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The reasons to start a business are many and varied. In my experience, the CEO's that pitch us have one of three goals; they want to win or they want to make a lot of money or they want to change the world. So which CEO's tend to deliver the greatest returns?
Maybe not who you'd think.
Changing the world is consistently the best way to create value.
People whose aim is to win tend, over time, to reduce the scope of the game to one that is winnable. So rather than ambitions being large or goals getting bigger in impact as it progresses, this CEO's enterprise tends to narrow or shrink. And winning is often benefits a smaller and smaller group of people in this scenario. (Even if that means not winning for the investors) Winning is more important than the people so throwing some over board hardly matters.
A primary aim of making a lot of money introduces a whole gamut of decision influencers. Most of those influencers promote short cuts and borderline decisions. Yes, making money is the central point of an enterprise in a capitalist system. But trying to do so without creating value is akin to running a scheme.
People who seek to change the world create the greatest value. Value for themselves, employees, customer and investors. It is isn't about limiting the scope to "win" or taking short cuts to a great payday. It is about changing the world -- which is the biggest scope and doesn't support any short cuts. And changing the world requires a big idea that is well executed whereas winning or making a ton of money don't always require those in practice.
So you might ask, what about VC's? Do they want to make a ton of money, win or change the world?
Yes. Yes, they do.
Mark Suster of GRP hosts a weekly online video show entitled "This Week in Venture Capital". I am a fan of the show for its insights into the thinking of leading VC's and entrepreneurs. Last week, Tige Savage of Revolution appeared on the show and it is certainly worth a view.
As a former entrepreneur, now on the “dark side” of Venture Capital for the last ten years; here are 10 lessons I got from the investment side of that experience . These lessons still serve me well on a daily basis.
1. Price doesn’t really matter
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If a deal works out, the price was right at some level. Get in good deals, and forget about getting the last dollar in a negotiation for that good deal. If the venture fails, whatever you paid was too much. Yes, in the event of success, you would have made more if you paid less… but that is always true of successful investments.
2. Management is everything
Great management will make the right pivots at the right time. The talent, drive and vision of the management team will determine success or failure. If you’re looking at a great idea, if it’s paired with poor management…run.
3. Never pursue a small idea
It is no safer, no easier and much less rewarding to pursue a small idea rather than a big idea.. What’s the point in trying to change the neighborhood when you can change the world. Small ideas struggle to find their way, so do larger ones, so you might as well be working on the large idea. Small ideas are never worth the trouble.
4. You are not a rock star and never will be one as an investor
The entrepreneurs are the stars and they always will be the stars. If you want to be a star go be an entrepreneur. If you’re an investor, work to make your entrepreneur a rock star. Enable their success and enlist recognition for them and what they’re doing.
5. If you don’t add value outside of board meetings, you’re not adding value
The board meeting is a stilted environment for contribution. If you can’t establish yourself as a worthy advisor outside the board meeting, you’re likely not one in it.
6. Don’t invest in people who ignore good advice
Some people have a world class talent for ignoring good advice. Many of them end up as self employed entrepreneurs . Those kinds of entrepreneurs are not worth investing in. Great people and great business people are more open to alternate points of view. Invest in bright people who don’t or won’t ignore good advice.
7. Try to win in the long term….not the short term
If you strike deals which over time prove unfavorable to the other side, your opponents (and they will view themselves as such) will be motivated to screw you. And they will usually succeed at doing so. Strike agreements that are good now and still fair later.
8. Never panic
There are few things uglier than a scared venture capitalist. Don’t ever be anxious to the point that anyone notices. Sometimes slow and steady wins the race. Not many good decisions are made based on fear, especially business decisions.
9. Be nice to people; it pays well
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Most of the better deal flow comes from people who like me better than my venture capital competitors. Why me and not them? I strive to treat everyone with respect. (I’m sure it’s that and not my jokes…) Be nice to people. It pays off every day.
10. Great deals tend to be great already
In ten years in the VC business, other VC’s haven’t really ever asked me to look at anything other than their dog deals. The great deals are out there but you are going to have to find them yourself. The good news is that they are great deals already. The challenge is to recognize that.
