Archive for September, 2009

The four breeds of VCs

Seeing a lot of healthy debate on Venturewoods regarding  the VC – entrepreneur relationship and even some amount of VC bashing in comments, I thought of summarizing my own experiences so far.Having talked, met and pitched to several Indian VCs, I have discovered four distinct breeds which are obviously broad categorizations based on my own perceptions.My gut feeling is that most VCs will be alternating between these breeds depending on not just their own personality/motivation but also by what reaction they have to your team, plan, business. Evolution from one breed to another breed over time is also observed.

Disclaimer: Some of my very good friends are VCs and some of the best people I know :)

So here they are : 

1) The Time-Wasters

The most common breed, the “Time Waster” replies to your 3rd email, schedules a call 2 weeks later, and then when you ping him/her several times offers to meet you.

He/She kicks off the meeting with an associate or analyst talking to you and comes into the meeting late, answers phone calls during meetings, walks out early, tells his/her associate to continue the discussion / follow up. You can also identify the time-wasters by the questions he/she asks which are so basic that you wonder whether he/she has even bothered to Google you or your company. After the meeting, the Time-Waster will seldom get back to you with feedback, and even if he does, it will be so generic (stuff like we are not investing in early stage internet) that you will scratch your head wondering hmm… he could have told me that in reply to my first email.

The Time Waster makes you feel like he/she is doing you a big favour just by giving you some time, or that you haven’t come from the right school, background or pedigree to merit his/her attention. Even if you are lucky enough to keep pursuing the Time Waster patiently until a termsheet , it is likely that the Time Waster will find other worthy things to do at that point or will come back with some absurd terms/valuation since he/she never got enough time to do any diligence to build a solid enough case.

This breed is an inefficiency in the VC ecosystem, and in seed/early stage can harm the company more than they good to it since the company has very little time on hands. Also, it shows serious lack of both professionalism and mutual respect for time. 

 

2) The AntiThesis Believers

These VCs have already formed a belief that your business/space/stage of business sucks and is not worthy on investment. Most of the time, this is a direct result of their belief that an alternative business model / related company will work out, or as a result of burnt fingers in your space.

This breed will want to talk to you and question you to confirm their belief that your model is failing or fairing average just as they expected it to. Besides being very stiff, skeptical and reserved (they will never tell you what is going on at the back of their head), they might sometimes also voice their skepticism in a more direct manner, encouraging you to try something very different – “have you looked at the X space?”, “Why dont you try to build Y instead?”, “I would be quite interested in someone doing Z in your space.” Some will go to the extend of shaking their head and saying – “How will you ever make money?” or the more direct and demotivating “I doubt if someone will even invest $100K in your business” etc.

You can identify this breed by their general casual attitude, less questions asked about your team/capabilities, sometimes not having done much homework on your model/product either. It is unlikely that a meeting with them will last beyond 30 minutes, and most of the time you will know they fall in this category right after the first meeting.

This breed is the one most likely to pass on the next Google & Facebook because they might believe in a Yahoo! or MySpace.

No grudges against them at all – entrepreneurs work passionately to prove them wrong everyday. But please, O anti-thesis believers, don’t try to tell the poor guy all his dreams and hard work are worth nought.

On the other hand, entrepreneurs should listen very closely to what these naysayers have to say and try to understand why they are saying it. Some of their feedback might be right, and you might end up being on the wrong side of history if you dont fix it :)  

3) The Partners

And then there is the third kind – also known as the Mentors or the Good Guys. This rare breed is my favorite and are the ones I would always want to work with. These people are rational, debating, honest, upfront, friendly, warm, supportive and are in the VC business to “genuinely” help build an entrepreneurial ecosystem in India.If they dont like something, they will explain in detail why. These people want to undertand your business on a whiteboard and dont want to waste much time on powerpoints / excels.

The partners are quick to identify since they would have done research on your space and will ask you a lot of relevant questions about your team, product, tech, model etc. and make you meet their partners / team with willingness. You can identify with them. Most of these have been entrepreneurs themselves or appreciate what the entrepreneur is going through at any point in his/her lifecycle. Most of all, they give the entrepreneur the respect and support he/she craves for and try to work as a team even during the pitch. After all, whether you fund the idea or not does not mean you cannot help the entrepreneur overcome challenges and offer him suggestions for improving his model, upside etc.

Despite their biases and skepticism, these people take some time out to understand your idea, your team and your business model better and will tell you in the first or second meeting where your challenges are. They will also want to spend time with you to help you overcome those challenges. They will make introductions that help your business grow. Whether they invest in you or not is usually just a function of tweaking your model / timing / stage / expected return.  They will keep tracking you.

It is this breed that gives the VC world their good reputation and that keeps the ecosystem flourishing !

4) The Sniffers

The fourth kind is very very rare breed and VCs will question their very existence; entrepreneurs with horror stories tell you about them all the time and you run into them yourself once in a while.

