Fundraising is never easy. When dealing with corporate investors, there can be extra layers of confusion during the process. At Fresco Capital, we’ve been able to interact with a wide range of corporate investors from all around the world. Based on the thousands of hours of direct experience plus feedback from our network over that time, here are some hacks for everyone involved to have more zen and less confusion in the process.

1. Be wary of the quick “yes”

Fundraising from corporates can be time consuming, and so a quick “yes” in the first meeting seems like a good thing. The key is follow through. We have seen a corporate go from “yes, we’re investing $5M” in the first meeting, to “we want to invest $500k”, to “by the way, here is a 10 page list of special demands we would like.” It’s easy to reject offers like this when you have other options. Don’t make any assumptions until the deal closes, especially with a quick “yes”.

2. Review stock prices, 10-Ks, and investor relations materials for public companies

Publicly listed companies provide detailed disclosure about their business. For example, you can head over to the investor section of Microsoft and see a wealth of information. In addition to annual and quarterly results, there is a set of updated materials about the company’s recent acquisition of Github. You can also review the company’s stock price as a check on market sentiment about the company’s strategy and execution. In the case of Microsoft, the market has clearly been impressed by the changes during the last several years.

3. Visit their offices and look around

Online research can only go so far. An under-appreciated way to learn about a company’s culture is visiting their offices. If things are extremely quiet with everyone busy at their cubicles and you have a team that is always talking loudly and enjoys skateboarding in the office for fun, it’s worth noting this difference. If the company has an expensive art collection and yet is trying to scrape out small $ from you in negotiation, that’s cognitive dissonance. You can learn a lot just by walking around an office.

4. Don’t use fake deadlines, use real ones

Startups tend to feel that working with large corporates is slow, and on a relative basis this is absolutely true. One week for a startup can be the equivalent of one quarter for a larger organization. Some people suggest using fake deadlines to add urgency but the problem is that in many cases the large company simply can’t move quickly enough and the deal will fall apart. It’s much better to run a process where you have multiple options, even if one of the options is simply going alone, because at least then you have a real deadline to move things forward instead of being held in a holding pattern.

5. Learn about their key competition

Most corporates have specific companies that they view as direct competitors. When engaging with a corporate, it’s important to understand both how they perceive their competition and also to have your own view. If a corporate believes it is dominating the market but you feel that they are in a high risk situation, there are several things to consider. Will you simply accept this difference of opinion? Will you bring up the issue in the hope of a strategy change? Should you even be engaging with this corporate?

6. Spend time with junior people

A common piece of advice for startups is to focus on decision makers. If you know everything, that makes sense. What if you only know 50% of the context? 20%? Most decision makers will prefer to share things on a “need to know” basis with you. Junior team members will tend be more open and will appreciate the chance to share their opinions. They will also be more motivated to close a deal with a startup as a way of proving themselves internally.

7. Having a diverse team gives you more options

As a diverse team ourselves, we’ve experienced all sorts of combinations between our team and other investors. The historical default that people tend to prefer commonality is still true in many cases. However, we’re also increasingly seeing that corporate investors value diversity and inclusion because that also gives them a differentiation vs. competition. Having a diverse team isin’t just about doing good, it’s good for your fundraising.

8. Provide updates, don’t just chase

As you wait for feedback from a large company, what’s the ideal way to engage? Rather than sending reminders that say “have you seen the message I sent yesterday”, which may backfire, it’s worth sharing new updates about your progress. This gives new reasons for investment and also serves as a soft follow up. You should absolutely pay attention to the responses to these updates — if you send 5 updates over three weeks and get zero replies, that’s a sign that something is not right and at that point it’s worth being more direct.

9. Find an internal champion

Why is finding an internal champion at a large corporate key to making progress? Things get lost — there will be emails that drop, fuzzy memories about conversations, and competing priorities which take up scarce attention. You simply won’t know enough about the internal dynamics to take care of all these details. Your ideal internal champion is passionate on a personal level and highly aligned from a business outcome to push on your behalf — make your success their success.