When I started in Venture Capital, my firm directed me to create “proprietary deal flow” which was a term that I didn’t initially comprehend the meaning of. Proprietary deal flow refers to development of a deal pipeline that contains opportunities not seen by others. Today, ten years on, I have pretty good proprietary deal flow. To create that proprietary deal flow, I needed to internalize the 10 lessons listed here -- which might be summarized as be fair, be a good person and look for good people to back.
This article was originally published on BusinessInsider.com
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Paul Sherman and the folks at Potomac Tech Wire always do a great job executing these events. They typically sell out so if you have any interest best to buy a ticket sooner than later.
I will be one of the panelists and the others will be:
Phil Bronner, General Partner, Novak Biddle Venture Partners
Thanasis Delistathis, Managing Partner, New Atlantic Ventures
Tige Savage, Managing Director & EVP, Revolution LLC
Harry Weller, General Partner, NEA
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Here is a link to the event overview.
And a registration page.
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As a rule, VC's tend not to back husband and wife teams or other "family" dominated management teams. This rule strikes many successful husband/wife or family teams as a misguided or perplexing.
Now like any rule, there are exceptions. One of the DC area's most successful software companies, WebMethods, was led by a husband/wife team and was venture backed. So why don't VC's tend to support family teams?
The offered explanation is two fold. First, the introduction of a family element into an investment decision carries with it an incremental measure of risk. That risk, the family risk, is that divorce, disagreement or dispute will render the management team ineffective or incapable of managing the enterprise. Further to that, since it is a family -- undoing the deadlock can be problematic or impossible for an outside investor. Second, research and experience has shown that the best available management talent will not gravitate towards a family run business. The best talent has skills and ambition. They won't join a situation where upward mobility may be limited by family relations. If the boss' son is in line for the promotion -- the merit driven achiever may lose out for reasons neither fair nor performance based. Given that there is always demand for the best management, the people that make up that pool have a lot of choices. And they will choose, typically, to avoid the family run business.
So, that's why VC's shy away from the family business model -- higher risk and greater challenges to building a world class team. This isn't to say that they aren't exceptions to this rule. There are many.
But if you're going to try and raise money from VC's, this is the bias of many to stay away from the family component and one is better to know that going in.
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VC's use "pattern recognition" to assess the viability of deals. Pattern recognition is a method of seeing commonalities between a current , novel concept and previous ideas. And while it is a great tool commonly used by Venture Capitalists, the pattern recognition tool is mostly ignored by entrepreneurs. Which is a shame, because every investor pitch would benefit from substantive comparisons to previous successes and differentiation from previous failures.
I use the adjective "substantive" precisely here. For an entrepreneur to say we are a cross between "Facebook and Twitter" is not substantive.
Substantive comparisons need to be as precise as possible to be worthwhile.
To say, "We anticipate a go-to-market approach quite comparable to Companies X and Y, both of which relied on $5 per lead CPA and conversion rates of 3% to generate first year revenues in excess of $2M" is very substantive. And it is convincing. Substantive comparisons can leverage almost every aspect of an investment pitch.
Picture the proverbial hockey stick revenue slide. One line going out and up, dramatically so, in year 2, 3 or 4. We see a lot of these, at least in investor pitches -- we see a lot of these -- and the entrepreneur that can make it seem highly likely is quite rare. Rarer still is the one that can actually do it. Now picture adding two or three companies historical data, who have grown comparably to the hockey stick slide, and make an argument that your company can do the same. Because, for example, your value proposition is similar or the target audience is the same. Or, specifically, talk about the distribution partners or other critical events in the company's history that led to this hyper growth and what the comparable event will be for the company you're pitching. Do the legwork, people who do their homework tend to succeed. This isn't news.
Simply, turn the power of pattern recognition in your favor by consistently finding factual examples to support your probability of success.
Most of what you need to do this is online. The rest is generally available from current or former employees of the companies that will serve as your com-parables. No, you generally don't want or need secret information. But, even to say something like in a pitch meeting like, " I consider three successful Companies, X, Y, and Z, to be the most comparable. And I've talked to marketing and sales folks from each about the key things that drove their phenomenal growth. It boils down to the following four things that we need to do......".
