Book — coming soon

The Venture University Venture Capital Book

Since founding Venture University in 2018, Sky has taught venture capital to founders and investors around the world. This original educational draft explores venture capital in six chapters — each one paired with a Venture Class, so you can read it, watch it, and practice it.

Original draft written for Venture Classes; not a supplied manuscript or transcript from Sky. Subject to editorial review. Educational information only—not investment, legal or tax advice.

Chapter 1

How Venture Capital Really Works

Capital with a particular job

A growing company needs money. That does not automatically mean it needs venture capital. A restaurant, a consulting business and a software company can all create real value, but they may need different kinds of financing. Venture capital is designed for businesses that could become much larger, usually by serving a large market with a product that can scale. The investor accepts a high chance of loss in exchange for the possibility of an unusually large outcome.

The first question is therefore not whether a company is good. It is whether its opportunity fits this kind of capital. A profitable business with limited expansion potential may be an excellent business and a poor venture investment. A company losing money today may be a compelling venture candidate if spending builds a durable advantage and the eventual economics work. Neither growth nor profitability alone answers the question.

The people behind the fund

Limited partners, or LPs, commit capital to a fund. They might be institutions, family offices or individuals. General partners, or GPs, manage the investment process: raising the fund, sourcing companies, choosing investments, supporting founders and eventually returning capital. An LP commitment is a promise to provide money when the fund calls it; it is not necessarily a wire for the entire amount on day one. The partnership agreement defines the rules.

Management fees pay for running the firm. Carried interest gives the manager a share of profits according to the fund agreement. Fees and carry vary, and their details matter: the fee base can change, expenses can be charged separately, and distributions may follow different waterfalls. Never assume that a familiar headline percentage describes the actual economics. Read the documents and model the cash flows.

Why fund size changes the decision

Imagine a hypothetical $50 million fund that invests $1 million for 10% of a company. If that company eventually sells for $500 million and the fund still owns 10%, its gross proceeds would be $50 million before any relevant costs or preference effects. That one outcome could return the fund's original size. If later rounds halve the stake to 5%, the same exit produces $25 million. Ownership and dilution matter as much as the headline exit value.

Now consider a much larger fund. A successful small exit may barely move its results. The same company can therefore fit one investor and not another. This is why founders should research fund size, check size, stage and ownership targets before pitching. A rejection sometimes says more about the investor's portfolio math than the founder's ability.

Returns, time and responsibility

Venture outcomes are uneven. Some investments fail, some return modest amounts and a few can dominate results. That pattern encourages investors to search for unusually large opportunities, but it does not excuse weak diligence or reckless spending. A plausible path to a large outcome still requires evidence about customers, competitive position and execution. A huge market slide is not an investment thesis.

Private shares are illiquid. A financing round may establish a new valuation without putting cash in the investor's bank account. Distinguish unrealized value from distributions, and gross investment results from net LP returns after fees and carry. Fund lives and extensions differ; liquidity can take many years and is never guaranteed. Good managers explain uncertainty rather than hiding it behind a rising mark.

Put it into practice

Map one hypothetical investment from LP commitment to capital call, company financing, follow-on dilution and exit distribution. Write down who makes each decision, who receives each cash flow and which assumptions could prevent the fund from returning capital.

Open Class 01 in the portal Class details & enrollment

Chapter 2

Evaluating Startups Like an Investor

Begin with the customer, not the pitch

A pitch is a story about a future business. Evaluation asks which parts of that story are already supported and which still depend on faith. Start by naming the customer, the problem and the existing alternative. A product can be impressive without solving an urgent problem. The question is whether a specific buyer will change behavior, spend money or take a risk to adopt it.

Describe the use case in plain language. Who experiences the pain? Who approves the purchase? Who controls the budget? In business software those may be three different people. Ask what happens if the customer does nothing. If the answer is 'not much,' the sales cycle may be harder than the presentation suggests. Strong founders usually know both the user and the economic buyer.

