No guarantees

Milestones are one way to measure a company's progress. But just because you hit your milestones does not mean your investors will continue to fund you. Understand that things can change, the environment you were working in is fluid. This is NOT SCHOOL! Turning in homework assignments is no longer enough. Understanding the marketplace isn't enough. Being smarter isn't enough. Performance counts. And you're not being judged just against the competitors in your field. But against everything else your investors can put money in. This was a harsh lesson of the bubble burst. Entrepreneurs went back to their investors saying "Hey, we spent your 3 mil. We got the performance benchmarks we said we would. How about that other 5 mil?" At which point, several of the companies were told that R&D funding was no longer available, and sales would have to compensate for remaining tranches. Most entrepreneurs felt that the rug had just been pulled out from underneath them (it had), and that the investors were re-writing the terms of the deal (they were). But looked at objectively, understanding you don't throw good money after bad, these companies were no longer good investment prospects.

At all times, remember that you are building a company. To believe otherwise is to invite doom.

Marketing Survey of 1

There are many rookie mistakes that can kill off a young company. The marketing survey of 1 has led many people off a cliff, based upon the whims of a single customer. Long ago, I was dissuaded of the thought that I could ever be the common man. I don't know what he wants, and can never guess where he's going to go.

Thus, because I can't figure it out, I might as well ask him. Even a lie will have some truth in it. And any answer I get will be closer than one I make up myself.

Don't try to get the item "perfect" before going out into the marketplace. Don't depend on guidance from just one source (yourself or anyone else). Go out there, ask stupid questions. Even in one person tells you something wrong, that false statement will get washed out

Mistake #1

In a move that will be known as mistake #1, I’m opening this post up for comment for 1 month. Comment on anything that will be said here, thrash my thoughts, or give me fodder.

However, I am looking for something, if you have any good suggestions on how to approach a VC, I would be interested in hearing them. If you have any questions on the topic, please put them here. I’m going to be running a workshop in the DC area. http://www.mitef.org/Programs/Angels.aspx The first workshop of the year will be on how to network and approach investors.

Giving Back

I’ve joined the nonprofit I Do Foundation http://www.idofoundation.org/. I’ll make the money pitch for them, and ask for donations to this 501c3. Yes, this means all donations made to them are tax deductible.

Why are these people so special? They leverage your donations to make a huge impact. They allow brides and grooms to share their wedding day with others, by letting a percentage from gift registry purchases to be donated to charities. Retailers are giving 3%- 5% of all gift purchases to a charity of the couple’s choice.

Thus, a donation to the I Do Foundation will result in your dollars doing more to help the charities they support. This is the type of leverage most investors enjoy seeing. $1 can act like $5.

This will be one of the better investments I make.

Often Wrong, never in Doubt.

I was reading the WashingtonPost article on Google's IPO , and realized this attitude was pretty pervasive in the VC community. We KNOW that several, if not most of our picks won't be home runs, quite a few won't even return the initial capital. This is why we take so much care/time in picking the deals to invest.

But investors support our investments. Always. To do otherwise is counterproductive. It also creates a bad feeling in your companies, and with your co-investors. So every investment we make is the right investment. Until proven otherwise. Also, every investment "seemed like a good idea at the time."

Where are you?

It has been described that there are 3 stages in the life of a VC.

1. Novice (Analyst)

a. Everything looks good, the world is covered in rainbows.
b. Numbers just go up.
c. Best technology wins

2. Apprentice (Associate)

a. Nothing looks good
b. Every Entrepreneur is wrong about their assumptions
c. Saying "No" is easy

3. Master (Partner)

a. Can say "No", Wants to say "Yes"
b. This isn't an easy job, it takes work to make good returns
c. Change what you can, Accept what you can't, and make good decisions

Where are you along this time line?

More importantly, where are your funders along this growth path?

Me, I'm not there yet.

There's one more level that's been suggested.
When you first enter the "Master" level, some successes will come about because of your personal actions/influence. This gives rise to the idea you can do "anything" with just a touch of your fingers. This is the mentality that created drive-by VC's. Pop in for one meeting, get introduced to the problem, give a simple answer, and move on. Most of the time, the simple problems required more complex solutions. The early successes also caused people to believe they could do MORE deals, and have the bad ones get washed out in the mix. Again, we saw this mentality in the late 90's, with larger funds, chasing too many deals, and just about every idea getting funded.

This will cause most funds to go broke.
The survivors of this mentality will know that the work is hard, it is possible to help a company succeed, but the battles need to be picked carefully. The companies need to be selected, and it's easier to know what approaches to use, when the investor has domain experience, not when he's out of his element. It makes for a great underdog story when you get a success in a brand new industry. But most successes come from the people who know what they're doing.

Answers before the questions.

Path is more important than the answers

I've been in a few meetings, where I've had my own agenda, plans and goals already decided.

