On the way to Andrew Anker's office, you walk past a sleek Olhausen pool table dressed in black felt. A metal plate on one end advertises that it's "the best in billiards, featuring Accufast cushions." August Capital bought the table about a year ago so its partners could take a break from their nonstop schedules. The last time Mr. Anker recalls playing was in October, when the firm closed a deal with Guru.com. Who won? "They did, of course," he says with a chuckle.

It's nice to see that Mr. Anker has kept his sense of humor through the long days and nights that have been his life for exactly two years, as of last Saturday. I met with the 34-year-old VC last week to get a fresh perspective on the venture capital business. He pulled the veil off the mysterious VC investment process, offering a glimpse into the daily life of a venture capitalist. Prior to August Capital, he worked in corporate finance at a couple of investment banks, including Paine Webber; was a principal at I-banker Sterling Payot; and was cofounder and CEO of Wired Digital (now owned by Lycos).

OFF WITH THE VEIL

Q. What surprised you most about being a VC?A. It's certainly a much harder job than you think. Being an investor in some ways is one of the easiest jobs to start and one of the hardest jobs to master, because all you need is a checkbook and some cash. I was an entrepreneur before, and you tend to underestimate what it's like to be an investor. It's easy to perceive it as a job where you go to a few board meetings and otherwise go play golf a lot. When I came over here I thought, "Oh yeah, I'll just go find some good companies and make some investments." Needless to say, it was a bit harder than that.

Q. How does the courting process work at August?A. Typically what happens is a startup team will first meet with one of us. It could be through a referral or a plan coming in. The partner will meet with the team, and if they like the story, they'll do follow-up work by themselves. That would include reference checks; going to the management's offices and meeting the rest of the team; getting the energy of the office and trying to understand more about the team and how they think; and calling customers or vendors. Somewhere in that process of due diligence, we also talk about it at a partners' meeting. Sometimes we'll talk about it before we start any due diligence just to understand the sort of issues people might have in the firm.

Q. How much work do you usually do before you make an investment decision? A. It really depends on the situation, but it's certainly no less than 10 to 12 hours' worth of work, and sometimes as much as 100. So much of it is just related to the specifics of the deal. At the core, our job is really risk mitigation. You first try to identify all the things that might not work. Every situation has a different set of issues. Some are very technology-centric. You may spend days bringing in experts to help you understand and evaluate the technology. Is this going to break the laws of physics? Is this something that's a little bit too cutting-edge? And then there are other plays that have nothing to do with technology. It's all about marketing and the brand, and you're spending a lot of time trying to understand market dynamics, and whether the VP of marketing really gets it.

EXPERT ADVICE

Q. How often do you use outside experts, and what kinds of experts do you typically work with?A. It depends on the deal. There are two types of people that you might bring in to help you with a deal. One is someone who does pure due diligence. The team is trying to do a certain thing that hasn't been done, and possibly can't be done. I'm not technically smart enough to say it can be done. You call in the expert and say, "You tell me." That person tends to be someone in the network [of August portfolio companies], or someone that you've worked with at a different, but related, company. There always is going to be someone in one of your companies who's going to be a great TCP/IP stack guy or whatever. Sometimes it might be one of your portfolio companies that's likely to be a partner of this company, so it's advance partnership work. Another kind of expert that you bring in is for a management team that may be missing an ops [operations] guy, or some other key person. You have somebody who has made their money in their last startup, isn't working full time, and doesn't want to work full time, but he or she is a possible board member and technical advisor. You're bringing this person in and looking at the company together, with the hope that he or she will also want to be part of the virtual team of the company. That guy is going to get a little bit of stock and a consulting contract to spend maybe one day a week at the company. You see a lot of angels that do that type of thing.

Q. Since that's someone you have an ongoing relationship with, is there an understanding that he or she will throw up a red flag if something is wrong?A. Yes. Another side is if that person gets excited, that helps us get more excited, because that guy has been looking at a lot of things in, say, the networking space. If that guy is willing to sign up to spend a day a week at the company, that says a lot about the opportunity. And it's a way of better leveraging our own time.

