What did I do for my spring break? Attend a conference on community development venture capital, participate in a student competition, and help out at a conference on business incubation. A veritable mini-quarter!
The Sustainable Venture Capital Investment Competition was intensely fun. It was so satisfying to do due diligence in a compressed period with a team of committed partners. We pulled an actual all-nighter. Literally we went back to the hotel at 8 am and I slept for 1 hour before getting back up to be back at the competition by noon. Besides that, it was a little unlike real life in that we reviewed business plans first, did research, then saw the pitch and then later had 15 minutes with the Entrepreneur. I’ve raised the issue with my angel groups that I’d like to see business plans before I see entrepreneurs, so I can actually ask intelligent questions when I see them. However that’s not the way it’s done, in part because angel groups need investors in the room to make it worth the entrepreneur’s while, and so if it’s not a surprise, investors might decide not to show up.
I’ve also learned in the last couple weeks that by far a VCs most valuable and constricted resource is time. It makes sense that the most effective use of time is to screen pitches, and then get into the business plan of those that pique interest off the pitch, and then meet with the entrepreneur for deep Q&A. That’s the argument for why VCs ask for no-shop agreements – because they can’t afford to invest the due-diligence time and have a good investment get a competing offer.
There were eight teams (Berkeley, Michigan, Duke, Harvard, Wharton, UNC, somebody else traditional, and us). Michigan won Entrepreneur’s Choice, I think Wharton and Berkeley won. It was a little confusing because they give us all fake team names to hide the school identities from the judges. Given that, well, one of these schools is not like the others, it’s a little flattering that the organizer commented that when the judges were trying to guess which team was from which school they did a pretty poor job. After winners were announced they had an excellent setup where we rotated from judge to judge for specific feedback. Our major fall-downs: we failed to game the rules correctly – the judges were to grade us on team work – we chose to have a single (rotating) leader for each session, but each session had different judges, so to each set of judges we seemed to have one dominant member and little team interaction. So it’s a learning for us about this competition.
The second failing was in working to build rapport with the entrepreneur. That I chalk up to genuine learning – we had four sessions and in each session we steadily moved the valuation questions closer to the end of our 15 minute sessions and I think we really improved just over the day. It’s also a pitfall from my angel experience where entrepreneurs often walk into the room with a term sheet drafted, and I’ve yet to be a big enough piece of the pie to have negotiating power (or the confidence to try and get it -but I’m getting there!) We actually had to draft a term sheet, and I did that part. This was a perfect experience for me because negotiating about valuation and proposing term sheets is right where I’ve been wanting to dare to go, and this pushed me into it. So that’s another reason I was perhaps a little too aggressive about tackling valuation immediately in our entrepreneur interviews, I was geared up. Finally, as a team we agreed that being from the “sustainable” school, we probably overcompensate to avoid being perceived as insufficiently concerned about the numbers.
Other feedback in my mind amounted to failures to correctly game expectations – the judges wanted more finance and less on our social metric, and didn’t care about why we didn’t invest in the other companies.
Our big disappointment – we worked really hard to come up with a quantitative measurement of the social value potentially created by these companies. We came up with our own GreenToGold Ratio TM (Green-To-Gold was our assigned fake team name, and we TM’d our invented ratio as we imagine good business students should do.). We are pretty proud of the ratio. Two of my team members actually work for socially responsible investment companies (Trillium Asset Management and Progressive Investment Management) so we’re all intimately aware that the current state-of-the-art in the industry is the struggle to quantitatively measure social return. It’s particularly tricky in equity. To us, this was the entire point of this competition – it’s the Sustainable VCIC, as opposed to the regular VCIC competition which has its finals on April 12th at UNC. But the judges didn’t ask about our metric at all. Which also meant those team members didn’t do any talking during the Q&A part of our presentation.
However, a few days later comes redemption – one of the judges who works for a socially responsible fund scheduled a conference call to follow-up with us and talk about our metric as we were the only team to put a bunch of effort into designing one. All-in-all, I can’t imagine a better spring break.