1 00:00:00,000 --> 00:00:02,260 Hey, so hey Crockett 2 00:00:03,480 --> 00:00:07,880 Happy Halloween. Happy Halloween, man. Want to hear a joke. go for it 3 00:00:09,040 --> 00:00:12,000 Where do ghosts do their mail where? 4 00:00:13,000 --> 00:00:15,000 at the ghost office 5 00:00:20,080 --> 00:00:26,960 I'm Sahil. I'm Crockett and today we're gonna be taking a step back and really going into what is venture capital 6 00:00:26,960 --> 00:00:32,600 We've been talking about a few big deals to big people but we thought we'd give a real intro video talk about 7 00:00:32,600 --> 00:00:35,080 You know the basics well timeout timeout timeout 8 00:00:35,080 --> 00:00:40,660 Should we just address the elephant in the room here and for our listeners on Spotify and Apple music? 9 00:00:41,200 --> 00:00:47,240 And out the podcast. Let's just address the elephant in the room. Yes. We're wearing furry walrus costume. Why? 10 00:00:48,720 --> 00:00:55,180 Yes, we are still in college we like to have fun. I don't know walrus onesies seem like the move 11 00:00:55,180 --> 00:00:57,180 It was a mutual decision 12 00:00:57,180 --> 00:01:02,380 I was kind of forced into it. It was a mutual decision. Um, alright, let's cut back to it continue 13 00:01:03,100 --> 00:01:09,860 So venture capital so everyone knows about investing giving money away, but let's really talk about the three main stages of 14 00:01:10,420 --> 00:01:12,420 investing in private company 15 00:01:12,460 --> 00:01:16,660 Actually, let's take a step back and let's talk about the terminology sell side first buy side 16 00:01:17,060 --> 00:01:19,060 Crockett, why don't you talk a little bit about sell side? 17 00:01:19,540 --> 00:01:23,940 So when we talk about and so it's good to split up the two right? So when we talk about 18 00:01:23,940 --> 00:01:31,940 The sell side you're referring mainly to kind of investment banking. You're thinking about the higher end of the spectrum where you are trying to take companies public 19 00:01:32,500 --> 00:01:38,060 And you're kind of like issuing shares. That's not where venture capital falls in which is more so on the buy side 20 00:01:38,060 --> 00:01:40,060 Which is really what we're going to be focusing on today 21 00:01:40,060 --> 00:01:44,140 So for the purpose of this discussion when you think buy side think that's what we're focusing on 22 00:01:44,620 --> 00:01:46,940 So let's give a breakdown of the buy side. Yeah 23 00:01:46,940 --> 00:01:52,940 So buy side is all really about investing is when companies like venture capital firms go ahead and get started 24 00:01:52,940 --> 00:01:58,620 And get stakes in companies. They actually own they buy equity in these companies, right? 25 00:01:58,860 --> 00:02:04,360 So the three main areas of buy side we're gonna focus on today is really venture capital is the first part 26 00:02:04,740 --> 00:02:10,020 Then we'll go to growth equity second part and the last part is private equity, which most of you have probably heard 27 00:02:10,340 --> 00:02:14,140 It's the most popular one. It's the biggest one. But the most exciting one to me is venture capital 28 00:02:14,220 --> 00:02:20,620 Yeah, well, well no doubt. This is the everything venture capital and invested podcast. Yeah, we gotta be focused on venture capital 29 00:02:20,620 --> 00:02:24,620 But but think of it exactly like sockless just mentioned as kind of expected 30 00:02:24,620 --> 00:02:30,300 So you have venture capital at the low end then you move into growth equity and you move further into private 31 00:02:30,820 --> 00:02:34,300 Today we're gonna talk about venture capital as it contrasts from the others 32 00:02:34,980 --> 00:02:39,440 Use it as kind of a lens through which to highlight why it's so special why we love it so much 33 00:02:40,420 --> 00:02:45,780 But let's let's dive in and so I think what we should talk about is kind of the baseline understanding, right? 