After 2.5 years of working at an emerging firm (now deploying fund 2), here is the advice I would give someone on “early-stage investing” from scratch:
- Get the ball rolling: start by telling people (and yourself) that you have a small fund making $X investments in Y types of companies, and that you also like to do SPVs. Don’t raise money or make investments yet, but…
- Start building goodwill: provide value ruthlessly. Find a specific way to help startups (i.e. recruiting, reviewing sales scripts, financial modeling, etc) in addition to introductions (see steps #4 an #5).
- Create a tag: create a unique line for people to remember and introduce you by: “Have you met Bob? He invests in early stage consumer plays that target young teens.” Make sure people know what your tag is.
- Build deal flow: junior VCs don’t have many ways to add value, so they are incredibly eager to share deal flow - it might turn into an investor intro (both concrete and measurable). Meet 30 junior VCs, filter to your favorite 10, and set a recurring meeting every 2 weeks (so one a day). This creates a flywheel because you can discuss a Mon deal on a Thur call.
- Build a peer network: meet 100 early-stage VCs, categorizing by stage, check size, industry focus, geography, and personality. You are now able to offer investor introductions to founders again, a useful favor). Only make intros after checking with both parties first.
- Build a founder network: host regular small-scale events for founders only, in an intimate setting. This can be in a quiet spot in a park (brunches), a private room at a not-too-expensive restaurant, or home-cooked dinner for the ambitious chefs/hosts. The goal here is to connect to as many people as possible, and not to have any agenda beside creating a great space and identifying areas to add value.
- Build an LP base: once you’re doing steps 1-6, it’s time to reach out to LPs. Tell them you’re raising a fund, but if they’re not ready to commit to that yet, offer them access to an SPV in the most promising company you’re looking at. This is tricky because you have to move quickly on all of this, so angle to create an email list of potential LPs, and send a weekly email with strong action items for SPVs. Start very small ($100k, even if you have to cover the $10k SPV cost yourself) and work up.
- Kickstart your track record: make a few (tiny is ok) angel investments in founders you believe in, and SPVs when you can. Your track record is your strongest resume for other LPs.
- Build an upstream network: meet 100 later stage investors, categorizing them as you did for step #5. It’s very important here to take detailed notes on what they’re looking for and what kinds of investments they make/have been burned by. File these in a database, which will be helpful once your portfolio companies are looking to raise their next round, but really also informs you on what kinds of companies you should be selecting for at the earliest levels to mitigate binary financing risk.
Some people will tell you that you need experience as a founder or investor at another firm. Both of these things are helpful, but early on, you just need to solve for 2 moments: the “my background is…” 30s slot at the beginning of meetings, and the moment a founder wonders/asks if you’ve made any investments before (no one wants to be a guinea pig). A few tiny (sub $5k) angel checks are an easy fix for the latter, and for the former… That’s on you to find ways to not be boring.
I recommend building out an Airtable super-CRM (happy to give guidance here) to stay more organized than most people will expect you to. For SPVs and fund formation, I recommend AngelList.
And voila! This fills out your calendar for a few months, gets you to your first round of investments, and sets you up to participate meaningfully as a VC. Remember, you really only get one real shot at this - if your second fund (assuming the first one is more proof of concept) goes flat, it will be hard to convince any LPs to keep backing you. Of course, by then you’ll have learned so much about the VC world that you’ll probably want to start your own startup to apply your skills from the other side of the table. Either way, best of luck!