Startup Creation Guide, Part 9, and The Truth About Venture Investors
Part 8
No If none of the founders of a startup can be a CEO, sell the company immediately.
This is how an unexpected series of articles about creating a startup ends. And another begins, also containing the necessary information for startups.
')
Many have their own opinions about venture capital investments. The pros and cons of venture investors (VIs), whether to look for a VI, who can get money from one of them, how to get an investment from a VI, are VI experienced risk professionals or mentally unbalanced sociopaths who hate entrepreneurs ...
Often, such opinions are based on a single case that occurred with a particular person, or the unpleasant experience of someone of your friends - as usual, people are more inclined to share negative than positive. I will try to share my own, - I hope, rather broad - opinion on this matter.
I’ll say right away that my experience is no more correct than the experience of any other entrepreneur - everyone has their own experience, and differences are quite possible on this issue. Personally, I was: co-founder of two start-ups that attracted investment from VI, which later went public (Netscape, investment from Kleiner Perkins; Opsware is an investor in Benchmark); co-founder of the third startup that did not receive the investment (Ning); was a business angel, or a member of the board of directors, or another dozen entrepreneurs who received investments; He was an investor (junior partner) in a decent amount of venture funds. And all this for the period from the failure of the early 90s and ending with the boom of the late 90s, then with the collapse of the beginning zero, and until the end zero. And I seem to be beginning to understand why I have almost no hair left.
The main thing that you need to understand about the VI - they are engaged in a very highly specialized business . They collect large amounts (often more than $ 100 million) today to invest in several high-risk startups over several, usually from 3 to 4, years. The legal lifespan of a fund is usually 10 years, so this period is the absolute maximum. And they usually plan (and their investors are waiting for this) a refund 4-6 years after the investment. This is a realistic return on investment. Working according to this scheme, they usually adhere to baseball statistics: “out of ten strikes on the ball, usually 7 are bad, 2 are good and one is lucky if you are lucky. These 3 hits pay off 7 bad ones. ” 7 bad investments out of 10 do not work because VIs are stupid. This is all because most startups fail. Most startups always fail and most startups will always fail.
Therefore, logically, their strategy should be (and is) the following: 10-fold return on invested money in 4-6 years . So that the winners pay the losers for the expected time. Hence the answer to the question of whether a startup needs to seek investment. If a startup has the potential for 4-6 years from the start of financing to be sold or to go to the stock exchange with an income 10 times higher than investment - then you can search for them.
Most of the remaining startups do not need to look for investments. This, for example: startups in which the founders want to remain independent for a long time; startups that cannot make a tenfold profit in 4-6 years; startups working on projects that can not be done in 4-6 years. And, by the way, there are a lot of businesses in the world that are profitable and enjoyable, but they cannot meet these requirements, which do not have the necessary “ financial leverage ”. for profits. That is, they cannot do something once (a program, a chip design, a website) and sell it to a crowd of people (1000 business buyers or 10 million private buyers) to get a classic income chart called a hockey stick. :
VIs should not, and will not, invest in companies that do not fit this criterion. Not because they are bad companies, but because their own investors will not harness themselves. The world is full of excellent entrepreneurs who want their business to remain small, who do not want to sell their companies or go public. This is great, and they just do not need investment from the VI.
On the other hand, if a business is built in such a way that it can meet the criteria of “10x, 4-6 years”, it is simply obliged to look for investments, for three reasons:
First , you get the funds to invest in a business so that it can grow at the right speed and realize its full potential. Of course, it is nice to say that you do not need investors and you will do everything yourself, but in my experience, if a business has good potential, you need to raise funds, invest them and grow a business as big as possible - and for that " angel capital or the capital you have collected is usually not enough.
Secondly , you receive funds from a professional VI, who has this main occupation, and the meaning of existence. Other types of investments in a fast-growing startup will be harder to deal with.
Thirdly , at least you get help in nurturing your fast-growing business from your partner investor. When VI rejects you, there is nothing personal about it, and usually it is not because it is stupid. There may be the following reasons for this:
1) He does not see your financial leverage. Does not see the possibility of selling or entering the stock exchange with a 10-fold increase over 4-6 years. If he does not see this, and a dozen of his colleagues from other firms do not see it, you better reconsider your business model and understand what is missing. Indeed, it is in his best interest to see the potential in your business - he is looking for startups with high potential.
2) He thinks the time is not right for your idea, or it is not very convincing. This is something that makes entrepreneurs crazy. Isn't the point of VI to invest in risky, flimsy technologies and markets? But such is life. Sometimes things have not grown to VI. In this case, work out the idea using your own means and business angels, and then bring the idea to VI already with a lot of evidence.
3) He does not like your team. Usually, this means that it does not seem to him that your techie is strong enough, or that the CEO is strong enough. It is in the interests of the VI to see the potential of the team - so if a dozen of his colleagues also reject your team, it's time for you to reconsider it.
There are many more reasons why a VI can reject your application and which are not related to you at all:
- he liked it, but he thinks that he will not be able to persuade his investors
- he is fully occupied and he has no time
- he will have to ride, but he does not like it, or he does not have the opportunity
- you go to an unknown market
- he had a bad experience with a similar business
What is unpleasant, he most likely will not tell you the reason why you are refused - usually because he does not want to burn bridges for possible future appeals (when, for example, your potential will be better seen). Therefore, if the VI rejects the application, but explains the reasons - no matter how it seems rude or unfair to you, it is best to thank him for his honesty.
Part 2
Startup Guide, Part 9: How to hire a professional CEO (CEO)?
