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TAG: Strategy

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Protocol for VC Interest

TheFunded.com Discussion

Posted by Anonymous on 2008-04-28

Tags: Negotiation Strategy

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Any Advice for One Man Band?

TheFunded.com Discussion

Posted by Anonymous on 2008-04-24

Tags: Preparation Strategy

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"Why you"?

TheFunded.com Advice

Posted by Entrepreneer on 2008-04-14

Tags: Pitching Meetings Strategy

PUBLIC:

I had the opportunity to sit in on someone else's pitch to a VC recently, and for the first time got a chance to see a pitch meeting from the investor's point of view. It was illuminating. I turned back to the various pitches I had made in the past, and saw them in a new light. When you're embedded in, and heavily personally devoted to an idea for a long time, it's hard to have any perspective. When you're hearing an idea for the first time, you'll probably see some gaping holes immediately. The entrepreneurs who are trying at the idea are willfully blind to these holes, having spent months (or years) justifying their hopes. There is one hole that I perceive is routinely there, and you'd better be ready to answer this question: "Why you""

As an engineer, I have been routinely approached by people with business ideas, who need an engineering lead to get the idea off the ground. They usually also need a designer (product and visual), and maybe a sales person. Which causes me to ask them, "I have my own ideas, and I can go build them. What the hell do I need you for"" In the end, if you cannot write code, write a detailed product spec, draw graphics, draw up contracts, or raise money, what good are you" We could come up with 5 decent ideas a day, so even at a good consulting rate, that's what, $240 per idea" For something to be investable, you need both the idea and the capacity to execute. If you're a dreamer with an idea and nothing built, please don't talk to VCs. You're wasting everyone's time. Go find an angel investor who will help you put together a demonstration of the idea.

Beyond that, even if you bring a team that's capable of executing, you still face a real problem. You aren't the only person working on this idea. Trust me, if you are the only one working on it, the idea is too early. So if there are other people working on it, why are you likely to be one of the winners" Do you have plenty of contacts in the industry" Do you have a deep personal understanding of the problem space" If you're a male 20-something building a Mom's portal, you gotta ask yourself what the hell you're doing. Remember, for every idea a VC invests in, they probably turned down 99 others. What will make you stand out" How will you answer when they ask, "why you""

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Check Your Alternatives!

TheFunded.com Advice

Posted by Anonymous on 2008-04-14

Tags: Negotiation Strategy Alternatives

PUBLIC:

I often view questions here regarding going with one vc or another, one general advice I have to you all is the following: CHECK YOUR ALTERNATIVES!

Can you create more" Your best option is as good as your best alternative and this may effect your negotiation power.

PRIVATE: Members Only

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Non VC Route: Raising Public vs. Private Capital

TheFunded.com Discussion

Posted by Anonymous on 2008-04-08

Tags: Preparation Strategy Funding IPO

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What to Call My Round" Series a or Series B"

TheFunded.com Discussion

Posted by Anonymous on 2008-04-02

Tags: Preparation Strategy

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Investing in a Distributed Team

TheFunded.com Discussion

Posted by Anonymous on 2008-03-31

Tags: Operations Strategy

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Pre Emptive Round

TheFunded.com Discussion

Posted by Anonymous on 2008-03-25

Tags: Negotiation Terms Strategy

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Raising Money for Out of Trend Business

TheFunded.com Discussion

Posted by Anonymous on 2008-03-22

Tags: Preparation Strategy

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Can You Take Me Serious" Even After a Couple of Drinks"

TheFunded.com Discussion

Posted by Anonymous on 2008-03-21

Tags: Pitching Strategy Socialization

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Accredited Investors

TheFunded.com Discussion

Posted by Anonymous on 2008-03-17

Tags: Preparation Strategy Angels

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The First Step?

TheFunded.com Discussion

Posted by Anonymous on 2008-03-16

Tags: Preparation Strategy

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Managing an Asshole in the Room

TheFunded.com Discussion

Posted by Anonymous on 2008-03-07

Tags: Pitching Strategy Meetings

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Can You Mix Angels and VC?

TheFunded.com Discussion

Posted by Anonymous on 2008-02-12

Tags: Preparation Strategy Angels

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What's the Right Strategy for Engaging with Local/Regional VC's Outside of Major VC Hubs?

TheFunded.com Discussion

Posted by Anonymous on 2008-01-01

Tags: Preparation Location Strategy

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Kiss of Death?

