Innovation is driven in great part by the muscle provided by venture capital firms, Alejandro Cremades states, as they support the company they may invest in, from early stages all the way to their exit strategy. In 2018, VC invested is primed to top $100 billion, according to PitchBook, a record amount of capital, highly concentrated in fewer and larger investments. With $80.4 billion of value exited across 637 companies[1] up to September 2018 VC’s market is getting more attention than ever. But it’s not only about innovation and startup success[2], according to R.P Pradhan (2018) [3]sustainable economic growth can be driven by the creation of a vibrant capital industry to support early and late start-up businesses, a sound financial sector, and a strong national innovation ecosystem. This dynamic and boosting environment triggered my curiosity in understanding how VCs work and what it is required to crush into VC.
In 2017, Bradley Miles published #BreakIntoVC: How to Break Into Venture Capital and Think Like an Investor, a quick guide to preparing to join the VC world. Bradley Miles is currently CEO & co-founder of Roll, an open standard or social money on the Ethereum Blockchain and an Entrepreneur In Residence for TechStars in New York City. He graduated from Columbia University in February 2017 with a degree in Economics where he founded Columbia Venture Partners. He worked at the intersection of emerging technology and venture capital at Coindesk, where he las Lead Research Analyst and led the State of Blockchain research report.
His combined understanding of economics, experience with the VC world, and now as an entrepreneur, gives a clear and simple perspective on how to prepare to join the VC world. He claims to be the guide he wishes he had before going to VC. From my perspective, I expected to learn about VC’s world, not only the hard skills required but also soft skills, organizational structure, daily jobs, as well as some steps to follow before and after joining the VC world.To my surprise, this book is a step-by-step on how to prepare for an interview with a VC; diving into three main categories:
1. Conventional wisdom and building your own perspective about VCs
2. Concepts & hard metrics
3. Interview Recommendations
1. Conventional wisdom and building your own perspective about VCs
The book explains what Venture Capital is, the different types of investors and financing, the startups' lifecycle, equity management in a synthesized and easy to understand way. Breakers can also find resources that will help them complement this knowledge with others' perspectives, recommending sources such as CB Insights, Blogs by Paul Graham, Mark Suster, or Jason Calacanis and a16z podcast. Information that is very useful and relevant for amateurs in the industry. Furthermore, Bradley gives some advice on picking and researching industry that you feel passionate about and be ready to talk about your favorite startup in that industry.
2. Concepts & hard metrics
Performance metrics for Startups
Bradley included a summary and formulas of the most important metrics to keep in mind, as a startup and an investor. They include important performance metrics such as Monthly Recurring Revenue (MRR), Annual Recurring Revenue (ARR), Churn Rate, Burn Rate, Dollar Revenue Retention (DRR), Customer Life Value (CLV) and Customer Acquisition Cost (CAC).
Returns and Valuations
You can find a very high level and straight-to-the-point summary on how to valuate a company. The book explains from fundamentals of accounting (how to read an income statement, balance sheet, and Cash Flows) to different methods to arrive to a pre-money and post-money such as Discounted Cash Flow (DCF), Comparables or “comps”, Precedent Transactions Analysis (PTA), Chicago Method, Berkus Method, Risk Factor Summation Model or Rule of Thirds or The Football Field.
Industry metrics
There is guidance on how to determine the Market Size (TAM), including useful resources to look at such as Markets and Markets, SIIA, Statista. The book also reference other industry evaluation approaches such as Porter Forces or Network effects.
Additional information to keep in mind
When analyzing a startup, is important to give context to their current situation being informed of material events such as hires or advisors/board members.
3. Interview Recommendations
Finally, the book gives clear-cut recommendations on what to do in order to increase your probabilities to succeed in an interview. This includes templates for writing emails or pitching a company, possible interview questions, and rapid-fire questions and answers at the end of some chapters to have a quick guide to review the concepts. Bradley also mentioned key activities that could help such as working in a summer internship, start a club, or work in your network of entrepreneurs locally to have something to offer to the VC world. Moreover, at the end of the book, there are some Case Studies shared by some individuals who have gained internships and full-time offers to have a broader perspective on what it needs to break into VC.
As its name states, this book is a helpful introduction to VC, but it doesn’t explore the world after you start working, such as organization inside VC, management, team dynamics, daily job, or challenges. Although the case studies elaborate a little on what is working in a Venture Capital firm, where it mentions some of the soft skills such as passion, the 30/70 split in quantitative to qualitative, curiosity to understand trends and entrepreneurial experience or business development; the book is only focused on how to prepare to enter that world with hard skills and specific tips. It would be very useful to add what it implies in terms of work and soft skills to be able to maintain and survive in it; which is an important factor for applying in the first place.
#BreakIntoVC is a great summary of the basic concepts used by Venture Capitalist. I would recommend this book to people looking for a job in VC and would like to have a quick reminder of the common knowledge or some practice questions to be ready for interviews. I would also suggest some specific chapters for entrepreneurs looking to present for the first time their project to VCs. If you have been exposed to some extent to the investment industry before, this book won’t add much value to you.
Written in 2018
[1] 3Q 2018 PITCHBOOK-NVCA VENTURE MONITOR https://files.pitchbook.com/website/files/pdf/3Q_2018_PitchBook_NVCA_Venture_Monitor.pdf