Ask The VC

How To Cold Call A VC

brad@feld.com — Sat, 20 Jun 2009 10:55:58 -0700

Mark Suster of GRP Partners in LA continues to crank out great posts, including today’s titled Getting Access to the Old Boys’ Club (how to approach a VC).

I like investing in LA (we’ve got three investments there – Oblong, Topspin, and Memeo) and I’ve got a long term evil plan for the city. In the mean time, I’m going to be speaking at Twiistup 6 in LA on July 30 in case you are interested in coming and hanging out with a bunch of startups in the LA scene.

Betting on A Big Wave

brad@feld.com — Tue, 16 Jun 2009 08:54:48 -0700

Mark Suster of GRP Partners is blogging like a fiend and has the best VC post of the day titled Sorry Guys – It’s the Size of the Wave, Not the Motion of the Ocean. Entrepreneurs – wander over and take a look. Plus, he’s got some title alliteration.

When Failure Is An Option

brad@feld.com — Sun, 07 Jun 2009 22:56:09 -0700

Today’s great post is from David Cowan of Bessemer Venture Partners and is titled Israeli Venture Keynote: When Failure Is An Option. Embedded is his keynote presentation from last week at the Israeli Venture Association Annual Conference. While David focused on lessons for venture capital in Israel, they apply broadly to venture capital anywhere in the world, including the United States.

Key Characteristics of a Great Startup Culture

brad@feld.com — Sat, 30 May 2009 20:06:16 -0700

Today’s great VC post is by Greg Gottesman (a managing director at Madrona Venture Group) and is titled Thirteen key characteristics of a great startup culture. It shows up in John Cook’s column in TechFlash – the article is solid and the comments (all 66 of them at this point) are priceless. I’m baffled by the super-negative anonymous commenters as they add absolutely nothing to the conversation. If you are going to be critical (which is fine – and often helpful in sharpening up the ideas), be bold and comment with your real identity!

Start-up Cost Projections For First Time Entrepreneurs

brad@feld.com — Mon, 25 May 2009 19:12:24 -0700

Q: At a pub in Los Gatos, CA a casual conversation with some young, first time entrepreneurs lead to an interesting comment:
"...the business plan outlines our estimated (operational) expenses but how do I know an investor is not going to look at these numbers and say...'are you f'ing kidding me' and right then and there we can loose this guy (his interest)..."How can an entrepreneur build these projections most accurately and in a way that will maintain credibility with potential investors? What could be defined as the "best practice" for entrepreneurs dealing with this subject?

A: (Brad) As I’ve said in the past, I’ve never met a financial plan for an early stage company where the revenue side was correct. However, I’ve met plenty where the cost side was correct (or – at least – appropriate). The key here is simple – you want to have a cost structure that makes sense, covers all the bases, but doesn’t assume a big revenue ramp to be supportable.

If you are in the very early stages (e.g. a few people and an idea), recognize that your investor is likely going to be funding you for about 12 months to see how things play out. The biggest mistake first time entrepreneurs make is that they fall prey to the idea that they need to put together a five year P&L forecast and cash flow projection. I can guarantee – with 100% certainty – that this model will be wrong. As an investor, I don’t really care about this; rather I want to see how you are thinking about getting to “the next stage” of your business. You get to define the next stage, what it’ll cost you to get there, and what things will look like when you get there.

If you are a first time entrepreneur, go find an experienced entrepreneur to act as a mentor. She can be a first line of feedback your cost model and likely will know a few “financial people” that can help you put together a simple, yet credible model. In addition, when you spend time with potential investors, don’t try to bluff. Tell them it’s your first time building a model like this and that – while you had help – you know you lack experience and are looking for feedback. Try to engage the investor in the process. Listen the potential investors feedback and iterate on your model.

Simple message – don’t be afraid to ask for help.

Communications Advice for Pitching Venture Capitalists

jason@foundrygroup.com — Tue, 12 May 2009 16:09:08 -0700

Today's post is from Matt Eventoff - a communications consultant who has good tips for entrepreneurs who are pitching VCs.

I reinforce that having a clear message is really important. If you get off on the wrong foot in a presentation and can't clearly definite your value proposition, you risk losing the interest of the VC and never getting it back.

2009 New York Venture Summit

brad@feld.com — Sun, 03 May 2009 14:25:56 -0700

The 2009 New York Venture Summit is happening on June 17th at Digital Sandbox in New York City. The summit will feature 50 early stage and emerging growth companies as presenters, interactive panel discussions and lots of networking. The agenda looks strong as does the speaker list. The cost for investors or entrepreneurs is only $395 if you register online now.