TheFunded.com Discussion

Posted by Anonymous on 2007-12-31

Tags: Pitching Strategy

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Inform VC's of Others We've Pitched Already: Good Idea or Bad?

TheFunded.com Discussion

Posted by Anonymous on 2007-12-19

Tags: Pitching Strategy Disclosure

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The Game of Innocence

TheFunded.com Advice

Posted by MrJames on 2007-12-10

Tags: Preparation Strategy Venture Business

PUBLIC:

Aspiring entrepreneurs be warned. Venture capitalists will provide money for your idea, but they often walk away with most of the value, especially if you are not careful. Like an amateur sitting at a table of professionals, the cards are stacked against your success, so be prepared. Know the game.

Here are some anecdotal facts. There are five times as many people working in venture capital as there are CEO's that are funded each year (~16,500 vs ~3,000). The average venture funded CEO is fortunate to make 1/10th to 1/20th the return on exit as the venture capitalists. Just the legal fees on a later stage deal will run $50,000 or more per party involved, and the venture capitalists always flip the bill, directly or indirectly. Who do the lawyers work for again"

No matter how nice, no matter how fair, and no matter how genuine a venture capitalist appears, you are being out-smarted, out-lawyered, and out-maneuvered the second you sit down and ask for money. The first step in winning is to understand their motivations: (1) control, (2) risk, and (3) opportunity, in that order. Let's take a look at all three.

The entirety of a venture investment centers around control, and control takes many forms: control of the board, control of the voting, control of the investment capital, and, most importantly, control of the management. Venture capitalists are "control freaks," and the psychology of control is embedded in nearly every aspect of the deal legal structure. Assume that most financing terms, from Board meeting frequency to protective provisions have some origin in control, and analyze them as such. Ask yourself: in good times and in bad, how do these terms affect my behavior as a CEO" For example, did Google really need to have 14 Board meetings in one year... ever"

Venture capitalists are excellent at managing risk. It is assumed that at most venture investments fail, but approximately one in ten succeed. Following this simplistic logic, a venture capitalist would need to make at least $10 from every $1 invested in a success to recover from the 9 losses. Now, not every deal is a total loss, but a lot are. Complex protections are inevitably put in place. Let's look at a common scenario: a company receives $10 MM for 50% of the stock in a participating preferred with a 2x liquidation preference. The company sells for $25 MM right after the investment. How much does the founding team make" Nothing. The "50%" is legalese.

Venture capitalists are not very good at spotting opportunities, or they might have better odds than 1 in 10. However, they are very good at "managing" opportunities as a result. Here are some examples. Venture capitalists do not say "no" (for risk of losing an opportunity). They postpone meetings until you are achieving success, and they flock around markets with success stories. Ever wonder why a venture capitalist calls you out of the blue asking about your company" It's probably because a competitor is succeeding. Every wonder what "demonstrate traction" actually means" It means a nine figure IPO or liquidity event in your sector. Your dream is just potential, and you will be held on the sidelines until "the time is right" for the venture capitalists to make money.

The irony is that the venture capital behavior is largely a response to other abuses by CEO's. At this point, however, the venture capitalists have gone too far. The opportunities in building a venture funded start-up are gone for the great entrepreneurs. It simply makes more sense to go it alone.

You can quote me without attribution.

PRIVATE: Members Only

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The Trouble with a Quick No

TheFunded.com Discussion

Posted by Anonymous on 2007-12-03

Tags: Pitching Strategy Rejection

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Over Pitching" is It Possible"

TheFunded.com Discussion

Posted by Anonymous on 2007-10-29

Tags: Pitching Strategy Targets

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Honesty Pays: or Not?

TheFunded.com Discussion

Posted by Anonymous on 2007-08-28

Tags: Pitching Strategy

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Know the Trends

TheFunded.com Advice

Posted by Anonymous on 2007-04-02

Tags: Preparation Strategy Trends

PUBLIC:

Venture capitalists tend to invest around trends in the various investment sectors that they cover, which makes sense from a capital concentration standpoint in a given sector. You may be pitching a business that is not related to the current trends, since the trends change every few months, but it is important to understand them. The partners and associates will be actively researching the trends, so a lot of the questions in a pitch meeting will be influenced by the current trends. Questions that may appear irrelevant to you as an entrepreneur may be influenced by the current sector trends. Be prepared.

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