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.
In particular, at the early stages of a company your equity is priced low. We think it’s in your self-interest to raise as little capital as possible, take as much free money as possible, maintain a culture of stinginess, and build toward Product-Market Fit. Once you’ve done that, your valuation spikes and if you wish you can easily raise growth capital from many VCs.
We have great respect for the founders who consciously decide to forego profitability, raise equity VC, and grow their topline (or at least some metric, like eyeballs) 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 naturally produce progress on a number of Impact KPIs.
For more on our view of impact in VC, see our interview with Blue Future Partners, a VC fund of funds.
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. We have posted publicly our Anti-Harassment & Anti-Discrimination Policy and Procedures. To confidentially report any incident involving one of our team members, contact us.
What are the Key Performance Indicators (KPIs) by which Versatile measures its progress?
We measure our progress through both traditional and impact KPIs. Traditional KPIs are:
- IRR (and secondarily cash-on-cash multiple on our investment)
- Percentage of investments outside of the major US tech hubs (New York, California, Massachusetts). Target: 50%
- Net Promoter Score from Founders we back. Target: 75.
- Number of investments we make annually per full-time investing team member. Initial target: 12
Our impact KPIs are:
- % of companies we invest in which include (at time of investment) a cofounder or C-level executive who is female/trans. Target: 30%
- % of companies we invest in which include (at time of investment) a cofounder or C-level executive who is an underrepresented minority. Target: 40%
- Percentage of the Inc. 5,000 where we are the first venture capital investor. Target: 1% by 2030.
For more on metrics-based management, see How to run your company based on metrics: what, why, how, who, and when.
What market inefficiencies is Versatile VC exploiting?
We have designed our firm to exploit two particular market inefficiencies:
- VCs are generally uninterested in companies outside of certain narrowly defined sectors, despite the fact that many fast-growth businesses are not conventional tech companies. We think this is a mistake. As proof, we’ll note that any analysis of the best-performing stocks of all time will show many companies which don’t look like conventional VC-backed tech companies (example). Of the 2020 Inc. 5,000, only 1,150 are in traditional tech industries (“Computer hardware”, “IT Management”, “IT Services”, “IT Systems Development”, “Software”, and “Telecommunications”). In particular, any young company in any industry, if led by a tech-savvy management team, is going to approach growth very differently than their old-fashioned competitors. We’re particularly interested in founders bringing tech savvy to stodgy industries. We’re most interested in fintech and salestech, but have flexibility to invest in other sectors.
- VCs are generally biased against founders who are not White/Asian males, and/or who are not in core geographies, despite the fact that the data says that you’re better off investing in diversity. Paul Graham, cofounder of Y Combinator, observed, “many suspect that venture capital firms are biased against female founders. This would be easy to detect: among their portfolio companies, do startups with female founders outperform those without? A couple months ago, one VC firm (almost certainly unintentionally) published a study showing bias of this type. First Round Capital found that among its portfolio companies, startups with female founders outperformed those without by 63%.” For more on this, see The iconic VC-Backed founders are all White & Asian men. So why invest in diversity?
What is Versatile VC’s moat against competition?
We already have developed original, thoroughly-researched, and actionable content on many different topics, which improves our visibility on search engines and social media. We particularly optimize to rank highly for content related to alternative VC; free money and VC; founders in transition; VC/startup careers; the tech stack of private equity/VC; diversity and VC; and disruption of investment management.Try exploring our affiliated websites at versatilevc.com, teten.com, and pevctech.com.
We have also invested significant resources into our internal tech stack, home to our proprietary data and process flows, which will be difficult for others to fully replicate. For example, we have already fully integrated our CRM backend with our scheduling, mailing lists, and social media management, across all of our data silos (Google contacts, email, Linkedin, social media, etc.). We have posted our long term road map.
We believe over time Versatile VC will build three other several other barriers to entry:
- We will build a reputation for a differentiated investing approach. This results in more relevant founders approaching us and/or responding positively when we approach them. This is one of the reasons that past outperformance correlates with future outperformance in VC.
- Our community for founders in transition is unique, growing, has natural network effects, and will serve as a source of dealflow, talent, and clients for our companies.
- Over time, we anticipate we’ll develop an expertise in alternative VC which will be extremely hard for others to replicate, despite the fact that we anticipate open-sourcing many of our documents.
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 drugs; and/or adult/NSFW content.
One of our filters for a company is: would we encourage our family members to use the company? We would gladly invest in a drug addiction treatment company, and if we have a family member who is a drug addict, we’ll encourage our relative to become a client of that company. However, we would not invest in a company which sold recreational drugs, because we wouldn’t proactively encourage a family member who is not currently a drug user to use drugs.
For more details, see our formal criteria.
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?
- Are you gritty?
- What are each team members’ superpowers?
- Do you have a history of success in prior endeavors? (even if not in business)
What is the cheat code? What are the strongest reasons you invest?
What are your minimum requirements to consider an investment?
- Have a demoable wireframe or preferentially a 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 40% 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.
For more details, see our formal criteria.
How much do you invest?
Typically, our initial investment is $200K to $1m.
Do you have a formal ownership requirement?
In addition, we don’t prioritize growing our stake over time. Rather, our goal is to maximize the value of our investment, which often means raising further capital sparingly or not at all. We care about dilution just as much as you do.
What size rounds do you participate in?
We invest in rounds of between $200,000 and typically $2m, for our initial investment into a company.
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 other VCs/angels 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 take a board seat?
We do not require a board seat, but we will take a board seat where we think we can be helpful, and you have interest as well.
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 strongly recommend), please see our guide to preparing a board deck.
Will you sign a confidentiality agreement / NDA?
What is the best way to approach Versatile VC?
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 a referral is absolutely not necessary. One prominent VC reports, “For a long time, VC has been predicated on this idea that the best opportunities come through referrals, yet companies that we discovered through other channels — Twitter, Demo Day, etc. — outperformed referred companies by 58.4%. And founders that came directly to us with their ideas did about 23% better.”
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.
Do you make follow-on investments?
When you’re raising subsequent rounds of financing, we can invest up to our risk management limit. In practice, this usually means we can participate in the first round of financing after we invest, if any. We also have the flexibility to invest effectively unlimited amounts of capital through Special Purpose Vehicles, where appropriate.
We have a decade of experience working with other VCs who make later-round investments, lenders, and other financiers. We are glad to introduce you to the right capital sources in our network.
When limited partners, our investors, ask us this question, here’s how we answer:
The conventional wisdom in tech VC is to double down on perceived “winners” regardless of price. We disagree with both parts of that sentence. In conventional VC there’s usually great business risk at every single round, so it’s often opaque who are the “winners”. Any unprofitable company is inherently vulnerable to the kindness of strangers (investors). And even a profitable company still faces other types of business risk. And secondly, all investors face the risk of investing at a valuation which is too high and/or a poor structure.
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?
That said, we cannot invest more than a single-digit percentage of our fund in any one company. This creates a built-in limit on follow-on investments, both because many of our companies do not raise follow-ons because they’re managing their cap table conservatively, and because we think we’ll generate higher returns if we stay focused on early-stage investing.