10. Don’t rely on a single internal champion

While a single internal champion is better than none, the ideal situation is to have several touch points at the company. You will receive feedback from multiple perspectives — the legal team, finance team, and marketing team will all have their own business targets. Meeting with additional stakeholders is especially important to identify potential obstacles before it’s too late.

11. Watch out for internal rivalries

When working with large corporates, be careful about internal politics and rivalries. We have come across corporate investors where the internal teams do not co-operate internally to support their startups and are instead in competition with one another. In addition to being confusing, that can be a waste of everyone’s time and energy. Better to be aware of these issues, ideally before getting into a formal business relationship. This can be accomplished by having trusted relationships with 3rd parties (like your existing investors, for example) who know the reality of each corporate investor.

12. Demystify constraints

It’s understandable that investors will have internal constraints. Take the time to find out why constraints exist. If a corporate investor says “we can’t be a lead investor,” it’s worth understanding why that may be the case. Is it because of a previous bad experience as a lead investor? Is it because they have never been a lead investor? Is it because their investment team is too busy with existing investments? Each of those reasons would lead to a different set of follow up questions and possibly a solution.

13. Hang out with lawyers

Lawyers don’t get much attention beyond legal work. I’ve had a chance to become friends with many lawyers and the successful ones are knowledgable on all sorts of issues. They’re helpful in making introductions, reference checks, and even feedback on fundraising pitches. They’re obviously not going to reveal any confidential information, so don’t even try going there. Instead, take them out for a coffee to have a casual chat.

14. Be prepared for last minute changes

Large corporates will typically have an impressive in-house legal team and some of the sharpest external legal advice that money can buy. So when it comes to negotiating deals, they will have a tendency to push hard even until the last minute. That’s what they’re paid to do. If you have a realistic option of walking away from a deal, be prepared to do so mentally even until the very last minute. This will put you in the right frame of mind to make the right decision even under high time pressure.

15. Maintain the relationship even after a “no”

Sometimes the timing is wrong or there are other specific reasons why a corporate investment won’t be a good fit. It’s still worth maintaining a relationship over time in case the situation changes. This doesn’t mean giving detailed weekly updates. It does mean that in 6 months or even 18 months if there is something which you feel is specifically relevant, it’s worth sharing an update. The answer could still be “no” from that investor but they might have another introduction for you which they are now comfortable making because you have made progress over time.

Success between corporates and startups is hard work. But it’s possible.

We’ve found in our own work bridging the corporate and startup world that communication is key. Yes, that means a few extra calls and meetings need to happen, sometimes at odd hours of the day or night. Yes, that means repeating assumptions to ensure alignment. Yes, that means using multiple methods because some people love email, others are always on WeChat, and some will only open up in person.

In the end, it’s worth the effort because the upside from successful corporate and startup partnership can be massive for everyone involved.

15 Zen Hacks for Startups to Survive and Thrive with Corporate Investors was originally published in Fusion by Fresco Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

Headline numbers look good for global VC investment during the 2nd quarter of 2017 but the more interesting story is what’s going on underneath the surface.

Digging into the details, below is the trend for first time investment activity (thanks KPMG + Pitchbook for crunching the numbers).

Even taking into account stealth rounds which have not been announced, the number of new companies has not been keeping up with the $ invested. And if you take the data at face value, the number of rounds is back to levels not seen in several years.

Instead, VC investors have been adding more to existing companies.

The increase in round size can be seen in most rounds, with the obvious outlier being the late stage Series D+. The above numbers are median, so the $40M figure likely understates the outliers.

The median pre-money valuations above tell a similar story:

fat rounds are back.

Why?

First, VC funds are cashed up.

VC funds are continuing to raise $ at an impressive rate. If you’re familiar with the timeline of how VC funds deploy capital, one guarantee is that managers will invest this money. They’re not going to give it back next year saying “I can’t find anything to do with it.” The capital will be around for, oh, about the next 10 years. VC funds will invest in something.

Second, corporate VC funds are having a big impact.

The rate of participation has been increasing steadily and in this last quarter they have been even more aggressive. Many of these funds are structured with external investors, including the headline grabbing Vision Fund. So like traditional VC funds, the capital should be around for several years (as contrasted with pure balance sheet investment from corporates which can be harder to predict over time).