Holy cow, talking about having me at hello.
Specifically, here are four areas that one can benefit from pattern recognition in an investor pitch.
1. Value Proposition
Finding successful companies with analogous value propositions is compelling and enlightening for anyone considering investment. It validates both the potential market and the likelihood that the market will respond to your offering. You can have the greatest solution to a large, existing problem but people have to want it. The old adage from biotech is that is not just how many people have a condition, it is how many people will seek treatment for the condition. If people want the solution, how will you clearly communicate your product's ability to meet that desire/need. The success of previous value propositions within your target market is just a plain, old good thing to know....
2. Go-To-Market
Can what you're selling be profitably sold? You would be surprised how often potential new deals fail to make this argument convincingly. It isn't just about price, though price is a factor. It is about the combination of marketing, sales and price yielding a profitable company. One cannot succeed selling $25k Saas subscriptions with $150k salespeople, the numbers won't facilitate or support a growing company. You can model it any way you want but no one has done it. Here again, showing the pattern by offering an example proves the point. Bringing just a "made up spreadsheet" that you authored doesn't make the point.
3. Management
Does this team know the processes and approaches critical to success in this company? This is probably the area where most companies do link back to the previous experience of management as a basis for success in the new venture. But precision is frequently lacking in these descriptions, be precise -- "Jack's experience at Acme -- where they used the same telesales model we're intended to use -- is going to be instrumental". Tell with depth and clarity what people learned from the personal/professional experience and company observations related to the company at hand.
4. Financials
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Do you know the critical metrics for the business you're pitching? Customer acquisition costs, lifetime value, profitability, churn, etc. are all fundamental to success. Don't make them up, don't estimate them. Research them and find suitable examples. Present those examples in your pitch. Perhaps, even present some you regard as not good examples for comparison and describe why they are not good examples.
A demonstration of real command of expected key metrics and solid examples of those metrics in practice will go a long way to building belief in a model.
Clearly, there are many, many more areas in any pitch that would benefit from pattern recognition. It is my suspicion that there is a material amount of this information at the fingertips of any CEO building an investment pitch. My point would be bring this information forward as it builds credibility while it steers an audience to a point of view.
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Chris Dixon, CEO of Hunch.com and noted angel investor, is outspoken and thoughtful about investing in start ups. I appreciate his perspective. Here are some recent interviews.
He talks about mis-alignment within the VC industry, the impact of people and the need for smaller VC funds.
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For those interested in what are the pluses and minuses of working as a Venture Capitalist, Mark Suster, of GRP Partners has written a spot on blog post about it. Mark's blog, "Both Sides of the Table", is a great regular read. What it is like to be a VC
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If you read about the decision making process by
investors, including angel investors and venture capitalists, you’ll likely
encounter the term "pattern recognition". Pattern recognition describes an
investor's tendency to attempt to match the existing business proposition
to previous experiences. This match
ideally will be to previous
successful investments and companies.
But it might also be a match
to unsuccessful ones. Investors employ
pattern recognition because it enables faster processing of
the multiple
opportunities that need evaluation every week.
One of my favorite techniques in applying pattern recognition is
The difference
between new entrepreneurs and experienced
ones can be the latter's desire to
start companies with natural lift. That
natural lift makes them easy
to raise money for by the way. Natural lift enables customers to
be acquired more cheaply and employees recruited more
easily. Momentum is created in
conjunction with and facilitated by, the
external environment.
The alternative to a company with natural lift is when
the success of the investment is a
complete, endless slog. Where growth and success be fought for and
won on an inch by inch
basis. No wind at your back ever. And while
investors won't
necessarily gravitate to a slog, there are many that will sign on to the
right one. There are just less investors
that will back an endless slog than will back a company with natural lift. And, no one
can handle many
companies on the slog path as they are time consuming by nature.
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Our local Business Journal has announced its Inaugural Venture Capital Awards for 2010. Great companies, investors and deals nominated herein. I am fortunate to be nominated in the "Friend of the Entrepreneur" category along Jonathan Aberman of Amplifier Ventures and John Backus of New Atlantic Ventures. Oh well, it is no shame to be Susan Lucci, right? More on Susan
Really nice to see the WBJ, along with sponsors Argy, Wiltse and Robinson, Cooley Godward and Nasdaq, taking the time to recognize folks in this manner.