34 00:02:45,780 --> 00:02:52,540 Of what all of them are so the baseline understanding all of them what they really do is you're investing in private companies and 35 00:02:52,900 --> 00:02:56,580 All the investment firms have one mission to make more money 36 00:02:56,900 --> 00:03:00,740 If I give Crockett a dollar I better get more than a dollar back 37 00:03:00,980 --> 00:03:06,820 Otherwise, there is zero chance of me giving him a dollar and all these economic, you know functions wouldn't exist today 38 00:03:06,820 --> 00:03:09,100 If these companies didn't think they would reap a benefit 39 00:03:09,100 --> 00:03:15,780 However, where the main differentiator comes in is what type of companies are we investing in how much are we investing? 40 00:03:16,460 --> 00:03:24,580 So we think about venture capital you're investing in very early firms usually unprofitable but growing extremely, you know, very very fast 41 00:03:25,100 --> 00:03:28,540 Next we went to growth equity, you know, this growth is actually slowed, you know 42 00:03:29,020 --> 00:03:32,260 Kind of contrast to the term growth equity, but the term is slowed 43 00:03:32,260 --> 00:03:35,380 But you're investing a little bit more will say and then lastly private equity 44 00:03:35,380 --> 00:03:40,980 We're gonna say now these companies are finally profitable, but their growth is pretty baseline, you know, it's pretty flat 45 00:03:40,980 --> 00:03:46,300 They're not growing at this hundred percent every year, but private equity friends what they do is very interesting 46 00:03:46,300 --> 00:03:49,700 They take a majority stake most of the time into these companies 47 00:03:49,700 --> 00:03:56,700 So they're becoming like I said the majority person running the decisions and they do this because they see an upside to the companies 48 00:03:56,700 --> 00:04:00,740 They're you know investing in usually to do this with some form of debt essentially, right? 49 00:04:00,740 --> 00:04:06,660 Right, it's also sometimes helpful to think about the spectrum in terms of how established the actual companies are right? 50 00:04:06,660 --> 00:04:08,100 And so you look at 51 00:04:08,100 --> 00:04:12,900 Operators in venture capital their startups, right when you hear the term startup you think that your capital growth equity 52 00:04:13,060 --> 00:04:16,880 Is startup but more so on the established side. These are companies that have been around for a while 53 00:04:16,880 --> 00:04:20,300 They've raised a ton of money before that they're often, you know 54 00:04:20,300 --> 00:04:26,620 A couple hundred people strong it could be millions hundreds millions billions of dollars that these private equity firms are putting into these 55 00:04:26,620 --> 00:04:29,980 Companies. Yeah, well said and then you move to private equity 56 00:04:29,980 --> 00:04:35,820 Which is if you are a PE firm private equity and you're you are essentially buying a majority stake in a company 57 00:04:35,820 --> 00:04:40,520 It better be an established company and it better be profitable exactly but to us that's not really boring 58 00:04:40,520 --> 00:04:42,260 You know, there's a lot of numbers involved 59 00:04:42,260 --> 00:04:45,360 You can really crunch the financials seeing if there's upside there 60 00:04:45,360 --> 00:04:50,300 But when you kind of scale it back to growth equity even less numbers some qualitative aspects 61 00:04:50,300 --> 00:04:53,340 But when you really go all the way down to venture capital 62 00:04:53,340 --> 00:04:56,880 There's very minimal numbers unless you're getting you know more to establish companies 63 00:04:56,880 --> 00:04:59,700 But I really like to focus on the early stage companies 64 00:04:59,700 --> 00:05:06,460 But why don't we talk a little bit more specifically about venture capital and why the function of venture capital even exists, right? 65 00:05:06,460 --> 00:05:12,820 So the function of venture capital first from the founders perspective is you need money to get your product off the ground, right? 