“He was running a company at the time but he was a venture capitalist before that. He had a very similar background to mine - he had gone to West Point, had been an Apache guy, had been in the first Iraq War (I was in the Second). After he got out, he went to business school and then went into venture capital. I asked him how I could to the same thing and he told me, ‘Don’t bother. It’s impossible.’ And he wasn’t wrong. Had I tried to get into VC directly after business school, I don’t think I would have been successful.”
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Aaron Stachel is a Principal at PV Ventures, a seed-stage venture capital fund that primarily invests in Colorado-based software companies prior to their first institutional venture round. Aaron started out at West Point, after which he served as an Aviation Officer in the Army for 10 years. Aaron holds an MBA from the University of Denver.
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Thank you to all of you who completed my survey in March about what type of guests you would like to have on the show. The #1 requested career path was Venture Capitalist... and it took me a long, long time to finally connect with a Veteran in this career path. We talk not just about Venture Capital and entrepreneurship, but we talk about topics relevant for veterans in every career path: networking, risk taking, and more.
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Selected Resources:
- Fred Wilson @ Union Square Ventures in NY has a website called AVC.com - he does a daily blog (often short) about startups, venture capital, and things he has seen in a long and successful career. He has a series called MBA Mondays, where he takes a particular topic and the archive of these topics are quick, well informed reads.
- Brad Feld wrote Venture Deals - if you’re looking to get into VC or raise money as an entrepreneur, it’s a great, easy read. It really helps you understand how the deals are structured, what the deal points where people negotiate, and a great overview on how fundraising happens.
- Newsletters
- CB Insights - a newsletter that covers early stage and active companies. There are links at the bottom of each email that are articles they’re reading they like.
- Matter Mark - similar to CB Insights, it’s a great source of information about trends and insightful articles.
Transcript & Time Stamps:
3:32
Joining me today from Denver, CO is Aaron Statchel. Aaron is a principal at PV Ventures, a seed stage venture capital fund. Aaron started off at West Point and then became in Aviation Officer in the Army for 10 years. After that, he earned his MBA from the University of Denver.
4:15
How would you explain venture capital?
An easy way to think about it is as a mutual fund for startups. So a startup will get a bunch of different investors and then diversify their portfolio across publicly traded stocks. We go around to high net worth individuals and get capital committed from them. We then pool that money and search for early stage start up companies that we can invest in and own equity in. The goal is to eventually get back our initial investment in addition to a rate of return.
5:20
How do you find these companies?
We get a lot of our deal flow from our network including other investors, technology executives, or service providers. A lot of what I do is build a network of people that know people starting interesting companies.
6:12
How many investments do you make in a year versus how many startups you look at?
It’s fairly seasonal. In the spring, we’re very busy, the summer is quiet and then we get busy again in the fall. On average we get something about once a day to look at. We look at a few hundred startups a year and invest in about 8-10.
7:25
What stands out to you when you’re considering a startup?
We invest pre-institution venture capital. These are companies that generally don’t have revenue yet so in terms of metrics that you would look at when evaluating a later stage company - they don’t usually exist yet for these companies. So it’s a lot more subjective. We try to look at whether it’s in a large and growing market. Venture capitalists are looking at companies that can grow really big, really fast. So we look for whether or not the company supports a quick growth rate. We also look at whether the product will solve a problem for customers. At the end of the day it’s a lot of qualitative judgements rather than quantitative because of the early stage.
10:30
Given that you’re focused on companies at very early seed stages, what are some things you like and dislike about companies at this stage?
The thing I like about it is that it’s a lot of big picture vision at that point. The way you make money in venture capital is to figure something out that very few people understand yet. So a lot of times you’re talking to people that have a new way of looking at a problem and solving it in a new or unusual way. You meet some really interesting people that are focused on something they’re passionate about.
The downside is that there’s a lot of risk. There’s a lot of unknowns. It’s really easy to talk yourself out of just about every deal.
We tend to focus mostly on enterprise software, business to business software. Because of our network and experience we can get pretty good insight into whether or not the startup is offering a product that there is a need for. If you would have showed me Snapchat, I would have thought it was stupid. But there are visionaries out there that have a really good pulse on what will be trending in the market.
14:50
What does a typical day look like for you?
I try to get going in the morning as early as I can because I have four kids. I’m usually at my desk by 7:30 in the morning and I work from home on many days. During the morning I do a lot of reading and catching up on emails. I like to keep up with the trends and stories in the industry. Throughout the day I usually have a series of phone calls and meetings. This ranges from meeting with someone in my network, or meeting with a potential company we might invest in. Sometimes I’m back at my desk doing some research on a particular company that we’re interested in.
I also end up doing a lot of social or pitch events in the evenings. Investors will listen to companies pitch themselves. So the days can be long but it’s varied throughout the day. And no two days or weeks are the same.
18:30
This is a field that a lot of veterans are interested in going into and I can see way. It seems like an extremely interesting and dynamic work environment.
When I was an Aviation Officer, there was variety as well. It was a mix of flying and office time. That varied pace suits me. I think if a person gets really passionate about something and really wants to sink their teeth into it, you might not like this field. I learn about a lot of different things in this industry but I never really become an expert on any one thing.
20:00
It sounds very similar to consulting in that way.
Right - a lot of people will accuse consultants of not having any skin in the game. They come in, come up with a plan, and then leave. It’s no different in venture capital. We’re providing the financial capital but at the end of the day, they still have to do all the work. We’re helpful where we can be but the startup has to do the work.
20:45
How did you end up working in venture capital?