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We recently collaborated with Washington Post reporter, Tom Heath, on an article that offered an insider's view to a VC pitch by an entrepreneur and the ensuing discussion following the entrepreneur's departure. Nathan Wieler of Original Projects was the entrepreneur and did a great job. It was a pleasure to work with Tom Heath. Tom shouldered the burden of a lot of content in a very limited amount of words.
Here is a link to the article.
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I have made them all pitching to VC's so this is a trip down memory lane. To save you some expensive lessons, here's some thoughts.
1. Don't look at website or existing portfolio prior to the pitch
One doesn't need be an expert on our history, track record or portfolio but a little knowledge can go a long way. Just a little awareness on our companies, professional background, and current boards, can drive efficiency for the person pitching an idea. If I've had three companies in Internet Advertising, for example, you can probably skip explaining simple concepts related to it. If one lacks that awareness, it wastes time AND undermines credibility. Plus, you look someone who doesn't do what it takes to succeed because, in this instance, you haven't.....
2. Ask us to sign an N.D.A.
Venture Capitalists don't typically sign non-disclosure agreements. Really, we don't. Best not to ask. Why? We simple cannot sign them as a practical matter. With 3 to 6 new companies a week, we would be unable to look at anything within a month or two.
3. Be late to the meeting
When I've allotted an hour and you're 45 minutes late, it better be a short pitch. Yes, traffic is bad. Sometimes really bad. I feel the negative karma doubles every minute after 10 minutes late. Traffic, your meeting with our wind bag competitor and even your poor planning will give you a pass on being a little late. Don't be a lot late.
4. Try to close it early like a product sale
We're investing into rather than buying your company. The semantics may be confusing but can be distinguished between investing in your future or potential versus buying your present. Additionally, we are not going to be "hustled", "closed" or "convinced" by talk versus diligence and data. Our fiduciary duty of care as well as our considerable need to be thorough simply dictate a process. And it isn't a sales process.
5. Present terms
We know you think well of yourself. And we usually know that you would prefer a higher price than the one we may offer you. Somethings go without saying. Terms are one of them.
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Maybe your capital needs are expanding beyond the ability of your existing capital sources. Or maybe you see a special opportunity that can only be pursued with an influx of cash. Maybe you're ready to take your business to the next level. No matter the circumstances that have brought you to this post, you're wondering -- Am I ready to do a financing?
The decision to pursue a financing for your small business brings on a process which at times can be daunting, exhausting, tumultous and potentially -- uplifting. The process itself can seem a little unnatural and it always prompts questions. So if you're expecting some financing, here's some questions about what you can expect....:
What are the steps in the process?
Step one: Conceptualize your pitch and refine your investment thesis. Step two: Carefully research potential partners and approach them via introduction by a third party. (Hint:The third party must be known and trusted by the target investor partner. ) Step three: Close the deal by generating multiple interested parties and negotiating the best combination of terms AND partner.
My friends who have had a financing warn me about S.C.D.C fatigue; what is this?
Yes, of course, Same Circus Different Clowns fatigue is quite common during the financing process. This syndrome arises when you pitch many different investment groups with the similar investment thesis in quick succession. The investment groups begin to blend together in your mind. They may, and often do, raise many of the same issues related to your financing. Each potential partner will also likely offer a unique piece of advice that is contradictary to what the others raised. And while it might be easy to zero in on the unique, contradicatory advice --This is the curse of SCDC fatigue. It is better to act on the common advice that you're hearing through this process. While the fatigue will fade, the experience will remain with you for a long time.
I feel so warm most of the time, and I sweat a lot. Is this normal?
The sale of part of your business and the involvement of outsiders is sure to prompt some uneasiness. It is normal to be uncomfortable. It may pass with time. However, with the wrong investor partners or barely passable results, it may not.
How will this affect my business?
Well, while youre' expecting a financing you'll lose some focus on your core business tasks and revenue slippage is common. Soon after you start the financing process, your business problems will become larger or more numerous, but this is a natural result as your focus is distracted away from daily business operations and becomes fixated on the financing. Amongst previously funded CEO's this is jokingly referred to as the "problem fairy". Not to worry, however, as your problems will go back to normal after the financing.
