The Beginner's Guide To VC

tl;dr: Tired of being the only person on the couch who doesn’t understand the jokes in Silicon Valley? We’ve got you covered.

The venture capital industry is opaque. Despite the constant media attention devoted to venture capital and its investments, it can be surprisingly difficult to learn about if you don’t know where to look.

In VC there aren’t tickers displaying minute-to-minute prices, or tidy formulas in place to help determine the theoretically optimal price of a security. And venture capitalists themselves hardly bend over backwards to share their own secrets, or welcome new people into their cottage industry.

After all, we’re talking about private capital here.

Why are you here? Maybe you took and passed Guy Kawasaki’s VC aptitude test with flying colors, or perhaps you heard that VCs raised more in the first quarter of 2016 (some $12 billion, according to the NVCA) than they have in any other quarter over the past ten years. Hell, you might even want to break into the field. But you might not know where to start.

Regardless of your knowledge level, whether you know nothing or have a foundation in business and just want to learn more, it can be hard to find a diverse list of resources that will help. So what’s a newcomer to do?

We decided to make this list as a jumping-off point for startup founders, journalists, aspiring investors and the curious to get themselves up to speed on how the VC space works, often from an insider’s perspective.

There are endless excellent resources out there, and this list is by no means complete, but these are some of the resources we rely on to learn about this fascinating industry. They have served us well, and we hope they help you as well.

A quick note before continuing: As we continue to add suggestions from readers, we will add an asterisk to the end of the listing. You’ll be able to see what was originally in the list, and what was added later.

VC Often Fails

Being A VC Is Not All Fun, Games And Carried Interest Tax Loopholes

In a post from 2012, John Gannon (@johnmgannon) explains when it’s time to call off the VC job hunt and find another path. Remember that venture capital is a very difficult field to break into, and you shouldn’t string yourself along searching for an offer that may not come. (However, hope springs eternal for you, you might want to check out Gannon’s slide deck on VC Job Hunting Hacks or the list of resources on his website.)
Charlie O’Donnel (@CEOnyc) of Brooklyn Bridge Ventures gives ten concrete reasons on why being a venture investor sucks. These include people pitching you all the time, all the overhead of fiduciary responsibility, and the struggle of trying to play smart in a market full of “dumb money”.
In case that wasn’t enough, check out the answers to the Quora question “What are the downsides of being a venture capitalist?“

Famous Failures Of Venture-Backed Companies

CB Insights created a list of the 92 most expensive failures of VC-backed businesses.
They also published a piece linking to 156 startup failure postmortems, written by the founders themselves. It might be all candy and rainbows when the check is cut, but investors might are typically not the nicest people when they see their money going up in smoke.
Mattermark’s editor in chief, Alex Wilhelm (@alex), wrote an excellent article for Techcrunch documenting the decline and fall of Flowtab. It’s well worth reading.
Former Fab CEO Jason Goldberg (@betashop) published a tell-all account of his experience starting and failing at running his company. He also lost close to $300 million in venture funding in the process.

VC Is Not Known For Its Diversity, Either

This cartoon says it all.
Techcrunch posted a very fine-grain analysis of the gender and racial breakdown of the VC industry back in October, 2015. Chances are, it hasn’t changed much since then, which is unfortunate.
The Information found something similar. Less than 1% of the 552 senior VCs they surveyed are black, and just 1.3% are Hispanic. Almost a quarter of funds surveyed have senior investment teams that are 100% male and white as the driven snow. (Here’s the data they used, if you’re interested in analyzing it yourself.)
While not explicitly VC related, Techcrunch writer Megan Rose Dickey (@meganrosedickey) says, “Dear White People, You Suck at Diversity”. So long as a bunch of white guys still control the VC space, the diversity situation is unlikely to improve.

Area Venture Capitalists. Image via the Official Google Blog.