66 00:05:12,820 --> 00:05:17,820 Well, why can't you just you know use your friends money your neighbors money your own money? Well, that's a good question 67 00:05:17,820 --> 00:05:20,260 Well first that takes a long time, right? Maybe your startups dying 68 00:05:20,260 --> 00:05:26,740 Maybe you don't have the time and you don't have the runway runways a term that we use in VC and entrepreneurship to help 69 00:05:27,060 --> 00:05:32,460 Detail how long you have until your company goes to put right? So you essentially what you do is you like divide 70 00:05:33,020 --> 00:05:37,900 The number the number of dollars you have by like number of months and you get like a number of certain months 71 00:05:37,900 --> 00:05:41,060 Yeah with your with your revenue coming in right with with the revenue coming in 72 00:05:41,060 --> 00:05:46,140 Um, but why wouldn't I raise money from my friends and family and go and go crowdsource also known as bootstrapping 73 00:05:46,140 --> 00:05:49,260 Um, why wouldn't I go bootstrap? It's hard. Yeah 74 00:05:49,260 --> 00:05:52,180 I mean, yeah bootstrapping is a term when a founders raising all the money on themselves 75 00:05:52,260 --> 00:05:56,140 They retain a hundred percent ownership the startup everyone's dream, right? 76 00:05:56,140 --> 00:05:59,540 You sell the company for a billion dollars. You have a hundred percent you get a billion dollars 77 00:05:59,540 --> 00:06:05,260 but the reality is I don't have hundreds of millions of dollars millions of dollars to go and 78 00:06:05,540 --> 00:06:12,060 You know go make my company my startup become this billion dollar firm because it takes a lot of money to put in to get 79 00:06:12,140 --> 00:06:17,940 You know from a small a small startup to you know, we're Apple and Google is yeah rip meta 80 00:06:17,940 --> 00:06:23,580 Yeah, we're in that exactly but so so I'm not gonna bootstrap taking too much time our products gonna die 81 00:06:23,580 --> 00:06:25,580 I need to get off the ground. Um 82 00:06:25,620 --> 00:06:28,220 You have a savior and that's where saw whole code comes 83 00:06:28,580 --> 00:06:29,100 Yeah 84 00:06:29,100 --> 00:06:33,340 You know the best venture capital firm in the world saw stuff co comes in invest in the firm 85 00:06:33,540 --> 00:06:37,740 Because it takes a lot of money to put into a company to bring it from a small time to start up all the way 86 00:06:37,740 --> 00:06:40,420 Up to you know, Apple Google rip meta 87 00:06:42,260 --> 00:06:44,260 That's my new mic by the way 88 00:06:44,260 --> 00:06:46,260 Yeah 89 00:06:46,420 --> 00:06:51,220 But you know, why would a venture capitalist even want to put money into a startup, you know 90 00:06:51,220 --> 00:06:54,580 We have to consider how risky startups are. I think them like there's numbers like 91 00:06:56,020 --> 00:07:01,500 50% maybe not know maybe like 90% of startups fail every night. I'm sorry. I don't know. I think it's like yeah 92 00:07:01,500 --> 00:07:04,620 I don't know where I was going with that. Oh, yeah, 99% of startups fail all the time 93 00:07:04,620 --> 00:07:06,980 So you really are making bets, you know 94 00:07:06,980 --> 00:07:09,300 It's some essence when you're investing in a startup, right? 95 00:07:09,300 --> 00:07:13,740 But the reason people and the main differentiator between venture capital growth equity and private equity 96 00:07:13,740 --> 00:07:19,740 Is as you're investing in less established companies you are expecting a much much higher return 97 00:07:19,740 --> 00:07:24,580 You know venture capital firm if I give you a dollar I expect three dollars back private equity firm. I give you a dollar 98 00:07:24,580 --> 00:07:28,100 I'm only expecting, you know dollar ten cents back right dollar fifty 99 00:07:28,100 --> 00:07:33,540 I'm not expecting that three X return that a lot of venture capitalists maybe even up to 10x hopefully, right? 