Are there any other physical changes?
Some CEO's who raise funds experience "Balance Sheet Hearing Loss" which is an inability to hear your investors' concerns when the balance sheet is flush with cash after the funding. This will likely be only temporary as cash will reasonably drop over time and then your hearing returns. Many report that a bad quarter or two restores full hearing almost immediately. Your CFO will not likely suffer from Balance Sheet Hearing Loss and should be relied upon to help you here. Remember you guys are a team.
I have heard that you can lose a deal after signing a term sheet, is that likely?
Unfortunately you can lose a deal at any point in the process and many firms will sign a term sheet with you when they haven't completed appreciable diligence. You need to stay focused and keep driving your company and deal forward. It can be compared to landing a jet on an aircraft carrier -- don't let off the throttle until after the tailhook has caught the cable. No deal is done until its done.
I am worried that my new investor directors will want to meddle in my business after the financing, how do I keep them from undermining me?
Well, like so many other things, this is about communication and boundaries. Be sure to communicate a lot and be clear about what assistance you would welcome on a regular basis. Best to be understanding of first time investors or those with few other investments, as they'll be hyper-focused on your progress and seek as much involvement as possible.
My friends who've financed have told me about post deal depression? I think the acronym was P.P.D?
Yes, Partcipating Preferred Depression isn't uncommon after the close of a financing deal. Because Participating Preferred stock is common in most small company financing deals, this condition is also fairly common after a financing.
Participating Preferred stock means that investors receive their investment back prior to any other proceed distribution and then -- additonally -- the investors participate in the distribution of remaining proceeds at their ownership level (i.e. 20%) . You may struggle with a perceived inequity here or wonder if you'll get your fair share of a company sale. Talk to your lawyer along the way and especially if you're struggling with P.P.D., as he or she will remind you of supporting market conditions and the necessity of honoring signed agreements.
Will things ever be the same afterwards?
No.
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Conservative. Conservative like an American Flag tattoo? Or another kind of conservative? That's what one wonders when they hear forecasts described as conservative which are based upon multiple assumptions including many outside the speaker's control.
The critical C word in a Venture Capital pitch is credibility. Any other words that serve or might undermine credibility are to be avoided strenuously. And almost no word so powerfully undermines credibility like conservative.
No forecast should ever be described proactively as conservative. After the fact, if you want to call it that you could -- but even then -- why would you? Much better to say, "yeah, it was a tall hill to climb, but we really made it happen, this is a strong group." Doesn't that sound better than "it was conservative, don't go thinking we are a great team or anything, we just set low goals".
So how should one cultivate investment interest while building credibility? Speak to a range of outcomes. Talk about what will drive revenue, the associated risks, critical tasks, special skills and execution oriented focus that will allow your team to achieve various revenue outcomes. Given the venue, one might speak to these possibilities, use of funds and how invested capital will be used to drive revenue. For every 20 times, I've heard someone say conservative in a pitch -- I've heard Return on Investment once. Venture Capitalists are an ROI crowd.
You're talking to a room that is determining your credibility and skills at using capital to drive progress. And by progress, we mean revenue. Don't kill belief in both your credibility and skills by unnecessarily characterizing something as conservative.
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When I first raised venture capital in 1990, the world was a different place but one very similar to today. Our company was a software business, we were growing, losing money, and achieving trailing twelve month revenue of $1.5M. Our burn rate, as I recall it, varied between $25k and $75k monthly. We ended up receiving $1M of vc money at 1x trailing twelve month revenue valuation and we were pleased to get the money we needed to grow the business. So, we sold 40% of the company and with a 1x liquidation preference (meaning the VC's would get their money out first) -- we gave up a lot. And our VC's were well positioned to make money on almost any positive outcome. Which they did.
This thought is prompted by an excellent article by Matt Asay on cnet.com. Matt's article talks about the big changes needed in the VC industry -- back to smaller funds making smaller investments in earlier stage companies. Matt's Article
At Grotech Ventures, we couldn't agree more with this line of thinking. For me personally, this shift to a smaller fund doing earlier investments prompted a move to Grotech two years ago this month. Grotech Ventures made this shift in recognition of opportunity , which was for Grotech, a shift back to its future.
