Mark Suster of GRP Partners in LA continues to crank out great posts, including today’s titled Getting Access to the Old Boys’ Club (how to approach a VC).
I like investing in LA (we’ve got three investments there – Oblong, Topspin, and Memeo) and I’ve got a long term evil plan for the city. In the mean time, I’m going to be speaking at Twiistup 6 in LA on July 30 in case you are interested in coming and hanging out with a bunch of startups in the LA scene.
Mark Suster of GRP Partners is blogging like a fiend and has the best VC post of the day titled Sorry Guys – It’s the Size of the Wave, Not the Motion of the Ocean. Entrepreneurs – wander over and take a look. Plus, he’s got some title alliteration.
Today’s great post is from David Cowan of Bessemer Venture Partners and is titled Israeli Venture Keynote: When Failure Is An Option. Embedded is his keynote presentation from last week at the Israeli Venture Association Annual Conference. While David focused on lessons for venture capital in Israel, they apply broadly to venture capital anywhere in the world, including the United States.
Today’s great VC post is by Greg Gottesman (a managing director at Madrona Venture Group) and is titled Thirteen key characteristics of a great startup culture. It shows up in John Cook’s column in TechFlash – the article is solid and the comments (all 66 of them at this point) are priceless. I’m baffled by the super-negative anonymous commenters as they add absolutely nothing to the conversation. If you are going to be critical (which is fine – and often helpful in sharpening up the ideas), be bold and comment with your real identity!
Q: At a pub in Los Gatos, CA a casual conversation with some young, first time entrepreneurs lead to an interesting comment:
"...the business plan outlines our estimated (operational) expenses but how do I know an investor is not going to look at these numbers and say...'are you f'ing kidding me' and right then and there we can loose this guy (his interest)..."How can an entrepreneur build these projections most accurately and in a way that will maintain credibility with potential investors? What could be defined as the "best practice" for entrepreneurs dealing with this subject?
A: (Brad) As I’ve said in the past, I’ve never met a financial plan for an early stage company where the revenue side was correct. However, I’ve met plenty where the cost side was correct (or – at least – appropriate). The key here is simple – you want to have a cost structure that makes sense, covers all the bases, but doesn’t assume a big revenue ramp to be supportable.
If you are in the very early stages (e.g. a few people and an idea), recognize that your investor is likely going to be funding you for about 12 months to see how things play out. The biggest mistake first time entrepreneurs make is that they fall prey to the idea that they need to put together a five year P&L forecast and cash flow projection. I can guarantee – with 100% certainty – that this model will be wrong. As an investor, I don’t really care about this; rather I want to see how you are thinking about getting to “the next stage” of your business. You get to define the next stage, what it’ll cost you to get there, and what things will look like when you get there.
If you are a first time entrepreneur, go find an experienced entrepreneur to act as a mentor. She can be a first line of feedback your cost model and likely will know a few “financial people” that can help you put together a simple, yet credible model. In addition, when you spend time with potential investors, don’t try to bluff. Tell them it’s your first time building a model like this and that – while you had help – you know you lack experience and are looking for feedback. Try to engage the investor in the process. Listen the potential investors feedback and iterate on your model.
Simple message – don’t be afraid to ask for help.
Today's post is from Matt Eventoff - a communications consultant who has good tips for entrepreneurs who are pitching VCs.
I reinforce that having a clear message is really important. If you get off on the wrong foot in a presentation and can't clearly definite your value proposition, you risk losing the interest of the VC and never getting it back.
The 2009 New York Venture Summit is happening on June 17th at Digital Sandbox in New York City. The summit will feature 50 early stage and emerging growth companies as presenters, interactive panel discussions and lots of networking. The agenda looks strong as does the speaker list. The cost for investors or entrepreneurs is only $395 if you register online now.
Furqan Nazeeri put up a post titled 2009 Startup Executive Compensation Survey Opens. It in he points to a compensation study produced by J. Robert Scott, Ernst & Young, and WilmerHale in collaboration with Dr. Noam Wasserman, Professor at the Harvard Business School. CompStudy covers more than 25,000 executives at 5,000 companies and is the largest study of its kind.
If you are a CEO or CFO of a startup in the US, China, India, Israel, or the UK in the technology or life science industry, consider taking the survey. The 2008 results are up on Furqan’s site.
I (Jason) get asked often how I got into venture capital and how interested folks may get involved as well.
I always tell them that I "fell" into the job, as most folks that I know who are VCs and that everyone has a different and unique story.
I then point them to my partner Seth's blog post on the subject which I think is the best written authority on the subject.
Today, however, I received a paper that one of my students, Judd Rogers, wrote on the subject. He takes Seth's thoughts and puts a little bit of analytical muscle behind the subject. It's an interesting read for those wanting to know potential career paths toward VC.
Q: Can you please address the issue of estimating Addressable Market when the product or service is trying to solve an emerging problem and opportunity that is about to hit in the near future. For example, FeedBurner raised money long before bloggers were convinced that feed management could use some professional help and long before VCs saw that an advertising and paid model would emerge at some point. In other words, Dick Costello was not taking out an incumbent or providing a better solution than the market offered for a given problem. He raised capital on the belief that a market was about to emerge and FeedBurner wanted to be the first to address it. In this scenario how does one estimate addressable market (other than assumptions and forecasts) or in such cases can you be light on addressable market numbers.
A: (Brad) There are two schools of thought on this one: (1) measuring addressable market (or "TAM" - "total addressable market") matters or (2) measuring TAM doesn't matter at all.
I'm in the "measuring TAM doesn't matter at all" camp, especially in an early stage company in an emerging market. Almost every presentation I've seen has a market size section. Almost every market sizing presentation is incorrect - by a lot. Enough to make it irrelevant.
Most of the companies I invest in are in markets that are early in their life. I can assure you that if you are in year two of an emerging market, there is a slide somewhere at Gartner or Forrester projecting a $1.5 billion market in year 7 that compounds 75% year over year after that indefinitely (or at least until the X-axis runs out of room). Whatever.
Now, there’s definitely value in trying to articulate how the market you are playing in will develop. I’m usually more interested in understanding “proxy markets” (are there markets out there that are good proxies for what you are going after?) and “market drivers” (what has to happen for the market to grow big, and quickly?) While you can wrestle this information into a spreadsheet or a bottoms up powerpoint slide with a pretty triangle in it somewhere, anytime I see any number with two decimal points of precision, you’ll probably lose credibility with me.
Remember, at the beginning I mentioned that there are two schools of thought and I land firmly in one of them. There are plenty of VCs in the other (e.g. measuring TAM matters). This just reinforces a point we’ve made many times on this blog - make sure you know who your audience is and what they care about.