But If You Still Want To Learn About The VC Space:

The Basics

If you’re an entrepreneur reading this post to get some insider info on the venture capital industry, start here: Boris Golden (@boris_golden), principal at Partech Ventures, made a great presentation explaining the VC mindset to entrepreneurs. *
Here’s a handy chart explaining how VC funds are structured published in The Venture Alley. Angel Blog has an excellent long-form explanation as well.
You should know the difference between an accelerator and an incubator. Microventures explains it well.
Angel investors are their own category of investors. They are not venture capitalists, but they do invest in the same early-stage rounds as VCs.. Angels invest their own money, rather than other people’s money. Forbes has a list of 20 other things to know about angel investors.
Within a venture capital firm, there are likely to be a few different job titles. AskIvy explains the difference between analysts, associates, principals and partners. You may also hear about venture partners, which is kind of its own thing, and Fred Wilson explains their role.
There is this thing called “deal flow” and everyone wants their own. The flow of potential deals is the lifeblood of any VC firm, and can be derived in a number of ways. Usually, entrepreneurs are referred to investors by current portfolio companies or friends and colleagues of the investor, but sometimes this “deal scouting” network is more formalized, like in the case of Sequoia Capital.
Venture capital is an information game, which is why they don’t sign NDA’s. Here are six great explanations of why they don’t.

VC-Related Research Sites & Nonprofit Organizations

Definitely check out The Kauffman Foundation’s research site for papers on the innovation ecosystem
The National Venture Capital Association frequently publishes excellent research reports about VC funding activity and industry best practices
Many states have their own VC associations. For example, Michigan has the MVCA and Illinois has the IVCA. If you live in a state with a major startup hub, chances are there will be a venture investors association in your state.

Free Databases And Other Sites

These are going to be incredibly useful when doing market research or doing due diligence. Although they’re free, they’re used by everyone, ranging from top venture capitalists looking to source deals to tech journalists and entrepreneurs.

Crunchbase – A crowd-sourced and fairly complete database of startups, their investment rounds, and key people in the space
AngelList – A platform for startups to raise money and hire people
ProductHunt – A community-curated list of the best new products, apps, books and podcasts. It’s a great resource for doing market research and, apparently, sourcing deal-flow.
SeedDB – A database of seed-stage accelerator and incubator programs and their companies
Boogar – A list of lists! Find lists of VC firms, conferences, service providers and industry associations (among other things) here.

Interesting Research Reports & Scholarly Articles

There are tons of white papers and reports published by VC funds and other financial institutions about all kinds of special topics ranging from analysis of different market segments to reports on new valuation methodologies. Accessing these reports is usually just a matter of judicious internet searching.

Mattermark recently created a free data report with the “37 Fastest Growing Startups That Will Likely Raise Money Soon“. It’s a solid example of 1. Mattermark data, 2. A startup research report an Associate or Analyst might create while working for a VC fund.
Basically everyone reads Mary Meeker’s annual Internet Trends Reports. The 2016 edition was posted earlier this month.
As an example of the kind of in-depth sector research that can be easily found, here are links to Ackrell Capital’s extremely thorough report I referenced when writing the article about the growing cannabis industry. These kinds of reports, again, are everywhere.
Paul Gompers and Josh Lerner, both of Harvard Business School, are some of the most prolific researchers in the VC and private equity field. Their books and research papers surface a lot of otherwise hidden information about deal terms, LP agreements, and all manner of other topics.
Yael Hochberg, Alexander Ljungquist and Yang Lu published an article in The Journal of Finance in 2007 titled “Whom You Know Matters: Venture Capital Networks and Investment Performance.” It’s a fantastically interesting look into the role networks and reputation play in creating value in the VC space.
Similarly, Christian Hopp published a 2010 paper in Small Business Economics called “When Do Venture Capitalists Collaborate? Evidence on the Driving Forces of Venture Capital Syndication.” Hopp delves into the factors which determine the likelihood of collaboration and syndication in venture capital deals.
For a more scholarly look into the VC deal-making process, it might be worth checking out Vance H. Fried and Robert D. Hisrich’s paper, “Toward a Model of Venture Capital Investment Decision Making,” which was published in Financial Management in 1994. Although it’s almost 20 years old now, the article still holds up.

2015 Venture Capital & Startup Traction Report from Mattermark

Documentaries

Do yourself a favor and watch “Something Ventured” if you haven’t already. It’s available on Netflix, Youtube and elsewhere. It’s one of the best historical overviews of the VC industry out there.

