Critical VC Terms – Life Time Value
Friends Are the New Partners
Day in the Life of a VC
The Importance of Differentiation
The Art of a Pitch Deck

Critical VC Terms – Life Time Value

If you’re like me, you enjoy curling up in bed each week with a bag of popcorn and watching the latest episode of Shark Tank.  Shark Tank has minimal applicability to a day in the life of a tech VC (although Mark Cuban does add a lot of tech VC theory/outlook) but it is instructive for the types of mistakes that entrepreneurs continually make.

In this week’s episode, Pretty Padded Room was presented, an online marketplace for virtual therapy services started by a young entrepreneur named Bea Arthur.  I have to say, I actually think this idea is pretty good.  It may be a bit ahead of its time but there are lots of part-time therapists or stay at home moms with MSWs or Doctorates (it was exclusively female focused) who are looking to add some side revenue to their bottom lines.  It’s the type of business which is at least worth exploring, because it has a strong network effect, and does solve a pain point for busy professionals, or those looking for less expensive mental care.  It wouldn’t cost a lot of money to get this off the ground because you could implement many “off the rack” products to build out the technical side with minimal overheard.

The problem is that the businesses was presented by one of the least eloquent (or knowledgable) entrepreneurs the show has ever seen.  She was unable to answer Mark Cuban’s question on the Life Time Value of her customers, which got me thinking that it might make an instructive blog post.

Life Time Value is simply the expected revenue generated by one of your customers over the course of their term purchasing from you.  To get the calculation, you would just average out the totality of your customers.  For example, if you had 2 customers, one who had spent $10 with you, and another who had spent $20 with you, your customer LTV would be $15.

There are some complications here, however.  How do you know a customer will never come back?  Alternately, if you’ve had a customer for three strong months of purchasing, how do you know how long she’ll stay.  For modeling and investment purposes, you’d find comparable businesses with some records (for example, a typical flash sales customer, or a typical subscriber to a monthly service) and estimate out that way.  Your numbers have to be done on a historical level, but you can begin by estimating future projections and refining with each increase in data.

A further refinement of the LTV model is “cohort analysis.”  Namely that not all customers behave the same.  Perhaps customers who joined six months ago spent more because there were fewer competitors discounting their goods.  Or maybe macro economic factors have changed and customers who join this month are expected to spend more than those who joined a year ago.  All LTV models should break down customers by a cohort class – typically done by month or quarter.  The reason for tracking cohort class, as taught by Eric Lefkofsky in his “Building Internet Startups” course at Chicago Booth, is to assess the “Payback” period for any given business or acquisition channel.  Eric suggests looking for businesses with a six month payback – that is where the revenue generated by the customer surpasses the cost of acquiring that customer within six months.

The Life Time Value calculation has been the subject of considerable debate and analysis.  For more on this topic, you can read Jeremy Liew from Lightspeed’s take or the defining article on the subject by Bill Gurley at Benchmark.

Hope this helps and I apologize if it was too basic.

Friends Are the New Partners

Yesterday, my VC fund in Chicago announced a new partner added to our team.  It’s an exciting time for us as Kevin is a phenomenally hard worker who brings a lot of positivity and energy.  Moreover, changes – while difficult in their transition stages – are often big opportunities for growth, new beginnings, and strengthening.

I’ll be honest: as the Junior member of our team, I wasn’t intimately involved with the selection process for a new partner.  But one thing was abundantly clear – friends mattered more than performance.  Now don’t get me wrong, Kevin’s track record is exceptional…that’s not what I’m referring to.  What I mean to say is that while there was some discussion about a candidates experience or credentials, the discussion was more framed around personality and ability to gel with our team.

That might sound silly to many of you.  Partners at law firms are elected based on performance.  Partners at many financial funds are chosen by their ability to fundraise (aka performance).  But in the VC and Startup worlds, whether you’re taking about partnerships or founding teams, it’s all about complementary abilities and personality.  Because both VC fund managements and startup teams are so small, being able to gel, respecting each other, and cultivating an atmosphere of positivity are literally the most important factors.

And here’s why it matters.  I go to Chicago Booth, a school of 1,100 FT MBA students and who knows how many part-timers (see below):


All of these kids are smart…really, really smart….intimidatingly smart.  But none of us are likely to remember the valedictorian.  What we will remember are the people who mentored us, answered our e-mails quickly, always seemed to be hanging around, were eternally positive, and easy to work with groups.  I distinctly remember the people who said “your wife just had a baby?  Don’t dare do work for our group this week.”  But I won’t remember which team had the best presentation in any given class.