The fourth kind looks, dresses, smells, behaves and acts like the third kind but is actually a mix of the first and the second kind. His objective to meet you and look at your plan was just to get valuable information to support/debunk a thesis he had been working on or do groundwork for investing in another company in your space, or to just improve their “intelligence” about your space/company.

I sincerely hope that natural selection will make the fourth kind extinct soon or evolve into the third kind. I also hope entrepreneurs will find a way to identify the fourth kind.

To sum up, my thesis is that VCs keep metamorphosing between these breeds depending on the situation, the partner leading the deal, the deal itself, or the stage of company.  My antithesis believer  could be your time waster, and your time waster could might as well be my partner.

Alok – Keep up the good work keeping the open discussion between VCs and entrepreneurs going !

Aloke

iXiGO.com

TiE ISB Connect 2009 is on October 22-23 in Hyderabad

TiE-ISB Connect ’09 will be held on October 22nd and 23rd, 2009 at Hotel Marriott Hyderabad. Organized by the TiE, Hyderabad Chapter and the Wadhwani Centre for Entrepreneurship Development (WCED), ISB. This year TiE-ISB Connect will focus on looking beyond the current challenges and focus on the real issues that face entrepreneurs as they establish and grow companies.

The conference is uniquely organized around a series of events that focus on stages of growth. If you are a starting entrepreneur you must consider attending JumpStrat your Enterprise, the Company Showcase and Panels on Seed Funding. If you are already well on your entrepreneurial journey we have something for you too: a focussed Discussion on Follow on Financing. For company executives we have discussions on growth stage funding.

In line with our changing times, TiE ISB also looks at business opportunities for the Next 800 million and to reinforce the theme of looking beyond the current crisis will have an exhilarating discussion on India Poised as opposed to India Paused.

Please visit http://www.tie-isbconnect.com to know more and register

Does your VC suck?

Paul Jazefak has an interesting post on VC bashing. I was at the TiECon last week chairing a panel around fundraising, when the ultimate happened – a VC on the panel started bashing VCs! How much worse can it get :)

I think part of the issue here is a lack of understanding of the VC business – VCs are not angels (as much as angels arent – no pun!) They are in a business. However, in my view, there is a “value system” to each business and each individual. For VCs, my list would include integrity, empathy, access, humility, partnership and fairness. Not just because its good human nature to have these (which is true of many other things I didnt put up here, such as transparency,) but because these are values that IMHO help build a great VC business.

For folks out there who have pitched or tried to pitch to VCs, what have been the biggest frustrations and delights? For people who actually have VCs invested in their companies, what do you appreciate about them and what is it that you’d like them to change?

Update: Someone commented on this article on facebook, saying VCs suck because most of them have no operational experience. Does that really matter? Check out this analysis by pehub – doesnt seem to say so. But then, nice rebuttal here.

TiECon Delhi from Sept 18 to Sept 19

TiECon Delhi is about to happen at Taj Palace Hotel, SP Marg, Chanakyapuri, Delhi, Sept 18-19, sessions from 9:00am onwards and networking dinner/cocktails at 7:30 pm on 18th Sept, 2009 (Website: www.tienewdelhi.org ) .

Dont Know what’s TiE ? Never heard of TiECon ? Then read right on…

Continue reading ‘TiECon Delhi from Sept 18 to Sept 19′

Positioning to Win is the theme for the NASSCOM Product Conclave 2009 – 27th, 28th October 2009

product-conclave
It is time yet again for NASSCOM Product Conclave, India’s leading and most prestigious platform for the burgeoning software product development community.

The exhibition-cum-conference, a Mecca for the country’s “software product” innovators, will be held in Bangalore on October 27-28, for the third consecutive year.

Continue reading ‘Positioning to Win is the theme for the NASSCOM Product Conclave 2009 – 27th, 28th October 2009′

TiE Con Delhi | Offer to Venturewoods Community

TiE Delhi has extended an offer to Venturewoods community for their annual flagship event – TiE Connect (18th & 19th Sep)

1. First two people will get a free invitation for the entire event
2. All will be able to avail TiE membership rates for the event (Rates offered to TiE members are subsidized as compared to non members).

To avail both the offers – people have to mail to Manish Joshi (manish@tienewdelhi.org; 9971766455). First two – will get free offer from TiE

Please refer to the event site: http://tiecon-delhi.org/index.asp for more details.

WSJ: Time required to build software companies

WSJ Venture Capital Dispatch has an interesting article on how long it takes to build large (defined there as time to get to $50M revenue) software companies. The answer: 8-9 years on an average if the sample is top 100 public software companies. Thats pretty long, given that the sample is really the top end. Clearly has interesting implications on how well (or not) the venture model of 5-6 years of holding period applies to software companies.

Dashboard at 570

Dashboard at 570