The Worst Thing About Working in Venture Capital

The Worst Thing About Working in Venture Capital

According to Fundable1, fewer than 1 in 100 startups are funded by angel investors. Funding from venture capitalists is even rarer at about 1 in 2,000 (0.05%) companies. For a firm that prides itself in proactively finding advanced materials investment opportunities (as described here by Pangaea GP Keith Gillard), that means we’re screening a lot of companies that we don’t end up investing in. By the numbers, many of these companies often don’t end up raising outside investment from other VCs or angels either...

Like many undergraduates, when I was in college, I wasn’t sure exactly what I wanted to do in the future. There were many possible avenues to explore. For at least a brief time, I considered entering into a PhD program and staying in academia, going into consulting, becoming a Professional Engineer, and exploring entrepreneurial routes. I ultimately decided to get a Master’s degree that focused on commercializing nanotechnology and then join a fairly early stage startup. A few key advisors and mentors really helped along the way bringing clarity to the scope of options available to me as well as weigh some of each potential path’s merits and drawbacks.

As such, I’m proud to go back to my undergraduate alma mater and represent my major (Materials Science & Engineering!) as part of an introductory freshman course designed to give engineering students some exposure to each of the different disciplines within the Engineering School. Beyond highlighting the fields of study and types of lab work that each major focuses on, the course also exposes undergraduates to various career paths that alumni have taken after finishing their degrees.

The students are tasked with informally interviewing a number of the alumni representatives and they come with a list of some suggested questions they’re supposed to get answers to. One question I get asked fairly frequently is “What is the worst thing about your current job?”. Though I occasionally struggle to answer some of the student’s questions intelligently and genuinely, this one is never that hard for me. I tell them that the hardest thing is turning down the vast majority of startup companies I interact with.

According to Fundable1, fewer than 1 in 100 startups are funded by angel investors. Funding from venture capitalists is even rarer at about 1 in 2,000 (0.05%) companies. For a firm that prides itself in proactively finding advanced materials investment opportunities (as described here by Pangaea GP Keith Gillard), that means we’re screening a lot of companies that we don’t end up investing in. By the numbers, many of these companies often don’t end up raising outside investment from other VCs or angels either...

Around the world, there is no shortage of companies attempting to commercialize scientifically interesting technologies. Many of them even have strong management teams that have identified urgent market needs that their unique solution can address. However, our fund is only so big, so we can’t support every compelling opportunity that comes across our desks. Furthermore, we have specific investing strategies that can limit what we consider to be a good fit for our fund – from a business’ commercial stage to the expected revenue ramp timeline to the envisioned exit landscape assuming successful execution of the plan (Note: this is by no means a comprehensive list). In the end, we want to maximize returns to our Limited Partners by building successful world class advanced materials companies.

In 2016, Pangaea had direct discussions with startup founders, CEOs, and/or other key management/board members of over 600 new advanced materials companies. This doesn’t include the plethora of companies we’ve spoken to previously that we continue to track and get updates from. While we focus on a fairly slim piece of the broader entrepreneurial ecosystem pie given our focus and mandate, it’s still a pretty staggering number of opportunities. Obviously, we don’t make 600 new investments per year. Typically, we don’t even make 6.

By now, it has become fairly cliché to compare the multiyear relationship between startup founders and VCs that invest in them to a marriage. Saying “no” to a promising company (and a management team) that we’ve been in due diligence with is a bit like ending a relationship before it gets too serious. I may like the company a lot and genuinely want to see their technology and business succeed, but it’s just not quite right. The oft-maligned “it’s not you; it’s me” line comes to mind, but in this case “me” refers to me personally, the rest of the Pangaea team, and the stringent metrics that we believe will offer the greatest chance of success for the overall fund’s performance.

Therefore, to me at least, the worst thing about what I do is saying “no” to the vast majority of knowledgeable and passionate people I interact with. These people are bold enough to start companies when they know the odds of attracting outside investors, achieving outsized financial success, and making a positive difference in the world are not in their favor. It certainly takes grit.

Nonetheless, we do say “yes” and invest in select opportunities. After investing, we try hard to help grow these startups into bonafide businesses. While turning down entrepreneurs is tough, it’s a necessary evil in this business. How can we objectively qualify how a company and their technology stand out from the field without a fairly comprehensive handle on the competitive landscape?

So, entrepreneurs out there – I know you’re accustomed to a fair share of rejection in your line of work. Not every customer will want to buy what you’re selling, and your solution isn’t going to fit every problem in the industry you’re working in. It can be pretty hard hearing “no” after “no” after “no”. I just hope you know that it can be challenging for the person on the other side of the table too.

1. https://www.entrepreneur.com/article/230011

Associate, Pangaea Ventures Ltd. Matt holds an MPhil in Micro- & Nanotechnology Enterprise from the University of Cambridge and graduated summa cum laude from the University of Pennsylvania with a BSE in Materials Science & Engineering.View Matthew Cohen's profile on LinkedIn

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Guest Tuesday, 17 October 2017