If you have a goal of being an executive or partner someday, someone is going to have to hire you or appoint you.  So let’s go back to the Chicago Booth dilemma.  At that stage of your career, when you’re up for an executive or partnership level opportunity, everyone is brilliant and qualified.  Face it, your resume simply isn’t THAT much better than the other guy’s (if at all).  What tips the balance is whether people want to work with you.  A VC Fund partnership is theoretically a 10 year cycle.  That’s a darn long time.  So it’s impossible to be appointed or elected by a board if they’re not wholly confident that your personality is the right one for a decade to come.

This is how you need to approach your jobs, both now at a Junior level, and later at a Partnership level.  Don’t be thinking merely about your assignments – be thinking about how you cultivate relationships with the people around you through your assignments (because all networking and no work is also a bad result).  Use your projects and interests as a platform to leverage your own personal brand throughout your company.  Focus on rejecting the label of “Analyst,” and on re-emphasizing and defining the label of “John.”

Best of luck in finding creative ways to spread your positivity and personality throughout your organization in order to build your own brand for the future.



Day in the Life of a VC

When I started interning at I2A Fund in the Spring of 2012, I tried to take on as much responsibility as possible.  I’ve done a lot of menial tasks in my life, from stuffing envelopes in political campaigns to couriering packages at my internship at Time, Inc, and (as noted in my last post) I had a chip on my shoulder….I thought I was too good for those tasks.  I was wrong.

I can’t remember who taught me this piece of advice, but when I was in my teens, someone told me that the trick to longevity at a job, promotions and overall success was “making yourself indispensable.”  What that means at every organization is different, but what I realized after a week at I2A Fund was the extraordinary level of scheduling complexity and busyness during any given day.  A lot of entrepreneurs and aspiring VCs simply don’t understand the makeup of a day in the life of a VC.  Below is the schedule from an “average” week of one of our partners:

Ever wonder why VCs take a couple of weeks to get back to you?  Maybe you’re thinking to yourself – “well, he’s got some free blocks in there…I work a 8-7 so my day is just as busy.”  The difference is that at a normal jobs, you actually get time to “work.”  You know, like do some research, read through some analysis, do some writing.

In this partner’s case, he’s responsible for half a dozen board obligations, he’s trying to close a deal, he’s working on getting our annual letter finalized and out to LPs, he’s helping portco’s hire, continuing to network.  Oh, and he gets 100-200 relevant e-mails per day.  How long does it take you to respond to an e-mail?    30 seconds?  2 minutes?  That’s 1.5-3 hrs/day of responding, assuming 1 minute/e-mail.  And don’t forget that some e-mails, many e-mails, require a lot of thought.  Oh not to mention, that partner might have a wife/husband, kids, some hobbies?  It’s not’s easy being a VC.

If you are fortunate enough to land an internship, associate level role, or even higher at a VC, or heck, literally any role at a startup, this is the understanding you need to have when you enter.  From the moment you enter the door, you need to be focused on: “how do make other people’s lives easier?  How do I reduce some of their workload?”  And then you just start doing it.  You don’t ask “can I transcribe your notes to our CRM?”  You just go and do it.  You take notes, then you circulate a doc and say – “let me know if this helpful.  Open to any feedback.”

If they don’t like the notes, you find something else.  You take initiative and put together a graphical report of deal flow, or of portfolio diversification, or of the strengths/weaknesses of different companies.  You just start doing things without being asked.  The truth is that busy people are terrible at delegating jobs because it simply takes too much time/effort.  Which is why VCs/Startups like to hire people who can show they do things – the right things – without being asked.

Be a self starter.  Always be thinking about how do I make X or Y’s life easier.  How do I add value?  That is how you make yourself indispensable.

The Importance of Differentiation

As someone who reviews a minimum of ten pitch decks and intro/cover letters per week, I have learned to appreciate the impact of differentiation.  I firmly believe that everyone has a unique, engaging, compelling personality.  The problem is that people filter themselves into a mold: “I’m an investment banker,” or “I work at a non profit.”  I’m not the very person to suggest that question “what do you do?” should be replaced by “what do you like to do?” but I may be among the first to advocate for the latter question’s presence in your cover letters.

Here’s the problem: everyone is smart.  As a graduate of NYU and a current MBA’er at Chicago Booth, it was horrifying to realize that no fewer than 95% of my classmates were smarter than me.  I’m not great at math.  I’m not an A+ writer.  I have trouble taking tests.  But where I do excel is hard work, diligence/research, and CREATIVITY.

Here’s a great example of the potential differentiation in a cover letter from an article in Business Insider

Looking at the reactions, you begin to realize how dull the types of requests/correspondence these bankers receive truly must be.  This is not an earth shattering e-mail.  But it is different.  And differentiation = memorability.

