003- Leo Polovets, Cofounder and GP at Susa Ventures
Forward Thinking Investors Podcast Recap
Published:
Duration: 41 min
Guests: Leo Polovets
Summary
Leo Polovets shares his journey into venture capital, highlighting the nuances of investment decision-making and the current dynamics in the VC market.
What Happened
Leo Polovets, cofounder and GP at Susa Ventures, discusses his unexpected entry into venture capital after a decade as a software engineer at companies like LinkedIn and Factual. He highlights how his journey was driven by a desire to understand the early startup phase and eventually led to him falling in love with the VC role. Leo emphasizes that building a venture fund is akin to building a startup, where the offering to founders and market positioning are crucial elements.
He outlines the venture capital process, which involves sourcing potential companies, evaluating them against fund criteria, and competing with other VCs to secure investments. Leo spends about half of his time meeting with prospective founders, a quarter with companies Susa Ventures has invested in, and the rest networking and maintaining relations with limited partners.
Leo explains the impact of COVID-19 on the VC landscape, noting an initial slowdown followed by a surge in activity. He attributes this to VCs having substantial capital ready to deploy and Series A firms moving downstream to seed investments due to the challenges of allocating large sums without in-person meetings.
When evaluating startups, Leo looks for large market potential, founder-market fit, and the founders' ability to effectively pitch their vision. He notes that a founder's capacity to succinctly articulate their vision is a critical factor, as it reflects their ability to inspire employees, investors, and customers.
Leo shares insights on the competitive yet collaborative nature of VC funds. While funds often compete for the same deals, there is also a significant level of collaboration, especially with smaller funds and angel investors who can bring added value.
He also explains the typical dilution founders can expect when raising seed rounds, generally around 20-25%. This dilution tends to decrease in later rounds as companies become more established and negotiate better terms due to their proven track records.
Finally, Leo discusses the innovative concept of rolling funds introduced by AngelList, which allows for continuous fundraising and the democratization of access to venture capital. This model could significantly impact how first-time managers raise funds, leveraging their online presence and reputation to attract a diverse group of LPs.
Key Insights
- Venture capital firms typically see an initial slowdown in activity during economic disruptions, but often experience a surge as they have substantial capital ready to deploy. Series A firms have shifted to seed investments due to challenges in allocating large sums without in-person meetings.
- In venture capital, founders can expect dilution of approximately 20-25% when raising seed rounds. This dilution tends to decrease in later funding rounds as companies become more established and negotiate better terms.
- The ability of startup founders to succinctly articulate their vision is a critical factor in securing investments. This skill reflects their capacity to inspire employees, investors, and customers, which is essential for the success of the venture.
- Rolling funds, introduced by AngelList, allow for continuous fundraising and democratize access to venture capital. This model enables first-time managers to leverage their online presence and reputation to attract a diverse group of limited partners.