Third, exit trends have been lukewarm for VC backed startups.

This has meant that late stage companies are staying private for longer. Those fat rounds are in some sense becoming short-term substitutes for M&A and IPO exits.

So there’s an interesting paradox.

On the one hand, corporate VCs are more active than ever before and investing aggressively in late stage fat rounds.

On the other hand, corporate M&A activity is not keeping pace.

Based on the lifecycle of capital raised, expect VC funds to continue investing in existing companies.

However, if market sentiment deteriorates, fat startups will become the victims of cap table recaps. There will be money, yes, but the terms will be harsh.

For startups, VC investors, and LP investors in VC funds, now would be a good time to remember the benefits of capital efficiency. For startups especially, make sure you understand the terms of rounds, not just the headline valuation.

Fat startup rounds are back. Let’s make sure we’re building healthy businesses because it sucks to be a fat, dead startup.

Why Are Fat Startup Rounds Back? was originally published in Fusion by Fresco Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

Some people think venture capital is just fine and doesn’t need to change. Others want to turn it into a hyper liquid automated platform.

It’s time to call bullshit on both views.

Traditional venture capital needs to be transformed and the process will happen one person at a time.

I gave a presentation to a group of family office investors and corporate investors about the “Do’s and Don’ts of Venture Investing” earlier this year using martial arts training as a metaphor. It covers a lot of basics, with details here and here.

The discussion below starts with some of the traditional issues around risk and return, then moves on to ideas about how to transform venture capital.

At the black belt level, the emphasis shifts to higher level training, including awareness of self and the environment.

A typical mistake for a beginner in karate is to punch before stepping. This results in no power — as we learned in brown belt, strength starts from the bottom and flows upwards. It seems easy which why it’s actually difficult and in fact many people simply don’t even notice the mistake. Even with the incorrect technique, it still feels correct.

Getting the timing right in venture investing is similarly a challenge. The biggest mistake is to sell too early. The only thing worse than missing out on a billion dollar investment is being an early investor and then selling out to a new investor for a small profit and missing out on the much bigger gain. I know of one investor who came in very early into Alibaba only to sell soon just to get the money back because of concerns about risk. Whoops.

Of course, there are certain situations where it’s better to sell. This can happen especially when a wave of lemming behaviour overcomes investors to jump into a theme.

There’s no formula for getting the right timing to sell, but compared to all other investments venture capital is about long-term returns, so you should be thinking in terms of years and decades, not day trading.

The foundation of looking at the risk vs. return over time is to always evaluate decisions as if you were investing for the first time. In reality, that’s difficult in venture capital because of the knowledge built up over time after an initial investment and the overall lack of liquidity. Still, it helps to set the right framework. A more detached assessment of risk vs. return tends to lead away from binary all or nothing decisions and towards a more measured approach.

Of course, the process is not all about numbers. In fact, understanding the motivation of founders, other investors and of course your own goals is critical. If the company has been grinding it out for 10+ years and everyone is ready to move on, it may not matter that the best financial decision would be to continue for another 10 years because from a motivation perspective the journey has finished. Conversely, if the company has just received a lucrative M&A offer, this might be just the catalyst for a highly motivated founder to push for a more aggressive scaling up strategy and reject the early exit. Human inputs can be the most important factors when it comes to evaluating risk vs. return.

People are surrounded by external distractions. In addition, our minds are constantly creating internal distractions. This noise stops us from concentrating.

One description of traditional martial arts is “moving meditation”. Embedded in this description is the idea of having an empty mind. The first step is to navigate external distractions. The more difficult challenge is to manage internal distractions. Rather than trying to push the distractions out of our mind with mental energy, which is impossible, the training emphasizes acknowledging distractions and then being able to let go of them. Empty mind is not a static state of being, it is a dynamic process.

At first glance, it seems ridiculous that an empty mind would be an important skill for venture investing. Traditional wisdom suggest that experience, especially domain expertise, is necessary to be a successful venture investor.