FUND FACTOR

Q. Out of all the companies that go through the due diligence process and make it to the full partners' meeting, roughly what percentage do you actually fund?A. It's still a low percentage. Maybe 10 or 20 percent.

Q. I think those numbers will surprise many entrepreneurs. Based on the emails I receive, if there's due diligence, or some work being done on a deal, that person has the impression that he has much higher odds of being funded.A. The odds are better. You have to remember that 20 percent is probably ten times as high as the percentage for just the first meeting. The unfortunate thing -- or fortunate thing, depending on your perspective of this business -- is that there's a lot of great stuff out there. There are a lot of good, smart people, and a lot of great, big ideas. We can't do all the things we really like. At a certain point in the process you may say, "You know, this is a great idea, a great team, and a great company, but I just can't get passionate enough about it." You really are making three investment decisions per year per partner. So, you're not only doing all the normal screens -- such as, do you like the people, the idea, the space, and everything else -- you're asking yourself if you like this thing enough to want to spend the next five to ten years on it.

Q. What's your message to entrepreneurs about the investment process?A. A lot of the process is about getting acclimated and spending time with a particular team. The way you make a decision has less to do with any single point -- a meeting or a phone call -- and more with the progression. You met with the guy one time and you liked his idea. Did you like the idea more or less the second time? Did it get more interesting? Did you feel a sense of acceleration or not? There are some people who are great first-impression people, but the more time you spend with them the more you realize that what you saw the first time is all there is. One of the things we're asked all the time in our first meeting is, "So, what do you think?" I never answer that question, or I evade it, because what I think at that point is irrelevant to the process. I need to sleep on it for a couple of days. I need to wake up three days later and say, "God, that thing is still sticking in my head, and that guy was really smart." It's as much a process of wooing as it is anything else. You don't meet your future wife on your first date and ask her to marry you.

NEXT TIME: More with Mr. Anker. He's graciously agreed to answer your questions, so send 'em on in.

What has been your experience with VCs? Are they as thoughtful as Mr. Anker makes them out to be? Let us know in the VC P.S. forum, or visit the Discussions home page.

SNAPSHOT
COMPANY	August Capital
HEADQUARTERS	Menlo Park CA
FOUNDED	1995
GENERAL PARTNERS	Andrew Anker, John Johnston (cofounder), Dave Marquardt (cofounder), and Andy Rappaport
CURRENT FUND	$450M (third)
TOTAL UNDER MANAGEMENT	$750M
FOCUS	Communications hardware and services; Internet services and infrastructure
INVESTMENT CRITERIA	"People, people, and people. A good entrepreneur finds the good markets and good people. If we don't see the right person, we won't make the investment." --A.A.
VC AVERAGE 1ST ROUND INVESTMENT	$5M
LITTLE INTEREST IN	Retail and e-tail
1999 FUNDINGS	15
2000 FUNDINGS	4 (to date)
SAMPLE PORTFOLIO COS.	Be Inc., Cobalt Networks, Epinions,Tumbleweed Communications, and Turbolinux
MR. ANKER'S PORTFOLIO	Evite, Gurunet.com, ImproveNet, Listen.com, and Topica.com
UNSOLICITED B-PLANS	"They get read, but we've never invested in one." --A.A.
UNIQUE ATTRIBUTE	August is a "small partnership where all the partners know and are involved with every investment." The firm avoids momentum investing, and only backs companies that it believes have strong, long-term prospects.
QUOTE	"When we're making an investment decision, we really see it as a seven- to ten-year decision. We don't want to make it in half an hour." --A.A.
NOTEWORTHY	August is best known for its low-profile but heavy-hitting cofounder Dave Marquardt. He's been a VC for 20 years, and was one of the original investors in Microsoft, where he has been a director since 1981.