VC Confidential

it's January. Resolutions time. Get-organized time. Gillian and Anne talk about organizing the Fund Raising Process for raising capital. They've been at it for a while now at the Sybilla Masters Fund, and have learned a few lessons and a few tips to share with listeners, whether you are raising capital for a venture capital fund or raising capital for their startup. Listen to find out how to get started, how to keep track, and when and how to share your Deal Room.

Following the Janaury 3rd guilty verdict for Theranos Founder and CEO Elizabeth Holmes in federal court, Gillian and Anne dive into the further responsibilities of investors and board directors to provide effective oversight of corporate executives, as well as due diligence before investing. This sensational case, which lost nearly $1 Billion of investors' funds pinpointed the critical nature of governance by those so tasked – by law.

Gillian and Anne explore how venture capital funds form, market, and express their investment theses. Founders need to know which VC to pitch for capital, just as investors want to find funds that align with their principles and goals. A fund's investment thesis lays out just how it will make money for its investors, their Limited Partners (LPs), by naming the focus of investments, geography, and startup stage. Doing so differentiates a venture fund from others, providing clear guidance to investors and entrepreneurs.

Gillian and Anne talk about Boards of Directors. They covered this topic at a high level in a 2020 episode here at VC Confidential, ‘Why Investors Need Strong Boards'. This time, they dig a bit deeper into the formation and management of boards and their effect on the success of companies. The difference between a functional board and a dysfunctional board can have as great an impact on a company as a functional vs dysfunctional family can have on a growing individual. Hear why Investors should be thinking about a given company's board before they make their investment.

Gillian and Anne delve into warrants. Just one of the forms of venture debt, a warrant is such a useful investment instrument and so few people seem to understand what it does, how it's used, who uses it, when, and why. Often called a classic feature of venture debt, warrants are a type of security that gives the holder the right to purchase company stock at a specified price within a specific period of time. Many VC investors, including the world's best-known investors and accelerators use warrants rather than conventional venture capital. Hear why in this episode.

Gillian and Anne delve into what LPs should expect from investor updates, and how GPs and Managing Directors can prepare valuable LP updates for both written and video-conference communications with LPs. First-time venture capital fund investors want to know what to expect from their fund managers, just as investors and fund managers want to see regular, consistently informative updates from portfolio companies. Listen for tips on optimal content and format, as well as for living meetings, which are so beneficial to both investors and fund managers.

In their continuing crusade to rip the lid off the opaque corner of private fin ace known as venture capital, Gillian and Anne drill into more of the often confusing language and clauses found in capital investment documents, starting with ‘preferential rights'. Who gets them and why would anyone want them, as like many such legal monikers, they subtract as much as they add. Listen to hear what you need to know before you invest or take an investor on your capitalization table.

While large VC Funds seem like a lot of money to invest in entrprenuers, the expenses of running a fund over a 10-year life (on average) chip away at the sum persistently. Management fees, legal and accounting expenses, rent and staffing all add up before the fund pays any returns to investors. Gillian and Anne dig into these costs, with examples to show how fund managers run fund expenses. More important, fund managers sometimes elect to optimize their own fees to reduce their individual income tax liability via Management Profits Interest agreements, a practice that federal lawmakers are scrutinizing.

Gillian & Anne welcome Denis Dunlap to this episode to discuss how venture debt works, and how it differs from conventional VC equity deals. Venture debt is a an increasingly popular form of revenue-based funding that works well for companies focused on growing sales rather than seeking exits. Denise explains when taking on debt serves company growth better, and when it does not. She is co-founder and Managing Partner of Sage Growth Capital, based in Boise, Idaho, doing business in many states across US.

Amid a rising clamor to become angel or venture investors, even among people who do not meet the Securities and Exchange Commission's strict rules to qualify, new platforms and mobile apps have emerged to meet the demand. Enabled under the SEC's Regulation Crowdfunding adopted in 2015 as a result of Title III of the JOBS act of 2012 sets limits on how much companies can raise and from how many investors. Gillian and Anne sort it all out and tell why democratizing access to investing matters.

Anne & Gillian welcome Diane Fraiman, Managing Director at Voyager Capital, founded in 1997. With more than $520 million under management, Voyager invests in B2B software, cloud, and big data applications, and has steered five successful exits in 13 investments, well above the industry average. Diane reveals how best to get a VC's attention (Pro tip: cold call emails rarely work), and who drives decisions to invest, and, not least, what‘s in store for founders after they get funded.

Returns from conventional venture capital funds have lagged below those from public market investing consistently and stubbornly since 1997. That is more than two decades.  In their continuing quest to find sustainable venture investment models that will benefit all parties, stakeholders, and communities, Gillian and Anne discuss whether an index fund, as commonly used in public markets, would be a workable solution. Hear how they talk it through and where they arrive at the best way forward for investors and entrepreneurs together.

