novice or veteran entrepreneur, navigating the world of venture capital can seem overwhelming.
For a long time, the inner workings of venture capital have seemed out of reach to the ordinary person. That is, until the release of Secrets of Sand Hill Road, a book written by Scott Kupor. Kupor has years of experience in the industry by virtue of being one of the first employees at Andreessen Horowitz, the famous venture capital firm that earned recognition for investing in unicorns such as Airbnb, Facebook, Instagram, Zynga and Lyft, when these were still little-known start-ups. Thanks to its investing success, Andreessen Horowitz has gained the respect of venture capital firms on Sand Hill Road (where many high-profile VC firms have offices) and beyond.
Secrets of Sand Hill Road has been received to positive reviews as the author gives a detailed look at venture capital. The information is suitable for those curious about investing, as well as venture capitalists, founders and investors. Thibaut de Roux, the former Global Head of Markets for HSBC Bank, is part of the fintech ecosystem as an investor, advisor and board member.
The Promises Made to Investors
As much as venture capitalists put their own money into the funds, they are typically making use of other people’s resources. These external parties are large investors who invest with VCs because they are looking for exceptional returns on their investments. The money that venture capitalists receive from these investors usually comes with expectations and terms, including time limits for returning the capital and the areas the VCs can invest in.
For an entrepreneur looking for a venture capital fund to invest in their idea, it’s vital to understand the nuances of the fund. These include how much capital is available, the fund’s age, its track record, and the areas of investment the fund targets.
A Fund’s Age Is an Important Factor
How long the fund has been in existence can impact many factors, including the type of relationship an entrepreneur has with a venture capital firm. For example, start-ups that receive investments when the fund is starting out may potentially have a longer time frame before returning the capital to investors. This can translate to less pressure from the VC firm to grow exponentially, enabling the start-up to enjoy a natural progression.
A business that receives investment money towards the tail end of a fund’s life may find itself with a shorter timeframe to produce results. The pressure to get to market fast can put a strain on the relationship between the business and the VC.
Understand the Terms of Investment
Some founders get stuck on how much their companies are worth and worry about giving away too much equity. According to Kupor, these are common concerns, but more important to an entrepreneur is the term sheet. The term sheet explains the details of the investment and is an area where venture capitalists have an advantage over applicants because they have more experience in structuring the deal. For entrepreneurs, Kupor advises going beyond the valuation and encouraging discussion on the term sheet offered to the business.
The author’s experience is invaluable in bringing the book’s main proposition – to uncover the secrets of venture capital – to life. His perspective is also vital in helping readers learn more about the process and what it entails. He knows that when people are better educated and informed about venture capital, better outcomes will be accomplished for individuals and organisations. Given a choice between dealing with a professional and someone who has little knowledge of the industry, many would agree the former is the better choice.