Roger Ehrenberg, founder and Managing Partner of IA Ventures, recently penned a first-person account of what keeps venture capital investors like himself up at night. It’s a good primer for anyone interested in a venture capital job.
His firm, IA Ventures funds early-stage companies that focus on the development of innovative tools, technologies and analytics for managing and extracting value from large amounts of data.
The fundamental questions keeping him up at night include: “Are we making the right investments? Are we seeing the right deals? Is our evaluation process effective? Does our method of decision-making promote successful outcomes? Are we capturing the data necessary to make a reasoned assessment of the above?” he writes in the Huffington Post.
Every VC firm has a “deal funnel.” How wide or narrow they make that funnel of potential new ventures depends on their fundamental approach to the business. A general fund that is looking to make a large number of small investments will opt for a very big funnel and not be as selective as to who they weed out.
On the other hand, a more specialized fund tends to be more focused in its mission and create a narrow funnel that attracts only the ventures that fit with its investment thesis. This yields a smaller amount of potential deals but, hopefully, those that are worth the time and effort of more in-depth screening. IA Ventures falls into this second category.
But even with a narrow funnel, the screening process is always a huge challenge. Like many VC firms, Ehrenberg worries about his evaluation methodology. Is there a clear sense of what they are looking for? Is it quantified, such as in a checklist? Or is it more of an emotional decision based on a gut-feel one gets from meeting with the entrepreneur?
Firms such as IA Ventures only have the time to “engage” and go in-depth on a limited number of potential companies. Making matters more complicated, they focus on pre-revenue opportunities, where there’s only the entrepreneur, a vision, but no actual business performance to judge. What metrics can you use to consistently evaluate that kind of opportunity?
You can read Ehrenberg’s own thoughts at Huffington Post. In the meantime, what keeps you up at night, as a venture capital investor, or an aspiring one? Add your comments below.
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