Deservedly called the riskiest asset class, Venture Capital has underperformed public markets for decades, and since 1997 less cash has been returned to VC investors than they have invested, reports the Kauffman Foundation. The tiny group of top-performing funds who have returned at least twice the capital invested continues to capture outsize media and public attention. Gillian and Anne go deep into why the overall performance of VC is so poor, and their take on what to do about it.

Gillian and Anne explore how venture capital funds form, market, and express their investment theses. Founders need to know which VC to pitch for capital, just as investors want to find funds that align with their principles and goals. A fund's investment thesis lays out just how it will make money for its investors, their Limited Partners (LP's), by naming the focus of investments, geography, and startup stage. Doing so differentiates a venture fund from others, providing clear guidance to investors and entrepreneurs.

Term sheets are one of the critical pieces to success in venture investing. They come after due diligence and before investment documents. Gillian & Anne dig into what term sheets usually contain, and what's important for funders and founders to include, exclude and understand, as well as how to negotiate them well for the benefit of all parties. Founders take note: a term sheet is close to the finish line, but there is still a lot of work to be done before you pop that champagne cork.

Gillian and Anne take a look at where venture capital investors will be looking in the coming months as the world eases out of lockdown and distancing. Digital infrastructure improvements and innovations to accommodate a long-term remote workforce will see a continuing surge, as will training that workforce by virtual and augmented reality. Beyond the obvious, contactless payments, 3D printing, chatbots, and robotics, born of necessity will all continue rapidly expanding adoption.

To celebrate International Women's Day, Gillian and Anne talk about women funders today. Knowing the sad stats about female founders receiving a pittance of conventional venture funding, they get under the hood to see who will actually change the untenable imbalance of the flow of capital and power to women on this planet: Female Funders. Hear from the Financial Times and MIT Sloan on inequities in VC with respect to women, and what to do about it.

The Securities and Exchange Commission of the US Federal government in 1982 set minimum qualifications for people to make private investments, to “protect investors from themselves”, according to one writer. The rules qualified investors in terms of wealth alone, a questionable assumption that having wealth alone made for a smart investor. The SEC revisited the rules, and on December 20 of 2020 added a third set of qualifications based on experience, or ‘know-how', among others. Gillian & Anne unpack what the updated rules say, and mean.

It's back to basics with a review of investment vehicles commonly used in Venture Capital, starting the Convertible Notes and Safes (Simple Agreement for Future Equity). Functionally, convertible notes provide investors with interest returns on debt instruments, while SAFEs are warrants to purchase shares in the future at a set price. Gillian and Anne explain when to fund with either one, with details on upsides and down for each.

What does leading a deal mean? What does a Deal Lead do? Why is it important to have one? Why don't entrepreneurs lead their own deals as capital raises get larger? Gillian and Anne break it down and lay some popular misconceptions, for example, that the lead investor puts in the most money.  The Lead in a deal is the one who promotes, organizes, and drives the deal to a close. Hear all the details in this episode.

Gillian and Anne talk about how conventional VCs think. Debunking some conventional wisdom commonly said by VCs versus what actually goes on in VC funding, and what gets funded. To be fair, funders sit through a lot of pitch meetings and see a lot of deals before striking winners. What really gets them to pay attention?  Listen to what really affects the decision-making process of VCs in granting first and then second meetings and in ultimately reaching a positive decision about whether to make an investment.

Gillian & Anne take a look at DEAL or DATA rooms and share some information about when to create them, what to put inside, how to share them.  Broadly, deal rooms are created to share sensitive data securely among businesses in the process of forming and managing partnerships, and almost always required by VC's to view information from founders. Hear some disruptive wisdom about whether and/or when to provide data this way at all.

Briefly put, a portfolio construction model is a method of determining whether and how a Venture Capital fund is going to make enough money to return a reasonable ROI (return on investment) to its investors and cover the costs of doing business in the mix. Gillian & Anne illuminate how conventional venture capital works, which in turn reveals why new private equity investment models are emerging to improve the potential for ROI for investors.

Gillian & Anne are back with more on basic Venture Capital investing methods, this time explaining sidecars and what they are generally used for (beside motorcycle passengers in old movies). Here' all anyone needs to know about when sidecars, and their larger siblings, ‘sidecar funds' can be useful to investors, and why an investor or group of investors might want to set either up. Spoiler alert: it depends. There are no hard and fast rules.

Gillian and Anne review trends emerging from the tumult of 2020 that are not going back in the genie's lamp, especially increased investing in diverse founders and women with better ways to fund first-time, generally younger, early-stage founders. Structured equity investments and other revenue-based finding will provide more opportunities for investors to make shorter term investments with a much higher likelihood of steady returns commensurate with the risk of the asset class.

