Once upon a time, it was accepted — and expected! — that the venture capital world operated under a shroud of secrecy. But that world is changing, as a whole new generation of investors and venture capital firms have been moving toward greater openness and transparency.
You see this in public blogs from the likes of folks like Fred Wilson and Mark Suster, which give entrepreneurs a view into how they think about market trends and investments that they make. You also see it in the emergence of AngelList, which has created an open marketplace for entrepreneurs to meet investors and raise funding.
The latest firm to follow this trend is Bloomberg Beta, which today is releasing its internally generated “operating manual” to the world on Github. While the manual was created by five-person staff for its own use in determining how and under what terms it plans to make investments, making the manual public will give startups seeking funding a better idea of what makes Bloomberg Beta tick, and what they can expect when they enter into discussions with the venture firm.
Bloomberg Beta is an independent venture firm operating with Bloomberg as its sole L.P., and so it has certain advantages over other investment firms. It raised $75 million for its first fund, giving it plenty of runway as a new, seed-stage investor. And while it can make connections between startups the startups it investments and Bloomberg L.P. when it makes sense, there’s no strategic imperative to do so.
The operating manual does a pretty good job of laying all that out, but it also gives some insight into how exactly the team operates, and how it decides which companies to invest in.
One of the key insights into what makes Bloomberg Beta different is that there’s no so-called investment committee to speak of — any of the five on staff can say “yes” to a deal without the approval of the rest of the team.
The idea isn’t to reach consensus between partners — in fact, Bloomberg Beta head Roy Bahat believes that controversy is a good thing when considering investments.
He also believes that his firm’s policy fundamentally changes the way investors think about deals. Instead of determining whether or not they would like to do a deal, too many investors at other firms put too much emphasis on whether they should recommend a company or deal to their partners. That leads to opportunities being lost, as well as less open discussion between partners about which companies are worth investing in.
The manual also provides practical advice for entrepreneurs in what to expect from Bloomberg Beta while it’s reviewing a deal, and what to expect once the firm is an investor in a startup. Some of that comes down to practical questions about how much or when the firm will invest — it likes to be “first money in” and will write checks generally between $25,000 and $250,000 — as well as what rights it expects as an investor — pro rata rights for follow-on investment, as well as a 1x liquidation preference when a company sells.
Some things seem pretty self-explanatory. When evaluating deals, the team likes to invest in people they know, but barring that, it will take a look at startups that are referred by people they trust. It looks for product, and believes that a demo is much more valuable than a slide presentation.
One aspect that stands out is a “service level agreement” in which Bloomberg Beta promises to be open and upfront about how it’s thinking about a startup and whether it would invest. Through this “do ask, do tell” policy, the team commits to being open and honest about whether or not it thinks it will invest if asked, although the entrepreneur might not always like the answer.
Based on the geographical location of its team, Bloomberg Beta is focused mainly on investments in Silicon Valley and New York City — that is, where it believes it can be most helpful. That doesn’t mean it won’t invest in other regions, but it has a bias toward companies that are close.
Another interesting facet is what startups can expect after Bloomberg Beta makes an investment. Unlike other VCs, the firm prefers to “formality out of the investor-entrepreneur relationship” — meaning that it doesn’t request board seats or require scheduled check-in meetings. Instead it prefers to “spring into action” when needed.
Bahat said that in the absence of more formal structures, it’ll be up to the Bloomberg Beta team to ensure that it’s got its finger on the pulse of its investments and that it’ll work to ensure that none of them fall through the cracks. That said, it’s still early days for the firm, and so he’s sure that it’ll make mistakes — and learn from them — as time goes on.
For Bloomberg Beta, making its internal processes available to others isn’t just a way to differentiate itself from the pack, it’s also a way to have better meetings with entrepreneurs and possibly make better investments over time. While it’s made 15 investments since quietly launching in January this year, setting expectations not just for the team, but for the entrepreneurs it meets with will get rid of some of the waste that comes with the usual secrecy in VC investing.
That’s the hope, anyway.