Archive for Venture Capital

VCs Tell How They Invest (VLAB Event, January 26, ’10)

Posted in Entrepreneurship, Venture Capital, VLAB with tags , , , on January 27, 2010 by Shankar Saikia

THUNDER-LIZARDS! HEAT-SEEKING MISSLES! SEX (almost)! These were some of the topics discussed at today’s VLAB event titled “How my company leap-frogged with the help of funding partners”.

Today’s panel included the following VCs:

Howard Hartenbaum – August Capital
Josh Kopelman – First Round Capital
Mike Maples – Maples Investments
Dave Strohm – Greylock

Ravi Belani from Draper Fisher Jurvetson moderated a great session, most of which had a “hot seat” format – a few lucky attendees got to ask the panel for advice on actual VC-related scenarios.

Here are some of the nuggets from each panelist:

1. Howard Hartenbaum – August Capital

VC as partner: A relationsip with a VC is like a marriage – you will be spending a lot of time with your VCs and so get to know them well.

Beat the big : VCs like ideas that involve beating big traditional companies.

2. Josh Kopelman – First Round Capital

Don’t cross the stream together: He used an analogy from a film (Ghostbusters? ) and basically meant that during fund-raising do not tell a VC which other VCs you are talking to .. or you will get the worst possible term sheet.

Lower start-up costs/time: it takes less money to start a company and less time to test it out – both are great (e.g., $600K and 6 months now versus $6 million/6 years before).

3. Mike Maples – Maples Investments

Thunder lizards: VCs invest in companies that can take advantage of “disruptive tectonic” forces in the market and become huge – like thunder lizards (Mike’s movie choice = “Godzilla”)

Project Big: When you pitch a VC tell them how big an impact your product/service will have. For example, at Motive their opening slide said “we will cut data entry costs by $25 billion!”

4. Dave Strohm – Greylock

Alignment: VCs and entrepreneurs’ goals should be aligned and investing in common stock (without liquidation preferences etc.) is one way to align interests. He said that unfortunately most deals do not involve common stock.

Where are the women? : He asked why there weren’t more women in the VC business. Also, when Mike referred to an entrepreneur as “he”, Dave quietly admonished him and urged him to say “he or she” … But, to Mike’s credit his firm’s other partner is a woman and she sourced their best deal yet – so kudos to Mike.

Here are some of my own insights:

Grey Matter: These VCs seem soooo smart – have you checked out Ravi Belani’s profile?

Grey Hair: My own hair is greying  but I couldn’t believe how many in the crowd had more grey hair than me! My guess is that some of the grey haired folks (except for me) were angel investors. With lower capital requirements for starting tech companies (because of cloud computing, open source etc.) I think the number of VC firms is going to decline, meaning that if you want to start a company angel investors are going to be your best (and perhaps only) shot at funding.

Silicon Valley Special: The valley is truly a special place for tech innovation, especially for businesses focused on intellectual property . I doubt if any other place can compete.

My final thought: Tech is just one avenue of entrepreneurship. There are several other sectors where you can create disruptive change – health food, sports, healthcare, travel, housing …… are just a few that I can think of …

What do you think? Do you agree with the VCs or with me?