Inside the mind of a VC
An insider look of a venture capital fund What it takes to successfully raise funds Knowledge learned over years of working for one of the top tier VC funds
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What’s it like to be a VC
+ + + + + + Forefront of innovation Learn about new technologies Meet interesting people You get a lot of attention Job security No accountability
However, It’s not so easy…
- Constant desire to find the next homerun… - Over networking - Being a generalist - Need to make some difficult decisions
How does it really work
It’s all about referrals Good deals are hard to find… Funds partner and compete among themselves Investment climate is influenced by the Fear Vs. Greed cycle:
Type I error (invest in a company and it fails) Type II error (don’t invest and the company succeeded
Nose & gut feeling
time
The Art of In-Decision
Flawed Investment process No hurry mentality: – The fund sets the pace (buyers market) – Less than 10% of deals are competitive – Aggressive terms
Exits
What characterizes a good fund
Ability to raise money Get the best deal-flow and being proactive about it Partner focus and fit as a group Open minded group / nonconformity Invest, commit, and build companies Managing conflicts of interests Creating incentives – generosity Avoiding the herd mentality
Very Rare… Ability to break away of the pack…
Opportunities in wireless networks
Investment Checklist
Management team – industry and operational experience Well defined market potential and budgeted Must have vs. nice to have – customer feedback Competition: several players New paradigm / innovation Cash to general availability product Sales to positive cash flow – $15M in software, $30M in hardware Capital to positive cash flow: $20-30M Strong co-investors
Working with portfolio companies
#1 priority getting the right people on board – VCs don’t want to babysit… #2 value add is opening doors Savvy investors would let the company operate independently without too much intervention However, a good VC with strong strategic acumen can add value on the board
When things don’t go so well
The dark side of a VC: – #1 Responsibility is to the funds’ limited partners Conflict of interests as VCs play both roles of investors and company board representatives Protection measures – Liquidation – Anti-dilution – Voting rights
The entrepreneurs’ Point Of View
Seek VC Branding – A top tier fund validation Help attract and recruit team, customers, partners Want deep pocket investors… – Most want “dumb” money
VC mindset
It’s all about building relationships – Most people still like to date before they get married The earlier the company the more emphasis on the founders VCs like to get in early to take credit for success Valuation vs. terms Clean cap table Sometimes VCs money is not right for you – Capital needs (if you don’t need a lot of capital) – Bootstrap (to reach some milestones)
How to increase chances of getting funded
Have the right message – Confidence is critical – Need to be able to sing (strong advocacy) – Written deliverables are less important – Many people will come across – need targeting Get key people evolved… Play the game …
False prophecies
Raise less money to avoid being diluted It is a zero sum game Valuation is most important in negotiations If Sequoia / KP funded me I must be very talented and on my way to striking it rich. A good fund can open the door to anyone “Dumb money” makes the entrepreneur much smarter
Thank You!