3 Things I learned in Venture as a Consultant
This article was written by Patrick Hsu.
As a consultant, I’ve always considered my next opportunity to either be in operations, private equity (PE), or business school. Though similar to PE in some aspects, I had rarely considered venture to be on the “traditional” path for me as a consultant, seeing it more as a role for ex-startup operators or investment bankers. The startup world is something that I didn’t have much exposure to in my time as a consultant, the closest being my time doing due diligence work for PE firms.
Luckily, I’ve had the opportunity to take part in a 6-month secondment role with B Capital Group through their partnership with the Boston Consulting Group (BCG), embedding myself in their investment team as an associate. Over the past few months, I’ve worked on everything from creating investment theses to writing memos for potential investments, making me feel like an integral part of the team. It has been an extremely eye-opening experience to be surrounded by great investors and learning through osmosis.
Though I’ve learned a ton during my time on loan at B Capital, I couldn’t call myself a consultant if I didn’t highlight some key learnings from my time in venture:
1. Remember to use complete sentences and share your thinking
Coming from a consulting background, PowerPoint was my bread and butter. When I wanted to put my thinking down on paper, it came in the form of slides, key takeaways, and concise frameworks. Full sentences and complicated graphs were too long for clients to read, which led me to simplify my notes with straightforward, bulleted points. This process is in stark contrast to the Word documents that are circulated for investment committees.
When working on my first couple of memos, I found myself consistently going back to complete my sentences and document more of my thought process. One of the major differences between being a consultant and an investor is that consultants are much more focused on sharing the outcome with the client. In contrast, investors are more focused on vetting the assumptions with the investment committee. As an investor, the content I’m writing isn’t a visually engaging presentation but rather clear documentation of our research, results, and how we interpret the findings to share with the team offline.
2. Due diligence is a transferable skill
While at BCG, I spent about 8 months supporting private equity clients with their due diligence efforts. During that period, I dabbled in everything from market sizing and competitive landscaping to consumer surveying. I spent the majority of my time doing primary research online, looking for publications that covered the market I was researching, and interviewing industry experts we sourced through our networks. I had considered these activities to be “consulting firm” activities, while our counterparts at the private equity firms were more focused on the financials of the deal.
But shortly after joining my first deal at B Capital Group, I realized that a majority of the diligence topics are the same and that the financial model is just one part of a larger discussion. There was still market sizing, competitive landscaping, and product analysis, but instead of running 40 expert calls and a $15,000 survey, we work with more back-channel references and published findings instead. Even though the approach and level of granularity differed at some points, the critical thinking and distillation of insights were the same whether you’re a consultant or early-stage investor.
3. Price is just as important as the business model
Doing diligence as a consultant, I found myself focusing a lot of my investment decision-making on whether or not companies had a defensible business model or niche product they could leverage. Though these things are extremely important to building a successful business, the price you pay is equally as important when you are the person who is writing the checks. Taking on an investment role, I’ve realized that looking for the value play that can maximize your returns is just as important as selecting the business that will become a market leader (though this usually is a good signal for maximized returns).
Consultants are constantly helping clients adopt best practices or assessing competitive landscapes to determine best-in-class offerings. They want clients to be the best in every aspect possible and sell them nothing less than that. But as an early-stage investor, you rarely have the information or foresight to have 100% conviction in your choice. The best you can ask for is to pay a price that corresponds to how much you believe you can get back in the future. Not all companies you invest in will become the market leader; sometimes taking bronze or silver is just as good if you can make the returns you are hoping for.
The past 6 months have been an eye-opening experience for me as a consultant exploring the venture investing world. The opportunity to work alongside some great investors at B Capital Group has taught me a lot about how to evaluate investments and helped me realize how much I’ve learned as a consultant. Venture capitalists and consultants are not so different in how they approach understanding businesses, and if anything, there are more commonalities than differences.