The problem with experience is that it is actually one form of noise. The deeper the experience, the louder the noise. If you have 23 years of experience building microcomputers and some kid comes along with an idea for a personal computer, all your experience screams “impossible, no way this will work”. If you’ve spent all your career selling packaged software and someone suggest selling software for a monthly subscription, your instincts react immediately that customers simply wouldn’t trust software that they don’t own. If you’ve built billion dollar satellites and a young team proposes to create a network of cubesats, the first reaction is to treat it as a toy project. That’s the voice of experience speaking.

An empty mind allows even experienced venture investors to stay open to new opportunities. You can’t ignore your experience — those thoughts will always be there. Instead, acknowledge them, let them float away, and then let your empty mind stay open.

The common assumption is that martial arts focuses on fighting. But upon closer inspection, there’s a clear emphasis on peace by many traditional martial arts teachers. Fighting is the last option of traditional martial arts.

Many startup founders and venture investors make heavy use of war and sports metaphors — destroy the competition, hunt down customers, don’t be a loser.

Words and metaphors influence behaviour and actions. So by definition people being led by these words will be approaching the world with at zero sum perspective. For them to win, others have to lose. Zero sum thinking implies a lack of new value creation. If you believe that technology is supposed to create new value, not simply take value from others, then by definition these zero sum metaphors should be rejected.

Of course many others will continue to view the world from a zero sum perspective no matter what you do. Instead of wasting your energy on constantly fighting with them, focus instead on partners who you can trust.

Trust is much easier to build with aligned incentives and shared values. Aligned incentives alone may not be enough if the partner is going to find a way to cheat at the first opportunity. Shared values create great intentions but without aligned incentives, there may be no tangible outcomes. So it’s important to have both.

The right partners will help you reach your goals faster no matter what games others are playing.

Reaching a black belt level in traditional martial arts is not an end goal. It is more like reaching the starting line of the journey. At the higher levels, this learning includes the willingness to embrace paradox in many ways.

Traditional karate training obviously places a big emphasis on learning the basics. The only way to do this is through repetition so that it becomes automatic.

But the ultimate goal is not to become a clone of others from the past. Instead, every single karate student has a unique signature style. If you try to develop your signature style at the white belt level, you’ll just be fooling yourself. The style develops naturally over time without any extra effort through the process of repetition.

Learning from other investors about venture investing is a great shortcut. After all, nobody has the time to invent it all from nothing. To this day, I’m still reading Fred Wilson and Brad Feld on a regular basis.

You should absolutely learn from what venture investors are sharing both in public content and in private meetings.

But a copy and paste approach is unlikely to be optimal. Every venture investor’s background is unique. Each era is different. And it’s all path dependent. As an example, one of the big differences about our team at Fresco Capital compared to most other venture investors is our global cross-border approach. Most early stage investors are local and that works for them. We’ve chosen to be different precisely because of our background and experiences.

Instead of a copy and past approach, better to take the time to find trusted partners and work together with them. Co-create solutions that meet your unique needs. The ideal partners adds strengths to fill your gaps. This could be knowledge, network or other resources.

A key part of our global approach is working with local partners who are on the ground everyday in the local market. So just being global is not enough — working with these local partners is a key differentiation.

Martial arts starts with physical training. At a certain point, however, the mental and spiritual aspects of martial arts become more important than the physical training.

This doesn’t mean that the physical training is not important. The physical training is a gateway to reach the mental and spiritual benefits. Rather than being independent, they are integrated.

Venture investing starts with financial returns. This has to be the foundation. And many people do view venture investing as a box that takes money in and spits money out a few years later.

But this view overlooks the potential direct and indirect benefits beyond just the box of cash perspective. There can be positive effects on revenues, efficiency, and speed for related businesses. There may be harder to measure, but perhaps even more important, soft benefits such as upgraded team skills, improved innovation and entirely new business units which grow larger than existing businesses. Most importantly of all, all of this investment in innovation can, and should, be used to actually improve people’s lives.

It’s important to emphasize that these additional benefits are unlikely to materialize if financial returns don’t set a strong foundation. So start with the financial returns. But don’t limit your imagination to a box of cash. The ultimate potential is much bigger.