100 00:07:33,540 --> 00:07:37,980 So there's a lot of entry and hype around your returns. That's one of the pros if you're a venture capitalist 101 00:07:38,500 --> 00:07:42,340 Exactly, and also the biggest differentiator when you're investing as a venture capitalist 102 00:07:42,340 --> 00:07:46,900 You're investing in very high growth firms like we said in the beginning, you know, those established firms 103 00:07:46,900 --> 00:07:51,460 They're based on growth is flat but with high growth firms, you know, it's very important 104 00:07:51,460 --> 00:07:53,540 They're not a lot of metrics. You don't know how much revenue they have 105 00:07:53,540 --> 00:07:59,220 So the one metric you really have is how fast is this firm growing and that's usually an analogy to is this firm gonna be? 106 00:07:59,220 --> 00:08:03,060 Good or not. Mm-hmm. And so let's just let's let's keep clarifying here 107 00:08:03,060 --> 00:08:05,740 And so like if you're a venture capitalist and you're investing money 108 00:08:05,740 --> 00:08:06,300 What does that mean? 109 00:08:06,300 --> 00:08:12,860 Does it mean you're going to a company and saying I want to invest in this product specifically or is that up to the founder? Yeah 110 00:08:12,860 --> 00:08:17,900 They make what I mean this product so let's say I own a car company and I have car A and car B 111 00:08:17,900 --> 00:08:20,500 And you're giving me money and you're saying I want you to just just for car 112 00:08:20,500 --> 00:08:24,460 A is that up to you or when you give money to founders as a venture capitalist 113 00:08:24,460 --> 00:08:28,740 Did they just take full directive and then they try to hustle and make whatever they can with that? Oh, okay 114 00:08:28,740 --> 00:08:32,340 Yeah, so this is where we have what we talk about a passive verse, you know 115 00:08:32,340 --> 00:08:35,500 I'm active investor essentially, right? 116 00:08:35,500 --> 00:08:40,220 So when you go to when a venture capitalist goes to a founder, they can either try to lead around 117 00:08:40,220 --> 00:08:43,340 We'll get into that maybe a little bit later talking about different stages 118 00:08:43,340 --> 00:08:48,840 That's just how much monetary amounts people are getting but when you lead around and you usually take an active role, you know 119 00:08:48,840 --> 00:08:53,060 I'm gonna become part of Crockett's company. I want to get a board seat 120 00:08:53,060 --> 00:08:56,460 So I want to be one of their advisors and help them make strategic decisions 121 00:08:56,700 --> 00:09:00,380 Sometimes venture capitalist firm come in and help them hire and that type of stuff 122 00:09:00,380 --> 00:09:04,420 But also there's on the flip side. There are those passive investors where I'm just giving Crockett money 123 00:09:04,420 --> 00:09:09,260 You can do whatever he wants with it as long as I get my three dollars on the dollar back, right? 124 00:09:09,260 --> 00:09:13,700 so you can you can sit back and kind of take like the backseat role as an investor or 125 00:09:14,380 --> 00:09:18,500 You can try your best not to micromanage but really make sure that your money is good 126 00:09:18,620 --> 00:09:24,860 Gonna be getting you some type of return. Yeah, exactly. Exactly. Okay interesting. Um, and so you're at this place 127 00:09:24,860 --> 00:09:29,140 You're a VC you're investing money into a company. Um, how does that actually work when you're investing money? 128 00:09:29,140 --> 00:09:35,140 Do you you write like a term sheet? Like how does that work? So I'll explain. Okay, so a true roof for the sake of this episode 129 00:09:35,140 --> 00:09:40,020 Okay, okay. So basically a term sheet where we're talking about think of this is just a contract between the investor 130 00:09:40,660 --> 00:09:46,140 Salisbury and Crockett's car company. I'm giving a term sheet. I'm showing the terms of what I want to get 131 00:09:46,140 --> 00:09:48,800 So how much money I'm gonna give him for what equity, you know 132 00:09:48,800 --> 00:09:50,320 There might be some other stipulations in there 133 00:09:50,320 --> 00:09:56,700 But the basis is I'm gonna give him like a million dollars for 10% of his company and you know that million dollars 134 00:09:56,700 --> 00:10:04,140 I have if his company's triples in values the million dollars I put in is also gonna triple in value, right? Right, okay 135 00:10:05,140 --> 00:10:09,700 It sounds pretty fun to be venture capitalist clearly. Yeah, I mean it's you know, it sounds easy 136 00:10:09,700 --> 00:10:12,580 You know, you just give away money you get money back when this firm blows up 137 