VC in DC

Ready for Venture Capital?

Cover of Catch-22

One of the most frequently asked questions from entrepreneurs is "How can I approach Venture Capitalists without a complete management team given that the VC's value management teams highly in their decision and I need VC money to recruit that very management?".  Which the prompts the follow on question, "Isn't this a 'Catch-22' situation?". 

They are good points.   For early stage investors, this is a commonplace dilemma.

My answer is that a VC needs to hear three things from an entrepreneur.  They are what the entrepreneur knows to be true, what he believes to be true and what he doesn't know.

First, what the entrepreneur knows.  This is the domain expertise that embodies the entrepreneur's unique point of view on an industry and the opportunity.  For example, ten or twenty years in any industry provides perspective and insight into the market and its unmet needs. 

Second, what the entrepreneur believes.  This is the essence of the entrepreneur's vision about the possibilities associated with the application of time, money and resource to aforementioned market opportunity.   The entrepreneur can lay out  a view of investor money, recruited talent, product development, marketing launch and company grow based upon the current conditions and investor involvement.

Third, what the entrepreneur doesn't know.   This frames the questions that time, money and resource will answer.   Will customers accept this new approach?  At what price?  Can we compete?  What will others do?

All of which is to say, early stage investors don't need companies to be completely staffed.  They need entrepreneurs to be powerfully self aware of the things they know, believe and don't know.  In that context, everybody can be on the same team going forward.

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Government driven technology innovation

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I spoke today on a panel at a conference for 500 firms in the business of inventing technology for primarily government driven applications with government financial assistance.  These companies were distinguished by their participation in the SBIR program of government research grants.

The issue for most of these companies is whether commercial applications and, perhaps, private institutional funding are realistic future paths.   While we have a lot of these companies in the DC area, the attendees were from across the country.   

It is striking that there's is a wealth of great technology in these companies and an abensce of commercial connections.   I would suspect that a great number of profitable joint venture possibilities are available for companies that take the time to research the Small Business Innovation Research company universe.

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Business plans that write themselves

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I spoke with a George Mason University MBA class Saturday morning as a kick off to a Capstone class that requires them to break out into teams to prepare a business plan.  I don’t envy them.   It is hard work even when you know what you’re doing and harder still for a first timer.  In my talk, I shared my thoughts on making the business plan creation process easy.

The best method advice for business plan preparation that I’ve gotten came when someone refused to read the one that I had written. 

I related to the students my experience pitching to Ann Winblad of Hummer and Winblad almost 20 years ago for a fledgling electronic mail software company.    Ann wouldn’t let me deliver the standard power point pitch or otherwise rely upon my prepared business plan materials. 

Instead, she asked me to tell her what my assumptions were about the future.   

So, the correct answer would have been:

1.                  We believe there will be a market for electronic mail software on personal computers.

2.                  We believe that we will be able to build a competitive product for this emerging market.

3.                  We believe that we will be able to sell this competitive product profitably and grow our company.

4.                  We believe that having accomplished the first three, we will be able to sell our company for a sufficient amount to deliver a good return for investors.

I wasn’t skilled enough to give Ann that answer twenty years ago. And, she didn’t invest.  But I have used the assumption definition approach to create and evaluate many business plans over the years.

To be clear, any business plan is predicated upon assumptions about the future.  Some in the control of the management team and many outside it, a business plan describes those future assumptions, identifies the opportunities created and describes the actions to realize those opportunities. 

No investor will support a company without agreeing to the assumptions.  The easier and fastest way to qualify an investor is do so with the underlying assumptions.  If an investor, for example, doesn’t agree that there’s a market or that you’ll be able to build a competitive product – well you can save each other some time.

I tell entrepreneurs that identifying and understanding their assumptions is the backbone of any business plan outline.   In fact, one could argue that the business plan is well on its way to completion when the entrepreneur is confident that the assumption list is thorough.

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