How to raise money without lying to investors. Nivi · January 21st, 2010 Thanks to FastIgnite, a startup advisory firm, for sponsoring Venture Hacks this month.
This post is by Simeon Simeonov, the firm’s founder and CEO (and formerly a partner at Polaris Ventures). If you like it, check out Sim’s blog and tweets @simeons. – Nivi “Prediction is very difficult, especially if it’s about the future.” Niels Bohr, Nobel Prize winner By penalizing entrepreneurs who are humble and honest about how their companies will grow, many investors cause entrepreneurs to over-promise (and later under-deliver) when they’re raising money.
The histories of some of the best-known technology companies demonstrate the power of luck, timing, the mistakes of incumbents, and solid execution. Execution is the main tool under a startup’s control but it’s often under-valued by investors. VCs and entrepreneurs collaborate to lie about the future Instead of bringing entrepreneurs back down to earth, some investors push them further into orbit. And for good reason. Startups & VCs: Learn How to Design, Market, & Eat Your Own Consumer Internet Dogfood. Haven't really gotten on a rant in awhile... guess i've been doing a lot of travel lately, but now that i'm back in California for awhile, there's something i've been meaning to bring up that bothers me.
It's kind of a dirty little secret of the startup industry, but there are very few good product, design, and marketing people in tech. And hardly any of them that are good seem to make it into the venture capital profession. (case in point: how come there are no graphic designer VCs?) Now i say this knowing full well that i'm certainly not a genius on any of the items above. Anyone who has ever read my blog knows what a god-awful mess of turd droppings it is visually, and my font selection and layout are so bad that only a mother could love my pictures & posts.
None of this means anything more than perhaps i'm competent in a few operational areas related to consumer internet startups, or at the very least hopefully i'm aware of & acknowledge my limitations. Let me say that again. New investments. The Top 100 Networked Venture Capitalists. Do venture investors with the biggest and best networks end up producing the best returns?
An academic paper from a few years ago by Yael Hochberg, Alexander Ljungqvist, and Yang Lu titled “Whom You Know Matters: Venture Capital Networks and Investment Performance” (embedded at the bottom of this post) suggests that is the case. They looked at historic venture returns and found that “better-networked VC firms experience significantly better fund performance,” as measured by how many of the companies in their portfolios exited via an IPO or acquisition. A venture firm’s network in the study was defined as being made up of all the other venture firms who co-invested with it in funding rounds.
The more co-investors a venture firm has, the better its network. The better its network, the better its overall returns. If this is true, then who are the most connected venture firms and angel investors today? So which venture investors have the best networks? 1. (Image: Flickr/Steve Jurveston) From First Timer to Funded. Raising money if you're an entrepreneur is tough at the best of times, but if you're a first time entrepreneur its incredibly difficult because the reassurance investors look for more than anything else when they look to fund is validation.
There were lots of interesting conversational threads at dinner last night with Fred Wilson and 15 first-timers from the TAG and Seedcamp networks but this theme of building validation and how important it is for entrepreneurs really stuck with me. Validation comes in many forms: previous successes, persuading a killer person to join your team or even be an advisor, signing a paying customer, acquiring lots of users, getting positive press or blog reviews. The list goes on. But without some form of validation, however good your idea might sound - if you have no track-record its just so hard to get off the ground. First timers have no start-up track record - they have to build one.
This is powerful stuff. Today's startup has access to: Venture Hacks — Advice and introductions for entrepreneurs.