Anne and Gillian take a look back at 2020, the year we are all really glad to see come to an end. Oh, what a year it was! A global pandemic, a worldwide recession, and a highly contentious US presidential election. Listen here for highlights that relate to Investors, entrepreneurs, and advisors. While funding for women-led companies continued to be pitiful, and first-time fund managers struggled to raise capital, 275 women-led funds emerged by year's end.

Launching IPO's using Special Purpose Acquisition Companys has shot upward in 2020. With both the number of SPAC's and dollars invested m ore than tripling since 2019, and raising nearly half of all IPO dollars in 2020. What are these newly rehabilitated investment vehicles? How do they work, and what makes them attractive to both investors and entrepreneurs. Gillian and Anne run down the details for you.

In venture capital, Series A sits somewhere between startup seed capital and Series B fuel for significant growth. Following on from a previous episode ‘How to Get top Series A', Gillian and Anne get granular with a checklist of what metrics investors look at as they consider funding a post-seed stage company, and therefore what company management must address to achieve a Series A capital raise. Some are intuitive, like traction and evidence of latent markets. Others less so.

Anne and Gillian talk about Special Purpose Vehicles, funding mechanisms used often by VC funds to invest in companies they might not be able to otherwise, or on a different timeline from their usual. They cover the definitions and details and then dig into some of the thinking behind SPV's, such as purpose and intent. SPV's combined with structured equity exits are an excellent way to seed growth at some companies pre-Series A.

VC firms that increased their number of female partners by just 10% saw a 1.5% increase in ROI, plus 9.7% more profitable exits. So says a new report from Women in VC by founders Jessica Peltz and Sutian Dong. Gillian and Anne dig into highlights, as well as their enduring question “When will the money follow the data?” Women funders invest in two times more women founders and three times more women CEOs, who in turn outperform their brothers across most metrics.

Venture Capital is just .2% of America's invested dollars but generates 20% of GDP. Yet, our US economy is frayed and brittle as those dollars go mostly to white-men founded tech companies, while impact investing performs better than public markets most of the time.  Anne and Gillian reconcile those points with a lively discussion of stakeholder capital and what it means to prosperity. Quotes from General Catalyst co-founder David Fialkow add fuel to the robust topic.

Conventional VC has produced 20% of US GDP, on invested capital of less than a quarter percent of all investing. Yet, wealth gaps increased, while a global pandemic has invaded us and set the economy reeling in ways not seen since 1933. WWII reignited the US economy; will fighting Covid19 do the same now? ‘Life in wartime', indeed. What roles do VC's need to take on to support a robust recovery here and around the world? Anne & Gillian explore complexities and inequities to seek a way forward for capital.

Anne and Gillian continue their conversation about the effect of the Covid19 global pandemic on venture funding and the rise of ‘stakeholder capitalism'. The real movement they note is in ESG investing -- that is Environmental, Social and Governance, AKA sustainability investing, as investors seek broader criteria for success. Funds investing in these ventures have doubled their assets under management in three years. In the USA the sustainable investment market has quadrupled and by 2019 was 20% of the global total.

Gillian and Anne discuss reporting in Forbes magazine, Harvard Business Review, and MIT Sloan that impact portfolios and diverse leadership get better returns than conventional ones. Impact investing earns market-rate returns for two-thirds of investors. By comparison, the Kauffman Foundation reported that more than ¾ of conventional VC funds have failed to keep pace with public markets since 1997. Moreover, diverse leadership performs better, according to a stats packed study from Harvard Business Review.

Jenn Leblanc, the author of “Changing Tides: Powerful Strategies for Female Founders” and founder herself of the Changing Tides Movement, joins Gillian and Anne to talk about launching both the book and the group to create serendipitous connections for women-led startups. Access to investors and having engagements with investors EARLY is the key factor to success in early-stage entrepreneurship, she says. Hear also a preview of ‘The Wave' a virtual conference organized to bring women founders and funders together.

Anne & Gillian return to their root focus, gender lens investing, with an encouraging update based on Project Sage 3.0 from Wharton's Social Impact Initiative, authored by its Managing Director Sandi Hunt and Suzanne Biegel, CEO of Catalyst at Large in the UK. They found the number of gender lens funds more than doubled and the number of investments made more than quadrupled in just two years. Drill down into sector details and opportunities in this episode. The entire report is available on socialimpact.wharton.edu.

In their July 27 show, Anne & Gillian examined the role that venture capital can and should  take in building Black wealth. Conventional VC has woefully underperformed -- Black entrepreneurs receive less than 1% of venture capital, and Black women a tiny fraction of that. The declining state of black wealth and resulting racial gap in the US was the topic of a Living Cities report in December 2019 (https://www.livingcities.org/resources). Authors Natalie Nixon and Peri Higgins guest to revisit and further reveal how to solve this looming crises for the US economy. 