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"There is nothing more powerful than an idea whose time has come."
-- Victor Hugo
I have wondered about the Hugo quote above from both sides. Is there anything less powerful than an idea whose time hasn't arrived?
As an investor, it can feel that way when you're backing a company that you believe to the core of your being is right about the opportunity/market/product but whose progression is slow. For the entrepreneur, this can all be about the power of perseverance. Which isn't to say that the entrepreneur's persistence is less admirable for its necessity. It can be tough to hang in there as long as it can sometime to take to realize one's moment in the sun.
This highlights an investor internal dialogue that the adept entrepreneur should seek to engage within investment discussion. The investor is pondering both whether something is a good idea AND whether this is the right time for this good idea. Many an entrepreneur can leave a meeting with the correct conviction that the investor believes in their idea but remain confused as why the investor fails to act.
That reluctance to act is often related to doubts about timing. In my case, I recall my entrepreneurial decision to create a site called myroom.com in 1997 aimed at teenagers. The site allowed users to create private webpages online and was equipped with a variety of tools including music and page creation wizards. The thought was this young audience would enjoy the social aspect of their own private space online that intersected with other private spaces. The userbase, though small, loved it. I thought then and now, that it was a good idea. It might have been early. It was certainly beyond the patience and associated financial support of my backers.
So, if you're going to make a case for something being right with investors, you would be served to make your case include support for why it is also "right now".
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We recently encountered the phenomena in popular culture of "Too Big to Fail". Start ups can often appear to be - Too Big to Succeed -- when the management team size exceeds the need (and budget) at hand.
Now, let's consider that there are two primary jobs or missions within any start up. They are build/create product and to market/sell product. In truth these two can frequently be summarized as "Sell product". Any person who cannot completely and totally relate their job and everything in it to the two primary missions should change what they're doing so that it is matched to the missions. Otherwise it is time to leave the start up and go to a larger company where more esoteric contributions are valued and rewarded.
We typically see the assembled management team in venture capital pitch. Just as there aren't jobs in a start up unrelated to the product and its sales, there aren't non-speaking roles for company executives at VC pitches. If an executive doesn't contribute in one of these meetings to the discussion, they shouldn't be in the room. It isn't much a spectator sport nor was it designed to be one. It also doesn't convey good prioritization for an organization whose only real asset is the time and effort of its team. Silent Sam or Sara raises more questions in our minds about the team and its focus as well as its efficiency. Questions mean doubts. Doubts mean no deal.
So here's the point, start ups will often bring a full compliment of management team members to a meeting to impress us with breadth and depth. The intention is to strengthen their case but in the process they do the opposite by opening the door to suspicion that they may be too big to succeed -- or at least capital inefficient by using our investment to pay an over sized management team.
Plus, it can create an odd moment in time (read loss of credibility) when the start up CEO says "we are going to be lean and mean as we grow this" when that same CEO is accompanied to the meeting by 5 vice presidents. All for a company with an incomplete product and no sales. When does lean and mean start? Do we really think the addition of millions of investment capital will cause a company to become "leaner and meaner" than it was before the money? Capital comes from investors, capital efficiency comes from management.
When these 5 VP's don't all relate to the primary mission or speak in a pitch meeting or otherwise appear to contribute anything obvious - these team members look like a liability and cash drain for any invested capital. The team looks riskier for its size and less likely to be capital efficient. It looks Too Big to Succeed.
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Here they are:
1. We see a lot of ideas, all the time, week in and week out. Most say, if you make an investment in our company, we'll really be able to make progress on all fronts. Some say, we haven't had much money to date, but look at what we have been able to achieve with little money in a small amount of time. People that can make progress without money tend to be the ones who make the most progress when they have money.
2. Our scope and interests are limited. We focus our plans on stage of investment, types of technology and specific geography. We win by staying close to our plans. We won't make an exception for you because any off plan successes are considered luck. Any off plan failures make us look stupid.
