The New VC Handbook

Sorry for the all quiet on the western front thing going on here; it has been a busy couple of weeks. 

Recently, I had an opportunity to listen to a couple of VCs who are, by all accounts, rock stars. These are the 100 million dollar to each partner type rock stars.  They were with a group of VC rock star wanna-be types. Given my rookie status, I’m not at wanna-be status yet, so I was somewhat on the outside looking in.

What struck me is how many people in my world simply don’t see what’s coming. I guess when you sit in a room and worry about where your pilot is while trying to help your yacht mechanic Google a part for the ice machine, well, what’s a little change in the industry.  What’s a bit more surprising is the whole group of folks who don’t have the planes and other toys, yet seem to want to cling to a rather old view of how to play the game.

So, I’ve been working on a bit of a VC playbook. In my view, it’s the way VCs today are going to have to think and act if they want to play with the really smart kids.  I’m sharing because I think you, as a start up, need to evaluate us with the same rigor we are supposed to be evaluating you and these ‘rules’ from the playbook might give you some points to think about. 

And I could be wrong, your mileage may very, don’t read why operating heavy machinery.

Customer service and being nice

Isn’t is amazing how VCs pound portfolio companies to love the customers, be responsive, etc, etc, yet feel perfectly okay with ignoring potential customers (you), being unresponsive, and generally dragging one’s butt in getting discussions to a conclusion that helps everybody move on.  I believe people who call, send an email, or otherwise contact me, deserves a response in a timely manner. It really is that simple.  If you contact me about your biotech idea, you should get an immediate no because we don’t do biotech in my firm, at all, under any circumstances. Lots of us, me included, tell you to read web sites, etc, and figure out what we do before you contact us, but sometimes you don’t and sometimes, for whatever reason, you contact me. 

You deserve a response even if that response is a fast no.  Yes, I understand the issues of SPAM and stuff sent to the general mailbox that has been blasted to everybody, gets tossed. But, personal emails, phone calls, faxes, the occasional paper mail product all get read and acted upon.

If you take the time, I should take the time.

Many of my brethren just snicker and laugh. You just wait, they say, wait until you get 200 emails a day.  My general view is that I should only be so lucky that everybody is pounding my door first. Bring em on.

How many times have you gone into a meeting with a VC and gotten a ‘thanks for coming by’ note usually before you are done for the day. Your time is as valuable as mine. Thanking you for thinking of my firm and my partners seems like a no brainer for me. Perhaps it is from the days where sending a thank you note was impressed upon me at an early age, but in general, I think the VC community has to be nicer to our customers and potential customers because the world is small and getting smaller. Bloggers talking about this putz or that goofy VC firm will start to have an impact if it hasn’t already.

We aren’t needed

I have a web service idea that automatically looks at your calendar, where you live, what you like to eat and creates a customized service that automatically arranges the delivery of lunch to your office, wherever you happen to be. If you indicate a lunch meeting, I’ll let you check the box on the invite to get lunch for everybody else.  Now, to get this idea up and running (ignore the pesky details, it’s a make believe example), I need a whole lot of nothing.

You will want to code something. You can get free open source stuff but let’s say you want to be a high roller and impress Robert Scoble or any of the other Redmond commandos. Nothing to it, download the free express developer kits from Microsoft. Then down load the free 90 - 120 day evaluation licenses with respect to some back end software or go free if you need it.  Then set up a free MSN blog, creating a lucid posting about how you are trying to solve a problem.  Then there is that little service that sits on your “device” and “talks” to you back end system to deal with all this. Need an Internet account and a way to speak with all the potential delivery services that would deliver to your particular location; that be pretty much it.

To get that up and running, with some customers, hitting milestones and a little bit of revenue will not require acres of green.  We live in an era where the cost to go from idea to a paying customer has dramatically dropped and with that drop comes the rise of credit card VC. Yes, that’s always been there; people putting up the house or maxing out the credit cards. The thing that has changed, however, is the dramatic lengths those credit lines can go.

Naturally, there is the notion of “smart money” where you get more then a check. We’d like to believe we are there to open doors, help with marketing, fill out roles in the company, help get the company ready for the big run, etc, etc.  My observation in all of this is that with everybody continuing to be more and more connected to everybody else, your ability to get the word out gets cheaper and easier and that translates into less need for the so-called ‘professionals.’ Yes, there is always getting above the noise issues and fit -n– finish issues, but the larger point, in my opinion, is your start up can go far, really far, before you ‘need’ us.  This ties into my first point about being nice because our firm wants to be the first phone call you make when the expansion capital or outsiders are needed.

Let the competition begin

We compete. You should know this and use this to your advantage.  There are simple things you should know/do that have been said before but are worth repeating:

– Go early. I do the 30 minute ‘no harm no foul’ meetings to give any start up a chance to socialize an idea/business plan, get some free feedback and begin the process on getting to know each other as early as possible.

– Go often. Keep us informed. Assuming you came by and I didn’t say our firm doesn’t do investments in your space, work out a way to keep us informed. It’s the best thing you can possibly do. In the first meeting, you’ve said here’s the general plan (with some milestones), what do you think. In the updates, you are saying here is what I’ve been doing against what we talked about.

– Compare. Who returns phone calls, gives feedback, sends suggestions (unprompted) your way, tries the product/service, etc, etc.

– Call em all. Get the list of CEO/CTO/CFOs of all the portfolio companies and call them. All of them. Don’t ignore this step. Seems simple and sounds like a check references suggestion but it is a very important step that virtually nobody follows through with. Call them all and ask the hard/tough questions.

– Look around the office. I know a VC who put a term sheet into a email rules/hosting/spam type company. The VC principal didn’t answer his own email. Had them printed out, replies sent back, etc, etc.  This person’s big pitch to the start up was, we can help you. We don’t read email, don’t struggle with spam or costs of maintain a server, etc, but we can help you.  The entrepreneur went with a group that started off the meeting with a saved file of spam, then asking the start up to filter it so they could immediately see if the company was any good. On the spot, let’s get do to it. The terms were not as attractive but they had the chops to deal with the entrepreneur.

I’m somewhat exaggerating but the point is clear, you should treat this just like any other important business decision; a little bit of planning and a whole lot of looking around to use the competition to your favor.

In my view, folks, we are going to see a ton of great new ideas, services, and companies in the coming months. It’s my hope that lots of the lessons learned during the previous insanity got learned by both sides, entrepreneurs and VCs alike.  Let’s collectively be careful out there.

And, come to Canada, we’re open for business.

Comments

[Jeremy Wright]

Rick, thanks for this. We're just starting the funding process, and we're really trying to find a company just like you describe.

Life's too busy for us to waste time on the wrong kinds of firms or investors. We'd much rather partner with the right firm and get a smaller deal than get a bigger package and regret if for years to come.

Again, thanks for putting things into better perspective. Plus, I highly recommend Canada. I love visiting the states, but something about doing business in Canada and working with companies here at home is so much more cooperative.

Have a great weekend Rick!

[Estelle]

Interesting that Fred Wilson from the A VC blog had a posting on
Nov 12 similar to your theme of importance of the entrepreneur, he writes about the VCs customer url is here
http://avc.blogs.com/a_vc/2005/11/the_vcs_custome.html

Estelle