Evaluate a team through evidence

Credentials are clues, not proof. Look for insight into the market, speed of learning, relevant execution and honest communication. Ask founders about a decision they reversed after new evidence. Explore why they are suited to this problem and what capabilities they still need to hire. A team that can explain its weaknesses may be stronger than one that claims to have none.

References should reveal behavior under pressure: whether commitments were kept, disagreements were resolved and bad news was shared early. Avoid using personal similarity as a substitute for judgment. Different backgrounds can produce valuable market insight. Record what you observed, how you learned it and how much confidence it deserves rather than collapsing everything into 'great founder.'

Size the market from the bottom up

A global industry estimate tells you little about the customers a startup can actually reach. Build a bottom-up view: the number of relevant customers multiplied by a plausible annual spend. Then narrow it by geography, product readiness, regulation, distribution and competition. The initial reachable market may be small while the expansion opportunity is large, but explain the bridge between them.

A hypothetical product serving 10,000 customers at $10,000 a year has a $100 million annual revenue opportunity at full penetration, not a $100 billion opportunity simply because it touches a large industry. Full penetration is itself unlikely. Ask how pricing could rise, new customer groups could open or adjacent products could expand the opportunity. Each step needs an argument, not just another market circle.

Read traction in context

Revenue, retention and acquisition cost mean different things at different stages. A few paid pilots can show willingness to pay without proving repeatable sales. Rapid signups can hide poor retention. A large pipeline is not contracted revenue. Ask for definitions and cohorts: which customers arrived together, what they paid and how their usage or revenue changed over time.

Translate growth into business economics. What does it cost to acquire and serve a customer? What is the gross margin? How long does payback take? Early estimates may be unstable, so distinguish measured results from forecasts. Finish with an investment view that names the strongest evidence, the biggest unresolved risk and the milestone that would change your mind. A scorecard organizes thinking; it cannot replace it.

Put it into practice

Choose a real startup using public information. Write a one-page evaluation covering customer pain, team evidence, reachable market, traction and economics. Label every statement as observed fact, estimate or open question, then choose the three questions you would ask next.

Open Class 02 in the portal Class details & enrollment

Chapter 3

Valuation and Cap Tables

Price is an agreement about uncertainty

Early-stage valuation is not a precise measurement waiting to be discovered. It is a negotiated price informed by market conditions, company progress, comparable financings and expected outcomes. The investor asks whether the potential return justifies the price and risk. The founder asks whether the capital and partnership are worth the ownership sold. Both should understand the assumptions behind their number.

Start with the amount needed to reach the next meaningful milestone, not with the highest valuation someone might accept. Raising too little can force a premature financing. Raising at an unsustainably high price can make the next round difficult if progress disappoints. The best headline price is not always the best financing outcome when terms, investor quality and future flexibility are included.

A simple priced-round example

Suppose a company has a hypothetical $8 million pre-money valuation and raises $2 million of new primary capital. Its post-money valuation is $10 million. In a simplified round with no other changes, the new investor receives 20% and existing holders retain 80%. These percentages assume the same fully diluted definition on both sides; option pools, convertible securities and secondary transactions can change the calculation.

If the founder owned 100% before that simplified round, the founder would own 80% afterward. If a later round sells another 25% of the company, that 80% becomes 60%, before any additional pool or security effects. Dilution is not inherently bad: a smaller percentage of a more valuable business can be worth more. The task is to understand what growth the new capital must enable.

SAFEs are not all the same

A SAFE is a contractual right to equity under specified future events, not simply a small priced round. A valuation cap, a discount and a post-money definition can affect conversion differently. The actual instrument controls the result. Do not mix pre-money and post-money SAFE formulas or assume every SAFE has the same terms. Model each outstanding instrument separately and get qualified legal advice.