Venture capital investors are always questioning and challenging assumptions in other industries. It’s important that venture capital itself faces the same kinds of questions and challenges.

While industry insiders are looking for new ways to differentiate, a little extra push from external forces can only help accelerate the process.

Ultimately, the best way to learn something is share it with others. In karate, this means training new students and then having them train students. This passes on the physical skills plus also the philosophy and values. None of this can be truly learned by reading a blog post or watching a video.

There is no substitute for person to person training.

Historically, venture capital was a very secretive industry. Knowledge was not shared and venture capital firms put a lot of efforts into controlling information flow. This started to change in the past 15 years as the industry started to open up. Blogs and in person events have allowed people to learn more about venture investing. But the reality is that most of the activity is still behind closed doors.

True innovation requires an open ecosystem, and venture capital also needs to join this trend. So our view is that successful venture investors should not be trying to hide the secrets of investing from others.

We believe there is tremendous value to be created in sharing knowledge about venture investing with others. More and more new investors are getting involved in venture capital. Without effective co-operation, that money may be completely wasted on bad investments.

Rather than hoping that other investors fail, we believe that the startup ecosystem desperately needs more high quality investors. This is not a zero sum game.

Of course, the challenge is to identify the right kinds of partners. There has to be an alignment of both values and incentives.

There’s a saying in karate: “a black belt is just a white belt who never gave up”. Learning to learn is the most important lesson of all. I’m still learning plenty about both karate and venture capital.

It’s this learning that is the secret power of how we can transform venture capital one person at a time.

Transforming Venture Capital, One Person at a Time was originally published in Fusion by Fresco Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

Our firm name Fresco Capital is inspired by the timeless fresco paintings of masters like Leonardo da Vinci.

You may wonder “how can there be such a thing as Leonardo da Vinci venture capital and startup lessons?” as he lived hundreds of years before our modern startup ecosystem.

Yet Leonardo da Vinci left us a record of his observations and opinions in amazing notebooks. Many of his attitudes and habits are explored in How to Think Like Leonardo da Vinci. Here are five Leonardo da Vinci venture capital and startup lessons:

1. Curiosita: insatiably curious approach to life.
Curiosity beats raw intellect for anything related to startups because you need to keep asking questions. Once you assume that you know all the answers, the company is probably going to fail. On a related note, it’s hard to be curious about something when purely motivated by money. It’s much easier when you are driven for the sake of learning and money is the by-product.

2. Dimonstratzione: commitment to test knowledge through experience.
Learning through books and from others is helpful but there is no substitute for learning through experience. The scientific method of formulating a hypothesis and then testing it is extremely valuable during this process. Also, the experience of surviving and growing through the failures of experiential learning leaves scar tissue, which makes you stronger in the future. Of course, it doesn’t always feel good at the time.

3. Sfumato: willingness to embrace ambiguity, paradox, and uncertainty.
Startups are defined by ambiguity, paradox and uncertainty. There is never enough data or evidence to make any important decision obviously clear except in hindsight. Every choice has both pros and cons. Most of the time, the only choice is to move ahead into the unknown while maintaining an open mind about feedback just in case you need to change course quickly.

4. Arte/Scienza: balance between science and art, logic and imagination.
Some people get obsessed about the technology in startups. In the process they forget about people and emotions. True success requires a blend of science and art, and this is especially true in the early stages of building a company. To build something with global scale, a basic human emotion needs to be satisfied at some point in the value chain, even if it can be described by cold, hard logic.

5. Connessione: recognition and appreciation for the connectedness of all things and phenomena.
Nothing exists in isolation. Decisions, actions and results always have context. Startups by definition have limited resources and so it is especially important for them to leverage the surrounding ecosystem and do more with less. As part of that, systems thinking has to include a strong appreciation of time, including when to move quickly and when to be patient.

There are many modern theories about venture capital and startups but the reality is that the core principles for success have been around for centuries. These Leonardo da Vinci venture capital and startups lessons illustrate that he would fit right into the current global startup ecosystem.

Photo credit: Luc Viatour