I know what I want to be resolved, and I know where I want the conversation to go. I know I've succeeded in my agenda when the people I'm sitting with start to adopt and take my arguments over the finish line. If it's important, I'll set up Devil's Advocate arguments against my own goal, and let my partners do the convincing, and take ownership of the idea.

I learned a long time ago that ownership of an idea would not always give you credit, or results. I stopped caring on how to a decision, getting my 'input' considered, but cared more about the final decision itself. Ironically, this approach requires more attention to the process than the final result. Once your goal has been established, all the effort must now be focused on educating everyone else to the same conclusion. This is hard.

You can call it Jedi mind tricks, persuasion, or con-jobs. I don't care. Just get the resolution you need, in the Best way possible, and move on. You'll have other problems and other solutions ahead of you. Stop trying to relive yesterday's victory, prepare for tomorrow's hurdles.

Down the Rabbit hole

I first started by reading Jerry Colona's 9 ways to scare a VC article on Inc. From there I read his bio, looked at his blog, and fell into a wonderful mess of knowledge, experience and advice by following the links to Fred Wilson's and Brad Feld's blogs. Do I agree with all of the points brought up? No. (Probably because I have some more learning to do).

However, I do believe that the 'market' does know more than any individual. Thus, the more information you have available, the better decisions you will make.

Places

Places you want to be, Places you have to be, and transportation to get to the places.

This fairly summarizes the locations you're in. OK, we can even incorporate 'transportation' as a "place you have to be". Inside a vehicle, the immediate (2 inches away) surroundings are pretty much the same.

Why consider this?

Take it as a challenge to simply to the extreme. Many times it will clarify the problem. If nothing else, it will force you to eliminate the distracting noise, and let you focus on the problem itself.

Nit picks in presentation.

Some how, you don't get extra points for doing something well, you just get deducted when things go wrong.

Proper use of English is one element to improve (this blog being a good example of what not to do).

In reviewing many powerpoint presentations, one simple mistake shows up a lot.
Inconsistent headers and formatting.

Here's how to fix it. Once you're finished with your presentation, take your entire powerpoint presentation, and flip through the slides quickly. Not 1 slide per second, but try it at 12 frames per second (Film movies go at 24 frames per second (fps) and TV does 32 scans per second). The reason for this is to catch any glitches, jumps, changes in font size, position, etc. The human eye will catch these changes, once you catch them. FIX THEM.

People will tend to see the differences as "movement". This is the LAST thing you want, since the movement will distract them as you're doing a presentation. They'll spend time wondering what changed, instead of listening to the information.

Perception vs. Reality.

After watching a few poker shows on TV, I realized the stark difference between what gets edited, and what ends up on the screen. Most poker tournaments last all day, what shows up on the small screen is maybe 45 minutes worth of play. We get to see exciting bluffs, and key points in the tournament when someone is eliminated, or when an underdog manages to catch one of the 2 cards that will let him win, out of the remaining 44 cards in the deck. What we don't see are the flop&folds, or the times when someone who has the higher two cards just 'wins' because no one improved with the community cards. This is boring, mundane, ugly. But also the majority of play that happens during a tournament.

During a company's growth, most of what happens is mundane, ugly, boring. But necessary to the survival and success of that company. Enjoy and appreciate the flashy moments of your business, but don't let them distract you from the everyday activities. The sizzle is a result of a lot of hard work. Grinding away at a process, over and over again, until all the pieces fit in place. There are no accolades for those moments, but it was precisely those moments that allowed you to succeed against your competition.

No Guarantees

USA lost to Puerto Rico in Basketball, with NBA players. No one is going to anoint them the gold medal winners this Olympics. If they’re going to win, they’re going to have to play. No sweep for them. Can it be done? Right now, we’ll have to see.

However, just because you have good players is no reason to expect to win all your games, or succeed in business all the time. Find “Unfair” advantages. If I’m in a fight, there’s honor of doing battle on a level playing field. But there’s success if the odds are tilted in my favor.

Business is a very big battlefield. Don’t hesitate to use legal, ethical advantages when you can. It’s when you are skirting those guidelines that problems will arise. Protecting your business means you’re protecting the livelihood of your employees, and the local businesses. As a CEO, you have more responsibility that most people recognize. Most will never recognize what you do as valuable. They’re not supposed to, and you shouldn’t look to them for support. No one will guarantee your survival, it’s something you must shoulder on your own.

How to get a job in VC

Every so often, I'll be asked "How can I get a job in VC/Private Equity?" This is a good question. "Nice work, if you can get it, and if you get it, won't you tell me how."

I honestly don't know. Me, I got lucky. A friend, he went through the Kauffman Fellows program. Other folks made their millions first, and then started to invest with that money.

People have accused me of over emphasizing sales/customers, instead of getting a good, stable product. I do this, because usually the product is stable. You need both in order to have a real company. But most people work on making the item a good product, so the sales becomes the remaining challenge.

