Sequoia’s Jess Lee explains how VCs think about their deals

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Jess Lee, partner at Sequoia Capital, sat on both sides of the table. Hong Kong native, Stanford graduate and former Googler sold VC-backed company Polyvore before being recruited into the VC world, where she spent the past six years.

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Because she has approached many investors herself (and, she says, has been rejected many times), she understands the mindset of CEOs in fundraising mode and the point of view of investors who represent many companies every week. At the recent TechCrunch Early Stage event in San Francisco, she shared some of these ideas to help founders in the audience do better when they represent investors. (She deliberately avoided most of the content that is already widely available to the founders, including how to start the auction process and how to write the perfect deck.)

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For our wider audience, here are some of the things she suggested the founders keep in mind when it comes to the VCs they approach:

  • Some solutions are reversible. Investing in a startup? Not so much. “It’s almost impossible to kick someone off your desk,” she noted, so while people compare partner-founder relationships to marriage, it’s worth noting that divorce is often easier.
  • Find an investor who “understands you” and knows your gaps so they can either fill those gaps or help you find someone who will. If that investor also shares your values, can help you with your biggest unknowns (such as how to get FDA clearance), and understands your space, your clients, and your core message, all the better—although this is a very difficult task. “It’s actually very hard to find someone who has all these five things,” Lee said. “I don’t recommend it. I would just advise to find at least one dimension that really suits investors.”
  • Know your audience. On this front, she suggested, it’s important to understand how venture capitalists think. We found this part of her talk most interesting because it’s easy to assume that all VCs have a similar mindset, and that their lives are relatively stress-free when they aren’t.

She first started with a broad scenario, noting that a VC firm partner between the ages of 28 and 50 could make 15 to 25 investments over the next 10 years of her career. A venture capitalist, according to Li, knows that venture capital power law distributionwhich means that a third of their investment will probably depreciate, a third will break even, and the last third must make up for the rest if they want to stay in business.

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Venture capitalists are not in the business of minimizing losses. We don’t need a portfolio of 10 good results. Jess Lee

“It’s not like picking stocks where most stocks never drop to zero,” Lee said.

A lot can vary depending on where a venture capitalist is in their career, Lee noted. Veteran VCs have more experience and can be very helpful; they can also be very busy, have many board seats, and, in some cases, “be very lazy because they’ve already made a lot of money.”


Credit: techcrunch.com /

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