Founders sometimes raise multiple convertible instruments without seeing their combined dilution. An ownership spreadsheet should include all outstanding securities, the conversion assumptions and the next financing scenario. A cap is not a guarantee that a priced round will occur at that valuation. A conversion estimate is only as reliable as the instrument language and assumptions used.

Ownership is only half the economics

A cap table lists holders, securities and ownership. It should reconcile with the legal records and distinguish issued shares from a fully diluted view that includes relevant options and other rights. An option pool is not free equity: creating or enlarging it dilutes someone. Whether that happens before or after the financing changes who bears the dilution.

Exit proceeds may not follow ownership percentages alone. Liquidation preferences, participation rights and conversion choices can change distributions. In a simplified example, a $2 million investor with a 1x non-participating preference and 20% ownership may choose the $2 million preference over converting into a smaller share of a low exit; at a high exit, conversion may be better. Actual documents, seniority and available proceeds govern. Build both an ownership model and an exit waterfall rather than assuming a valuation mark is cash.

Put it into practice

Model an $8 million pre-money company raising $2 million, then a later round selling 25% post-money ownership. Add an option-pool scenario and compare outcomes. Separately sketch low and high exits with a 1x non-participating preference; state every simplifying assumption.

Open Class 03 in the portal Class details & enrollment

Chapter 4

Due Diligence That Matters

Investigate the risks that can change the decision

Due diligence is not a contest to collect the most documents. It is a process for testing whether an investment thesis survives contact with evidence. Begin by identifying the assumptions that must be true. A regulated health product has different critical risks from a marketplace or a developer tool. Your diligence plan should follow the business, its stage and the consequences of being wrong.

Separate questions into categories: commercial, product, financial, legal, team and transaction. Rank them by potential impact and uncertainty. A missing cosmetic detail is not the same as a disputed ownership claim over core intellectual property. Decide which findings would stop the investment, change the terms or require a post-investment milestone. This prevents a long checklist from creating false confidence.

Triangulate customer evidence

A founder's explanation, a customer interview and usage data are three different kinds of evidence. Use them together. Ask customers what they used before, why they switched, how often the product is used and what would make them cancel. Speak with more than enthusiastic reference customers when appropriate and authorized. A lost prospect or a churned customer may reveal a problem the success story misses.

Avoid leading questions such as 'Is this an amazing product?' Ask for concrete behavior instead: a recent workflow, a renewal decision or a measurable result. Confirm who has authority to buy and how budgets are approved. In enterprise markets, product enthusiasm can coexist with procurement barriers. Record the interview date, role and limitations so a few conversations do not become an exaggerated claim about an entire market.

Reconcile the numbers and documents

Financial diligence starts with definitions. Does revenue mean recognized revenue, cash received or bookings? Are reported customers paying, piloting or merely registered? Reconcile the relevant evidence, such as contracts and accounting records, with the summary metrics. A discrepancy may be innocent, but it needs an explanation before it becomes a basis for valuation.

Examine cash, monthly burn, liabilities and runway under more than one scenario. Then inspect the transaction foundations: incorporation records, capitalization, outstanding convertibles, employee and contractor IP assignments, material contracts and disputes. Specialists should assess issues that require legal, tax, security or regulatory expertise. An investor's checklist does not turn the investor into a lawyer or an auditor.

Turn findings into a decision

Red flags include inconsistent explanations, unwillingness to share reasonable evidence, undisclosed obligations and claims that cannot be reconciled. But diligence also needs proportion. An early company may lack polished processes without being dishonest. Distinguish a fixable operational weakness from a fundamental problem with trust, legality or the business model.

Write an investment memo that includes both the case for investing and the strongest case against it. List unresolved items, their owners and the evidence required to close them. A decision can be invest, decline or wait for a milestone. Keep confidential materials secure and use them only for the authorized purpose. The goal is not certainty, which rarely exists; it is a decision whose risks are explicit and whose reasoning another person can inspect.

