Remember the widely circulated series of memes “What people think I do” a few years back? Well, one of the VC versions is posted above and humorously captures the mismatch of perceptions. The truth is how VCs spend their day varies much based on personality and seniority but by and large, it is on 5 very visible activities — and 1 that is often invisible.
Portfolio are the companies a VC has already bet on and is naturally the place where he/she will spend a substantial if not the majority of their time. Investments could vary in amount ($K to $M), stage (seed, series A, etc), urgency (everything going well versus a big opportunity or crisis) and obligation (board seat, board observer, none). Consider how a VC will and should treat differently a seed-stage investment of $100K where the company is fine versus a series D where the firm already invested $50M and is about to go IPO.
Most VCs will tell you then can truly devote quality time to 7-10 investments, at which point they are spending 80%+ of their time on portfolio. Anything more means too much thrashing ie fragmented attention. Anything less means they have bandwidth and is a key thing for entrepreneurs to consider when signing up with an investor. In fact, some entrepreneurs will only sign up with an investor they truly value if they serve on the board ie they will give the time, even if that requires creating a board like at the seed stage or reshuffling the membership at a later stage.
Pipeline is about finding good companies, which can come from four main sources:
- other investor introductions — startups they are already invested, considering, or just think would be a good fit for you
- own network — both outbound and inbound interest ie people reaching out
- outbound — say meeting at events such as conferences
- cold-calls — reaching out yourself
In large firms, junior partners disproportionately spend their time on pipeline whereas senior partners disproportionately spend their time on portfolio. In smaller firms, where associates and principals may be rare or nonexistent, the partners are typically full-stack. Pipeline arguably ebbs and flows the most of all VC activities — an investor turns it up and down depending on their bandwidth — and can be as much as 100% during a week but is more typically 20%.
If VCs find a company they are really intrigued by they will usually diminish all their activities, especially pipeline, to focus on diligence. This is especially true if there is significant timing pressure for a decision. A disciplined firm on a large deal can put hundreds of hours in diligence over months, what is more typical is 20-60 hours over 1-3 months. When diligence is moving full steam it can occupy a VC’s attention fully but averaged over time it’s more akin to 20%.
Or call it branding, or marketing, or thought leadership. This can vary enormously for every VC depending on how often and where they publish, how often they attend conferences, speak at events, serve on panels, give media interviews, do podcasts or videocasts, post on social media etc. It ebbs and flows hugely given big announcements but if you were to survey enough VCs, chances are you would find 10% of the time goes into communication.
Administration is a catch-all for the infrastructure of a fund — paying rent, filing with the government, engaging with lawyers, compiling quarterly reports on the portfolio etc. In a large institutional fund typically there is a CFO leading these activities, in corporate fund the analogous role is exercised by Operations. In small funds obviously these activities are much simpler and the partners themselves can often handle many if not most of them so that it takes less than 10% of overall time.
6) LPs — The Mostly Invisible Activity
What most entrepreneurs often never see is the VC’s own fundraising process. The more well-established a fund is the quicker it can raise money but even there the process can take months if not years. Besides annual LP days there is regular communication with LPs, in person or in writing, that takes up to 50% time of Managing Partner(s). Fundraising in VC is typically longer in time and takes more meetings with more people than startups. Which is why most funds will do multiple closes, two being pretty typical, since each close creates a forcing function to get commitments. As a data point, for first funds the average is 1000 meetings over 2 years with 1-5% ROI to fully raise a fund and it can be 50% of the time of the partners throughout this period.