Month: August 2011
Question: What is your take on entrepreneurs who have young children or otherwise active family lives? Is this a factor in funding decisions? I try to live with a family-first mentality but find it hard to compete with young unattached entrepreneurs who can put startup-first.
My answer is simple – this shouldn’t be a factor in funding decisions.
Unfortunately, I know plenty of investors who have lots of inappropriate (at least in my book) biases. This is one of them. There are also plenty of gender, race, and age biases out there. There are endless discussions in the blogosphere about this so I won’t add to the discussion other than to express my opinion, which is that these biases suck.
I’ve worked with many entrepreneurs covering a huge age range, gender dynamic, ethnic mix, and family size. Success comes in many forms, with many styles, and many different dynamics. While each person is constrained by having multiple priorities, balancing conflicting priorities is an essential skill of any entrepreneur. Being able to shift between commitments is vital over the course of an entrepreneurial life span.
As an entrepreneur, you’ll just have to work through it. And search for investors who don’t have these biases – fortunately they exist!
Bryce Roberts (OATV) totally nails it in his post titled You Can Never Size a Market in Excel. The punch line is:
“In every single case that I’ve seen this question (“how big can it get”) persist over more than 2 meetings, it has NEVER been resolved. NEVER.”
There’s plenty of great stuff in the post – go read it.
Remember – Ask the VC reads all of the VC bloggers for you so you only have to read the best posts!
Question: We are looking early stage funding for our startup and came across some people claiming to be “VC Broker”. Is there such a concept in the investing world?
It’s highly unlikely that they are legit. I’ve never heard the specific term “VC broker” before and generally don’t think much of people who represent to early stage companies that they “can raise money from VCs for you for a fee.”
There is definitely a category of consultants that prey on early stage companies. These are people who offer to “do something for you for a fee.” You should approach all of these conversations with skepticism if the person wants to charge you money for this.
If they represent themselves as being a conduit to VC financing and you want to explore more, the first thing you should do is ask them for a comprehensive list of all of the people and contact information with whom they have done work for in the previous two years. You should then systematically contact each of these people and find out how things went. In most cases, the mere act of doing this will flush out all of the nonsense.
Interesting, there was a similar question asked in 2007 – see the post Are There Venture Capital Brokers? for a somewhat broader treatment of the topic. There is also a good post up on The Smart Startup site titled Beware of Venture Capital Brokers.
Finally, there is, not surprisingly, a site called VC Brokers. Ironically, the link to “Entrepreneurs” is blank and throws a 404 page not found error.
It’s Monday and that means – yup – that Fred Wilson (USV) once again claims the VC Post of the Day due to his excellent MBA Mondays series titled Pricing A Follow-On Venture Investment. In it, Fred walks through an example, with real numbers, of how USV thinks about valuing an inside-led round for a company that is doing well.
Historically, many VC firms wouldn’t lead internal rounds at increased valuations except in extraordinary cases. When we started Foundry Group in 2007, we decided that was nonsense. It never made any sense to us why a firm wouldn’t pay a higher price than the last round for a company that it was already an investor in, especially if the companies in the portfolio were relatively capital efficient.
In our case, as in Fred’s, we try to offer a fair price, but expect to get some level of discount since we enable the company to bypass the fundraising process which is often incredibly distracting, time consuming, and often not much fun. Fred does a really nice job of explaining – both qualitatively and quantitatively, how he thinks about this. While our math is somewhat different, it’s super useful to get inside the head of an actual VC as he thinks this through.
Rand Fishkin, the CEO & co-founder of SEOmoz, has an long, thorough, and incredibly detailed blog post up about The $24 Million Moz Almost Raised. Rand does an awesome job of providing extensive details while maintaining confidentiality of the participants.
The story covers the full lifecycle of the VC fundraising process, beginning with Rand and his teams’ discussion about whether or not to raise money. He documents the fundraising dance, including providing lots of juicy email correspondence to underscore his points. He lays out the numbers for his company, the terms for the deal, and his view of when he was negotiating effectively vs. stumbling around.