I get this question a lot because people are interested in working in venture capitalism. I came out of the Army and was in Colorado. My wife is an attorney and we both loved it here so I decided to do my MBA here at the University of Colorado. During school, I got an internship working for a venture backed firm. I got really excited about working at an early stage company. The CEO ended up getting replaced before I finished business school so I had to find somewhere else to work. I ended up working for a big company doing investor relations and strategy work. After a little over a year, it was apparent that this was not what I wanted to do.
I reached back out to my network to try to find my way back to venture capitalism. I ended up getting connected to my current partner. He was looking to build a small venture capital firm. I ended up being in the right place at the right time. It was a very small fund - just his own capital. But my wife and I were in a place where we could take a little bit of a risk.
It’s funny because when I was in business school there was a guy that spoke to our class who had a background that was very similar to me - he had gone to West Point, had been an Apache guy, had been in the first Iraq War. After he got out he went to business school and then went into venture capital. I asked him how I could to the same thing and he told me, ‘Don’t bother. It’s impossible.’ And he wasn’t really wrong. Had I tried to get into VC directly after business school, I don’t think I would have been successful.
It’s a very small industry, especially in a place like Denver. There’s only a hand full of funds and some of them don’t hire junior associates at all. At some of the venture capital funds in San Francisco, they hire more junior associates but they’re extremely difficult jobs to come by. Generally a junior associate will stay with the firm for 3-4 years before moving on. Most of the founding and investing partners came in after they had success running a company.
28:00
Venture capital firms are unique in the separation between junior and senior level jobs. It’s not a field where people work their way up over time. It seems like it’s an industry where people are expected to get experience outside of venture capital throughout their career.
Yes it’s definitely very unique in that way. If you’re at a law firm, you would get an associate level job and work your way up to partner. That does happen in venture capital but it’s extremely rare.
29:05
How do startups get in front of an investor like you?
Most businesses either can’t or shouldn’t raise venture capital. Venture capital is a unique funding mechanism for things that can grow really big, really fast. Most companies raise some friends and family type money at first but then grow slowly over time. The vast majority of businesses grow that way. I think there's a misperception in that venture capital is always the answer for an early stage startup. That’s frequently not the case.
Some of it depends on where you’re at too. The venture capital industry is concentrated in California. Then it’s a big step down to New York and Boston. And then it’s another step down to Colorado, Texas, and Washington State. So if you're in a Top 5 market, there will be an active angel investor groups. If you’re outside of a Top 5 market, it’s possible that you aren’t near venture capitalists at all. So it might be tougher to find someone to invest in you.
32:35
If you looked at a pie chart of where you spend your time, how would it be divided up as far as where your focus is?
Most venture funds raise a new fund every 3-4 years and we’re just entering that fundraising cycle. Our second fund that we’re investing in now is at the tail end of the investment period where we’ve built the portfolio. So now we need to raise more money to keep making those investments. So some of it is fundraising which can be a full time job. You take a lot of meetings, phone calls, and making presentations. So I’m entering a phase where I’ll be doing a lot of that. After that I’ll be writing a newsletter where we’re telling our investors what kinds of things we’re investing in. So that’s a three year cycle. Once we raise the funds, we build the portfolio. So for example, right now we have 33 companies over 2 portfolios. From an economic standpoint, about a dozen of these companies will do really well while a few others will do fairly well and some others won’t really move the needle.
40:15
It’s seems true across industries that if you’re at a small firm, you get a taste of everything while at a large firm your role is more focused.
Yes and in some ways I feel like I’m working at a startup. This venture capital firm is early stage so I’m getting to be part of that growth which is exciting. I definitely feel that I’m getting the opportunity to see all parts of our company.
41:41
Do you have any recommendations for successful networking?
I was able to get a job leaving my MBA program through a company that was recruiting on campus. But I was surprised once I got there how important networking was. In the military you can plot out a general 20 year plan. But that doesn’t exist in the civilian world. You work your way up in a company by getting to know people there. People want to know that they can trust and rely on you. That doesn’t just happen because you’ve been in a certain role for a certain period of time. You have to make that happen.
At the end of the day, you’re just trying to build relationships with people. If you go into it with the perspective of building a relationship and figure out what they do.
Colorado is well known for its entrepreneurial community having the motto “give first”. You provide some value to the community and people will reciprocate by providing you value.
When you’re leaving the military, the advantage you have is that a lot of people want to help veterans. People are really busy so sometimes you really need to be persistent but most people will make time for you.
I met an entrepreneur in Colorado recently who was struggling to find opportunities. After some time in the Navy, they reached out directly to some well placed individuals in the tech world and made things happen for themselves.
50:45
Do you have any resources you would recommend?
Fred Wilson of Union Square Ventures writes a daily blog on various topics in venture capitalism.
Brad Feld wrote a book called Venture Deals. It’s an easy read that helps you understand how these deals are structured.
There’s a couple great newsletters too - CB Insights and MATTER.
54:25
Is there anything else you’d like to share?
One thing that I don’t think I fully appreciated was the risk/reward paradigm in this industry. In the military, you know exactly how much money you are going to make and your health care is taken care of. But if you jump into a small venture capital fund, it can be much more uncertain. If you’re working at startup - most startups fail. If you look at the statistics, less than half companies that raise a seed round will make it to a Series A round. So you have to be comfortable with taking an elevated amount of risk. A lot of times in this industry, people don’t hold your failures against you. But the flip side of that is that when things work out, they can work out very well. If you build a great portfolio, you’re going to make very good returns.
So you'll make a salary but the majority of your income is based on your performance. You’re committing yourself to something for a long time that you hope will work out.
59:15
It’s interesting to me that that same risk is shared in many industries but people might overlook it in venture capitalism.
Yeah and it’s not quite as risky as starting a company. Startups seemed like a great way to make a lot of money when I was in business school but it’s only more recently that I’ve come to appreciate the risk that is involved.