The Little Book of Venture Capital Investing: Empowering Economic Growth and Investment Portfolios

Chapter Seven

Investment Process—Sourcing and Screening

Whether you’re a GP, LP, or entrepreneur trying to raise capital or invest in the VC asset class, the investment process—sourcing and screening, diligence and selection, and monitoring and monetization, are basically the same discipline. Here we look through the lens of the LP.

—Lou Gerken

In the 1970 movie Catch 22, there is a great scene between “Doc” Daneeka, played by veteran character actor Jack Gilford, and Captain John Yossarian, played by Alan Arkin. Yossarian is a World War II bomber pilot who has been forced to fly 50 percent more missions than he was told he would have to fly before being rotated back to the States. He is trying to get “Doc,” the unit flight surgeon, to ground him. That way, he figures, he can’t be forced to fly anymore. It sounds like a good plan; but, as Doc explains, there’s a catch.

Yossarian: So in order to be grounded, I’ve got to be crazy. And I must be crazy to keep flying. But if I ask to be grounded, that means I’m not crazy anymore and I have to keep flying.

Doc: You got it. That’s Catch 22.

So it is in the world of venture capital investing. The institutional investors won’t invest any money unless you are a proven VC. The VC, in turn, looks for the entrepreneur who has some skin in the game and has shown he can raise enough money to prove his concept and generate some revenue. It’s a classic Catch 22 situation. Nobody will give you money unless you can prove you don’t need it. Further ...