“The table stakes for [venture capitalists] has never been higher,” says Judith Elsea, co-founder of the fund-of-funds Weathergage Capital, in our latest interview.
With the rise of stronger and stronger operational models, like Andreessen Horowitz, the value add VCs must provide has increased significantly. So in this world of heightened competition for LP money, what do LPs want to see in prospective fund investments? According to Elsea this can be broken down into three key elements.
Capital Efficiency
Just like startups, startup investors must ensure they are optimising their burn rate and being as capital efficient as possible.
As Elsea highlights, “if a VC is not reinvesting their management fees, they are already behind.” This reinvestment will increase the value add of the VC and increase what Elsea believes is the most important element, ‘founders opinion of the VC’.
Intelligent Data Usage
With the increased availability of data, venture firms must not only be using this to source and find the best companies but using it as an engine for growth for their current portfolio companies.
Social Capital are a prominent example of this. They have a dedicated growth team, using data to advance the position of their companies. Elsea states her’s and the LP communities ‘respect for their forward thinking nature’.
Scrappiness
The term ‘scrappy’ is rarely associated with VCs with the common ideas of plush glass offices with vast board rooms. However, those days are over. As we said earlier, the table stakes for VCs has never been higher and if you want to get into the best deals, you have to fight and be scrappy.
There is no better example of this than one of Elsea’s own funds, Felicis and their investment in Rovio.
Aydin Senkut, General Partner at Felicis, said in our interview with him that he ‘relentlessly pursued Rovio’ over several continents to get the deal done. It is this hustle and hunger that will separate the top performing VCs from the media in the coming years and increasing competitive environment of VC.
Ultimately the most common reason LPs reject fund managers is due to lack of differentiation. Therefore, if you reinvest your management fees in operational segments that have not been taken by other funds.
Finally hustle harder than anyone else. As Matt Mazzeo said in our interview, ‘hustle is what separates the good from the great’. Once these 3 components are in place, it is time to get fundraising.
