Harvard ES94: Introduction to Venture Capital Fundamentals

In today’s class, I covered the basics of venture capital: how the business operates, how VCs make investment decisions, the structure of typical VC investments, and more.

First, we delved into "cap table math," exploring the distinctions between pre-money valuations and post-money valuations, as well as the disparities between preferred stock and common stock. Additionally, we discussed how VC firms secure capital commitments from limited partners, earn management fees, and receive a share of investment returns through "promotes." We also examined effective pitching strategies for startups, the essential components of a standard pitch deck, and the criteria VCs consider when assessing investments. In essence, we provided an overview of what startup founders need to understand about VCs. I have written about many of these topics before:

• How To Startup: Pitching
• How To Startup: How To Find Product-Market Fit
• How To Startup: Scaling Your Business

Responding to VC Rejections: Strategies for Founders

I also taught what founders should do when they get a “no” from a VC. Specifically, I emphasized the importance of asking the VC directly, either in person or via email, what criteria they would need to reconsider their decision in the future. Additionally, founders should ask whether the VC is open to receiving updates on the company's progress. I've witnessed numerous instances where initial rejections have transformed into acceptances months or even years later.

Guest Speaker Spotlight: Insights from Ali Partovi

Our class was fortunate to host a distinguished guest, Ali Partovi , who is also a Harvard graduate -- great for the students to see! More significantly, Ali is a serial entrepreneur, angel investor, and the founder of Neo , a prominent startup accelerator. Ali shared invaluable career advice and provided insights into the disparities between being a founder and a VC investor. He shared an analogy that resonates with my own perspective: working at a startup is akin to being an athlete, while being an investor is akin to being a coach. Another analogy Ali shared, which I will adopt moving forward (thanks to Ali), likens working at a startup to being a parent, whereas being an investor is like being a grandparent – still invested in the outcome but less inclined toward the late-night grind.

Tech Industry's Collaborative Culture: Insights from Venture Capital

Listening to Ali's discourse on startups and venture capital, a light bulb went off and I realized one of the reasons why I love tech so much: its remarkably collaborative culture of mentorship and guidance. The VC and startup ecosystem thrive on fostering a community that empowers companies to effect change – from angel investors and seed-stage VCs to late-stage investors and IPO investment bankers, culminating in employees who reinvest their proceeds into the next wave of startups. This ecosystem relies on mutual support and collaboration, which is distinct from the competitive nature of private equity or hedge funds. While VC firms may occasionally vie for deals, the prevailing ethos among angels, founders, and investors is one of collaboration rather than cutthroat competition. In this respect, it mirrors the cooperative dynamics of research within universities, where professors collaborate and advise one another in advancing their respective fields.

Before and after my class, I held Office Hours sessions with undergrad students, many of whom are embarking on their own entrepreneurial ventures. As usual, I'm writing this post during my flight from Boston to Los Angeles, feeling invigorated and optimistic about the next generation of entrepreneurs. I'm grateful for the opportunity to play a small role in teaching and mentoring them.