VC as a marketplace and other learnings from the first year in VC

Continuing our team introduction series, meet Aleksi Löytynoja, Investment Manager, who shares his personal reflections on the fund’s first year in business.

aleksi-loytynoja_evli-growth-partners

Writing this post, Evli Growth Partners is a 15 months old Venture Capital fund (VC). Thus, even in a business of such rapid feedback loops as this, we are in the very beginning of our story. The same applies for me personally as a VC investor. I started with our fund on the date of the first close, so while my short VC career is just kicking off, it covers most of our fund’s lifetime.

In this post, I try to look back to my first year in the business and describe through my own eyes, what it’s like to be the first employee in an entrepreneurial venture called VC. Let’s dig deeper!

 

Joining a first-time fund as the first employee

Evli Growth Partners is a Finnish VC fund, investing in Series A and Series B in the most beautiful Northern European companies. We write initial tickets of 3–5 M€ sector-agnostically and are backed by our Growth Partners, some of the most successful entrepreneurs and investors of our region. That’s of course all very nice but what there really is behind the curtains?

I joined our fund on the date of the first close from Aalto Entrepreneurship Society (Aaltoes), the leading entrepreneurship society of Europe. During my two-year time in there, we ran several activities, programs and events to promote entrepreneurship in Finland and Europe, such as:

  • Kiuas, the leading startup accelerator in Finland, for which I created and organised several programs and events.
  • FallUp, the biggest entrepreneurship event for students in Europe, which I was in charge of organising.
  • Hel Tech, the monthly meetup for latest tech in Helsinki, an event series which I co-organised and helped to scale.

In Aaltoes, I got the opportunity to work with dozens of founders and meet the key persons in the Finnish startup ecosystem. As a result, I heard a rumor about a new fund that was being raised at the time. After pretty hard selling from my side, I got a chance to discuss with the founder and, eventually, to join this business I didn’t know too much about.

 

VC as a full-stack marketplace

I think there are several reasonable metaphors for a VC fund as a business. Many describe VC as a service business for the portfolio companies; someone has called it “a consultancy with commission”. Yet, after a year in business, I see VC as a two-sided service company. Obviously, we do our best to support our portfolio companies since our success is directly dependent on theirs. Nevertheless, our investors pay our salaries, making them our real customers. So, I apply a metaphor of a full-stack marketplace for our fund (full-stack meaning here that we own the assets suppliers sell). In our marketplace, entrepreneurs sell their shares to our investors who offer monetary investments in return. We as a fund act in the middle serving both sides.

Working in a VC is all about constant product development.

Using this metaphor, building up the demand (= investors) and supply (= startups) were well in progress when I joined the fund. However, the first year in the business has shown me that working in a VC fund — similarly to all successful companies — is all about constant product development. Even though the product-market fit would be there, the product needs to be constantly enhanced to remain competitive.

In our setting, it means our focus has been around our product for the whole time I’ve been a part of the fund, including:

  • Fine-tuning the value proposition of our service offering. As a marketplace, we provide our customers (= investors) and, especially, our startups with several value adding services so that we would be one of their preferred partners. Like any company, we had several initial hypotheses about the most relevant services when we started. Since then, we have constantly incrementally validated and developed them based on customer feedback. This is a never-ending process for us: we will continue creating and iterating hypotheses to make sure we add value and are as relevant partners as possible.
  • Building network (effects). In my opinion, a good VC is all about networks. They know the right people and have access to the most interesting opportunities. Thus, we spend a great deal of time on enhancing our networks, with a goal to create network effects around our marketplace. The vast experience of our Growth Partners has given us a head start in this but, yet, we know it will still take us time and significant effort to meet our goal.
  • Building supply. Arguably, deal flow is the backbone of every VC. Therefore, even though we had a solid deal flow from the very beginning, we have put a lot of effort to improve that. We count on an active outbound sales model, proactively calling and/or emailing hundreds of companies yearly. This is supported by inbound leads and content marketing, like this blog post (thank you for reading 😉). And if I didn’t contact you last year but you’d like to talk, I’m more than happy to do so; please send me a message from here!

The best and the hardest part of the job is to find ways to personally add value to the most promising companies of their fields.

 

Personal learnings from the first year in VC

This all has meant a steep learning curve for me as an investor. The best and the hardest part of the job is to find ways to personally add value to the most promising companies of their fields. It’s obvious that the founders know their core business better than I do. However, there are pros in being a generalist and, as I noticed already in Aaltoes, you can be valuable without decades of experience. I have created myself a rather simple formula to operate in these situations and, during the past year, have learned that it works well also in the context of a VC:

  1. Do your homework. This a low-hanging fruit that surprisingly few people tend to collect. I always try to prepare for meetings by carefully going through the materials and being ready to ask relevant questions. It requires an extra mile but, in my opinion, it’s the mile that defines whether you’re valuable or not.
  2. Be straight-forward. I’ll be honest in here: I do not have time to wait for others to get to the point. Thus, since founders are always busier than investors, I think it’s better not to waste their time. And as you can perhaps see from the way I write, I enjoy the Finnish way of putting things bluntly. 😊
  3. Be transparent and honest. I always want to put some effort into telling the reason for not investing. I try to be honest with my reasoning so that founders could get some value out of the process regardless of the outcome. Also, my goal is to always run our investment process in a way that everyone knows where we are going.

 

Going forward

For me, the second year in VC will mean continuing to work with the two main targets I’ve had all the time:

  1. Validating and iterating my personal value proposition, to become as relevant for the companies I work with as possible.
  2. Accelerating my learning about new technologies and business models to find the most beautiful companies of our region.

The same goals will apply for our fund, too, and I don’t see them changing anytime soon. And with that approach, I’m sure there will be some new insights for me to write about to a similar post in a year!

We are always keen on meeting the most beautiful companies of our region. If you find yourself from the description and would like to know more, send us a message from here. Also, stay updated by following us from here!