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Pick One: Food or Laundry?
3 takeaways from my conversation with Venture Capital Partner Phil Jung
I was usually stressed about a software implementation project that was delayed a week or two. I thought my professional world was crumbling down.
And then my wife would tell me stories of her day where she would be dealing with children who were bullied for wearing the same clothes to school every day that started to smell because parents were making real-time trade off decisions on putting food on the table that day and deferring laundry for a couple days.
That piqued my curiosity of what I wanted to do longer-term with my career.
Today, I’m breaking down 3 takeaways from my discussion with Phil Jung, Partner, Venture Capital at Sovereign's Capital.
Check out our full conversation + how to connect with Phil here:
The Observer Express
Don’t have time to read the entire post right now? No worries, here are today’s 3 takeaways:
A Culture/Faith-Driven Thesis Requires Thoughtful DD. Really getting to know the entrepreneur is a required step.
Angels are a Key Part of the Ecosystem. Angels help founders get to the point where VC can participate.
It’s Not a Right to be on Someone’s Cap Table. It’s an honor to be part of someone’s company, not a right.
1. A Culture/Faith-Driven Thesis Requires Thoughtful DD
While building a relationship and getting to know the team culture is a common theme in VC diligence, Phil’s comments highlight how this element is supercharged for a fund with a specific culture or faith-based thesis.
Here’s what Phil had to say when asked “How do you diligence this stuff?”:
It's tough to do so with a quick, 30-minute initial zoom. You don't always get to the heart of the story. So it takes us a little bit longer, but we ask a lot of open ended questions. “Tell us your story or the key inflection points that influence your leadership style or your personal view on growing and scaling a business.” “How do you view technology being used for redemptive purposes?”
We meet all of our entrepreneurs in person. If we have the opportunity to, we'll invite their families or their spouses out to break bread with us. We think that's important, recognizing all the other individuals that help allow an individual to work and spend a lot of long hours and late nights working on an early-stage startup where you're wearing many, many hats. We try and get a sense of culture at an organization by talking to other individuals and mid-level managers or even employees at an organization.
We look at external recognition when possible, Glassdoor reviews, a great place to work. We look at recruiting cycles, retention cycles, the average tenure of employees. So all of that holistically gives us a good sense of the motivation of an entrepreneur.
2. Angels are a Key Part of the Ecosystem
I’m biased, but I loved this point.
I tend to think of angel investors as “a conveyor belt” (see the paper from Darian M. Ibrahim I reference in the post linked below) moving startups from the FFF stage onto the VC stage ), and Phil’s point reinforces that this is what actually happens in practice.
Angel investors are an incredibly important part of the venture and the startup ecosystem. Most if not all of the companies that most venture funds invest in have been supported and funded by angel investors, often in that friends and family round. That allows companies to hit certain milestones before the VCs come from a more institutional perspective. Angel groups are a great source of deal flow and referrals for us.
So how does an angel as an individual, or even as a group play into the larger startup ecosystem? It's a key part of it.
Without [the angel], a lot of venture funds wouldn't touch companies because they won't have hit those key milestones that reflect some of the metrics and KPIs that VCs look for.
3. It’s Not a Right to be on Someone’s Cap Table
This point hit home.
It’s really, really hard to start and build a company from nothing. Investors who appreciate that and value the opportunity to be “in the ring” stand out. Matt Gore highlighted something very similar in Episode 1: “You gotta win the winners”.
I've been in the venture space now for 11 years. And every subsequent year I'm humbled. It's not a right that you're on somebody's cap table, it's humbling to be invited to be on a certain cap table.
For entrepreneurs and founders, it's often their life's work that has led them to this point. These are really intelligent, successful people, right? They can make a very comfortable living working at a big corporation. And yet they've chosen to oftentimes take less cash comp to really go all in on a specific business idea.
And for you as an investor, as a supporter to be a part of that journey, that's really special. What you see at a quarterly board meeting or a monthly update email - it's not even 10 percent of what really happens behind the scenes day in and day out of running a business. The highs are very, very high and the lows are very, very low.
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3 Lessons Learned
Different types of investors appreciate different types of deal flow.🌀There are 3 types of deal flow any investor community sees. 1) Top of funnel: the thousands of applications that come in every year. Mostly declines. 2) Mid-funnel: the deals that pass initial screening based on the investor group’s typical criteria and “might be interesting”. 3) Bottom-of-funnel: the deals that have $$$ commitment from another trusted investor. I believe tier 3 deals are the most valuable for the typical angel community due to the “signaling”. Interestingly, this week I met with an early-stage VC who was specifically not interested in tier 3 deal flow but only wants to see tier 2 deals. Reason? He’s looking to get in early and lead bets on emerging technologies that are non-consensus.
Anchoring drives perception of quality.⚓️Last week I flew to Seattle for a short vacation with the family. Boarding a plane with a 5-month-old is a bit of a challenge, and we did it 4 times. The boarding agent for the first flight was extremely welcoming and friendly - he made it super convenient for us. He even carried the gate-checked stroller to the plane on my behalf. The other 3 agents were fine, but nothing special. Since my experience with the 1st agent anchored the rest, my “quality” rating for the other 3 agents was much lower than it might have been otherwise.
People like to see cool startups. And startups appreciate press. 🚀📰Last week I released “14 Texas Startups to Watch.” It got tons of engagement, from both investors and the founders who were featured. Will work on sharing more in the coming months.
3 Interesting Links
Tune in next week for a breakdown of my conversation with the founder and executive director of a Washington D.C.-based angel group.
Until then, thanks for reading - have a great week.
-Andrew
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About Me
I cultivate flourishing.
I'm also the CEO of PitchFact, where our mission is to cultivate flourishing specifically through efficient and collaborative early-stage diligence. I'm a proud husband, grateful father, and honest friend. My love languages include brisket, bourbon, and espresso.