Two great posts on this lovely day in Boulder, Colorado. The first is Due Diligence Reveals All – To The VC by Jeff Bussgang at Flybridge Capital Partners. Jeff explains the three stages to the VC due diligence process and how it works. The second is Be Careful Who You Deal With by Matt McCall at DFJ Portage. Matt explains how "as these markets continue their chaotic path downward, people’s true colors come out." Matt has a "life is too short to deal with assholes" rule and explains it clearly.
Archive for the ‘Great Posts’ Category
We’ve gotten many emails over the past few days wondering how the meltdown is going to affect VCs and startups. The quick answer is "not much of an effect – so far." Just linking around, here are some posts that you might want to check out if you’d like to read more.
Mendelson’s Musings: How Does the Market Craziness Affect Venture Capitalists and Startups? – Talks about VC and Startup fundraising environments.
Feld Thoughts: Build Trust by Staying Steady in Rocky Times – Talks in detail about macro cycles, banking and how it ties to the VC ecosystem. Also see: Gloom and Doom – or Capital Efficiency – reference Fred Wilson’s posts on similar subjects and argues that we aren’t in the worst case scenario.
or see this presentation from Sequoia Capital which tries to put the current situation into historical perspective.
There are many other good blog posts if you go hunting around, but this should get you started.
Tom Crotty, managing general partner of Battery Ventures, has today’s best post of the day up over at PEHub. It’s titled The Portfolio Effect: Battery’s Tom Crotty on Why VCs Should Back at Least 25 Companies in Every Fund. Tom explains that, regardless of fund size, each fund should try to have between 25 and 30 companies to get the right scale and diversity. He doesn’t talk about the time frame for the initial investments in these companies; we’ve concluded from our experience that a three year cycle of initial investment (e.g. the 25 to 30 companies get invested in over three years) creates the right amount of time diversity.
Today’s great post of the day is from Fred Wilson titled The IPO Debate. There were no VC-backed IPOs in Q208 – the first time this has happened since 1978. The National Venture Capital Association (NVCA) is doing a big media push to get the word out about this and what it thinks is the underlying cause and ultimate impact on innovation in the United States. Fred has some great thoughts on the issue.
Fred Wilson has today’s great VC blog post up titled I Got Lucky. It’s the story of how Fred got into the VC business – going back to 1986.
I met Fred in 1996 the same day I met Seth Godin at Yoyodyne (which ended up being the first investment out of Fred’s new fund – Flatiron Partners.) Fred and I have been good friends since and I count him as one of my favorite people on the planet to work with. While it’s fun to read the story, the punch line is powerful and important for anyone that wants to get into the venture capital business.
If you want to be a top tier venture investor, you must be recognized as one of the experts in the field you invest in. When I was at Euclid, I used to watch in admiration as guys like Bill Kaiser worked the enterprise software business or Paul Ferri worked the communications equipment business. They knew the business cold and if you wanted to start a company in their area of expertise you went to them first. That’s what you have to get to if you want to make top tier returns in the venture capital business.
The way you do that is you work for at least ten years in the industry, getting operating experience, building a killer rolodex, and learning how the business works from the inside. Then in your mid to late 30s, you can make the move to the venture capital business, as a partner, not as a wet behind the ears associate who doesn’t know anything other than how to push numbers around a spreadsheet.
I did it all wrong and got lucky. I don’t recommend anyone reading this to try it the way I did it. If you choose to get an MBA, get a real job out of business school. Help to build a few businesses in an industry sector you really like. Become an expert in that industry. Then try your hand at venture capital. You’ll be much better at it than I was my first ten years in the business.
And don’t forget – eat your wheaties.
David Feinleib at Mohr Davidow Ventures has today’s great post up titled Why Startups Fail. Given all the consumer web stuff that got funded between 2004 and 2006, we are heading for another wave of failure as companies run out of gas after their Series B / Series C rounds and their investors lose patience with them. In addition, you’ve got the natural cycle of "well – it never really worked" – such as evidenced by the rumor from VentureBeat that Akimbo has thrown in the towel after raising $47m.
Josh Kopleman has today’s great post up titled How to "Ask for the Order". After I read it, I thought a better title would have been "Lubricating Commercial Transactions", but then again, I’m not a titleist (one who is excellent at making up titles.) I learn this lesson over and over again, especially after a company I’ve made a seed investment in gets a bill from their lawyer for $42,000 for doing very little on a financing.
So today’s "great post" comes from er… me. :) Okay, so my partner Ryan and I did a podcast last week with Larry Nelson of W3W3 and our conversation covered both the intellectual property and patent issues we’ve faced as investors in high-technology companies. We definitely have a love/hate (ok, mostly hate) relationship with patents, so if you are interested in hearing (or reading) more, check it out here. Note the excellent intro and outro music, or the "bumper music" as Larry refers to it — it is from Soul Patch’s latest album and is therefore straight from Jason’s and my personal intellectual property collection