Day 3 What Kind Of Companies Venture Capital Firms Invest?

Today is my third day interning at CoreNetwork Fund! After looking at some companies in CoreNetwork’s portfolio and reading some reports of potential companies, I am starting to get a sense of what kind of companies VC firms want to invest. Overall, or just speaking from my experience with VC investment so far, I found VC favor investing high-tech companies. After I discovered this pattern, I asked my sponsor why. Erik said it was because high-tech companies are easier management usually (they do not have a lot of employees), they grow very fast if the technology can solve a legitimate problem, and they are very high return in a short period of time (relatively).

I agree. Even outside of the lens of CoreNetwork fund, in my research, though Venture capitalists invest in companies across all sectors, but the most common ones are in the high-growth areas of technology, Internet, or healthcare. The biggest required factor is that the company already could show or has potential to show a very strong growth after the investment. Some examples of such companies are Google, Twitter, and Facebook, which took on the world within a few years. The same applies to software companies, or even medical companies; once the product is created, it is cheap to sell globally. In sum, venture capitalists are looking for the “next big idea”. Realistically, they would like to see (at minimum) a double-digit revenue growth, and ideally “over 30%+ growth per annum in large markets”.

Silicon Valley--the technology center (where VC want to see the companies they invest in end up)

To learn how VC invest from another perspective, (since my main goal is to learn about this topic comprehensively), I read two chapters in Venture Deals that talked about how VC chooses companies and what should companies prepare for those presentations. One of the things that stood out to me was “great management” teams. The book says that venture capitalists will always look for smart and very ambitious management that will be able to work very hard to make the company succeed. The other point that I found a little surprised is how much venture capitalists cared about the style of the presentation. I thought in business, people cared about the legitimate numbers and evidence, and those colors and images could merely help convince the audience. However, a good styled presentation and the great content go hand in hand. This point is small but it has inspired me to pay attention to practice art in my free time, which will come in handy when I need to create a presentation.

Today was a learning day. Towards the end of the day, Erik also sent me a new 67-page report about 7Signal to read and analyze for tomorrow and the weekend. I look forward reading that and discussing it with him!