Three things I learned at a VC

These days, many startup founders are hyper-focused on winning venture capital funding. Many who fail to get some VC love end up asking friends and family for seed capital. Because let’s be honest – they’re the people that will love your idea most and believe that you’re building the next unicorn. We love startups and read about high valuation rounds for many reasons, but primarily because high-priced financing often reflects the peak of the technology cycle. It’s now obvious that there’s a path for exponential growth curves out of companies like Facebook and Uber. Yet in most cases, it’s only in hindsight that a new idea makes sense. Regardless of the many experiences a VC may have, there are limits as to how much one can uncover in the process of a due diligence. So how do VC’s tell whether something is worth investing? Here’s three things I’ve learned so far.

1. Invest in people, not ideas in a pitch deck

It is very much a reality that many young entrepreneurs today have a strong desire to understand the processes and context of entrepreneurship. I can see how innovation has emerged as an industry in and of itself. Indeed, as markets around the world face ever-accelerating pace of change, the pursuit of relevance is a strategic imperative for entrepreneurs and startup founders alike. But I think the fundamentals of innovation do not lie in process of turning an idea into products that people want. As much as the first-mover advantage holds true, it’s meaningful to note that ideas can be taken, copied, and most importantly improved. That’s why when VCs meet a great startup, they don’t simply measure ideas vs. product/market fit, but also the founder’s belief in a thesis and ability to execute on an idea.

Pitch decks matter to the extent that it determines the first impression VCs get out of the company. You want your presentation to look good to potential investors, so it makes sense to spend time designing beautiful slides. Still, the most important step for VCs is taking the time to learn what the founders believe in.

2. Venture capital is a two-way street

A common consideration for VCs is to ask: “Why now?”. It took me quite some time to understand why timing matters, especially in emerging markets like Indonesia. Timing – the judgment of when something should happen – matters as innovation and technological progress don’t always go in line with the market forces. In fact, time and time again we’ve seen startups fail in emerging markets simply because the market is not ready yet. And so I’ve learned, venture capital is a two-way street. On the one hand, VCs don’t want to miss investment opportunities that have the potential for exponential growth and, hopefully, a massive exit. On the other hand, startup founders are always trying to convince VCs that their thesis is based on ideas and patterns that others have yet to see. Essentially, VC funding is not just about exits and IPOs: a well-executed investment allows the startup to accomplish more and receive valuable mentorship from VCs with the right sort of background.

As Marc Andreessen puts it, VCs make money on successful and non-consensus investments. I’ve often asked myself why VCs pour in millions of dollars into a company that hasn’t even made any profit. And I’ve recently discovered that uncertainty is the defining characteristic of these investments – uncertainty is the reason why opportunities exist for VCs to gain returns from startups, especially when others don’t see the potential for success.

3. Focus on market trends, but don’t obsess over them

Today, the market changes really fast. Many things in technology that are growing today will change in a year’s time. Regardless of whether these changes are gradual or sudden, we often focus on the “here and now” so much that we forget to slow down and understand the situation. While it’s reasonable to worry about market trends, I think it’s important to resist the urge from immediately making assumptions. Let’s recognize two facts about market trends. First, we have a tendency to evaluate the market through past experiences and personal biases that easily cloud our judgment. Yes, it is true that with experience comes wisdom and better decisions. Second, as far as I can tell, most people would agree that the pace at which markets evolve is intense and we do work trying to predict the future.

Research matters. My conclusion is that a well-executed due diligence leaves VCs better positioned for sustainable performance, but there really is no guarantee whether the market will respond in our favor.

The bottom line

Look at the statistics. The past few years reflect an environment that signals VCs to invest more, and for startups to come up with ideas that solve real problems.  As an industry, there’s a lot of potential in venture capital and I think countries like Indonesia is at the forefront for growth in technology. It’s crucial to give forethought about the type of startups that will change Southeast Asia’s tech scene because VCs could be investing more, so long as the market presents a pipeline of investable startups.