Several good posting this week on How to choose a VC from a CEO perspective from
Fred Wilson and Jeff Nolan and Feld. and Ed Sim and Matt Blumberg.
To add to the existing dialog, I would also mention to a CEO looking for funding, and wondering how to choose a VC that:
- VC groups have they own lifecycles; a given VC fun has a life of 10 years, and an investment period of 4 to 5 years. It’s important to understand where a group is in it’s cycle, how many years until the end of the investment period, and how many years until the group will go back to it’s investors to raise a new fund. This will have a significant impact on the risk-tolerance of the general partner group, and its patience.
- VC manage they portfolio risk as a whole, a new investment will be a new element in the existing portfolio, and the general partner behaviours (and the pressure of its partner during the regular quarterly portfolio review) will be a function of the overall health of the portfolio. It’s important to due-diligence the overall portfolio, and get a sense of how well is each existing investment doing.
- VC have long memories, in the last 5 years, we have each build a list of A-guys that we trust and value, and will do deals with in the future, and of C-guys that we would not do the next Google with, even if we could. You should get a sense of the general partner relationships, and what open or closes the addition of a new investor to your company.
-Board have a maximum size (in my eyes 5), and before adding a new investor, and a new board member, you should thing about who you will remove to keep your board size at the right level and avoid inflation. I have sat on board of 7 or 9 members, and they are a recipe for trouble, as chance for divergence and dysfunctional behaviours are then too high.
And if/when things will go south; you can always practice the art of firing you board members, according to Jerry Collona...
Marc,
Hate to provide a little dissonance here, but my take is the VC/intermediary market is being (if not has already been) disintermediated. The basis for my dissertation is this: look at your own recent posts (and references) and SOA, WiMAX, etc.
Starting with SOA first: what does it cost to throw up a service like flickr? Between 2 and 4 man months of effort? What does a hardware box or colo in a data center cost these days? Given the costs, what sort of investment did stewart need?
Getting to WiMAX, or fixed wireless in general - what does it cost to be a low-cost isp operating in LE spectrum? Not much. Can you work around interference? Not without some DFS scheme, but that'll get there eventually too. Sure, the big boys will all want gear in licensed spectrum, but then, it is for them that it is a choice between wimax and 3G/4G. For the rest of us, s@#$, we can make pigs fly for a lot less.
I know this comment is rather incomplete, and leaves a lot out, but I gotta run ...
Posted by: Venki Iyer | October 02, 2004 at 11:19 AM
Venki,
I would actually disagree with, or at least nuance, your post. It is true that a number of interesting B2C services (Flickr, Buzznet, SixApart, Oddpost,...) have been started by entrepreneurs on their own dime, and have managed to attract a large user base through "word-of-mouth" marketing.
However, at some point, these services need some capital in order to build up their infrastructure, as well as allow the entrepreneurs to get compensated for their efforts, in order to build a "real" company. At that point in time, they might only take "angel" money (like SixApart, and more recently Flickr) but eventually they will face the issue of funding an accelerated growth, even if they are more or less break even. Because if they don't, unless they generate substantial cash flows, they face the risk of seeing a very well funded company catch up with them. Alternatively, they can be "taken out", like Oddpost by Yahoo!, for a price that makes founders, employees and angel investors quite happy ($29 in that case).
It is however a different story in enterprise software where building enterprise solutions, sold through a direct sales force, is difficult to execute without a a substantial investment.
Posted by: Jeff Clavier | October 04, 2004 at 08:32 AM
Just to make the implicit explicit: the acquisition price of Oddpost was $29M. They had only raised a couple of million dollars, in addition to the capital invested by the founders to bootstrap the company.
That story is featured in the last Business 2.0: http://www.business2.com/b2/web/articles/0,17863,696229,00.html.
Posted by: Jeff Clavier | October 04, 2004 at 11:32 AM
I told my gramdonther how you helped. She said, "bake them a cake!"
Posted by: Koyie | January 31, 2012 at 09:59 AM