What is Versatile VC? How do you compare with other VCs?
We are a venture capital fund focused on enabling founders of technology-enabled companies which are designed for profitability. This is the historic, proven model for business success. The great majority of wealth globally was created by founders who grew organically and profitably.
We have great respect for the founders who consciously decide to forego profitability, raise equity VC, and grow as rapidly as possible. However, that blitzscaling model doesn’t work for most businesses, and is highly risky for all parties.
We want to work with companies all over the US, not just in the tech hubs. We want to invest in founders who come from all educational and national backgrounds, not just the Ivy League/Stanford/MIT.
Who are your limited partners/investors?
Our goal is to generate returns for shareholders who share our values. We do not have any government-linked or sovereign wealth investors.
Are you an impact investor? If so, how do you measure it?
We are strictly a financial investor, i.e., our limited partners are paying us to achieve healthy returns, not achieve any particular “impact” goal. That said, we expect that our strategy will endogenously produce progress on a number of Impact KPIs.
We measure our progress through both traditional and impact KPIs. Traditional KPIs are:
- IRR (and secondarily Multiple)
- Firm revenues
- Net Promoter Score from Founders we back
- Number of investments we can make annually per FTE
Our impact KPIs are:
- Percentage of founding teams which are female/trans
- Percentage of founding teams which are underrepresented minorities (BIPOC)
- Percentage of investments outside of the major US tech hubs (New York, California, Massachusetts).
For more on impact in VC, see #ESGinVC: Promoting a collective effort to share ESG frameworks, practices and visions in Venture Capital.
What is your Anti-Discrimination and Anti-Harassment Policy?
We are committed to a safe work environment in which no member of our community is discriminated against on the basis of sexual orientation, race, religion, age, nationality, gender identity, or any other characteristic protected by applicable law. We will promptly take appropriate remedial action to address any form of harassment or discrimination that is brought to our attention. We will also address any reported claims of retaliation to ensure a comfortable and productive work environment for all those who work with our team. To confidentially report any incident involving one of our team members, contact our principal firstname.lastname@example.org.
What industries do you invest in?
We don’t think VCs can predict the future. Founders do, because they’re on the cutting edge of innovation in their respective disciplines. We’re fortunate to work with founders who can teach us what’s next.
We do not invest in:
- initial coin offerings/SAFTs; or
- Pure content, e.g., a movie, game, or TV series, unless you are monetizing exciting brands and already have revenues.
We also do not invest in companies selling recreational drugs/alcohol or adult/NSFW content. One of our filters for a company is: would we encourage our family members who are in the target market to use the company? If we have a family member who is a drug addict and we invested in a drug treatment company, we’ll gladly encourage our relative to become a client. But we wouldn’t encourage a family member who is not currently a drug user to use drugs. If they choose to use drugs, that’s their prerogative, but we won’t encourage it.
Who do you look to invest in?
The most important factor in our decision-making is always the founding team. Why will you win when others didn’t? Are you creative and gritty? What’s your superpower?
What are your minimum requirements to consider an investment?
- Have a demoable product, even if you don’t yet have revenues.
- Evidence of customer demand, at market prices. We need evidence that customers will pay full price.
- Detailed use of proceeds. A clearly defined plan on how you intend to spend the investment dollars received. The funds should be for business growth, i.e., not normally to buy out investors or fund an acquisition.
- Plan for gross margin over 30% and LTV/CAC over 3x, either today or based on a reasonable forecast
- Service providers enabling professional accounting infrastructure according to GAAP
- A technology-enabled business. You must be doing real engineering of some nature.
Since we do not require a personal guarantee, our focus is the business’s sustainability and growth plan, not on your credit score or past credit history.
What is the cheat code? What are the strongest reasons you invest?
We love founder(s) who can say any of the following:
- “Not sure, but I’ll get back to you shortly”
- “We studied all of the past players who worked in this space, and here’s what we learned…”
- “We built a similar business in the past, and here are my metrics showing how successful it was.”
- “One or more of our past coworkers are joining us in this new business, and working for sweat equity.”
- “One of our past colleagues / managers is investing.”
- “We accomplished something difficult that most people couldn’t.” Even if it’s not in a business arena–e.g., you ran a mile in 4:30–this shows ambition and focus.
- “We need to raise to keep up with demand.”
- “We can and plan to achieve profitability without further funding, and here’s a conservative projection showing how.”
- “With the capital we’ve raised to date, we’ve achieved significant milestones.”
- “We’re about to hit an inflection point which will dramatically improve our value.”
- “I want you to invest because we think you have resources that can address some of my biggest challenges, which are…”
- “Our team has more expertise in this niche sector than anyone else.”
- “We proactively hired a coach to help make us a world-class team.”
- “Only the paranoid survive, and we’re paranoid.”
- “We have a long history of working in this space.”
- “We think almost everyone else in the sector is missing a key insight we have earned, a secret. We earned our knowledge because ____. When we talk about our secret with other industry players, they say ___”
- “We have a small small group of customers who are super-passionate about us.”
- “I have a history of being willing to defer gratification. Examples: ____” Being a founder is not for the faint of heart.
