Archive for the ‘VC Post of the Day’ Category

Morgan: Why Entrepreneurs Should Never Meet VC’s Unless They’re Formally Pitching

Today’s VC Post of the Day is from Allen Morgan (Idealab, Mayfield) and is titled Why Entrepreneurs Should Never Meet VC’s Unless They’re Formally Pitching. In it, Allen explains – well – why entrepreneurs should never meet VCs unless they’re formally pitching. It stands out in direct contrast to a recent post from Mark Suster titled Invest in Lines, not Dots in which Mark strongly recommends the opposite – meet with your potential investors regularly in advance of actually fundraising.

So, what should an entrepreneur do? Both Allen and Mark justify their positions well, although in the comments Allen says his advice is entrepreneur centric and Mark’s is VC centric. Allen also suggests that the benefits of meeting with a VC pre-fundraising may outweigh the costs:

“For a great VC like Mark, the costs may (just may) outweigh the benefits. If you have a hot deal, however, Mark will behave like any other smart, rational investor and react only to competitive pressures.”

I’m going to strongly agree with Mark and respectfully disagree with Allen. While I think his comments apply to some VCs, I don’t think they apply to all VCs. Early on in Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist we encourage entrepreneurs not to think of VCs as single type as there are many different styles and behaviors. So, if Allen’s title had been “Why Entrepreneurs Should Never Meet Some VCs …” I’d strongly agree with him.

Both Allen’s post and Mark’s post are well worth reading carefully if you are an entrepreneur considering raising money and trying to decide whether to spend any time with VCs in advance of starting a formal fundraising process. But recognize that some assertions don’t apply. For example, Allen states:

“And, finally, no self-respecting VC will make a pre-emptive offer (even to get a deal early) if he thinks that he’s got the inside track on a deal. … No entrepreneur ever got a VC to substantially increase his initial offer merely by presenting more data (even great, persuasive data), showing why the startup should be valued higher. “

Well, either at Foundry Group we aren’t self-respecting VCs or Allen is wrong, as we make pre-emptive offers all the time and will negotiate on price regardless of external competition. And many of the companies we invest in are ones that we’ve had a relationship with for a long time. We also find ourselves extremely bored by formal pitches as our first or early interaction. If an entrepreneur shows up, says “hi, I have a hot deal with a bunch of folks bidding on it, do you want to see my formal pitch” we often say “no thanks, we aren’t the right guys for you.”

The bottom line – that both Allen and Mark put forth – is know your the motivations of the potential VC you are talking to well. And, if you believe, like we do that there are many different types of VCs, adapt your behavior accordingly.

Raouf: Should You Care About Your VC’s Investors?

Firas Raouf from OpenView Partners has today’s VC Post of the day up titled Should You Care About Your VC’s Investors? In it he covers some fundamentals about how VC funds are structured and then lists three things that the nature of the LPs of a VC firm will tell you about that firm.

  1. VC firm credibility: The quality of a VC can often be judged by the quality of its LPs. High-quality LPs invest in high-quality VCs.
  2. VC firm stability: Is the LP base stable, or is there significant turnover in LPs from fund to fund? Is there LP concentration, which would increase the risk of turnover? Are the LP funds stable enough to continue funding the VC over time?
  3. Exit Pressure: Are the LPs pressuring the VC for exits? What is the hold period that LPs are pushing for and how does it vary from the VCs period? How does either period differ from yours?

We cover a lot of this stuff, and more, in Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist in Chapter 8: How Venture Capital Funds Work but are psyched to see other VCs blogging about this in an effort to demystify how VC firms are actually structured, VCs are compensated, and what impacts their motivations at different points in the life of a fund or a firm.

Today’s runner up post is from Fred Wilson at Union Square Ventures titled 30/10/10 where he explains a pattern to the metrics he sees across his portfolio for both web and mobile apps.

Levine: Beware of ASSHOLE VCs

I love a good rant, especially when it’s from one of my partners. Today, Seth Levine has the VC Post of the Day titled Beware of ASSHOLE VCs. He talks in detail about his frustration with an experience he’s just had with a company he invested in unrelated to Foundry Group. He reminds us all to “check out your investors before you go into business with them.”

Go: Some Thoughts on Communicating With Your Investors

Rob Go from NextView Ventures has today’s VC Post of the day titled  Some Thoughts on Communicating With Your Investors. It contains some great advice for communicating with your seed investors (both VCs and angels), for building both commitment from your early VC seed investors, and creating a cadence that is effective.

Fred Wilson of Union Square Ventures MBA Monday’s post titled Financings Options: Venture Debt is the runner up. Fred continues to knock it out of the park with super useful information in his MBA Monday’s series.

We also owe a special thanks to Mark Suster of GRP Partners for his awesome review of Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist which he ran first on TechCrunch and then on his blog titled One Book Every Entrepreneur and VC Should Own. Mark – we humbly thank you for your incredibly kind words.

