How to deal with VCs

I came across this post while browsing the Tech Crunch forums. It comes the blog of a company called AdvisorGarage, which bills itself as a "dating site" for entrepreneurs to meet business advisors and investors.

The post is a handy "how to" site for dealing with  VCs. It's one of the best and most concise lists about what VCs look for, what kind of deal to expect, what kinds of VCs are out there and how they work. Plus, it manages not to brand us all as evil (which is a plus, at least in my book).

At any rate, you should pay especial attention to the section about what VCs look for:

3) What Were the VC’s Looking For?
The obvious answer is ‘well that depends on the VC’…this is true, to a degree.  We probably met 25 different VC firms and they all seemed, at least initially, to want very different things.  But after a time, a pattern seemed to emerge…they all seemed to be interested in nearly the same things but the weightings they placed on each differed.

What were they?

i) The Team
The strength of the team was almost everything!  Even the best business model with customers clambering for the product can still fail if the wrong team is at the helm. Likewise, the right team can take a mediocre business and make it shine.
ii)  The Opportunity
How big could this business be?  Will it be a $10M or a $100M business in five years?  How defensible is it?  Who are the Competitors?  Who are the potential customers?VCs are trying to determine - Risk VS. Reward.  VCs need to deliver a return on their investor’s money…as a certain number of companies fail, they need a 3 or 5 or 6 X of their original investment.  The actual number obviously depends on a number of factors.
iii)  The Differentiator/Uniqueness:
Why is this business different? What does it have that other companies do not?  What will make customer buy from this company?

iv)  Exit Strategy: How can we (as VCs) realize our investment? Read - How can we get our multiple back? Will this company be acquired? Can it be a candidate for an IPO? Or will it bumble along for many years make a steady but unexciting profit?  Guess which ones the VCs will invest in…

The importance of the management team can never be emphasized enough. Take two companies with the exact same idea and you'll find that one might succeed and the other fail solely on the basis of the management.

They have some good tips about what you can do to prepare yourself for meeting VCs as well. Check out the full post here.

Comments

[Aner Ravon]

Interesting posts and congrats on the blog! I touched on it in my latest post.

[Andrew Ive]

Thanks for mentioning Advisor Garage. We are six weeks old but thankfully have already signed up close to 400 advisors and entrepreneurs. Having started a few companies - our goal with Advisor Garage is to reduce the time and challenges of starting great businesses. For us, getting the right people together is the key.

As our marketing budget is measured in the spare change in our pockets, it would be great if your readers could recommend us to great Advisors and entrepreneurs.

Thanks again

Andrew
http://www.AdvisorGarage.com

[Andrew Ive]

Just wrote a little article on 'What Makes a Great Startup CEO' - would welcome your thoughts. As a VC you probably have an interesting perspective and your own ideas.

Andrew
http://AdvisorGarage.wordpress.com