Participate in the 2009 Startup Executive Compensation Survey

brad@feld.com — Tue, 28 Apr 2009 23:41:46 -0700

Furqan Nazeeri put up a post titled 2009 Startup Executive Compensation Survey Opens. It in he points to a compensation study produced by J. Robert Scott, Ernst & Young, and WilmerHale in collaboration with Dr. Noam Wasserman, Professor at the Harvard Business School. CompStudy covers more than 25,000 executives at 5,000 companies and is the largest study of its kind.

If you are a CEO or CFO of a startup in the US, China, India, Israel, or the UK in the technology or life science industry, consider taking the survey. The 2008 results are up on Furqan’s site.

How To Get A Job In Venture Capital

jason@foundrygroup.com — Tue, 14 Apr 2009 10:10:45 -0700

I (Jason) get asked often how I got into venture capital and how interested folks may get involved as well.

I always tell them that I "fell" into the job, as most folks that I know who are VCs and that everyone has a different and unique story.

I then point them to my partner Seth's blog post on the subject which I think is the best written authority on the subject.

Today, however, I received a paper that one of my students, Judd Rogers, wrote on the subject. He takes Seth's thoughts and puts a little bit of analytical muscle behind the subject. It's an interesting read for those wanting to know potential career paths toward VC.

Does The Concept of Addressable Market Matter?

brad@feld.com — Tue, 07 Apr 2009 07:36:19 -0700

Q: Can you please address the issue of estimating Addressable Market when the product or service is trying to solve an emerging problem and opportunity that is about to hit in the near future. For example, FeedBurner raised money long before bloggers were convinced that feed management could use some professional help and long before VCs saw that an advertising and paid model would emerge at some point. In other words, Dick Costello was not taking out an incumbent or providing a better solution than the market offered for a given problem. He raised capital on the belief that a market was about to emerge and FeedBurner wanted to be the first to address it. In this scenario how does one estimate addressable market (other than assumptions and forecasts) or in such cases can you be light on addressable market numbers.

A: (Brad) There are two schools of thought on this one: (1) measuring addressable market (or "TAM" - "total addressable market") matters or (2) measuring TAM doesn't matter at all.

I'm in the "measuring TAM doesn't matter at all" camp, especially in an early stage company in an emerging market. Almost every presentation I've seen has a market size section. Almost every market sizing presentation is incorrect - by a lot. Enough to make it irrelevant.

Most of the companies I invest in are in markets that are early in their life. I can assure you that if you are in year two of an emerging market, there is a slide somewhere at Gartner or Forrester projecting a $1.5 billion market in year 7 that compounds 75% year over year after that indefinitely (or at least until the X-axis runs out of room). Whatever.

Now, there’s definitely value in trying to articulate how the market you are playing in will develop. I’m usually more interested in understanding “proxy markets” (are there markets out there that are good proxies for what you are going after?) and “market drivers” (what has to happen for the market to grow big, and quickly?) While you can wrestle this information into a spreadsheet or a bottoms up powerpoint slide with a pretty triangle in it somewhere, anytime I see any number with two decimal points of precision, you’ll probably lose credibility with me.

Remember, at the beginning I mentioned that there are two schools of thought and I land firmly in one of them. There are plenty of VCs in the other (e.g. measuring TAM matters). This just reinforces a point we’ve made many times on this blog - make sure you know who your audience is and what they care about.

Do VC's Guess The Exit At The Beginning?

brad@feld.com — Sun, 05 Apr 2009 22:52:22 -0700

Question: You often hear to leave out the possible exit scenario when you pitch. Brad states that its because its usually wrong. I suspect most VC's discuss likely exits with their partners before making an investment, what percent of the time do you guys generally "guess" the exit on the front side of the investment?

A: (Brad): I'm going to answer this from an early stage VC perspective. I've never been a later stage VC nor have I been a buyout guy, so I won't try to answer for people doing those types of investments.

Back in prehistoric times when there was a tech IPO market, early stage VC's used to want entrepreneurs to answer the question "Is your companies destined to exit via M&A or an IPO." I've always thought this was a stupid question, as the answer is "I'll take either one!" As homo sapiens evolved, the argument about M&A or IPO raged on fiercely. Pre-Internet bubble, many VC firms (including mine) would often do extensive exit analyses upon each investment round, building complex models stacked on top of detailed assumptions about the future performance of the company, the future multiples in the market, and a range of execution of the company from "flawless" to "pretty good." These analyses usually had an IRR result and a cash on cash return result for each potential outcome.