No If none of the founders of a startup can be a CEO, sell the company immediately.
This is how an unexpected series of articles about creating a startup ends. And another begins, also containing the necessary information for startups.
')
The whole truth about venture capital investors, part 1
Many have their own opinions about venture capital investments. The pros and cons of venture investors (VIs), whether to look for a VI, who can get money from one of them, how to get an investment from a VI, are VI experienced risk professionals or mentally unbalanced sociopaths who hate entrepreneurs ...
Often, such opinions are based on a single case that occurred with a particular person, or the unpleasant experience of someone of your friends - as usual, people are more inclined to share negative than positive. I will try to share my own, - I hope, rather broad - opinion on this matter.
I’ll say right away that my experience is no more correct than the experience of any other entrepreneur - everyone has their own experience, and differences are quite possible on this issue. Personally, I was: co-founder of two start-ups that attracted investment from VI, which later went public (Netscape, investment from Kleiner Perkins; Opsware is an investor in Benchmark); co-founder of the third startup that did not receive the investment (Ning); was a business angel, or a member of the board of directors, or another dozen entrepreneurs who received investments; He was an investor (junior partner) in a decent amount of venture funds. And all this for the period from the failure of the early 90s and ending with the boom of the late 90s, then with the collapse of the beginning zero, and until the end zero. And I seem to be beginning to understand why I have almost no hair left.
The main thing that you need to understand about the VI - they are engaged in a very highly specialized business . They collect large amounts (often more than $ 100 million) today to invest in several high-risk startups over several, usually from 3 to 4, years. The legal lifespan of a fund is usually 10 years, so this period is the absolute maximum. And they usually plan (and their investors are waiting for this) a refund 4-6 years after the investment. This is a realistic return on investment. Working according to this scheme, they usually adhere to baseball statistics: “out of ten strikes on the ball, usually 7 are bad, 2 are good and one is lucky if you are lucky. These 3 hits pay off 7 bad ones. ” 7 bad investments out of 10 do not work because VIs are stupid. This is all because most startups fail. Most startups always fail and most startups will always fail.
Therefore, logically, their strategy should be (and is) the following: 10-fold return on invested money in 4-6 years . So that the winners pay the losers for the expected time. Hence the answer to the question of whether a startup needs to seek investment. If a startup has the potential for 4-6 years from the start of financing to be sold or to go to the stock exchange with an income 10 times higher than investment - then you can search for them.
Most of the remaining startups do not need to look for investments. This, for example: startups in which the founders want to remain independent for a long time; startups that cannot make a tenfold profit in 4-6 years; startups working on projects that can not be done in 4-6 years. And, by the way, there are a lot of businesses in the world that are profitable and enjoyable, but they cannot meet these requirements, which do not have the necessary “ financial leverage ”. for profits. That is, they cannot do something once (a program, a chip design, a website) and sell it to a crowd of people (1000 business buyers or 10 million private buyers) to get a classic income chart called a hockey stick. :
VIs should not, and will not, invest in companies that do not fit this criterion. Not because they are bad companies, but because their own investors will not harness themselves. The world is full of excellent entrepreneurs who want their business to remain small, who do not want to sell their companies or go public. This is great, and they just do not need investment from the VI.
On the other hand, if a business is built in such a way that it can meet the criteria of “10x, 4-6 years”, it is simply obliged to look for investments, for three reasons:
First , you get the funds to invest in a business so that it can grow at the right speed and realize its full potential. Of course, it is nice to say that you do not need investors and you will do everything yourself, but in my experience, if a business has good potential, you need to raise funds, invest them and grow a business as big as possible - and for that " angel capital or the capital you have collected is usually not enough.
Secondly , you receive funds from a professional VI, who has this main occupation, and the meaning of existence. Other types of investments in a fast-growing startup will be harder to deal with.
Thirdly , at least you get help in nurturing your fast-growing business from your partner investor. When VI rejects you, there is nothing personal about it, and usually it is not because it is stupid. There may be the following reasons for this:
1) He does not see your financial leverage. Does not see the possibility of selling or entering the stock exchange with a 10-fold increase over 4-6 years. If he does not see this, and a dozen of his colleagues from other firms do not see it, you better reconsider your business model and understand what is missing. Indeed, it is in his best interest to see the potential in your business - he is looking for startups with high potential.
2) He thinks the time is not right for your idea, or it is not very convincing. This is something that makes entrepreneurs crazy. Isn't the point of VI to invest in risky, flimsy technologies and markets? But such is life. Sometimes things have not grown to VI. In this case, work out the idea using your own means and business angels, and then bring the idea to VI already with a lot of evidence.
3) He does not like your team. Usually, this means that it does not seem to him that your techie is strong enough, or that the CEO is strong enough. It is in the interests of the VI to see the potential of the team - so if a dozen of his colleagues also reject your team, it's time for you to reconsider it.
There are many more reasons why a VI can reject your application and which are not related to you at all:
- he liked it, but he thinks that he will not be able to persuade his investors
- he is fully occupied and he has no time
- he will have to ride, but he does not like it, or he does not have the opportunity
- you go to an unknown market
- he had a bad experience with a similar business
What is unpleasant, he most likely will not tell you the reason why you are refused - usually because he does not want to burn bridges for possible future appeals (when, for example, your potential will be better seen). Therefore, if the VI rejects the application, but explains the reasons - no matter how it seems rude or unfair to you, it is best to thank him for his honesty.
Part 2
Source: https://habr.com/ru/post/238389/
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