00:10:12,580 --> 00:10:18,180 But like we said 99% of startups fail. So there's a lot going into finding the best startups 138 00:10:18,180 --> 00:10:22,420 I'd say so let's talk about some pros and cons. Yeah, I think I think that's an interesting space 139 00:10:22,420 --> 00:10:26,860 Right. So I think one of the interesting things and we talked about there's a lot of there's a lot of intrigue 140 00:10:26,860 --> 00:10:30,600 If you're a founder, you're having a hard time bootstrapping or raising money from friends and family 141 00:10:30,660 --> 00:10:35,220 There's a lot of incentive to go towards the DC right and to go raise money 142 00:10:35,220 --> 00:10:40,300 Yeah, and to kind of gather a pool of money for your company fastest way to grow, right? 143 00:10:40,300 --> 00:10:43,220 It's it's a quick way to grow but also you get resource 144 00:10:43,500 --> 00:10:48,180 Because for example, if I'm a car company and Sahil Co has been investing in car companies for 30 years 145 00:10:48,180 --> 00:10:51,300 He has a lot of connections. He knows what work he knows what doesn't work exactly 146 00:10:51,300 --> 00:10:53,660 And that's really exciting for me is as a new founder in this space 147 00:10:53,740 --> 00:10:59,500 But I think what an interesting con then occurs is the more money you raise and the more equity you're giving to people 148 00:10:59,780 --> 00:11:03,500 The less you actually own of your business. Yeah, the more you're becoming like a public firm 149 00:11:03,500 --> 00:11:08,540 You know where you can't make decisions like like we're talking about rip matter meta, but seriously on Mark Zuckerberg 150 00:11:08,540 --> 00:11:13,020 He's coming under a ton of scrutiny from who his investors for what does he do? 151 00:11:13,020 --> 00:11:16,480 He made Facebook himself and he wants to take it to the VR space 152 00:11:16,480 --> 00:11:17,100 But you know what? 153 00:11:17,100 --> 00:11:22,500 He doesn't get to make those decisions anymore because Facebook is now a public company and is endowed to its 154 00:11:23,220 --> 00:11:30,140 Shareholders not the CEO and founder Mark Zuckerberg anymore, right who is a shareholder, but you know, I don't think he's not the majority shareholder 155 00:11:30,140 --> 00:11:31,140 He's not but but again 156 00:11:31,140 --> 00:11:35,700 it's it's like a horrible position to be in because at the end of the day you are the point man for this company and 157 00:11:35,900 --> 00:11:40,940 You are you are thought upon by all of your investors and given this responsibility to steer in the right direction 158 00:11:41,340 --> 00:11:46,700 Despite owning way less of the company than they might actually own exactly a lot of people think venture capitalists like ah 159 00:11:46,700 --> 00:11:51,760 It's like the Holy Land but in my reality in my like opinion if you can bootstrap 160 00:11:51,760 --> 00:11:57,500 You know that is the best option to retain your company do what you want with your company and and the end of the day you 161 00:11:57,500 --> 00:12:00,800 Will make the most money from your company if it scales to the same size 162 00:12:00,800 --> 00:12:06,300 But the one difference is a venture capital firm is gonna help you scale probably much bigger and much faster 163 00:12:06,980 --> 00:12:12,800 When we talk about venture capital firms themselves awful, are they they're investing in whatever and everything do they specialize was that? 164 00:12:12,800 --> 00:12:19,220 Yeah, most of them specialize because like we said, there's not many numbers. I don't know, you know, you're not profitable more safe startups 165 00:12:19,220 --> 00:12:24,340 You know, they just have like revenue coming in certain customers, but really I don't have any serious numbers 166 00:12:24,340 --> 00:12:28,620 Your numbers could be all over the place. Maybe they're from a month. Maybe they're from a year, but they're not you know 167 00:12:28,620 --> 00:12:33,700 They're not reoccurring numbers. I haven't seen your past history. I'm really just making a bet essentially 168 00:12:33,700 --> 00:12:36,340 So I really have to be an