Ultimately he gets to a signed LOI and that’s where the fun begins (in the section titled “Then Things Got a Little Weird”.) The deal ultimately falls apart and Rand does a nice postmortem where he speculates on what happened. He then wraps it up with how his team responded and what’s next for SEOMoz.
If you are an entrepreneur, go read this post now. It’s probably the best and most detailed description of the VC fundraising process that I’ve read. Well done Rand – on many levels. Even though this particular deal didn’t close, I love your statement at the end:
“What I can say is that this experience makes me and the rest of the Moz team even more inspired and motivated to build an amazing company. We can’t help but feel passion for proving doubters and naysayers wrong. The greatest revenge is to execute like hell, bootstrap all the way, and do what we said we’d do – become Seattle’s next billion-dollar startup, and make the world of marketing a better place.
I know we can do it.”
Entrepreneurs – if there is one post you read today, read this one. And Rand, email me anytime if I can be helpful. Even though you are too late stage for us to invest in, you just earned a bunch of karma points in my book by sharing this experience with all the entrepreneurs in the world.
Mark Suster (GRP) gets the VC post of the day with his post Avoid Monoculture. Travel. Read Widely. Let Experience be Your Compass. It’s a really great post to read just before the weekend to remind you to make sure you are living your life and constantly exploring new things, rather than just being heads down on whatever you are working on. I’ve spent much of the summer in Europe (in Paris and Tuscany) “just living” – which includes plenty of work, but a completely change of context for how I live my every day life. I’ll write a lot more about this on Feld Thoughts after I get back to Boulder, but in the mean time much of what Mark said rang true to me as I read it, especially:
“Challenge conventional wisdom. Fight monoculture. Question authority. Take lots of inputs but then let your internal compass set your course. If “all the cool kids are doing it” make sure you have strong internal logic for why you’re going to follow them. Often it’s not the best course.”
Bryce Roberts (OATV) gets runner up with his post There Is No i In Apple. It’s a great reminder of the difference between “i” and “we”. The paragraph that nails this is:
“Reading through the many compilation of Jobs’ quotes last night a similar theme emerges. When speaking of personal foibles or lessons learned he uses I and Me. But, when he speaks of the company he founded, was fired from and helped resuscitated to life he speaks in We and Us.”
If you are in the northeast US this weekend, be safe!
Today’s VC Post of the day is from Chris Sheehan (Common Angels) titled “Putting Together Your Perfect Seed Round.” Chris and his colleagues are active seed investors in New England (primarily Boston and New York) and have great perspective on the dynamics of the composition of a seed round. Chris has also been very supportive of TechStars (thanks Chris) and he’s very familiar with the financings that have happened for many of the teams. He’s got great advice for any entrepreneur raising a seed round.
Today’s VC Post of the Day is from my partner Seth Levine (Foundry Group) and is titled Should the current market environment change your fundraising strategy? I think it’s right on the money and captures / synthesizes much of the valid advice flying around from VCs and pundits about how entrepreneurs should think about fundraising right now. Do yourself a favor – read it slowly and think about it.
The runner up post of the day is from Bryce Roberts (OATV) titled A Year Ago. It’s a heartfelt reflection from Bryce on living in Silicon Valley for a year after uprooting and moving his family from Salt Lake City.
Jeff has done a nice job building a site that both models a cap table and provides a lot of information to empower entrepreneurs both with educational resources and software tools. In addition to modeling a cap table and ownership of the company, Jeff’s software helps answer questions like “if I sell for $100M, how much money does everyone receive.”
In addition, he’s created a variety of interactive examples that help you understand things like:
- Anti Dilution – Broad-based Weighted Average
- Anti Dilution – Narrow-based Weighted Average
- Anti Dilution – Full Ratchet
The LearnVC site has a bunch of other interactive examples for some of the basics of venture financing including:
To see their product in action, check out their videos.