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VC firm discloses 'internal operating manual'

October 18, 2013: 2:16 PM ET

Bloomberg Beta takes transparency to the next level.

131018142234-confidential-documents-620xaFORTUNE -- Venture capital is in the midst of a structural sea change, evolving from a secretive old boys club into a much more accessible and transparent... well, new boys club.  Office hours, demo days, general solicitation, etc.

One thing that has generally remained guarded, however, is investment strategy. Not the broad strokes of sector and stage focus, but the nitty-gritty about how a firm makes its decisions on who to fund and how it prefers to structure its deals.

Bloomberg Beta is looking to change that (also worth noting that two of its five investors are women, so perhaps a cheap shot above).

The bi-coastal VC firm, which launched earlier this year with a $75 million commitment from Bloomberg LP,

Bloomberg Beta, a new firm launched earlier this year with the financial backing of Bloomberg LP, is looking to change all that. The firm recently posted its "internal operating manual" online, via GitHub. Included is everything from how to best pitch the firm, what it wants to know from references and its typical investment terms.

Bloomberg Beta head Roy Bahat also wrote a blog post about the decision,saying:

In part, we're inspired by what Bloomberg's product did in its earliest days — it took previously-controlled financial data (the prices of bonds) and posted them on a system where everyone could see the same price. At the time, that was daring. Plenty of people made their living by controlling that information. Being transparent is chancy. You can gain advantages by keeping information to yourself. Though, as we thought about it, more and more of those advantages to secrecy — at least in the world of startups — seem like mirages.

We started asking ourselves why startups and investors generally keep the terms of their investments confidential. We didn't have a great answer. We think that more shared data on funding startups will make us all better at it.

Again, you can read the whole thing here. But below are five items that were of particular interest (titles are mine, text is theirs):

1. This is not a democracy

We have an "anyone can say yes" policy. No, you don't have to meet my other partners. We believe the best entrepreneurs and companies are polarizing. Our best investments might have been, originally, opposed by one or more of our partners. Teams are great at gathering information and surfacing wisdom, but terrible at making decisions. We believe in individual accountability -- if anyone can say yes, then everyone feels the weight of making a decision. (That said, we do require that before anyone says yes they mention the investment to the rest of us -- that way they get the benefit of the team's input, and it's a good way to slow down and think for a second.)

2. Your valuation benchmark

The average pre-money valuation of our investments for the year to date in 2013 was $6M. (We intend to update this number from time to time, but not too frequently -- to avoid inadvertently disclosing the terms of any one deal. This average includes only our investments where we were part of the first money into a company -- we could not figure out a way to make our small number of later-stage investments comparable on an apples-to-apples basis).

3. Focus, focus, focus

We prefer to see products that are intensely successful in some initial market, over products that grow to large numbers but don't play an important role in the lives of their users. We like for a product to be the most important service to at least some of its users.

4. Sweep the deck

A demo is 50 times more useful than slides. One is a description of a thing, the other is the thing itself. Product is our sustenance; feed us... We don't like the idea of entrepreneurs spending lots of time making presentations. When we see "v36" in the filename of a presentation, it terrifies us.

There is no standard format we like, but we probably spend 2-5 minutes reading a deck when we are deciding whether to meet a company. How many slides? Depends, but if you need 20 detailed pages to tell your story, your story needs work. In roughly one-fifth of our portfolio companies, we never saw a deck before investing -- usually because the product spoke so loudly for itself, or we knew the team and business so well we didn't need a deck.

5. What are people saying about you?

We put great faith in the value of reference calls, and we owe a debt to the friends, colleagues, and partners who are willing to share open, unvarnished views. We try to skip nonsense questions ("what are their strengths and weaknesses") and instead focus on things that will help us decide whether to back a founder:

  • How does this person compare to other founders you've known? Top 10%? 5%? 1%?
  • What makes you believe this person is extraordinary?
  • If you were us, and decided to invest in the company, in what areas would you guess this person would need the most help?

We call as many references as we can find.

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It should be interesting to see if other VC firms have similar internal documents and, if so, whether or not they'll post them online.

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Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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