expert in a certain industry 169 00:12:36,660 --> 00:12:41,300 That's my most like almost all venture capitalists themselves like the partners and firms 170 00:12:41,300 --> 00:12:44,980 They specialize in one area they become the sole expert 171 00:12:45,220 --> 00:12:50,060 That knows what makes a good company in this industry versus what doesn't make a good company in this industry 172 00:12:50,060 --> 00:12:56,580 Yeah, you'll see people across VC firms. There'll be a partner that specializes in say enterprise level SAS softwares of service 173 00:12:56,580 --> 00:12:59,340 There'll be a partner that specializes in autonomous vehicles 174 00:12:59,340 --> 00:13:05,060 They're a partner that specializes in food delivery like people build up these expertise as a result 175 00:13:05,060 --> 00:13:09,700 That kind of molds into like how VC firms actually operate you have VC firms out there who are 176 00:13:09,700 --> 00:13:15,540 Specifically geared at software or specifically geared at consumer tech or specifically you get what I'm saying 177 00:13:15,540 --> 00:13:21,140 Yeah, exactly, and I think by doing that you get better at picking out. Yeah, a Crockett's car company as okay 178 00:13:21,140 --> 00:13:24,940 I've seen companies like this before. Yeah, this is an interesting and they all have their own philosophies 179 00:13:24,940 --> 00:13:28,640 Maybe they use like quantitative metrics, but they all have their sole way 180 00:13:28,640 --> 00:13:32,740 You know certain type of companies that they want to invest in and that can vary from partner to partner 181 00:13:33,300 --> 00:13:35,300 within a venture capital firm 182 00:13:35,300 --> 00:13:40,820 But another area when time about is like how do you really different besides like what they specialize in is there anything else? 183 00:13:40,820 --> 00:13:46,180 Crack it that you think differentiates venture capitalist firms from each other or from different levels of invest 184 00:13:46,180 --> 00:13:49,620 I'd say to to a founder, you know when like, you know 185 00:13:49,620 --> 00:13:54,700 You have to venture capital firms throwing hundred million dollar checks at your face. It's kind of hard to tell them apart 186 00:13:54,700 --> 00:13:59,140 Right, right. So I think there's a couple of the first is we talked about before it 187 00:13:59,140 --> 00:14:01,660 There's difference between passive investors and active investors. Yeah 188 00:14:01,660 --> 00:14:06,180 Um, if I know that this company has a track record of you know, it's gonna be great 189 00:14:06,180 --> 00:14:10,340 They're gonna give me way more money than the other company. Yeah, I'm never gonna talk to this person again 190 00:14:10,340 --> 00:14:13,820 They're they're only gonna come to me when they want their money back. That might not be super great 191 00:14:14,180 --> 00:14:19,860 As a founder you have to consider that money isn't the only thing that's gonna get you through the next couple months, right? 192 00:14:19,860 --> 00:14:21,100 Yeah, yeah 193 00:14:21,100 --> 00:14:25,220 You need resources you need help you need people who are gonna help you build a team you need 194 00:14:25,620 --> 00:14:31,100 Venture capital firms who are gonna say look I have great options for a c-suite for you and these people can build out a great 195 00:14:31,100 --> 00:14:36,060 Exactly. They may know potential customers. They might already have relationships. They can literally be like here's this customer 196 00:14:36,060 --> 00:14:42,620 Let me put you in touch. Mm-hmm. So you're weighing a scale, but it's also um, sometimes they're very specific needs to have as a founder 197 00:14:42,620 --> 00:14:47,260 Yeah, so let's say imagine. I am a founder in Los Angeles 198 00:14:47,260 --> 00:14:50,380 Oh, actually, I think the best way to think about it is like, you know when you go to Shark Tank 199 00:14:50,380 --> 00:14:54,140 Yeah, right each founder like we said has their own industry 200 00:14:54,140 --> 00:14:59,180 But they also come with their own network as well when you join Mark Cuban if you have a sporting brand 201 00:14:59,180 --> 