Most Popular
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What advice do you have for a would-be entrepreneur wrestling with an idea?
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The temptation is to keep the idea to yourself because it is precious and someone might steal it. Resist that temptation. Talk with people about it. Find people who are experts in related fields and discuss it with them. Find out if other people think it is a good idea. Those conversations will help you figure out if it is worth pursuing and will help you refine the idea a ton.
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How can I determine how much money to ask for? Enough to cover us if we aren't generating enough revenue for 1 year? 2 years?
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I think that the right amount of money to raise is the amount that will “get you to the next level.” Of course that is a completely fact specific number. The goal is to raise enough money to have the time to validate your product or build your product or get your first customer or get 1,000 people on your site, etc. So you should think what milestones will make it easiest for you to raise more money at a better price in the future and then raise enough money to get to that point. Maybe it is 1 year. Maybe it is 3 years.
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You've called a lot of winners (Aardvark, Evite, Tickle etc) - what did you see in these companies that made you invest? How many startups do you evaluate, how many do you invest in and how many are winners?
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I probably get between 500 and 1,000 executive summaries sent to me a year. Of those, let’s say, 750, I probably meet with 100 in a year. Of those 100 I meet with I probably get serious about 20. And of those 20, I will likely fund 2. So it is a pretty stark funnel. But it gives you a ton of perspective about what is going on out there. What are people thinking about? How are the markets moving? Etc.
Picking great companies is challenging because there are a lots of great ideas and lots of great teams, but building the next Facebook requires a great team, a great idea, amazing market timing, a ton of luck, etc. So I tend to err on the side of great teams. Great teams can make tough markets, poor original product decisions, etc. into good companies. But mediocre teams can’t. The Aardvark, Evite and Tickle teams were great. As are my other portfolio teams (Splunk, Six Apart, VideoEgg, StumbleUpon, Gravity, WePay, etc. etc.). Great teams build great companies.
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What are the keys to giving a great pitch?
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Engage your listener. Startup presentations are sales pitches. You need to convince a VC that she wants to buy your product. So it should be a compelling discussion of the business. If the best thing about your business is the awesome product, then focus on that. If the best thing about the business is the amazing team, then focus on that. Focus on your strengths and get the VC engaged around that, and you will hook us. There will be a ton of time to ask questions later, so don’t worry about missing a detail here or there. The goal of the first meeting is just to get a seconds meeting. Frankly, you can do that in 15 minutes — of course, great compelling presentations tend to go long because the VC wants to dig in more.
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How can I provide proper forecasts for potential investors if I'm pre-launch?
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You can’t. Any smart investor knows that your forecast pre-launch is totally made up. So the real question for investors is “did you make reasonable assumptions?” When presenting a plan as a pre-launch company you should show a set of financials that pass the sniff test — do the numbers look credible in light of what you are proposing to do (you won’t make $100M in year one, but you might credibly make $100M in year 4). Then you need to talk about the assumptions you made — how many customers and at what rate? how much revenue per customer? etc. etc. If a VC thinks that you have made reasonable choices about the assumptions, then you will gain in credibility even though we all know that the numbers are made up.
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Lots of people talk about how investors evaluate startups (I'd love to hear what you look at specifically) but I don't hear a lot of people talk about how investors evaluate ENTREPRENEURS behind the startup. What do you look for (if anything) in founders that you may invest in? What are the red flags or what's attractive?
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When evaluating entrepreneurs, VCs do two things:
1) they spend time with them and get to know them. Sure, some of it is a gut feel. Do you like the person? Do you think they are smart? But the real thing that happens is you find out a lot about how they think about the business and company building. You learn how they address problems. You learn about how they think about competition, etc.
2) they call the people with whom you’ve worked before (in VC speak, we do diligence on the entrepreneurs). It is one thing to think someone is smart and thoughtful. It is another thing to hear from her past board member that she is really thoughtful and smart. That goes a long way. So I talk with tons of people you know to find out as much as possible about you.
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What made you start VentureBlog?
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At the time I started VentureBlog, there were no VCs blogging. This was something like 7 years ago and the idea of a VC talking about what he was doing and the things he thought was considered insane. But I was relatively new to the venture business and I didn’t see any secrets that I was trying to protect. The thing I really wanted was to engage in a conversation with a really broad set of entrepreneurs. I wanted to be helpful to them and then hopefully they would show me the cool stuff that they were working on. So I started VentureBlog to start that conversation with the community of entrepreneurs.
I probably should write more on VentureBlog these days. On the good side, there are a lot of great VC bloggers doing it now.
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Whats the best way to approach a potential investor?
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Funny, I was just answering this question in the context of another question. Here’s what I was writing “And, of course, the way VC’s evaluate teams has a lot to do with the people with whom the surround themselves. So getting the right introduction to a VC is important. If an entrepreneur gets introduced to me by the right person, I will always take the meeting.”
Let me iterate on that a bit. The advantage repeat entrepreneurs have is that they know a ton of people in the ecosystem and they can easily get introduced to the right VCs (or already know them). So if you are new to the area or to entrepreneurship, how do you get the right relationships and intros? What you need to do is build relationships from the bottom up. Spend a ton of time meeting people, talking with them about what they are working on, and sharing what you are working on. Over time you will find people with whom your idea resonates and they will introduce you to folks with whom they are close.
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What is the standard framework you use to evaluate startups?
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I don’t know that I have a standard framework. I have a set of things that I think are important and the first seven are the people. It is probably something like this:
- Team
- Team
- Team
- Team
- Team
- Team
- Team
- Product
- Market
- Team
And, of course, the way VC’s evaluate teams has a lot to do with the people with whom the surround themselves. So getting the right introduction to a VC is important. If an entrepreneur gets introduced to me by the right person, I will always take the meeting.
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Do I need to bring a business plan when I meet with investors or is a slide deck okay?
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I think that business plans are a waste of time. You need to know everything that you would put in a business plan. And if it is helpful to you to put it in writing to sort out all the things that are important in your business, then by all means write a business plan. But most VCs won’t read your business plan. They want you to present a PowerPoint and then will talk with you about the business to find out if you know everything you should (that you would otherwise put in the business plan).
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