Put it into practice

Build a diligence plan for a hypothetical startup. Identify five assumptions, choose a source of evidence for each and assign a stop/change/monitor outcome. Write a short investment summary that includes an unresolved risk rather than pretending the checklist eliminated uncertainty.

Open Class 04 in the portal Class details & enrollment

Chapter 5

Building a Portfolio

Write a thesis you can actually use

A portfolio begins before the first check. Define the stages, markets, geographies and business models you understand, the opportunities you can access and the risks you can afford. 'Great founders in large markets' is too broad to guide allocation. A useful thesis explains why you may recognize something others miss and which evidence would invalidate that advantage.

Personal angel investing and managing a fund are different responsibilities. An angel must consider personal liquidity and capacity for loss. A fund manager must follow the mandate and obligations agreed with LPs. Private investments may lose their entire value and remain illiquid for years. Portfolio construction cannot make them safe or guarantee diversification against a broad market shock.

Budget the whole journey

Consider a hypothetical $200,000 investment budget, excluding fees and expenses. An investor might allocate $120,000 to initial investments and reserve $80,000 for follow-ons. Ten $12,000 initial checks would consume the initial allocation. This is an illustration, not a recommended portfolio. The appropriate number and size of checks depend on access, minimums, diligence capacity and financial circumstances.

Reserves are capital not yet deployed. They create choices but also an opportunity cost. A follow-on policy should specify what new evidence justifies additional exposure, how ownership changes and how much concentration is acceptable. Do not automatically support every company or double down simply to defend an earlier decision. A new round deserves a new investment judgment.

Diversification is more than counting names

Twenty companies exposed to the same customer budget, regulation or financing environment may be less diversified than the company count suggests. Look at shared risk factors: sector, stage, geography, vintage, distribution channels and dependence on future fundraising. Access and informational advantages also matter. A portfolio can become concentrated accidentally when its largest marked winner grows faster than everything else.

Syndicates and special-purpose vehicles can provide access, but they introduce their own fees, carry, administration and legal terms. Ask who controls decisions, what information investors receive, whether follow-on rights exist and how conflicts are handled. A lead investor's reputation is not a substitute for understanding the vehicle. Evaluate the company and the wrapper around the investment.

Measure returns without fooling yourself

Separate invested cost, current residual value and cash distributions. For a hypothetical portfolio with $100,000 paid in, $30,000 distributed and $120,000 of residual value, total value is $150,000. TVPI is total value divided by paid-in capital: 1.5x. DPI is distributions divided by paid-in capital: 0.3x. RVPI is residual value divided by paid-in capital: 1.2x. These are simplified figures, and marks are not cash.

IRR also depends on the timing of every cash flow. A snapshot of current value cannot establish it. Fund-level net returns require the appropriate fees, expenses, carry and LP cash flows, not just the sum of company marks. Keep valuation dates and methods, write down impaired investments and avoid mixing currencies without a consistent conversion policy. A useful portfolio report makes uncertainty visible and distinguishes realized results from hopes.

Put it into practice

Draft an allocation and reserve policy for a hypothetical portfolio. Calculate TVPI, DPI and RVPI using the example above, then reduce residual value by half and compare the results. Record which values are estimated and which are actual cash distributions.

Open Class 05 in the portal Class details & enrollment

Chapter 6

Breaking Into Venture

Learn the work behind the title

Venture work includes finding companies, studying markets, developing relationships, evaluating opportunities, supporting founders and communicating decisions. The mix varies across firms and roles. An analyst, platform professional, operating partner and fund manager may all contribute differently. Start by identifying the work you want to do and the evidence that shows you can do it.

There is no single required background and no course that guarantees a job. Operating experience, sector research, founder networks and investment work can each be useful. Translate your experience into an advantage rather than treating a nontraditional background as a deficiency. The question is how it helps you find, understand or support a business in a way a team needs.

