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Letter From a VC: Seeking Feedback

TheFunded.com Open Letter

Posted by Venture Capitalist on 2008-09-03

PUBLIC:

Ok, so my first time on thefunded.com

Two things: first, I am a "vulture" capitalist. Second, I'm writing using one of my portfolio company's accounts.

I'd like to reach out to you because you are the reason we thrive. You've already got the odds stacked against you, and the last thing you need is a bully VC with confusing, illogical screening processes.

I'm with you all. I believe the venture capital industry is on the brink of a
"shake-out." It's changing. Today, the great VC's are the ones that both LP's and entrepreneurs love working with.

It's not longer a one-way street.

This being said, I'd like to gather some feedback from anyone willing to share:

What's the best screening process you've been through" What do you like" What don't you like" Are you a fan of Angel Soft" Do you like submitting an executive summary" Video" Do you like being contacted immediately after submitting an application" A phone call"

Thanks in advance for your clear, respectful insight.

Posted by gorilla44 on 2008-09-03 11:41:57

Dear VC,

Most entrepreneurs understand that you have a difficult job. The best screening process that I've been through:
- Sent an executive summary to a warm contact at a VC firm. (I hope we all can agree that cold contacts are a waste of time.)
- Receipt of exec sum was acknowledged by email and a timeline was laid out - "We'll look this over and get back to you by end of next week either way."
- By the end of next week, they responded asking for more info. I sent a detailed presentation.
- Receipt was acknowledged and a new timeline was laid out.
- They got back to me on time, requesting a face-to-face.
- Had the face-to-face. VCs never checked their blackberries during the meeting. They were prepared and asked excellent questions.
- They got back to me about a week after the meeting and passed and told me why.
The key points here are that 1) They kept to their deadlines and got back to me rather than me having to continually contact them. 2) They treated our team with the utmost respect when we met face-to-face. 3) They told us why they passed.

Posted by Anonymous on 2008-09-03 12:34:10

Very much agree with gorilla on all fronts. However, for those of us out there that don't have contacts, cold or warm, some kind of vetting system should be put in place that allows an unknown to submit their exec summary and still be given a REAL look over. I do not agree that just because someone does not know someone else in the VC world that their idea does not have value.

Does this mean a partner should look at these "cold" submissions, maybe but even a dedicated associate works. But perhaps submission through angel soft or some like system that does at least give the VC an idea of what the person is trying to convey and then make an educated decision if they wish to learn more and bring the full partner into the conversation.

On more than one occasion I've submitted an exec to a VC, never heard back. A few months later (3+) I was given an intro to that very same VC, same partner and heard back within hours of the intro. Same plan, email in both cases was the method of communication, only thing that changed was who sent the first email. I find this ridiculous.

Posted by Anonymous on 2008-09-03 14:36:03

Dear VC,
Thank you for asking us what we feel is most constructive. In the end it is a two-way street and if the dynamics are set properly from the very beginning, both sides win.
First of all I have to admit that when I set up my third venture which is on track to be as successful as the previous two, I decided that VC firms would not be allowed in at all as an investor - not even at the angel level. Why? To be honest - I am an entrepreneur who does not want to give up control of her company before it even gets of the ground. And I do know what I am talking about, so why would I want some VC firm to come in with their own management ideas and control issues? So.... as a result, for this third venture, I now have both, VC's and PE's, chasing me wanting to invest, not with their firms, but with their own money.
The way it works (and I do admit to appreciating the process) is: an email introduction describing the idea in 2 - 4 lines max; the recipient jumping saying "please do come in" and a meeting of 45 mins - 1 hr max during which the venture is discussed (NO powerpoint presentation) with the proper supporting materials, resulting in either 1) I want to be in what's the next step or 2) let me make some introductions for you right this very minute.
Anything less or more than the above scenario is a waste of both of our time. If you are not interested in even the basic concept - that is OK. Just say so. Different people have different passions. Fine. No need to have people send in exec summaries and PP's that all look alike and you won't even read anyway. There is no entrepreneur on this planet that can put words to his/her passion and commitment in any meaningful way.
On the other hand, if you are interested - please do work with us as a partner, not as a "vulture" as you put it in your posting. There is plenty of money to go around and plenty to be made for everyone.
Thank you

Posted by Anonymous on 2008-09-04 02:48:00

Hi VC,

I am in the process of raising an Series A round for my first venture, after raising a seed found. I figure I would provide feedback and thoughts from my limited experience as a first-time entrepreneur.

I think when it all comes down to is, treat us like how you want to be treated. I came from a consulting background, and we treat our clients WELL, because ultimately, they make us the money. VCs aren't that different -- if you treat us like how you would want to be treated, we are more likely to work with you.

After speaking with a few VCs, I am absolutely shocked that some Partners lack the simple professional courtesy of promptly reply to Emails, even those through personal introductions.