- “There are some unknowns in our vision. Here’s our plan for researching them.”
- “We’re a great fit for this market, because ___”
- “Our target market will move fast and pay a premium for what we are building.”
- “We are solving an immediate pain point.”
- “We have a history of moving very quickly.” Note this applies in real time. If we meet you over a period of a month, we’ll notice what happens during that month.
What are the most common reasons you do NOT invest?
- Technical risk. We are not a fit for companies that require significant R&D mbefore generating revenues.
- Target markets which are clearly a “land grab”, winner take all.If you’re in this category, the traditional equity VC industry is happy to talk with you.
- Teams that do not have a sales mentality. The best product does not sell itself, and companies don’t grow organically. Successful companies need a management team that is scrappy and hungry.
- Revenue of zero. We are happy to invest in companies with no revenue, but only with a team with significant domain expertise and business-building competency.
- Not using a US corporate structure. We currently can only invest in a US corporate vehicle, except in rare exceptions. We have significant experience in Canada. That said, we’re glad to invest in companies that may have foreign subsidiaries, and/or where most of the people are based offshore. See Why VCs are investing in international startups and Why international startups love NY.
- Complex capital stack. If you have many stakeholders with complex financial interests (SAFEs, convertible notes, preferred shareholders, personal loans, term loans, existing revenue-share agreements, etc.), it’s harder for us to diligence you and we’re concerned you’ll spend too much of your valuable time managing that complex cap table and investors. Our goal is to make it as easy as possible for you to manage your capital stack. In particular, if you have past investors who are traditional equity VCs, we want to double-check that they are comfortable with your goal of building a profitable company. That said, we’re happy to invest in companies that have raised capital in the past from other investors.
- Targeting too much capital (as of initial raise). Our typical check size is $200K to $1m.
- Non-scaleable businesses. We are looking for companies with some growth potential. It could be a modest 5% annually, but some room to grow the pie.
- Complex, confusing vision. When you’re a well-established business, we love to see multiple lines of business. This virtually never works in a startup.
What is your investment process?
We respond to your initial approach within 2 weeks of applying.
Most companies receive a quick no, which we think is better than a slow maybe. If we think that we’re a fit, our typical next steps are:
- Initial indication of interest. A 30-60 minute videoconference with one or more of your leadership team. The majority of companies do not pass this initial screen.
- A second indication of interest, within 1 week. A 30-60 minute videoconference where you can ask us any questions you like, and we will likely have followup questions.
- Optionally, further conversations. We may introduce you to a Venture Partner who has great skepticism about your vision, precisely to ensure that we’ve given you a harder test rather than an easier one.
- Formal offer letter, within 1 more week. Once we’ve agreed on terms, we’ll ask you to complete our due diligence checklist.
- Reference calls and other diligence, typically in a 2 week window. In particular, we’ll work with you to develop monthly revenue growth projections based on your historical financials, future growth plans, and industry average growth rates, and agreed-upon metrics.
- Invest! We sign the investment documents and fund our full investment via a wire transfer to your corporate account.
How much do you invest?
Typically, our initial investment is $200K to $1m, but we’ve made exceptions.
Do you have a formal ownership requirement?
No. Many traditional equity venture funds require 20 to 25% ownership at each point they invest, but that’s not how we think. If we investing through our Variable VC structure, then by definition we have no ownership.
What size rounds do you participate in?
We do not have a minimum size round.
Will you only invest if you can lead the round?
Definitely not. We have a long track record of partnering with other investors. We will coinvest with other VCs leading a round if we are excited about the opportunity.
We are also glad to include angels/other VCs in rounds that we lead. The other investors need to be comfortable using our investment structure.
Note we strongly believe that it’s in your best interest to have an active, credible, and experienced lead investor. We won’t invest in a “party round.”
Do you make follow-on investments?
Our default is not to make follow-on investments, both because many of our companies do not raise follow-ons because they don’t need to, and because we think we’ll generate higher returns if we stay focused on early-stage investing.
The conventional wisdom in tech VC is to double down on “winners” regardless of price. We disagree with both parts of that sentence: in conventional VC there’s business risk even in Series A,B, and C rounds, so it’s often opaque who are the “winners”. All all investors face the risk of investing at a valuation which is too high.
That said, we evaluate follow-ons as though it were the first time we were investing in the business. The question we try to answer is the following: knowing what we now know about the team and business, would we invest in the company at this valuation?
We have a long working history with a range of VCs who make later-round investments, lenders, and other financiers. We are glad to introduce you to the right capital sources in our network.
What is the best way to approach Versatile?
Via our application page. We give equal consideration to all companies.
You’re welcome to mention that you were referred by someone we work with, but that is absolutely not necessary.
Do you take a board seat?
When we invest through our Variable VC structure, no.
Regardless of whether we take a board seat, our goal is to be your most value-added investor during the two years after we invest. In lieu of or in addition to board meetings, we organize “working sessions.” In these sessions, we go deep with you on a major challenge. We’ve found this type of collaboration very valuable.
If you do have a board (which we recommend), please see our guide to preparing a board deck.