This summer we had the privilege to host a handful of interns - two of them, Johan and Magne, from The Norwegian School of Entrepreneurship. Magne helped us perform a mini study on what metrics and values - qualitative or quantitative - matters most to entrepreneurs seeking to partner with a Silicon Valley based VC.
DNX Ventures always seeks to attract founders that want to change the world in a positive way. So far we have a good track record of doing so, often by word of mouth from previous portfolio founders. The motivation behind this project was of course to see how we possibly could become an even better partner and more seamlessly meet current or new needs among founders seeking to partner with our VC firm. Part of the DNX DNA is to have a learning mindset and to stay open to change. Hence we wanted to understand what entrepreneurs care the most about in 2022, and compare our own views and experience with new findings. Perhaps things have changed or there would be new opportunities to grow?
Therefore, over the course of the summer, Magne studied what factors entrepreneurs care the most about and how we can measure these factors to better inform entrepreneurs how DNX measures up and be more clear on what to expect, in their fast-paced process of choosing partners for their next step of the journey. Below follows Magne’s summary of his project. Enjoy!
I performed this study in four steps:
1. Look at what comparable VCs were emphasizing in media and online
2. Interviews with founders with experience from raising capital
3. Interviews with experienced VCs
4. Aggregate and analyze the results
Setting a Baseline
To create a snapshot of what VCs believe today are important to founders, I started by looking through 100 different Venture funds’ webpages to see what they were saying. Not surprisingly, most of them had some form of highlighted Accomplishments to share. Sure, many companies focused on emphasizing qualitative factors such as their “result orientation” or “fast paced team”, but what I was particularly looking for was any quantifiable metrics that could be tracked. 43% of the examined funds emphasized such metrics in some form. The top-five list emerged to be:
1. Number of (successful) exits (e.g. “number of IPOs” or “mergers”)
2. How much assets they have under management
3. Number of companies they have funded
4. Total value of their portfolio(s)
5. Number of unicorns
That’s all good. But are these metrics really what entrepreneurs are looking for? Are these metrics the decision factors of modern entrepreneurs today? My hypothesis was that the world had moved towards a desire for VC partnerships beyond just actual transaction value. And that was what I was curious to find out.
Founder Input
These findings made me eager to find out whether startup founders thought the same thing. Using a semi-structured interview, I interviewed 7 founders with experience from raising capital, in various stages. I would have interviewed more, but in the interest of time I had to focus on a smaller pool. Interestingly enough, after just a few interviews with founders from different domains, patterns started to emerge. The interviews also gave me bonus insights in what it is like being a startup CEO in fund-raising mode. Along with several qualitative factors such as empathy about founder growth and industry knowledge, the top quantifiable metrics I discovered were:
1. Breadth and depth of network (to assist in customer development, recruiting, and raising next financial rounds)
2. Fund size (to see for example: ability to do follow on investments, maturity of the VC)
3. Number of deals done (in same stage, e.g. Seed, Series A, Series B, …)
4. Same-industry companies in the portfolio(s), to validate domain knowledge
5. Number of follow-on investments made (e.g. commitment to existing portfolio)
To my (not so big) surprise, what VCs were emphasizing and what founders were looking for was not quite the same! For example, VCs were highlighting the number of exits they had while founders searched for network potential. One could argue that exits may be interesting to new LPs for the VC firm, but the void of mentioning anything about the #1 need from founders perspectives is still surprising.
There is of course more to this project, but that is for the DNX team to brew and ponder and act on. Either way I learned a lot this summer - not only about what entrepreneurs care about - but also the VC funding process along with do’s and don’ts in pitches, different startup strategies and ways of running a startup, as well as market and competitive analysis. I’ve also been exposed to quite a lot of high-level internal fund and investment discussions, which has given me a great impression of how fund managers evaluate various financial models as well as how investment teams look at and “dissect” potential opportunities. Overall, being an intern at DNX and learning from the team was amazing. If the option presented itself again, I would definitely do it all over again. It has been a fantastic time spent and I am grateful for the opportunity.
That’s all, folks! Or as they say in Norway, ha de!