The Four Main Things that Investors Look for in a Startup

Posted on Oct 6, 2010 | 64 comments


I obviously don’t speak for all investors.  But in my experience as an entrepreneur and now spending my time amongst investors I can generalize that almost all VC investments in early stage technology & Internet investments come down to just four key factors.  And they’re easy to remember because they all begin with an M: management, market, money and above all else momentum.

This post was prompted by an email exchange I had with a young entrepreneur.  It’s a conversation that creeps up from time-to-time.  This person had been introduced to me several times by angels and I was told that I’d be the perfect seed investor.  I was interested in learning more.  For a combination of reasons I didn’t end up talking with the CEO in time and the company quickly became over subscribed.  That’s fine.  It is probably the right thing for the stage of company.

So I wrote to the entrepreneur and said, “Congrats. Now that you’ve gotten the round done I’d love to get together at your convenience and learn more about your business so I’ll be ready well before you’re next fund raising event.  The CEO said, “Not taking meetings with investors for a while (hope you understand), so lets connect again in a few months?”

I do understand.  And the CEO was very polite and professional about it.  And the fault for not meeting quickly in the first place was mine.  I had been traveling.

I understand.  But I disagree with the approach for most entrepreneurs.

Not everybody agrees that entrepreneurs should take investor meetings outside of “funding season” when they’re raising capital.  They see it as a distraction and a time suck.  I agree that you shouldn’t take tons of meetings and not from people who are just “fishing.”  But I believe you need to identify those investors that you think will be a good fit down the line and start building your relationships now.  Maybe this CEO doesn’t see me as a great fit.  That’s OK, too.

But if you identify investors with whom you’d like to work here’s my advice:

1. Momentum - The number one thing that investors get their checkbooks out is for momentum.  Everyone has their own definition of momentum (user numbers, revenue, channel partners, biz dev deals, whatever).  But the reality is that this nebulous term people talk about that they “need to see traction” really just means that they’re not ready to invest in your company. Why?  Chances are they don’t know you well enough and can’t judge your performance or capabilities.  Some have “rules” – everybody breaks them for the right deal.

Imagine the “typical” deal – somebody comes into a VC’s office, they’ve never met, they’re highly referred by a friend and they’re pitching a product demo and a PPT.  You’ve never met them and are asked to make a judgment in 2-3 weeks because they’re doing a road show.  That might work for $50-100k but less likely for $3m unless you’re a seasoned entrepreneur, known to the VC, have some metrics that work in your favor or have built something the VC believes to be truly unique.  And VC’s are tough customers.  They’ve “seen it all.”

So that’s why I tell all entrepreneurs that if you want to raise money from VCs you should see them early.  If I see your alpha product then I can judge how it develops over time.  If you have 2 developers and the next time I see you it’s a team of 6 with a new head of products I can see momentum.  If you have beta customers, new pricing plans, different positioning, more market insights, good press coverage – whatever – these are all signs that the ball is moving forward.  And it is that momentum that is easier to judge than a single data point.

Some entrepreneurs have said to me, “yeah, but then the VC sees you when you’ve not yet matured and you set a bad initial perception.”  Not if you manage expectations.  “We know that we’re meeting you earlier than you’d normally invest.  We therefore may not have the full progress you’d expect but we’d like to meet you early so that when we’re at the stage you normally invest you’d have a chance to judge our progress.”  Lowering the bar is disarming.

So imagine when the entrepreneur who “isn’t taking investor meetings” comes back for the next funding round.  It’s true that I’ll have points A & B.  But I would have missed a lot in between. And my “point A” is only determined by what I read in the press since we never had our initial meeting.  If the company “crushes it” and has data to prove they’re doing well I suppose it hardly matters.  But if they’re like most people it’s harder to measure.  Almost every deal I’ve ever funded I’ve gotten to know the founders over time.  I’ve talked before about how to build long-term relationships with VCs.