But don’t take this advice and begin sending old socks in a package to stand out.  Here’s what this student did properly:

  1. “I met you before…” – The e-mailer generates credibility by noting they’d met each other in person before.  Although unlikely that the banker remembers the details of the conversation, he likely remembers the student being polite/considerate/etc.
  2. “I’ve interned for Merrill Lynch…” – In an e-mail which is overwhelming risky (and which might suggest an eccentric person, aka a liability to a firm), the student is sure to note that he has worked in a corporate environment (probably not dissimilar from the firm he’s applying to) and can maintain a level of professionalism.
  3. “I have no qualms about fetching coffee…” – This is where the student defines himself as different from the pack.  I’ve held college internships (I did one at Time Inc. where I effectively couriered packages/got coffee all summer) but I was unhappy because I thought I was too important for such tasks.  The epidemic in the banking world (not exclusive to banking, however) is the level of pride among even junior workers.  I personally remember the first time I was told to stuff envelopes for a summer job and remarking “I must be the most overqualified envelope stuffer ever.”  It’s that kind of personality that firms want to avoid.  This student credibly convinces the reader that he is so passionate about the industry that he will do anything to just get a taste.
Although this e-mail was written geared towards bankers, it is a paradigm cover letter for the startup/VC world.  These are worlds defined by hustle, passion, and communication.  More in future posts…


The Art of a Pitch Deck

In the six months since joining the I2A Fund as an MBA Associate, I’ve reviewed over 100 early/seed stage pitch decks from startups in the Chicagoland area.  A company’s deck is more than an overview: it needs to tell a story.  All great stories – whether told on film, in books, or as a spoken tale – require a connection or concern for the characters, building momentum, some conflict, and of course, a climax.  The best decks I have seen fit this mold – they are stories so coherent, and so logical, that I literally become excited reading them.

I would posit that few, if any startups are approaching their decks from this perspective.  But consider the context: you are an expert in your company.  I am not.  The vast majority of the time, someone similar to me – meaning a 20-something associate with 2-4 years’ work experience who is writing up 15 deal reviews a week – will be reviewing your company’s deck.  This is true whether you are pitching VCs, accelerators, incubators, or trying to sell a larger corporation.  The first line of defense will likely be someone who is not an expert in your domain.  Hence the importance of telling a compelling story.

I don’t need to be a military expert to appreciate Saving Private Ryan, or a quant geek to love Good Will Hunting – that’s the power of great story-telling.  As a former professional poker player, the turning point in my success came when I started approaching each unique hand as a contained story.  Do the pieces of the puzzle fit together?  Is this a logical progression?

Adopting this approach to presenting your company will greatly enhance your firm’s reception.  Here’s why:

The majority of decks I see follow a standard approach.  They present the problem, then I’m told the market size, their solution, some traction, the team, and the fundraising goals.  Fair enough, all useful information.  But you’ve effectively just mailed in a series of bullet points, dressed in pretty graphics.  A good deck, like a good story, connects the dots with ease, building my interest.  A good deck will integrate the consumer’s point of view while hinting to investors of the potential.

For example, rather than merely telling the problem, a better approach is to consider and express why people care.   How many hours from the day are lost through a poor legacy product?  What are the ramifications?  When I see that someone is losing 15 unnecessary hours per week due to an inefficiency, I know that person is likely to pay well to get them back.   You get the idea.

But the single most important piece of the story is your traction.  If I’m engaged in your story and increasingly understanding how the pieces come together, but then see that no one’s signed up or you haven’t started selling, it’s as if someone unplugged the TV in the middle of the climax moment.  The deck is supposed to be building momentum – once your platform or product makes sense to me, I want to see adoption.  That doesn’t mean a million users; but it does mean continued growth.  Show me what happened to your metrics when you improved a product, or changed it.  Show me how much you know about your consumers, and how you’ve seen progress through experimentation or A/B testing.  An early stage startup is, in many ways, an organic process – the best way to help me understand your full story is to make me a part of that process.

Two very helpful links:

From Ryan Spoon @ Polaris Ventures on creating an early stage deck:

From Naval Ravikant of Angellist, who actually doesn’t think the deck is vital, but offers great advice on how to make your startup’s story compelling and engaging.  His thesis of communicating something “exceptional” I’ve found to be spot on.

He’s probably right that the deck matters less…if you’re friends with him.  But for purposes of networking and opening doors, it will matter, especially in Chicago. utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+venturehacks+%28Venture+Hacks%29

Best of luck refining your decks!


Article originally posted on Built in Chicago

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