00:15:02,060 You know any start relates to sports you want to go with Mark Cuban 202 00:15:02,140 --> 00:15:07,540 He knows the most about sports not only does he know the most but he also knows the most people in sports 203 00:15:07,540 --> 00:15:13,260 Yeah, you look at someone like Damon, right if you're familiar with Shark Tank, I love James the go to Shark Tank, by the way 204 00:15:13,260 --> 00:15:18,780 Yeah, so he's the one you know fashion industry expert, right? You have a fashion brand who you're gonna go to Damon 205 00:15:18,780 --> 00:15:20,700 I'm gonna go to the founder of FUBU. That's who you're gonna go 206 00:15:20,700 --> 00:15:26,020 Yeah, you're not really gonna go to the owner of the Dallas Mavericks when you could try to go to the founder of FUBU exactly 207 00:15:26,020 --> 00:15:30,780 But that's the thing Mark Cuban might offer you three times the money, but does he have the resources you want? 208 00:15:30,780 --> 00:15:32,780 No, he might not exactly have them, right? 209 00:15:33,060 --> 00:15:40,200 So it's got to be a fit and that's a really important things that founders look for but it's also equally as important on the VC side because 210 00:15:41,100 --> 00:15:46,620 Venture capitalists will look for patterns in people that they've seen before people who are successful people are unsuccessful 211 00:15:46,620 --> 00:15:49,860 And that's that's how ultimately they'll craft their due diligence and make a decision 212 00:15:50,020 --> 00:15:53,460 Exactly. That's I think that's a great segue because what I really want to talk about next is, you know 213 00:15:53,460 --> 00:15:59,660 What do venture capitalists even do we said, you know, they make bets they invest money expect returns have a network 214 00:15:59,660 --> 00:16:03,060 But on a day to day, what is a venture capitalists do? 215 00:16:03,060 --> 00:16:06,700 And I think the best way to start off is you know when you go like analysts a partner 216 00:16:06,700 --> 00:16:10,260 So I can start with you know, and then crack it will get into due diligence 217 00:16:10,260 --> 00:16:13,620 But an analyst really is the ones main jobs gonna be sourcing, you know 218 00:16:13,620 --> 00:16:18,180 By any means remember that word sourcing remember the word sourcing by any means necessary 219 00:16:18,300 --> 00:16:23,300 Am I gonna go out and I'm gonna find the next Apple the next Figma, you know 220 00:16:23,300 --> 00:16:28,340 I'm gonna buy any means necessary any networks I have I'm gonna have conversations with these CEOs and then you know 221 00:16:28,340 --> 00:16:33,060 Once they go through the funnel. I pick like a few I like I might propose it to an associate and then we'll have this in 222 00:16:33,060 --> 00:16:38,620 Their pocket so you propose it to an associate and that's when a process starts happening called the due diligence process 223 00:16:38,620 --> 00:16:42,660 Exactly due diligence is used. It's kind of an analogy and like day-to-day conversation 224 00:16:42,660 --> 00:16:42,980 Yep 225 00:16:42,980 --> 00:16:49,580 The way that it's referred to in venture capital and investing even a growth equity in the private equity level is how much do I know? 226 00:16:49,580 --> 00:16:54,040 About this company and how much can I understand before I'm ready to sign a check for this company? 227 00:16:54,040 --> 00:17:00,260 The due diligence includes things like taking all of their financials checking them checking the legality of the product that they own 228 00:17:00,460 --> 00:17:03,860 Competitive landscape checking the competitive who is doing this product who's out there else? 229 00:17:03,860 --> 00:17:04,180 Yeah 230 00:17:04,180 --> 00:17:04,980 Well, it's out there well 231 00:17:04,980 --> 00:17:09,140 It's out there a big part of that big part of the due diligence process and we touched on this a little bit 232 00:17:09,140 --> 00:17:12,920 Or that's what helps differentiate these C firms is something called investment thesis 233 00:17:12,920 --> 00:17:13,300 Yeah 234 00:17:13,300 --> 00:17:16,600 So a lot of venture capitalists when we look at these partners