Build a portfolio of judgment

Create work a potential colleague can evaluate: a market map, a company memo, a competitive analysis or a carefully researched sector thesis. Use public information or materials you have permission to use. Explain your assumptions, identify what is missing and include the argument against your conclusion. A polished prediction without supporting evidence reveals less than a modest analysis that can be challenged.

Track your views over time. What did you expect? What happened? Which evidence did you misread? Avoid rewriting old conclusions to look prescient. A learning record demonstrates intellectual honesty and improvement. You do not need to claim investment returns you never earned; research, introductions and operational contributions can be described accurately on their own terms.

Relationships follow useful contributions

A network is not a collection of names. It is a set of relationships in which people trust your work and judgment. Contribute something specific: a relevant customer introduction, a thoughtful market observation or a candidate for a genuine hiring need. Ask permission before sharing private information or making an introduction. Respect a founder's time and do not promise access you cannot deliver.

When approaching a fund, research its mandate and explain the particular contribution you could make. A concise note with a relevant example is more useful than a mass request to 'pick your brain.' Be clear about whether you are applying for a role, sharing research or offering deal flow. Persistent professionalism helps; repeated messages without new relevance usually do not.

From participant to responsible investor

If you choose to invest, start with education about legal eligibility, risks and the instrument. Using your own money, organizing a syndicate and managing other people's capital are not interchangeable steps. Raising and managing a fund involve legal, regulatory, fiduciary and operational responsibilities. Get qualified advice before soliciting capital or presenting an investment opportunity.

Make a practical development plan: choose a sector, study its customers, write one memo, request feedback and revise it. Add a measurable contribution to a founder or an investing team. Then review what the work taught you about the role you want. Expertise grows through deliberate practice and honest feedback, not an arbitrary hour count alone. Keep learning globally while respecting the different rules, markets and business contexts in which you operate.

Put it into practice

Create a 30-day plan with one sector map, one company memo, three purposeful conversations and one useful contribution. For each, define an observable result and a feedback source. Finish by identifying a role or investment responsibility you are ready for—and one you are not.

Open Class 06 in the portal Class details & enrollment

Six-week study plan

Read it, watch it, practice it

Week 1
How Venture Capital Really Works
Map one hypothetical investment from LP commitment to capital call, company financing, follow-on dilution and exit distribution. Write down who makes each decision, who receives each cash flow and which assumptions could prevent the fund from returning capital.
Continue with Class 01 →
Week 2
Evaluating Startups Like an Investor
Choose a real startup using public information. Write a one-page evaluation covering customer pain, team evidence, reachable market, traction and economics. Label every statement as observed fact, estimate or open question, then choose the three questions you would ask next.
Continue with Class 02 →
Week 3
Valuation and Cap Tables
Model an $8 million pre-money company raising $2 million, then a later round selling 25% post-money ownership. Add an option-pool scenario and compare outcomes. Separately sketch low and high exits with a 1x non-participating preference; state every simplifying assumption.
Continue with Class 03 →
Week 4
Due Diligence That Matters
Build a diligence plan for a hypothetical startup. Identify five assumptions, choose a source of evidence for each and assign a stop/change/monitor outcome. Write a short investment summary that includes an unresolved risk rather than pretending the checklist eliminated uncertainty.
Continue with Class 04 →
Week 5
Building a Portfolio
Draft an allocation and reserve policy for a hypothetical portfolio. Calculate TVPI, DPI and RVPI using the example above, then reduce residual value by half and compare the results. Record which values are estimated and which are actual cash distributions.
Continue with Class 05 →
Week 6
Breaking Into Venture
Create a 30-day plan with one sector map, one company memo, three purposeful conversations and one useful contribution. For each, define an observable result and a feedback source. Finish by identifying a role or investment responsibility you are ready for—and one you are not.
Continue with Class 06 →

The chapters are available here now. Purchased video lessons, worksheets and quizzes appear in the portal as they are uploaded and released.

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The Venture University Venture Capital Book

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