My VC Operating System by Shira Eting

Venture is tough; it’s a craft. Less than 3% of VC-backed companies IPO, and only top-decile funds generate more than a 3x multiple (source: Vintage, Cambridge Associates). This provides the stats behind why backing the right entrepreneurs and fund managers is challenging and requires excellence.

During my recent maternity leave, I had the opportunity to reflect on my journey to-date at Vintage, from Senior Associate to Partner. Vintage is a global integrated venture platform combining Fund-of-Funds (FoF), Direct Late-Stage Funds, and Secondary Funds. With $4bn AUM across 15 active funds, we are invested in many leading venture funds and late-stage startups (portfolio here). This unique multi-strategy approach, reach, and access allows me to hear investment pitches from the best GPs in the world, see first-hand how they evolve over time, which sectors they focus on, how they attract talent, and how they create a competitive edge.

Reflecting on this valuable journey, I’ve laid out some key learnings. These include the very basic fundamentals of VC investing, infused with my personal approach to succeeding in a very competitive environment. In other words, I would like to share with you “My VC Operating System (OS)”:

• Master VC Fundamentals – 3 questions that GPs should have compelling answers to
• Build Expertise – develop and expand your expertise
• Read Constantly – become a voracious reader
• Write Regularly – crystalize your thoughts and build credibility through publishing
• Go beyond – think and act bigger

Master VC Fundamentals

Each investor should answer 3 fundamental questions.

1. The first is their raison d’etre’: “Why should my fund exist and/or what unique product is it offering?”. An interesting lens to answer this question is through the VC value chain – source, pick, win, and value add. From what I’ve observed, successful funds are exceptional in at least one of the four and are very thoughtful about the others. Notable examples include funds doing company creation (by working closely with founders, the fund gets to do a very thorough DD, which in turn increases its chances of winning and creates tremendous value), Platform funds (exceptional brand, a dedicated value-add team, strong network to help with sourcing and value add) and Expert-funds (either focused on a sector or a specific challenge like product and g2m). If there is no clear answer to “why should my fund exist”, it is in fact a commodity.

2. Fund size. Put simply, the greatest enemy of returns is management fees. Since venture doesn’t scale (there’s a finite number of companies that exit and therefore there is a cap to $s distributed), fund size should be a result of a well thought out, bottom-up analysis, rather than a “how much money can I raise” analysis or a “how much management fees I want to generate” analysis. At Vintage, we are sensitive to size: we have created a vehicle for ‘Breakout’ managers raising funds below $200m, we are analyzing $ to be invested by each check writer and have actively reduced exposure to funds that went too big too fast.
3. Distributions (DPI). We have seen at Vintage that, while none of us can time markets, the most successful investors take money off the table when markets are high. This sounds trivial but it isn’t. In an internal analysis we’ve done in 2022, we found that only top quartile investors distributed significant $ amounts during that year while the rest distributed small portions or left it all on paper.

Build Expertise
There’s a long-lasting debate as to whether investors should be generalists or specialists.

While there are pros and cons to each, my personal approach is biased towards sector expertise, and this is in line with the increasing number of funds that are becoming ‘verticalized’. Being a generalist investor provides two strong advantages: (1) The number of companies to invest in is significantly greater, and (2) flexibility to invest in the currently attractive sectors is greater.

However, if we return to the VC value-chain (source, pick, win and add-value), specialists have an advantage over generalists across the entire value-chain. Specialists benefit from a more focused sourcing processes, deeper knowledge and thought leadership, wider and deeper expert networks, and easier brand building and differentiation on top of it.

An increasingly common way to “enjoy the best of both worlds” is by having a generalist fund with multiple investors, each focused on his or her sectors. At Vintage, our investment team members cover all three strategies – FoF, Direct Late-Stage and Secondaries – but each person leads a few sectors (e.g., Cyber, DevOps, Fintech, Gaming, etc.). I have the privilege of focusing on Healthcare and Climate, and in that capacity, I oversee our Healthcare and Climate investments across Funds, Direct and Secondary investing.

Healthcare: three years ago, we raised our first dedicated Healthcare FoF and have since committed to seven GPs – 7wire Ventures, Virtue VC, Amino Collective, KdT Ventures, General Catalyst, Versant Ventures and venBio. Through this fascinating fund manager selection process, I have gained invaluable insights and created deep networks that recently resulted in our first meaningful direct investment in a digital health company – OneStep.

In Climate, we spoke to almost 100 funds in the US, Europe and Israel, wrote publications (more below), and ended up investing in Congruent Ventures. We are actively looking for our first direct investment in the space.

In my view, Vintage’s sector expertise is one of our strongest drivers of excellence and it is only getting better overtime.

Read Constantly
Becoming a VC investor is a profession. While it takes years to learn and perfect the craft, there is no preferred Academic background, mandatory syllabus or a structured qualification process. The beauty is that there’s no one way to do it right. The challenge is that it’s pretty much up to you – so good luck!

To me, the greatest way to differentiate myself as an investor is by expanding my knowledge base with a strong focus on reading. By ‘reading’ I mean ‘real’ literature such as books, articles, publications (and podcasts). In that sense, the greatest enemy of returns is ‘let’s grab a coffee’ meetings. While it is 100% true that being out there meeting founders and investors is a must, if it’s not piling up on top of a deep knowledge base, it’s hot air.

One more thing about reading. Today, we can Google pretty much anything we need to know. We have profiles on Twitter, Facebook, Instagram, and Tik-Tok so we can quickly get the latest in TLDR. And of course, there’s the recent miracle called ChatGPT that can efficiently summarize infinite amounts of data for us. However, I consider all this ‘fast food’ – it’s nice to ‘eat’ occasionally, but one cannot build real muscles without consuming real proteins.

Write Regularly
Writing is hard and painful. It often doesn’t feel like the best use of our limited time, but in many ways birthing real content is super valuable. Writing has two major benefits. First, since one cannot write about something they don’t fully understand, it forces deeper understanding and crystallization of thoughts. Second is the ability to publish your writings. Publishing written content is THE best way in my opinion, to build your own brand and attract founders and investors.

I leveraged writing and publication across my two sectors of focus to gain a comparative advantage and win:

• In Climate, we have published three consecutive pieces – “Climate 2.0 – why this time is different”, “where do climate and VC overlap” and a deep-dive into Carbon Credits. Each publication helped us refine our thesis, decide on which type of climate funds we want exposure to and eventually, gain access to Congruent Ventures that was highly oversubscribed.
• In Healthcare we recently published a two-part blogpost – (1) “Reflections On Establishing A Healthcare Focused FoF” and (2) “Strategic Healthcare Insights Shaping Our Investment Approach”. This was a great way to summarize our work and conclusions to date and demonstrate our evolving thesis to both GPs and potential LPs.

One last thing about writing. The greatest motivational sentence I heard which always helps me get my act together is “there’s no good writing, there’s only good re-writing.”

Go Beyond
Venture Capital is capitalism at its best. It is a wonderful financial mechanism to ensure innovation; it is efficient, competitive, and rewarding and, therefore, attracts great talent. That said, VC alone is not enough to make our world better, and technology on its own will not solve humanity’s biggest problems.

Nowadays, we don’t have the privilege of doing only venture; each of us can and should contribute to our society. We all have skills and talents that we can leverage to generate a positive impact, be it NGO advisory boards, mentorship programs, teaching, you name it. Contributing our time, attention, and resources not only creates a positive impact, but also makes us more contextualized, humble, knowledgeable and therefore, better investors.

Looking forward to further implementing and refining my VC OS going forward!

Shira