As evidenced by a sluggish IPO market, a focus on profitability, and a slew of pivots, the IT sector has evolved. Despite the recent market slump, venture capital is a thriving asset class. According to CB Insights, venture capital investment hit $621 billion last year, up 111 percent from 2020 levels. While prices have dipped this year, investors believe that costly term sheets demonstrate that there is still potential for entrepreneurs. It is, indeed, a market of confusing signals. What’s the best strategy to manage current circumstances for firms who have graduated from the seed stage and are looking for that coveted Series A?
In his Series A-focused discussion, Stellation Capital founder Peter Boyce II visited us at TechCrunch Early Stage to answer these and other questions. Boyce, who left General Catalyst to start his own $40 million fund, talked from the viewpoint of a solo GP advising portfolio firms on their next round of financing. We discussed an uncommon power-shift dynamic for entrepreneurs to use, as well as why 20% value changes don’t matter when you’re young.
A somewhat uncommon practice, when a founder raises a Series an investment, it’s frequently the first time they assemble a formal board of directors. As a result, Boyce advises entrepreneurs to conduct reverse due diligence and interview not just the business, but also the individual who will sit on your board of directors for the next decade or more. It’s critical to get it correctly. When selecting a board member, the investor suggested that founders evaluate a variety of variables, including work style, subject experience, access to follow-on finance, and broader resources. Interview portfolio firms, seek for shared ties, and don’t be shy about revealing your findings.
According to Boyce, reverse due diligence might demonstrate to an investor that you’re “extremely serious” about your firm. “I’m honestly rather astonished that this isn’t a more widespread practice,” he added. “The reason I like it for founders is that if you start doing your own study on the investor, it really alters the power dynamic… it’s like you suddenly place them in a whole other interface and connection with you.”