Almost all of these analyses are total baloney. I suppose they give some people comfort that they basing their investment decision on sound economic analysis, but since there are so many variables that are outside anyone's control, they tend to be meaningless. In addition, almost all of these analyses (at least the ones I've been exposed to, including many from other VC firms), have incredible bias in their assumptions which help support either (a) an affirmative decision to make the investment or (b) a justification for a particular valuation range.

In 2001, the IPO vs. M&A debate cooled for a while when the IPO market vaporized. It emerged again briefly in 2004 and 2005 with a new wave of IPOs, but almost anyone that had an exit in the 2004 - 2007 time frame preferred cash from an M&A transaction to IPO stock (with a few notable exceptions, such as Google.)

VCs fantasize about the day a vibrant small and mid-cap tech IPO market will once again exist. Let's hope this fantasy becomes a reality. In the mean time, I expect more and more people - especially if they've read Nicholas Taleb's Fooled By Randomness and The Black Swan - will realize that making early stage VC investment decisions based on complex forecasting exercises is - well - foolish.

What Advice Would You Give Mompreneurs?

brad@feld.com — Wed, 25 Mar 2009 23:07:06 -0700

This is a guest post by Lucy Sanders, the CEO of the National Center for Women & Information Technology.

Q: When evaluating a start-up by a mompreneur (or to go broader female first-timer) what do you typically see as the weakest link (in supporting roles, research, presentation, concept etc). With respect to this, if you could give mompreneurs or female first-timers advice on building their support system or fine-tuning their concept before asking for funding, what would it be?

A: (Lucy) In the course of my work at NCWIT and as a technology enthusiast, I speak to many people who have started and/or funded technology companies. The advice they offer would-be entrepreneurs is pretty consistent, and genderless. First, is your idea compelling? Does it address a current or future market need? You must be excited about the potential and that passion needs to be conveyed confidently, not just in formal funding presentations, but in the numerous conversations you have as you build your business. So, brush up your communication skills and ask others to critique your efforts. Your first pitch for funding should definitely not be your "first" pitch - practice makes perfect. Your business case will really come together the more times you tell others about it. You should also take the time to create a one page business brief that contains company details, the market need, market projections, revenue stream, potential products, management team and potential competition. Fitting all this information on one page will force you to hone your pitch, making it far more concise and easy to understand.

Next, be prepared to work hard. I love the excitement and risk taking involved with startup organizations, but it often requires long hours. Some entrepreneurs find that they let their personal lives slide when faced with such demands. But I am convinced from many years of experience that one can successfully integrate personal pursuits with demanding career endeavors. Since you asked explicitly about "mompreneurs", I assume you are wondering specifically about balancing family and entrepreneurial pursuits. Take heart - it is possible. You can hear successful women IT entrepreneurs talk about integrating work and family by listening to the NCWIT podcast series.

One final thing you asked about is building your support system. Heidi Roizen has achieved success as an entrepreneur, a corporate executive, a corporate director and venture capitalist. In this interview she talks about how networking is a key component of launching a company, and how people can build successful networks. Her secret? "Be a friend", "Get a friend" - in that order. If you look at networking as relationship building and nurture those ties like you would the others in your life, you'll be on your way to building a strong entrepreneurial support system.

What Are VCs Good For?

brad@feld.com — Tue, 24 Mar 2009 06:33:38 -0700

Jeremiah Owyang has today’s great post up titled Beyond the Money: Some VCs Provide Startups With A Competitive Edge. The bullet point summary is:

Thought Leadership
Strategic Guidance
Being Part of The Family
Ancillary Services
Umbrella Branding
Parties… eerr um Networking
Recruiting and Fundraising

It’s a quick read but with some great thoughts in it.

Risk Tolerance is a Competitive Weapon

brad@feld.com — Sun, 22 Mar 2009 19:21:16 -0700

Today’s best post of the day is from Josh Kopelman of First Round Capital. Most of Josh’s posts are winners and Nothing to Lose (or Risk Tolerance is a Competitive Weapon) provides some great insights into the impact of risk tolerance during the 2000 downturn and how PayPal used it as a competitive weapon against eBay.

Ask the VC Live - University of Michigan

jason@foundrygroup.com — Thu, 19 Mar 2009 13:50:12 -0700

I (Jason) will be visiting the University of Michigan in a couple of weeks to speak to different campus constituencies about entrepreneurship and venture capital.

As part of that, I'm going to plant my butt in a conference room on campus for a couple of hours and talk to anyone that wants to come by and chat, pitch me, talk about venture capital, etc.

Location: Lorch Hall (Economics Building) Room 171, 611 Tappan, Ann Arbor

Time: 3pm to 5pm

Date: Friday, April 3rd, 2009

Students, professors, members of the community all invited.