At Ballou PR, we work in the field of high-growth technology and technology enabled companies. Of course, this requires being well-informed about the technology scene and PR trends – but we are also required to know about the greater universe of limited partners (LPs), venture capitalists (VCs) and how fundraising works. So who could be a better teacher than the managing director at Sapphire Ventures, a well-known LP?
Recently we welcomed Beezer Clarkson to our Berlin office. As well as being a managing director at Sapphire Ventures in San Francisco, she was awarded one of the “Forty Over 40 Honourees” of 2014, graduated Harvard Business School, and is a close friend of our president, Colette Ballou.
She gave us an overview about how limited partners and venture capitalists function and invest, where they get their money from, and what it means to work in this field. Out of all this knowledge, we picked three key learnings that Beezer explained to us in a very memorable way and that we’d like to share:
- How funds work
The investment chain consists of several links and each link wants to earn a return on their investment – the LPs are the sources of investment to venture capital firms. The VCs are the source of funding to start-ups. However, many startups fail to return significant capital to their venture funds. Therefore, for a venture fund to make a return on their overall portfolio and return money to the LPs , for every start-up that fails, an other start-up in the same portfolio has to compensate for the loss by performing that much better. That’s high pressure.
- How to find the right ventures to invest in
Being a successful VC includes saying “no” a lot. For every startup a VC invests in, they say no to many many startups. However how a VC says ‘no’ matters. A VC might want to invest in the same company later once the company has matured a bit more, or the subsequent company by the same entrepreneur. Finding the best start-ups to invest in is therefore a process of having a lot of conversations, considering and selecting.
- How predictable is the success of a fund?
VCs are under great pressure to choose the right companies for their funds, but there is no such thing as a sure thing. Beezer used a picturesque parable: imagine you are betting on a race with different animals like a rabbit, a turtle and a bird. With the animals at the starting line you place your bet on who you think will perform best, based on the information you have at that time. It seems simple: you think the bird will win because it has wings, can go faster andfurther, than the others. But once out of the gates, you realise that you backed the wrong horse (or in this case, bird), because the turtles are performing solidly, yet slowly, and the bird unpredictably flew off in the wrong direction, away from the finish line (the rabbit as we all know from the famous parable takes a nap). Investing into start-ups is risky and to a great extent, unpredictable. There is no sure thing, no way to guarantee that you have made the right choice. It’s a lot about doing the best that you can with the information that you have, the value of pattern recognition and experience and hard work.