who specialize in different areas 235 00:17:16,600 --> 00:17:22,960 They'll build up a thesis which is basically their idea of where a space is going and it's kind of the next level person and like 236 00:17:22,960 --> 00:17:26,880 The partner, you know, there's a lot of terms between like the middleman like you have your analyst associates 237 00:17:26,880 --> 00:17:32,160 And then like firms have all different names principal, you know VPs directors, you know 238 00:17:32,160 --> 00:17:35,460 But you know when you get like kind of up to like higher level will call them 239 00:17:35,460 --> 00:17:39,040 Yeah, right at this analyst level you're not creating an investment 240 00:17:39,040 --> 00:17:45,440 No, no, no, you are listening and you are you're trying to learn because you're no you're not an expert in any field yet 241 00:17:45,440 --> 00:17:49,920 Mm-hmm. So so you start to move up you have maybe at the associate level 242 00:17:49,920 --> 00:17:52,840 Those are the people who are doing a lot of the due diligence in the back end work 243 00:17:52,840 --> 00:17:58,880 You're checking to make sure that this company has their stuff straight their founder is not telling different people different things 244 00:17:58,880 --> 00:18:02,360 Yeah, they have a story they have a product if we put money in this product 245 00:18:02,360 --> 00:18:05,480 Are we confident or in this person are we confident? 246 00:18:05,480 --> 00:18:09,080 They're gonna do it they say and that the product is gonna succeed in the way that the person described 247 00:18:09,080 --> 00:18:13,040 Um as it gets higher up the chain, that's when you validate it with an investment, right? 248 00:18:13,040 --> 00:18:16,080 And so that's when you say let's go back to the car company analogy, right? 249 00:18:16,080 --> 00:18:20,520 Like let's say you want to invest in the car company and I'm a partner of a VC firm and I'm telling you 250 00:18:20,520 --> 00:18:23,720 I know where the car space is going. It's going here 251 00:18:23,720 --> 00:18:27,560 Yeah, then I can then I can try to make a guess like if that's where the car space is going 252 00:18:27,560 --> 00:18:32,140 That's my thesis. Yeah, is this car company gonna be positioned in that space nicely exactly 253 00:18:32,140 --> 00:18:34,140 And so that's how you can kind of help validate 254 00:18:34,280 --> 00:18:36,960 So, yeah, um, yeah, we know we threw a lot 255 00:18:37,520 --> 00:18:41,280 It's a lot. It's a day in the life of VC again. It's abstract 256 00:18:41,280 --> 00:18:44,920 Yeah, we try to simplify it but it is not simple at all 257 00:18:45,480 --> 00:18:48,320 It's not but look at the end of the day what you need to remember 258 00:18:48,320 --> 00:18:53,320 It's just all VCs are doing is they're putting money into a company expecting a huge return 259 00:18:53,320 --> 00:18:56,820 Yeah, and they're putting money into early companies early startups 260 00:18:56,880 --> 00:19:00,720 If you are expecting a lot of money and you're gonna put in a lot of money, you better do due diligence 261 00:19:03,960 --> 00:19:07,620 Yeah, well, thank you guys for listening, you know, let us know in the comments 262 00:19:07,620 --> 00:19:12,540 We haven't got any really comments yet. But if you want any, you know venture capitalists founders any other topics 263 00:19:12,540 --> 00:19:15,720 Really wants to talk about you know, we're really about doing anything 264 00:19:15,720 --> 00:19:19,320 Yeah, definitely make sure to check out the Spotify and the Apple podcast as well 265 00:19:19,320 --> 00:19:24,160 If you are listening on those platforms right now, please tune in to the YouTube that uninvested podcast 266 00:19:24,160 --> 00:19:25,580 Yeah, you can see these sick wall 267 00:19:25,580 --> 00:19:30,520 Let us know what you think of these massive like five pound tusks that are hanging off our heads right now 268 00:19:30,520 --> 00:19:33,000 Yeah, I mean we could keep wearing them if that's what the viewers want 269 00:19:33,000 --> 00:19:40,520 Uh, well that being said this is uninvested. I'm Sahil. Thanks for joining. Thank you