The Netscape co-founder was a bit late to the blog scene but his relatively new blog is worth a bookmark. In particular is the series called The Truth about Venture Capitalists. This read is useful material for anyone who thinks they need to raise money for their venture primarily because it requires the reader understand what the VC wants and needs. In a previous venture I had a very warm introduction to a VC who was anxious to hear what I was working on. I was greeted promptly and warmly at their offices and little time was wasted as we got right into the business proposition. I spent a great deal of time talking about how much progress we were able to make with an extremely limited budget. That’s great. But I never showed interest or sensitivity as to the size of the return I thought the business could produce or the time span in which I thought an exit could be achieved. The measure of success for a VC and your own personal interests may very well not be the same at all. Imagine that you were presented with a guarantee whereby you can invest $1 million and sell the company in 5 years for $5 million. Each year you’d be returning 100% investment on your first million. Most people (not all) would probably take that deal. Most VC’s, on the other hand, can’t do that kind of deal. For starters, they aren’t deploying enough of their fund. That $1 million investment takes one of their partners out of rotation for several calls and board meetings that would otherwise be spent on a much larger cash deployment. Even in this “do more with less money” world of Web2.0, the $5 million return just doesn’t move the needle all that much for a venture investor.
Marc’s article reminds entrepreneurs to get inside the head of your investor before you spend huge amounts of time on those powerpoint color schemes.
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