3. Market timing can be the most important factor in success. More important than management or product. Again, not all the time is this true. But, if you're late, we are likely to consider it game over.
4. We're in a hurry to produce returns but not necessarily in a hurry to invest as we need to be careful. Careful in a number of ways including your idea, team and timing. Your need for the money right now isn't often a factor in our investment process. Repeating that you need the money now frequently, doesn't change that.
5. Sometimes, you may need to consider that your storyline needs to change. What you focus on in the pitch is important to proper interpretation. Commonly, people emphasize the product over the market and the team over the business. We are investing in the business that will be derived from a market.
The Fox Business Network has a Saturday show called "Your Questions, Your Money" that answers questions related to small business, start ups and raising money. I have been on the show a couple of times and will be posting a few clips on the blog. I have been so impressed with the show and the dedication of the team there. And it has certainly been enjoyable to participate in the production. I am grateful for the opportunity.
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The talented Ellen Mundell of Deloitte has put together this sure to be interesting event.
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Venture Capital Overview – 7/1/2009
Featuring A Panel of Local VCs who are actively investing Wednesday, July 1, 2009 John Backus - Founder & Managing Partner, New Atlantic Ventures Scott Frederick – General Partner, Valhalla Partners Steve Fredrick – General Partner, Grotech Ventures Sever Totia – Principal, Edison Ventures
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If you want to find a match, it is best to understand what you're matching.
All Venture Capitalists can be differentiated on 3 axis; the stage they invest in, the geography they focus upon and their technology opportunity areas. If you're a CEO seeking money and you don't match up with these, you're really wasting your time.
At Grotech Ventures, we describe ourselves as early stage investors in high potential technology companies. Our geographic focus, which is a reflection of our personal networks over the last 25 years in the IT business, includes the Mid Atlantic, Southeast and Mountain West. So if you're outside these areas, because of stage, technology or location, we are not likely to be a good investor to approach with an your idea. Sure, there might be an exception but those exceptions are never going to be the rule.
So, the investment stage of the investor is the right starting point. Seed investors won't wa
nt to look at your Series B round, for example, and if you're pitching a Series B -- you really don't have time to waste as you're already running an operating business. As a practical matter, investors will do seed/early, Series A and B rounds, later stage (Series C+) or expansion capital so I don't want to split hairs and advise only approaching those with very specific focus. But one gets the idea, investors don't like leave their comfort zone or neighborhood.
What is the VC's neighborhood? Investment historical data is that 80% of all Venture Capital is invested within 200 miles of the VC's office. It is by and large a regional business. Yes, there are VC's that invest nationally and internationally. But, the bottom line is that VC's want to be close to their investments literally and figuratively. While I don't have data to support it, I would speculate that the earlier stage investors want to be even closer than the 200 mile average.
At Grotech, we talk about staying close to the technology areas and markets we understand and are capable of delivering the best value to our entrepreneurs. And while that varies, to some degree, by individual, we know what we don't know. If you're the latest thing in alternative energy, take it to someone who will "get" your idea and admire your insight. I wrote in an earlier blog about the best way to get a VC firm attention. The jist of which was; the current CEO's are an important conduit and filter. Those current CEO's are also a clear analog about the comfortable technology areas of the VC.
The start up CEO needs one yes answer to the funding quest. The fast way to achieve it is to narrow the search at the beginning by matching the idea, stage and geography to the right candidates.
This article has been updated from the original post with the supporting video from Fox Business Channel.
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Image by 500CPM via Flickr
It appears that Larry Cheng of Fidelity Ventures has built the end all, be all listing of VC Blogs. Larry was previously with Battery Ventures and Bessemer so he knows his way around the industry. If you have interest in a very functional VC list, where you can spend some time in order to gain the perspective of various VC's, this is your list. I think Larry has done entrepreneurs a favor by building this list because as I have written previously, this is a match making effort for VC's and entrepreneurs. If you're looking for money, invest some time on these blogs to find the VC(s) likely to be interested in your opportunity. Avoid the most common mistake of pitching VC's, which is pitching to ones that will never have an interest in your business.
Here is a link to Larry.
And here is the list of VC blogs ranked by their number of Google Reader subscribers.
Global VC Blog Listing
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