What VC'S are looking for

What VCs are looking for

Article Date: Aug 12 2009

VCs often have set criteria in mind

Nenad Marovac, managing partner of venture capital firm DN Capital, throws light on what makes VCs say ‘yes’.

Despite the reduced funding levels for technology start-ups in 2009, many opportunities for investment still exist, as the recent establishment of Google’s new technology VC fund, Google Ventures, demonstrates.

In order to be successful at securing investment in an atmosphere of increased competition for a smaller pot, young companies must have certain qualities. They require an excellent product, a unique service proposition, the ability to save their customers time or money, and the potential to generate significant revenue.

VC investors will also want to see a solid team in charge of the business, made up of experienced executives who understand their market. Investors always prefer cautious entrepreneurs who are cash-flow efficient and watch their expenses. Entrepreneurs must avoid traditional errors such as hiring new talent in anticipation of contracts that have yet to be won. They must also be able to take a step back from their business and objectively asses whether anyone will really need or want their product.

Finally, these start-ups must be entering a market that is ready for significant growth. How can a start-up know when the market is ready for their product? This should be clear when they start to see dramatic growth in their revenue and reputation. For example, mobile advertising, while promising decent growth in the future, is nowhere near ready for large-scale investment. It's too far off mass consumer adoption and this means it won't turn a decent profit for quite a while.

There is no “magic formula” to securing VC funding. Every company that receives funding represents a calculated risk, with investors weighing up the cost, the team, the product and the market. It is important to remember that even amongst funded start-ups, 50 per cent still fail.

What start-ups should expect from VCs
High-quality VC funding should encompass much more than simple investment. Especially when working with young start-ups, the investors should provide proactive guidance at all levels of a portfolio company’s business plan. They should also:

* Have a global network of contacts, including potential customers, channel partners, employees, Tier I US and European investors and acquirers
* Help recruit outstanding candidates for the company’s executive team
* Bring in new customer leads
* Introduce their portfolio companies to new international markets (for example by cross-pollinating between Europe and the US, as DN Capital has done with companies like Datanomic, Lagan and OLX)

It's a tough market, but companies should not be so keen to secure funding that they forget to ask how much their investors can bring to the table besides their money.

DN Capital is a pan-European investor that invests €1-10 million per company.

Extract from an article in www.growthbusiness.co.uk a leading advice website for the start up

Building your company structure.

How to Design a Flat Organization

By Matthew E. May

Conventional wisdom says that to be successful, our ideas—be they designs, strategies, products, performances, or services—must be concrete, complete, and certain. And when it comes to managing a company big or small, we need organizations to be highly ordered, with a strong and well-defined structure. But what if that’s wrong?

Take the case of French company FAVI, an autoparts supplier manufacturing copper alloy components. CEO Jean-Francois Zobrist eliminated the personnel department immediately upon taking the helm of the company in 1983. But that wasn’t all he got rid of. Says Zobrist: “I came in the day after I became CEO, and gathered the people. I told them tomorrow when you come to work, you do not work for me or for a boss. You work for your customer. I don’t pay you. They do. Every customer has its own factory now. You do what is needed for the customer.” And with that single stroke, he eliminated the central control: personnel, product development, purchasing…all gone.

The company formed twenty teams based on knowledge of customers like Fiat, Volvo, Volkswagen, etc. Each team was responsible not only for the customer, but for its own human resources, purchasing, and product development. There are two job designations in the team: leader and compagnon—or companion—which is an operator able to perform several different jobs.

Every customer has a single FAVI linchpin who oversees all aspects of the relationship which are handled by the team. This includes all the technical requirements, cost negotiations, purchasing, product development, quality control issues, scheduling and delivery, meeting organization, and information coordinating. The linchpin is a critical position of high strategic importance, so Zobrist handpicked each one. In effect, what happened at FAVI was that it moved from being one big plant to being a couple of dozen entrepreneurial miniplants housed under one roof.

Zobrist did what the best designers do: add by subtracting. The lack of hierarchy solves a number of problems. With work at FAVI organized into horizontal customer teams, job titles and promotions become irrelevant, so they are no longer a distraction. All that energy is channeled into the work itself, which at FAVI is of the highest quality.

Accountability is to the customer and to the team, not a boss, so FAVI people are free to experiment, innovate, and solve problems for customers. They’re known for working off-shift to serve customers or to test out new procedures. Equipment, tooling, workspace, and process redesign all rest in the hands of those doing the work. FAVI people are encouraged to make decisions and take quick action to improve their daily work and respond to the needs of their customers. Control rests with the front lines, where it adds the most value.

It works. Still, customers visiting FAVI are often astounded at what they perceive to be a total lack of control. A favorite story Zobrist tells involves a customer’s site inspection at FAVI: “They asked to audit our procedures,” he says. “They were not pleased because we had no measurement system for tracking late orders—nothing in place, no plan, no process, no structure in case of delay. They are a customer for over ten years, so I say, ‘In that time, have we ever been late?’ They say, ‘No.’ I say, ‘Have we ever been early?’ They say again, ‘No.’ And so I ask them why they want me to measure things that do not exist.” Good point.

Zobrist’s management reveals a different way of thinking, one driven by a central question: how can we achieve the maximum effect with the minimum means?

In other words, Zobrist was thinking like a designer.