A strong board is votal, and weak or ineffectual board is a disaster for investors and entrepreneurs alike, says Julianne Zimmerman, Managing Director of Reinventure Capital. A veteran of many board seats, she joins Anne and Gillian to unpack just why an acticvely engaged board of diectors serves to keep everybody on mission. Founders need to identify high-value directors early, and structure board member roles as strategically as they do the leadership team.

This week Anne and Gillian talk with Joe Milam of Angelspan to track startup performance for better context for investor reporting, with less hyperbole and metrics that really matter. Angelspan benchmarks according to Bell-Mason metrics to improve sourcing a flow of capital as investors make better-informed risk decisions. Founders willing to be transparent square better risks and more likely to succeed, he says.

Continuing the discussion of Structured Exit funding vehicles, Gillian and Anne dive deeper into how this relatively new funding vehicle works for both investors and entrepreneurs, and how it differs from the more commonly used funding, venture debt. Somewhere between conventional venture equity and venture debt lies the world of venture equity with a structured exit, better called Structured Equity. Hear all about it here.

Structured exits mitigate investor risk for investors, while at the same time allowing access to upside results, says David Gitlin, an attorney at Royer Cooper Cohen Braunfeld. He has been championing structured exits as funding vehicles since 2015. David joins Gillian and Anne to explain why, how they work, and what benefit they provide for impact startups and underrepresented and founders access to capitalization to grow.

Finding the right VC for a startup is critical to building a lasting and productive relationship. Gillian and Anne detail how to determine your short list with highly focused research to discover what kinds of investments each VC makes and whether any of these fit a given startup's business. Step two: what questions does the founder need to ask in the first meeting to find out if there is a match? Startups need to do their homework. Emerging fund managers do, too, by develop concise answers to core questions about their funds.

Anne and Gillian talk about Equity. Not the kind of equity that VCs purchase when they invest capital in a startup. The kind of LACK of equity in the field of venture capital and in society at large that leads to so many people of color - and especially women of color - who start brilliant companies and are unable to raise the capital needed to make them successful. Here why leveling this playing field is good for our entire economy, and what VC's can do about it.

Gillian and Annee take a deep dive into the leadership structure of venture capital firms, starting with the most common organization charts. A confusing landscape for sure, because funds can write any roles and responsibilities their investors will agree to -- within securities law, of course.There are common roles to all VC fund management. Hear who (or what) a General Partner of a fund can be. Hear why investors are called ‘limited' partners. And what's a ‘venture partner'?

Gillian and Anne continue with explaining what angel investors can expect when they level up to investing in venture capital funds. It's different, and there is lots of legal paperwork. Anne and Gillian go over the details of the documents investors need to sign, and more importantly, how to find the right fund that fits your mission and values, as well as how funds different in their investment models.

What do first-time venture fund investors need to know? Investing in a VC fund is quite different from investing as an angel. Gillian and Anne discuss how VC works for investors, and what to expect. Money must come FROM new and different hands to get INTO new and different hands to get women and founders with all manner of diverse attributes and background funded, and make the pie bigger. The power lies for both investors and entrepreneurs in diversity on all sides.

There are three critical parts to success in getting to Series A funding from conventional VC's. Gillian and Anne talk about finding the right VC for your growing company, how to prepare for talking to VC's to make sure you make the cut during due diligence, and what to say once you're in the front of the VC's pitching. Equally important, what NOT to say. 

After the past few episodes on equity funding, venture debt and structured exits, Gillian and Anne tie it all together by explaining how to use varied funding vehicles to build a better capitalization stack, for the purpose of creating sustainable businesses and retaining more wealth for founders and early funders. IT Stacks comprise different sets of software for varied uses. Capitalization of a company is much the same.

Structured exits were promoted as long ago as 2015 to angel investors as a path to earlier liquidity. What exactly does the term mean? Gillian and Anne explain how this not quite new concept could revolutionize startup investing, and yes, bring earlier returns to investors, whether angels or VC's. Slightly different from venture debt, structured exits deserve consideration from both founders and funders.

Do you find terms like ‘discounted cash flows' and ‘net present value' confusing, even mysterious? This episode is for you as Gillian helps Anne understand Internal Rate of Return, aka IRR, a term used a lot by venture capitalists to benchmark their funds. Considering the future returns and their value to you in today's dollars is indeed a best practice for appraising investments you are considering.

In their continuing mission to clarify everything investors and entrepreneurs need to know about venture capital and how it works, Gillian and Anne unsnarl the confusing ways valuations are calculated for start-up companies seeking venture capital. Hear how to set your first ‘salvo' valuation when you prepare to pitch investors, and what to do -- and what not to do -- to secure your lift-off.