How to pick your Dragon to plunder (Joke)

How to select your target VC / Investor

By Georges van Hoegaerden, the managing director of The Venture Company

For over 10 years I’ve built and managed growth for early stage innovation in Silicon Valley and more than ever do I believe that building real disruptive customer value is more important than trying to time an acquisition opportunity. You may too, unless of course you are a gambler and firmly believe that the $3 red-white-blue slot machines in Vegas consistently yield the greatest returns. I will not argue the outcome. Acquisitions remain nothing more than a welcome diversion on your way to building the largest technology empire. And even now when IPOs have dried up any focus away from building your empire is damaging. Real disruptive innovation is resistant to economic aberrations and a consistent focus on customer value remains your only rescue. I believe that IPOs for technology companies will return (and subsequently spur more pre-IPO acquisitions), albeit not with the same players. Real companies can only be built by real entrepreneurs, with real disruptive products supported by real investors. New participants (on both sides) with higher moral values will be the ones to restore trust in the technology industry and subsequently public stock markets that want a piece of it. Today, the VCs are stuck with a product of their own aristocratic making. Commoditization of investment philosophies since the 1990s has generated technologies that can best be described as sexy-cool rather than disruptive and meaningful (with a few exceptions). It paved the way for get-rich-quick entrepreneurs that are skilled in feeding the dogs the dog-food, rather than support the real entrepreneurs that have a dissenting view of the world. So, assuming you as an entrepreneur are for real, how would you recognize an investor that is not. Here are some of my anecdotal recommendations:

1/ Avoid an investor who blames his quick response on ADD Attention Deficit Disorder is an illness, not a skill. Recommend the investor to consult a doctor.

2/ Avoid an investor who does not carry (or seriously considers) an iPhone The iPhone is the biggest innovation in consumer electronics in my lifetime (so far) and if your potential investor does not understand its ramification to the technology ecosystem as a whole, it is unlikely he will get yours.

3/ Avoid an investor who cannot price your company ahead of you. Any technology investor should be able to price the value of your disruption. Ask the investor for the valuation and if he is close to your target, you can share with him your cost model and where you are today on the trajectory. Cost model and stage (the risk) are a discount to the disruptive value, the ability to build the technology is merely a commodity. In Silicon Valley technology is not the risk, but market entry with sufficient disruption is. Walk away from investors that incorrectly evaluate the risk model.

4/ Avoid an investor whose partners you can’t stand Investors in a fund make decisions collectively, they need partner consensus before they can invest - just like in politics (more on that later). A firm with a partner you don’t like should be taken off your VC prospect list, as you cannot risk the influence of the bad apple to your company’s future. Develop your personal blacklist (as we did) based on fundamental people principles.

5/ Avoid an investor who wears his education on his sleeve Wearing a Super Bowl ring means you made it in the real world, wearing an Ivy League ring does not. I wholeheartedly agree with Craig Venter that later stage education (without operating experience) in general is a deterrent to creativity and innovation or the ability to spot and spawn it. The majority of Silicon Valley investors are remnants from a bull market, echoing beliefs that are founded on skewed business principles.

6/ Avoid an investor who asks really dumb questions and is proud of it. I never thought dumb questions existed until I ran into one investor who proudly blogged about how other entrepreneurs simply walked away from him, making his life easier. We walked away from him too.

7/ Avoid an investor who thinks he knows your industry better. Even in the unlikely scenario he does, you should still walk away. Investors that know industries better than the entrepreneur should have become one. So either the investor is better informed (which should send you back to the drawing board) or he thinks he does (which becomes a pain in board meetings). Investors see a lot of things that don’t work, rather than discover the opportunities that do.

The bottom line is that we recommend entrepreneurs not to squander their great ideas with the first investor that waves money in their face. Real disruption does not become extinct quickly and so you literally have years to find a great investor out of the 790 firms that exist in the United States. Thankfully the get-rich-quick money schemes in technology are drying up, so make sure you, as the entrepreneur, also have the integrity to build real disruption that spawns real and lasting customer value for years to come.

Maybe we should compile a Good Vs Bad database on the VC community ?

Beannachd Dia dhuit

Gordon

A cheat sheet to help you with your friendly Dragon (Investor)

What you need to know before you go on the funding trail(or entering the dragons den):

Well you have your business plan written, you have a one pager prepared, the elevator pitch is polished and sharp, your friends think it is great great and your competitors are nervous, it is time to go and dual with the Dragons. There are two keys to a Dragons check book, fear and greed, you need to raise there appetite to open the door to there treasure trove, once you have entered there den, you need to be:

Honest

Real

and be prepared to walk away

You need to have a good team, not high flyer's, but definitely street cred ability, a few scars.

You need to have prospective customers.

You need to have a solid financial plan for 3 years.

You need believe in what you are doing, and know that you can do this for the rest of your life.

You need to be committed and demonstrate it.

These are some other thoughts I picked up from Guy Kawasaki (http://blog.guykawasaki.com/)

These are the characteristics of an attractive and fundable date for a venture capitalist or angel investor.

Realness. This seems like a duh-ism, but few entrepreneurs do it. Most entrepreneurs focus on quick flips to an IPO or acquisition. don’t get me wrong: Venture capitalists and other investors aren’t necessarily good guys who want to make meaning and change the world. A simpler explanation is that entrepreneurs who make meaning and change the world usually also make money. Nothing is more seductive to venture capitalists than a company that may have a big impact on the world.

Traction. The easiest way to prove that you have a real business is to already generate revenue. It’s one thing to believe your bull-shiitake pitch; it’s another to have customers and cash flow. You show traction, and investors will suspend disbelief. Fundamentally, you’re asking them to take a leap of faith, and it’s easier to get people to jump off a diving board than the Golden Gate Bridge. If you can’t show traction, then at least line up customer references who will really say, “If they build this, we’ll buy it.”

Cleanliness. Investors are busy, so you need to present a clean deal to them. Clean means that there isn’t a lawsuit by your former employer contesting the ownership of the intellectual property, or a disgruntled founder who owns 25 percent of the company but doesn’t do anything but sit around and complain. The more crap that an investor has to clean up, the less likely he’ll be interested in your deal.

Forthrightness. If you have crap that you simply cannot clean up, then disclose it right away—not necessarily in the first meeting, but soon thereafter. Also, have a plan ready to fix the problems. The worst thing you can do to an investor is surprise her with bad news, like a messy deal with lawsuits and conflicts, beneath the surface of the company.

Enemies. Woe unto you who claims that there is no competition. It means youre clueless or pursuing a market that doesnt exist. Investors like to see some competition because it validates that a market exists. Th en its your problem to explain why you have an unfair advantage. If you truly have no competition (and I doubt it), then either say that Microsoft or Google might go after you because these companies want it all or provide potential competitive threats.

Generally, in everything that you say, ensure that your results exceed expectations. Deliver a prototype early. Deliver your list of references early. Sign up your first customers early. Close a partnership deal early. Launch early. The only thing you shouldn’t do early is run out of money while trying to raise money. Investors seldom fund ships that are already sinking.

Well if you are going for funding, starting your own adventure, be prepared to be changed, and remember to enjoy, when you have lost the enjoyment, you will loose the motivation to succeed, remember money does not bring happiness, it helps, but it will leave you hollow.

Slainte

Gordon