Find out how Gautam Gupta of General Catalyst assesses companies. Here’s Tip 3: Focus on a big idea and start disrupting big time.
Hometown: Seattle, WA
Current Residence: San Francisco, CA
Occupation: Venture Capital
Areas of Focus: Consumer Internet and Enterprise Software
What is a typical day like as an Associate of General Catalyst and what do you like most about your job?
Venture firms exist to invest and support startup companies. So, naturally, we spend most of our time meeting entrepreneurs and serving our portfolio companies’ needs. Most of my day is spent in meetings or conference calls with entrepreneurs who are seeking funding. I talk to ~600 companies a year and evaluate these opportunities relative to our investment focus / strategy. Out of so many companies, we invest in only a few a year. Once we’ve found a company we want to invest in and have convinced the entrepreneur that we’re can be a great partner for them, we engage in a process of due diligence. The process of funding a company requires a great deal of detail and can take significant time. On average, this process alone can take 30-45 days. Once we’ve officially closed our investment, we typically take a board seat and remain active in the company. We’re fortunate to be invested behind a number of great entrepreneurs so we’re just there to help!
What prior work or personal experience have you found to be the most useful in a career that you are in now?
Venture Capital is a unique industry and the role of investing in companies touches on different aspects. These aspects include selling and marketing, as well as finance / accounting. I believe great VC’s do a number of things well – they are able to source investments, quickly filter good from great companies, convince the entrepreneur to work with him / her, and add value to the company post investment. Arguably, as a VC, you are always trying to get better at these tasks so the learning process never stops. I had the rare opportunity to join the VC industry right out of college so I’ve learned mostly on the job.
For someone that wants to get into a venture capital career, how would you advise them? How did you get started?
I followed a very atypical path. I was introduced to some of the folks at General Catalyst while in college and was able to intern with them during my studies at Babson College. When I was getting ready to graduate, I was lucky enough to get an offer to join General Catalyst and have stayed ever since. While I consider myself lucky, there is no one way to get into this industry. Paramount to any specific experiences, I think you should be a creative thinker, intellectually curious, passionate about entrepreneurship, and persistent. If you’re interested in being a VC, start by getting smart on the industry and current investment themes, then try to build long term relationships with folks in the industry who can help point you to opportunities as they arise.
Is it true that the number of portfolio companies that underperform is greater than the number that “hit a home run?” If so, is the selection process of identifying exceptional teams and entrepreneurs just as much a mystery?
Building a company that achieves a large exit is very hard. Few markets support the creation of massive businesses. Many companies fail to achieve a +$100m exit and it is truly special to build a company that does. Unfortunately, it’s impossible to predict success so we try to pick the best possible team addressing big pain points in fast growing markets. We are wrong all the time so we’re always analyzing our own decisions to try to find patterns. It’s a continuous learning process.
What are 5 tips you can give entrepreneurs to get a meeting with a partner at your firm? What do you look for during the scouting process?
Every VC says that they are looking for great people. What does that really mean? I spent a bunch of time when I first joined General Catalyst asking the other partners what characteristics they saw in great teams. Some of the things I’ve noticed that have held up are that great entrepreneurs tend to be domain experts, they focus their efforts internally as much as they do externally, while they are opportunity obsessed they also have focus, they are metric oriented, they get shit done and they have vision. We look for all of these things in a great entrepreneur.
Some of the tips I think would make a more successful pitch are:
1) Be relevant - It doesn’t make sense to pitch a consumer idea to a storage investor. Make sure you do the research to understand what the person and firm focus on.
2) Tell a compelling story – We want to hear much more than just the pitch. We want to hear about your background, how you came to the idea, who else is on your team, and what your personal ambitions are.
3) Focus on big ideas – As a large fund (700m) we need to focus on funding companies that have the potential to be large companies. We’re less concerned with the amount of capital required or the size of headcount but rather the size of the market and the potential to disrupt it.
4) Be able to show how your business can scale – In the early stages of a startup, you have more questions than answers. However, taking some assumptions around growth and being able to show that the business can achieve $50-100m of revenue is critical. This can be shown either through a model or back of the envelope math, it doesn’t need to be more sophisticated.
5) Follow Up – In the course of the pitch, you may be asked for follow up materials. Additionally, the investor may give some guidance on their process, however, as busy as everyone gets, investors can sometimes forget to follow up. It’s never an annoyance to follow up with the VC.
What are 5 biggest mistakes that entrepreneurs make during the initial meeting and how can they be avoided to get the next meeting? Which spaces are you most excited about?
Some final advice on getting to the next meeting:
1) Not researching the firm - It can be a waste of a pitch if you’re telling your story to the wrong person or a firm that isn’t actively investing.
2) Presentation Skills matter - assume that the audience can read your slides and focus on telling the story, don’t get caught up on making sure you hit every bullet on the slide.
3) Not enough focus on where they need help or where there are holes on the team – we expect that you will need help so telling us what you need shows that you know where your strengths and weaknesses are.
4) Clarity of the story – The investor needs to be able to understand and describe your business so make your presentation and pitch clear.
5) Ask for next steps – It’s not being pushy to ask the VC what the next steps are and how to follow up.