11 Understanding the VC business model
This anecdote covers
- When you are raising money you will work with the partner and many others at the VC firm a lot; for that to be effective you need to know how they think
- They are real business with a lot of different people there—know who’s most important
- Like always, the financial incentives are what drives the behavior of people at a VC firm
- Bonus: I go through Venture Capital math to help understand when and how they invest
In order to succeed in the startup world, you must learn what makes Venture Capitalists (VCs) tick. Of course, the answer is money, but the way they make their money is through their business model. Understanding their business model is the key to understanding the VC specimen.
The VC’s business model affects which companies they invest in, how much they invest, and who they want running these companies. It determines how they influence the strategy of their portfolio companies, so they conform to their metrics of success. It affects whether you and they are at all compatible and if you should even be talking to them.
If you lose sight of their business model, you will lose sight of how they see the world and how they make decisions. This could at best surprise you and at worst mean your startup fails because there is not a lot of room for error.