In getting a job in PE/VC. You ARE the product (yes, I'm stealing from other people now). So, the question remains: "Why you?" How will you save the fund money? How will you MAKE the fund money? How will you save the time/effort of the partners? Why will companies be more successful if you become part of the team? How will you avoid putting money into bad companies? Which companies can you take over immediately, thus freeing up the time of the partners to do other things?

All these questions presume a few things: You're smart enough to handle everything that gets thrown at you. You've the experience, maturity, capability to maintain and improve the fund's reputation. You have the skills in place so you're not wasting time in learning what to do. You won't make "rookie mistakes" on their time/dollar, with their companies.

So yes, the degree is helpful, experience is necessary, you have to pitch yourself as an expert in the field/area that the fund/group WANTS to go into, but doesn't have the in house talent.

Until you're a partner in your own fund, there is no job stability in this industry. No guarantee that you'll keep your job, no reassurances that the fund will be able to raise the next fund. Thus, I have to keep myself ready, and I need to build up the arsenal I will need to fight off all of the freshly minted MBA's, etc. who want to join the VC world.

I look forward to doing battle with you. And hopefully, we'll be able to work on a deal together soon.

For Another outlook

Jerry Colonna has been a more successful VC than I during the madness of the late 90’s. His Bio http://www.inc.com/resources/finance/bio.html is impressive. Either he’s good, or he’s been fortunate. In any case his bank account is probably healthy enough. Here’s a link to his blog http://madeleines.typepad.com/. He provides some alternative thoughts, to counter my stumbling in this industry.

I first read about him with this article on how not to get money from a VC, published in inc. http://www.inc.com/resources/finance/articles/20040701/intro.html#jump

In the end, the more you understand how VC’s work/don’t work, the better prepared you are to finding the right investors for your business.

Best Advice

Best advice I can give?

Don't listen to me.

When I encourage you, take it with a grain of salt.

When I disparage you, take it as a challenge to prove me wrong.

I have been, and will continue to be wrong. The lessons will keep repeating until I finally learn. You know what? I'm probably not going to learn.

So many folks I know always want to make the "right" decisions, before taking action. When the implicit decision they just made is always wrong!

By taking time to evaluate EVERYTHING to the point that you're sure what the right decision is, the window of opportunity has passed, and your default decision of doing NOTHING has been made. That's one that's guaranteed to be wrong.

In trying to reach your goal/destination. Of the infinite things you CAN do. ½ will get you closer to the destination, ½ will move you away from your goal, and 1/infinity will put you exactly the same distance away from where you want to be.

How do you decide which way will get you to your goal?

You don't.

You pick a direction, put a stake in the ground and move. After you've moved a bit, check and see where you are. If it's worse. You made a bad decision. Change it, fix it. If It's better, you made a good decision. Now comes the hard part. Re-evaluate, and start again.

Don't try to go back and do what you did before, that's just going over the same hurdles twice. But get closer to your goal, with the knowledge/experience/education you got in getting to your new starting point.

I'm not going to predict the future for you, I'm not that good.

Final thoughts

I was at a memorial service, and a friend wondered what the deceased would have wanted us to be doing at that time. The deceased was never religious, and while a somber ceremony would have appealed to his sense of grandiose, his true nature was one that was more upbeat. "I'm the guy who always laughs at a funeral." Was an accurate way to describe his attitude.

The mortality of the situation caused me to wonder, who would show up if I died today? How would people know? What recourses would my survivors have?

Planning a funeral, given Regan's recent ceremonial process, is important to do at some point. Presidents have everything planned by the first month. You can thank Harrison for that one (died in 30 days).

Along with the funeral plans, a will would be a good idea.

Prepare for how thing will end. It makes the journey easier

English is a dying language.

With filler noises such as "um, err, you know, like etc." a conversation that requires 2 minutes will stretch out to 20 minutes. It bothers me greatly, because such a conversation tells me the other person has not fully thought about what he wants to say, how he wants to say it.or what the point is.

How do you know that your message got accross, when you can't even figure out the message yourself?

Why you?

This is one of the questions you have to answer to get VC.

Any good VC will see plenty of investment opportunities on his desk.
Why you?
How will you return the capital invested, and a good return?
Why you, vs. every other investment instrument available now, or in the foreseeable future?

Trust, networking, value.
How do you get those if you've never met the investor before?

What value does a single sit-down meeting provide?

There is no entitlement to funding.
Just because you score well on the objective criteria doesn't mean you'll get funding. However, scoring poorly will almost never get you funded.

VC's can pick the best of the best.
So being among the 'good' isn't good enough.

Why should we care?

I work in the industry, and even then it's a question I find myself asking.

why should the guy on the other side of the phone care about my company? why should he invest in something I did, just because I thought it was a good idea?

Do the leg work. Research on their background, and what makes the other person tick.

Why me? What do I bring to the table that no one else does? How can I be of value to the company for something more than money. What is going to stop you from cutting me out of the deal, if I really like it?

An answer of "I don't know." does not suffice.
Figure out what and why.
If you can't figure it out. Then give a negative answer, and argue why that's wrong.