Ehrenberg: Financing your start-up

Roger Ehrenberg from IA Ventures has today’s VC post of the day titled Financing your start-up. He covers some very relevant ground talking about what he thinks are the key variables an entrepreneur should consider with regard to her financing strategy: (1) Founder objectives and mind-set; (2) Business potential; (3) and Interpersonal dynamics. As with many things in life, Roger states something that we strongly believe: “But at the end of the day, interpersonal dynamics plan a vital role in any financing plan for a business of any size.”

Today’s runner up is from Mark MacLeod at Real Ventures titled Will VCs block and exit? It goes down nicely as dessert to Roger’s meal.

VC’s Talk About Better Board Meetings

The theme of the VC post of the day today is “better board meetings.” We noticed two VC’s blogging about this so we thought we’d highlight both of them.

The first is from Robert Siegel of X/Seed Capital titled A Thought on Board Meetings. In addition to saying nice words about previous posts from Brad on board meetings, he builds around the idea that “In the end, a Board really does one thing:  Hire and fire the CEO.”  He strongly suggests that “Therefore, no matter how much one likes his or her Board, and no matter how much one’s Board likes the team, management always needs to come prepared to Board meetings – one simply cannot “wing it” – even if things are going well for the company.

The other is from Firas Raouf of OpenView Partners titled How To Run A Good Board Meeting?. Firas has seven practical steps for running a good board meeting.

Brad’s been on a quest to reinvent board meetings and has started with his portfolio. While it’s rumored that he is making good progress, these posts are solid suggestions for improving traditional board meetings.

Suster: Don’t Cede Control: Why You Need to Cut out Middle Men in Negotiations

Today’s VC post of the day is from Mark Suster titled Don’t Cede Control: Why You Need to Cut out Middle Men in Negotiations. Mark has an outstanding blog, speaks from the experience of being both a two-time entrepreneur as well as a VC, and loves to write detailed, thoughtful, and very useful long form blog posts full of examples, anecdotes, and wisdom.

This one is no exception. If you are an entrepreneur, you’ll understand why you should take responsibility for the negotiation. If you a VC, Mark will remind you to be a big boy or girl and actually do the work, rather than try to pawn it off on someone else. And, the next time you think about some government negotiation, just remember that everyone is DC is actually a middle man for the people who elected them.

The runner up post today is Roger Ehrenberg’s titled Why investors matter. Roger is also an entrepreneur turned VC after a tour as an angel investor so he covers things from both the entrepreneur and VC perspective.

We’ve subscribed to a bunch of other VC bloggers who are listed on the right sidebar of AsktheVC. If you notice anyone missing who you think we should be following, please email Brad.

O’Donnell: Live In The Problem

Our new motto over here at Ask the VC is “we read all the VC blog posts so you don’t have to.” We’ll give you the best one of the day with a quick summary and – if there are runner ups, include them also. Of course, we are never entirely sure what day it is so these might be from yesterday, today, or even tomorrow when we are really ahead of our game.

Today’s post of the day is from Charlie O’Donnell at First Round Capital titled Live in the problem, not in the solution: How customer development has gone awry. Charlie acknowledges up front that he’s not a Lean Startup zealot, although he thinks there are a lot of positives to the Lean Startup approach. He then goes on to talk about the challenge of applying the customer development approach to a domain you know nothing aboutl

“What’s lacking is an innate understanding of the customers problems before they go through the ideation phase. I find that some of the most sound entrepreneurial efforts are one where the founder has lived the problem uniquely in some way. Either they actually were the customer (and by customer I mean someone who pays for this kind of service) or they’ve literally spent years thinking about it–as an enthusiast or insider. “

We’d add a small comment to this – it’s really hard to be an entrepreneur around something you aren’t passionate about. This is tightly linked to Charlie’s point, as it’s hard to know a lot about something you aren’t passionate about.

Today’s runner up is Fred Wilson’s MBA Monday post on Financing Options: Preferred Stock. We cover this extensively in Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist, but Fred does a nice job of introducing the concept.

500Startups: Cohort Metrics For Startups

Today’s VC post of the day is from Dan Martell.  Dan isn’t a VC, but is a super-mentor for 500Startups and is the Co-Founder of Flowtown, But more importantly, he’s written two excellent blog posts on Cohort Metrics. Don’t know what a Cohort Metric is? Shame on you – go take a look at the posts right now.

Many VCs and entrepreneurs care about metrics. But they often care about the wrong ones, or don’t understand the ones they are looking at, or think metrics is the way they measure things in Europe. Dan’s posts are a great introduction to understanding how to think about cohort metrics, which makes your metrics a lot more valuable.

Bussgang: Why You Should Eliminate Titles at Start-ups

titles suckAs we crank up AsktheVC after a nice long hiatus, we are going to start putting up the VC Post of the day. There are now tons of VC blogs – some great, some ok, some meh, and some embarrassingly bad. But we’ll save you the trouble of reading them (if you want us to) by posting our favorite post of the day here.

Today’s post is from Jeff Bussgang of Flybridge Venture Capital titled Why You Should Eliminate Titles at Start-ups. Before Jeff was a VC, he was a co-founder, and before that he was an operator. He tells the story of both of these experiences – and how he learned that internal titles should be eliminated at startups.