VC approach and process (finance)
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Begging and Choosing a VC
April 4, 2009 Fred Wilson talked the other day about the importance of choosing a group of venture capitalists who like working together . It reminded me of how much I like our investors: Paul Goodrich from Madrona Capital, Marc Singer from BEV, Emily Melton from DFJ and Steve Hall from Vulcan. When I first got involved in raising money for my last employer, Plumtree, I looked at a venture capitalist the way Wiley E.
Comparing the demo with teenage sex, and the VC relationship with marriage...so how would he characterize an IPO? ;) by Sep 28
In the past I’ve written on the topic of “ Raising Venture Capital ” but today I’m starting a new series called “ Understanding VC’s .” My goal is writing this series of to make it easier for you as a startup needing to raise money to understand how venture capital firms work so you can be more efficient and more effective in your process. In today’s post I want to talk about the concept of a VC flightpath. This is my description of a VC process, not one I’ve heard from other VCs so don’t expect it to be accepted nomenclature. But I use this all of the time as a metaphor when talking with entrepreneurs in person and I’ve found it to be a useful way of explaining to entrepreneurs what is going in in the VC’s life.
Understanding VCs – Where Are You on the Flightpath?
VCs say a lot of stupid things. I’m guilty of it plenty and whenever someone calls me on it I try to acknowledge and change. One that I try really hard not to do is say “my company” when referring to companies I’ve invested in – I think it’s one of the most annoying things a VC can say. I was talking to a VC the other day about a few companies he had invested in.
It’'s NOT the VC's company, never forget
Their weaknesses may vary , but there's typically a common characteristic not-great venture capitalists share: arrogance. Early in my entrepreneurial career, I didn't really know what to make of venture capitalists. All I heard was that they were scary people who wanted to take over your company and screw over entrepreneurs.
Spot the good from the bad VC
A fair view of how the relationship between VC and entrepreneur should be by Apr 24
Overview of process
I get lots of questions about the VC funding process, how to be successful, why it takes so long, what to expect, etc. Rick Segal of JL Albright Ventures writes The Post Money Value blog and had an excellent post Inside the Process describing how it works at JLA. I was going to write a post on this but Rick did such a good job that I have little to add. The first meeting is critical. I wrote " How to handle the first VC meeting " with tips from some of the top VCs on what they expect at the first meeting."saving the demo for the end" for the first meeting? Isn't the product at the core of everything? by Sep 28
Short overview of overall process by Mar 1
Detailed process
Starting the day at 4a on a Sunday, having to roll out of a toasty warm bed into the Canadian winter, is not something I’m all that excited about. Unfortunately, duty calls with this, the beginning of a busy week of meetings, travel, and checking out some new companies. Over the past several weeks, I’ve been packing in the meetings with new companies.Details from the previous pearl. You can skip it if you don't want to know the details by Apr 24
A good rule of thumb is to have a financial plan with 18+ months of runway after you raise a round. That is long enough that you can avoid worrying about raising money for a year while you just focus on running the business. Any shorter and you’ll find you are back in the market looking for more money after 6 months and are facing a “flat round” in terms of valuation because you really haven’t had time to achieve much. Note, in some industries (mobile is a good example) you want to have 24+ months of runway (because carrier deals take so long). However if you raise more then 24 months of money in an industry where things move fast and don’t cost much, then you’re likely just going to watch interest accrue at the stunning rate of 2% in your bank account while kicking yourself in the butt for “giving away” equity at such a low valuation.
How much to raise?
Ah yes and it's a type of convertible by Sep 29
PED when you have diificulties raising a full round or timing is not good, your current VC's will do a "bridge loan" to give you a few months cash. Usually the valuation of this bridge loan is set on the valuation of the next round... and often founders get washed out in the process by Sep 29
Unsure about what a bridge loan is (obligation convertible?) by Sep 28
Social web funding "curve"
NOTE: I mislabeled the x-axis in the orginal charts in this post as "months since formation". They should have been labeled "quaters since formation". Thanks to Brandon Watson for pointing out the error.
To achieve what ?
If you’ve decided that your startup is going to need venture funding to succeed you NEED to determine your valuation creation milestones and create a time-line on how you will hit them. Entrepreneurs (and MBA students who visit with me) are constantly asking how venture firms value startups. Entrepreneurs care because this impacts their dilution during a fund raise (MBAs care because… well, likely because they are nerds for that kind of stuff.) The truth is that venture valuations are not the hard and fast science that business school professors suggest. Valuations of pre-revenue/early stage companies are not easily determined by typical valuation frameworks.Think through what you can achive with that money and iterate back to the amount if the answer is not satisfactory by Mar 18
Models help surface tradeoffs
You need a financial model when you pitch VCs, now more than ever. Like it or not, venture capitalists’ risk tolerances have at least been slightly negatively affected by the horrific market conditions. While solid venture firms continue to make investments in startups (as proof, here is one of my European partner’s blog posts about Atlas’ recent investment in Inspiration Stores ), everyone is subconsciously affected by the capital markets turbulence. In other words, venture capitalists want and need to make investments in promising technology companies… but when the market keeps falling by 300+ points day after day even the most risk loving investors can have dangerous conservative thoughts.You need to fit in VC strategy
As the venture business has grown and matured, many firms have developed specific areas of focus. Our firm, Union Square Ventures , for example only invests in web services. I believe this is a good thing for both the investors in venture funds, called LPs, and the entrepreneurs.By Garage Technology Ventures Download PDF version By now, you’ve probably already read several articles, web pages—even books—about writing the perfect executive summary. Most of them offer a wealth of well-intended suggestions about all the stuff you need to include in the executive summary. They provide a helpful list of the forty-two critical items you should cover, and then they tell you to be concise. Most guides to writing an executive summary miss the key point: The job of the executive summary is to sell, not to describe.
Sell, Sell, Sell !!! Exec summary to start
Summary: An introduction captures an investor’s attention, but a great elevator pitch gets a meeting. The major components of the pitch are traction, product, and team. Yo! This post is out-of-date. For the latest on elevator pitches, investor presentations, and more, check out our e-book on Pitching . If you’re building an interesting company, people will offer to introduce you to investors—it makes them look good.
Elevator Pitch
Summary: An introduction and elevator pitch are critical to getting a meeting. You can also provide a “ten-slide” deck that tells a compelling story about your team, product, traction, and plans. Bonjour!
What should I send investors? Part 2: Deck - Venture Hacks
VCs and exec summaries - a VC view
I was invited to speak tonight at the MIT 100K Web/IT track mixer but, unfortunately, I’m sick (which wouldn’t have necessarily prevented me from going) and have lost my voice (which would have made going to the event pointless). So, in exchange, here are some thoughts on the topic we were going to discuss at the event–the dreaded executive summary. I invite the 100Kers to comment liberally and we’ll get a discussion going. Plenty has been written on how to write good exec summaries. The best article I’ve found is the one that Garage Ventures did.Another view on exec summaries by Mar 18
A CFO recipee on exec summary
And another one in a powerpoint format (vs. word for the others) by Mar 18
And some others
Interesting but tends to treat the VC as the "king" in this process. Whereas it's a 2-way street. by Mar 18
Careful with VC seed programs
Actually I don't see any value-add to this programs. An entrepreneur can get seed money from other sources and by doing so keep options opened. by Nov 3
Super Angel collusion
Angel collusion
Another selection
Obviously less pratical than in a pearltree... by Nov 10
4 topics coverred: 1) an overview of the overall process, 2) the key question - how much money to raise for what ?, 3) pitch documents and 4) some practical tips by wallen Mar 18