Books

If you want to start with a textbook, there’s no better than Venture Capital, Private Equity, and The Financing of Entrepreneurship: The Power of Active Investing by Josh Lerner, Ann Leamon, and Felda Hardymon.
Books from Brad Feld’s Startup Revolution series are great. We highly recommend Startup CEO, Startup Communities, and Venture Deals, with special emphasis on Venture Deals if you want a quick primer on VC terms.
If you want to get into the real, deep nitty gritty of VC deals, check out Venture Capital Due Diligence by Justin J. Camp and Deal Terms by Alex Wilmerding.
On a similar note, if you want a more high-level look at the VC industry, consider thumbing through Mahendra Ramsinghani’s The Business of Venture Capital or Paul Gompers and Josh Lerner’s The Money of Invention.
John L. Nesheim’s High Tech Start Up is an all-in-one manual for starting and building high tech companies.

VC Blogs

VC firms keep blogs to educate entrepreneurs and build their brand and establish credibility in a somewhat crowded and noisy market. Here are some of the blogs we like best:

The Macro from Y Combinator
The First Round Review
a16z’s blog
Point Nine Land from Point9
Traction by NextView Ventures
Openview Labs by Openview Ventures

Many VC’s also maintain personal blogs for similar reasons. Here are some of our favorites:

Fred Wilson (@fredwilson) of Union Square Ventures has been a VC blogger since before it was cool.
Brad Feld (@bfeld) is also part of the old guard of VCs who blog. Apart from the usual shop talk and strategic advice, Feld is also a prolific book reviewer and commentator on the tech community. *
Investor, engineer and Columbia professor Jerry Neumann (@ganeumann) has written some truly excellent pieces about innovation and venture capital on his blog, Reaction Wheel.
If you’re in the SaaS business or are interested in investing in the space, be sure to read Jason Lemkin’s (@jasonlk) blog, SaaStr. There’s lots of industry insights there that can’t be found anywhere else. *
MG Siegler (@mgsiegler), general partner at GV, writes 500-ish word posts at 500ish.com
a16z partner Benedict Evans’s (@benedictevans) personal site has a nice archive of his best blog posts on subjects ranging from messaging, AI, search, and mobile eating the world. He also curates an excellent newsletter.
Steven Sinofsky (@stevensi), also of a16z, keeps a blog on which he writes about platforms, innovation, strategy and products.
Y Combinator founding partner Paul Graham (@paulg) writes very solid essays about entrepreneurship and has rightfully earned a spot in the startup canon.
Mark Suster (@msuster) of Upfront Ventures maintains a great blog: Both Sides of the Table. (He also archives his advice-filled Snapchat videos at Snapstorms.com)
Seed-stage investor Hunter Walk (@hunterwalk) writes about startup strategy and the goings-on at his seed fund, Homebrew.
Guy Turner (@guyhturner) is managing director of Hyde Park Venture Partners and writes at VC With Me.
There’s an archive of Marc Andreessen’s (@pmarca) blog posts available at pmarchive.com. *

For links to more blogs, check out CB Insights’s “The Periodic Table of Venture Capital Blogs” or this crowdsourced list of VCs and angels who blog, created and curated by European seed investor Marcin Szelag.

Podcasts

Exponent – Hosted by Stratechery writer Ben Thompson (@benthompson) and Harvard Business Review contributor James Allworth (@jamesallworth) is some of the most incisive tech analysis we hear all week.
The Pitch – Josh Muccio’s (@joshmuccio) podcast gives startup founders the opportunity to pitch to investors and lets listeners be a fly on the wall for their subsequent discussion. It’s great if you want to hear the kinds of questions investors ask startups.
The 20 Minute VC – Short, topic-focused interviews with VCs, hosted by Harry Stebbings (@HarryStebbings). Harry does a good job of finding guests with diverse backgrounds and areas of expertise
The Full Ratchet – Chicago-based seed investor Nick Moran’s (@thefullratchet) podcast features great interviews with sector specialists and “cram session” episodes covering topics like cap tables, deal terms, and the like.
a16z Podcast – The podcast from Andreessen Horowitz presents talks, interviews and discussion with the firm’s partners, entrepreneurs and industry thought leaders about a wide range of topics

Note: This is an ever-expanding list of resources. If there are other resources you’d like to share, or topics in the VC space you want to see covered here, email me at jason@jdr.fyi or find me on twitter @jason_rowley.

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