Sequoia’s Jess Lee explains how VCs think about their deals

Jess Lee, a partner at Sequoia Capital, has sat on both sides of the table. The Hong Kong native, Stanford graduate and former Googler ran and sold the venture-backed outfit Polyvore before being recruited into the world of venture capital, where she’s spent the last six years.

Because she herself pitched many investors (and, she has said, was rejected many times), she understands the mindset of CEOs in fundraising mode and the perspective of investors who are being pitched many companies every week. At a recent TechCrunch Early Stage event in San Francisco, she shared some of those insights to help founders in the audience achieve more success when they pitch investors. (She purposely avoided a lot of the content that’s already widely available to founders, including how to run an auction process and how to write a perfect pitch deck.)

For our larger audience, here are some of the things she suggested that founders keep in mind when it comes to the VCs they’re approaching:

  • Some decisions are reversible. A startup investment? Not so much. “It’s almost impossible to kick someone off your cap table,” she noted, so while people liken partner-founder relationships to a marriage, it’s worth pointing out that divorce is often easier.
  • Find an investor who “gets you” and knows your gaps so they can either fill those holes or help you find someone who will. If that investor also shares your values, can help you with your biggest unknowns (like, say, how to secure FDA clearance), and understands your space and your customers and your core thesis, all the better — though that’s a very tall order. “It’s actually really hard to find someone who has all five of these things,” said Lee. “I’m not recommending that. I would just say find at least one dimension of really good fit with investors.”
  • Know your audience. On this front, she suggested, it’s critical to understand how VCs think. We found this part of her talk the most interesting because it’s very easy to assume that all VCs have a similar mindset — and also that their lives are relatively stress-free — when that’s far from the case.

She started first with a broad scenario, noting that a 28- to 50-year-old partner at a venture firm might make 15 to 25 investments over the next 10 years of their career. The VC, said Lee, knows that venture capital has a power law distribution, meaning a third of their investments will probably go to zero, a third will break even and the last third needs to make up for everything else if they want to stay in business.

“VCs are not in the business of downside minimization. We don’t want a portfolio of 10 sort-of-OK outcomes.” Jess Lee

“It’s not like stock picking, where most of the stocks don’t ever go to zero,” Lee noted.

Much can vary depending on where a VC is in their career, Lee noted. Veteran VCs have more experience and can be hugely helpful; they can also be very busy, have a lot of board seats, and, in some cases, “be very lazy because they’ve already made a bunch of money.”