The process should be very simple
- Through personal intro, entrepreneur describes idea and progress to date in brief Email
- If not in investment area, promptly reply no and don't make us wait weeks
- Set up a 15 min phone conversation, or 30 min in person meeting to learn more details
- Promptly set up a follow-up, or provide a firm no. We know you all want to keep the bridge open, but seriously, we rather hear a no and know why.

My main feedback is to just be prompt, and provide firm answers. We left our corporate jobs because we are sick of how slow corporations move, and takes forever to get things done. If you can relate to us at this level, and just give the courtesy of providing fast responses, that would be a great improvement.

Posted by fundedagain on 2008-09-04 10:16:34

Have the cojones to say no if that's what you mean.

Posted by plkal on 2008-09-04 15:44:52

Agree with all previous posters - lack of responsiveness or even basic rules of courtesy during the screening, pitching and initial due diligence processes contributes to a very negative perception of VCs and VC firms in general. Some of us decide to take all of it with a grain of salt - make that a whole shaker - but it may reveal a more profound problem with the roles VCs will play AFTER a potential funding, which is more problematic for both entrepreneurs and VCs.
Just as one example of what could be improved as part of the process is the following:
Once a basic screening is done, make a genuine attempt at gaining as deep an understanding of the company as possible and to keep an open mind. Too many companies have failed because VCs make no serious attempt at understanding the complexities of the market and products, and their knee-jerk reactions are often the first step in the company's downfall. Even more have never been funded for the same reason.
Sound difficult? It is, as is the actual success of the company. Spending the effort early in the process is the best way to start a win-win partnership between entrepreneurs and VCs.

Posted by binthere on 2008-10-05 18:06:43

I am thrilled that there is a shakeup out there in VC land. It is about time. Was in a meeting just a few days ago with a totally insane VC who was crying about the economic environment affecting the now unhealthy community. This is going to help shake the good and helpful VCs from the ornery egotistical VC. VC should remember that the companies pay their bills.

Angelsoft is interesting, but does not help the entrepreneur as much as the investor as it organizes all the deals. We entrepreneurs do not need that particularly....we need direct attention from the intended party.

I like personal attention the old fashioned way. An email, a phone call, a meeting. A simple executive summary should be sufficient for an investor to take a call or meeting.

Polite attention, that is all we want. What we often get is arrogance, insults and rude remarks.

Posted by steve16046 on 2008-10-07 09:06:44

Unbelieveable. Is anyone paying attention? He said he is a VULTURE Capitalist. By definition a bottom-feeder after dying companies and their distressed assetts at bargain prices. He has infiltrated this site through deception, through one of his holding companies. Otherwise he would not even be allowed. Then he asks you to roll up your sleeves and take your pulse, and you willingly oblige? Ugh. Just drop your pants and grab your ankles while you're at it!. He says "you are the reason we thrive". I'm afraid he's right. Call me a skeptic, but I can't see how somebody like this can be trusted to help with our feedback while he first circles above and then cowers over awaiting our demise. Heh, famous last words, "trust me, I'm here to help!" Vulture, you want my clear, respectful insight? FLY AWAY.

Posted by martindudziak on 2008-10-31 14:49:24

My experience, through a couple of different firms going to VCs, has been such that to get a polite, attentive response and interactions, even with rejection, such as "gorilla44" described on 2008-09-03, would be a welcome breath of fresh air.
Most have been uncommunicative, some outright rude, and of those, it was clear that documents/pages were not even opened, much less read. (If a high-level and custom-for-you intro demo is at http://bla-bla-bla and it is never visited, that tells something.)
Mostly what I see is a huge ego problem with a statistically signif. number of people who are VC's. They seem to have an incredibly inflated view of themselves, and worse are those who are not the top managers, generally more seasoned, experienced, older, but some persons who perhaps got a job with the VC after their MBA or BA, and "Whew!" can some of those staffers seem pompous!

Posted by level on 2008-10-31 15:32:08

However well-intentioned the request for feedback may be, I just can't get past the fact that "Venture Capitalist" is posting using a portfolio company account. That's not only dishonest, it places the person at the portfolio company in a very awkward position.

All of the feedback in the private replies has been posted in the public letters to VC's in the Letters section. Add lazy to dishonest.

By the way, the self-referential use of the term "vulture" capitalist was more likely a disingenuous attempt at empathy and not so much identifying the type of venture capital.

Hey VC-still-illegally-posing-as-member; what's your real game?

Posted by level on 2008-10-31 18:52:38

Sorry - my bad: "All of the feedback in the private replies has been posted in the public letters to VC's " - I meant that people have gone over all of these VC feedback points before in the public sections of The Funded. No need to arm twist "one of ... portfolio company's accounts" to get a special private set of replies.

Posted by Iggy on 2008-11-01 01:34:54

Response to the VC, if you're still listening...

I can't believe how rude your community is in general. That perspective could be easily reversed with very little effort.

For example:

1. If you don't accept business plans over the transom, don't suggest that you do on your website and respond with a form-email when you get them (15 seconds effort per). Don't be a black hole.

2. If you're working with a start-up - even if you aren't funding them yet - treat them like your child. Nurture them to the best of your ability. You don't have to say yes to everything but you can help them grow by explaining your position. Not only will this earn their respect, it will help to protect you against bad decisions. If you decide not to fund but are helpful, the winners are more likely to let you in later. Effort level measured in minutes, not hours.

3. If you haven't been on the other side of the table, don't forget that the person you're talking to is more ambitious and clever than you are. If you have been on the other side of the table, don't forget what it's like to be sitting in that chair. Either way, adjust your attitude accordingly.

The same attitude-oriented points apply to entrepreneurs, but that isn't the subject of this thread.

Posted by pnkearns on 2008-11-24 22:34:33

Dear VC,

I have to agree primarily with the comment below: "However, for those of us out there that don't have contacts, cold or warm, some kind of vetting system should be put in place that allows an unknown to submit their exec summary and still be given a REAL look over."

To me the biggest failure of the current VC system is lack of open communication. VCs are mostly isolated in an a clubby ivory tower system (VC partnerships) that communicates only when it wants to. It is not an open communication system. The entrepreneurs must know someone, or someone who knows someone, in the club to get any response. If you are not geographically located in a VC hot spot or have an idea for an industry segment you are not part of, then you are out of luck. Many VCs even brag that they won't even look at a business plan unless someone they know recommends it.

I see this lack of communication and lack of access as a massive failure of the VC system. Much of today's innovation is coming from new people and new areas, e.g. eBay was not a mainstream idea. The VC system does not allow access or innovation from these new people and new areas.

Posted by carlwimm on 2009-02-01 17:06:40

Dear gutsy VC

It actually takes some courage to ask for what you have asked on this forum. For that display of "hair", I salute you.

Here is my main VC issue. I believe that the difficulties that VCs have stems from where and how they get their money. That is why your model is broken.

Here are some examples on how raising VC money actually constrains a VC into a very narrow box (a box so narrow that the VC is "broken" before he starts).

1) raising 500 million instead of 30 million, with 4 partners means that the average investment has to be 20 or 25 million.

125 million each partner - and the maximum you can realistically handle is 5 deals - or 25 million a deal.

You just cannot get into a deal where you start with 50,000. And yet, 50,000 is the right first investment to scope out a deal.

and so, what are you left with.

later stage deals where the company is well advanced and really does not need you. And if they do, watch out, they are doing something wrong.

or

what is behind door number two. Survive on fees of 600,000 a year instead of 10 million, and hope you hit it big.

the conflict here alone twists a VC into all kinds of bad choices.

2) you promise the investors a 30% return. Come on, be serious. maybe you can deliver a "vig" of 30% when you are dealing with 100,000 dollars. On that small scale, those returns are possible.

but with big money, returns trend to the mean. So ...

what are you really left with?

the need to hit deals in a very narrow band. The deal have to need 25 million at a slug but still be needy.

There may be 50 deals a year like that in the USA but there are 3,000 VC firms, each looking for 20 of them.

You are facing bad numbers. Good luck, you will really need it with this business model.

3) wealth makes you conservative.

When you have nutin, you have nutin to lose. (Janis Joplin for all you 35 year old MBA VCs out there).

Having nothing to lose makes you adventurous because ... why not.

Having 500 million makes you into bankers, not capitalists.

4) Raising money from money managers requires that you portray yourselves as similar fellows. Most money managers are 4 generations removed in time and in temperament from the yeasty, foamy, jostling times of wealth creation.

So they like to see people just like them. You know ... an MBA type, in a suit, who speaks well and spreadsheets even better. You will never get the 500 million if you walk in in chinos and sandals, consumed with entertaining those people with how off the wall your ideas are.

But that kind of person is exactly who will come up with the next MSFT.

You cannot be two people.

So ... you end up with what is behind door number one - bureaucratic. endless partner meetings, reports, plans, milestones.

Summary

Do you get the flavor of this argument. You are corrupted for "venturing" purposes by the very nature of the money you seek and employ. You are imprisoned by the promises you have made.

You try to de risk by ruling by committee, in an entrepreneurial world.

And so, if and when you find the "right deal" , out comes the "term sheet" - which is VC speak for

"Oh please let me find a deal where someone will sign for 6 times equity back first, 60% of the remainder as equity, they employ my CEO because I am afraid and all this in a company with 50 million in existing sales".

Now ....

Do you really, really want adventurous deals that can possibly create a 20 to 1 return but where you cannot be shielded from risk of total loss?

The deals where you can score huge but can lose it all are out there.

If you can convince me that I am not wasting my time, I will show you where those deals grow.

But the first hint that I am on some VC "send us in an exec summary" treadmill and I am gone.

I don't need it. Neither do any of the real entrepreneurs that I know.

The proposition is clear. The choice is yours.

Posted by mouse anon on 2009-02-01 21:20:46

Respect diversity. Women. Middle-aged people. Try to look past the stereotypes and listen to the pitch.

Posted by Anonymous on 2009-02-02 00:26:05

Why don't you open your own account?! That is low. Or, this is a joke!