2. Management Team - This is really a sine qua non.  Different VC’s have different calibration points on the continuum of management, product or product / market fit.  I’m personally 70% management, 30% product.  But for any investor it takes a miracle to get investment dollars out of them if they’re not impressed with the team.  You will find some investors who will say to themselves, “I could do this deal but the CEO will need to be replaced.”  Sadly, I hear that all to often.  I never feel that way.  If I feel a priori that the CEO can’t cut it I’m highly unlikely to invest.

Because management is so important I always tell people to make the bio slide the first in your deck.  If you have good experience then the VC will be leaning forward for the rest of the presentation.  If you save the punch line that you’re from the industry, did CS at MIT, worked for 3 startups, whatever, then they don’t have that powerful knowledge as part of their evaluation set.

If you haven’t read my post on the bio slide before here it is.

3. Market Size - There is a lot of talk about “dip sh**” companies these days.  Mostly by early stage investors talking about getting smaller exits.  But whether you’re talking with micro VCs, seed stage investors or series A,B investors they all want to believe that your company CAN be big one day.  They might want you to start lean.  They might accept that a $50 million outcome will drive good returns given their small investment size, low price of entry, etc..  But almost all VCs care about investing in big markets with ambitious teams.  So NEVER talk about early exits, quick flips, tuck-in acquisitions, previous interest shown by acquirers, etc., during your meeting.

And make sure you have some metrics or some way of demonstrating why you believe this is going to be a really big market.  As I’ve said before, “sorry guys, it’s the size of the wave, not the motion of the ocean.”

4. Money - The final M is often misunderstood.  Most VCs you’ll want will want to be able to put a certain amount of money to work and will want to own a large enough percentage of your company to pay attention.  There are modern investors who think differently and are willing to invest $100k as part of a $1.5 million round.  But mostly when they do it’s just because they consider you part of their early stage investment portfolio where they’re less sensitive about ownership percentage.  If you “take off” they’ll likely want to own more.  I acknowledge that some investors have as their strategy to make lots of small bets.  It’s the exception rather than the rule.

We can have an intellectual debate about whether it is the right investment strategy or not to have a minimum threshold.  I’m only here to tell you that it is the case and better that you know going in.  Most VCs want to own between 20-25% minimum of your company.  If they co-invest with somebody else that they consider important they might be willing to cut that back to 15%.  But most VCs won’t want to own 8% of your company.  If they do it’s likely because they want an option to invest more later.

I’ve heard one prominent investor talking about how one of his best returns he only owns 7-8%.  But that’s because it turned out to be a $2.5 billion company (and counting).  So if you turn out to be THAT then people will be happy with just 2%.  But for the 99.9% of everybody else know that VCs will likely allocate their time more to companies with higher earning potential over time.  Don’t shoot the messenger.  It just is.

And by the way, it’s OK to ask, “do you guys have a minimum ownership level that you like to hit?”  Doesn’t hurt to politely get this out in the open.

BUT WAIT? All these “m’s” and you never spoke about product?  WTF? What about Product / IP?  That’s not an M?  OK.  True.  It’s a P. But to make the 4 things more memorable (and thus all M’s) I had to wrap product up in momentum, which is mostly based on product momentum.  But to be clear: investors care about management, markets & products.  They invest in deals where they can own enough to make it worth their time  – thus “money.”  And all of this is wrapped up in forward progress that you demonstrate over time.

Investors invest in The Big Mo.

  • http://arnoldwaldstein.com awaldstein

    Mark…

    Straightforward sound advice. I've sent this along to a bunch of folks who are developing companies.

    Good stuff.

  • http://www.davidblerner.com davidblerner

    Thanks for this…. I'll be sharing this as well. Among other things it reinforces a major point I'm always stressing when I do entrepreneur office hours with first-time entrepreneurs: get to know the investors out there on a personal level! Don't worry so much about 'appearances'- just be yourself and tell them where you're at! It's counter-intuitive to them- and so they're often subsequently shocked at how cool and helpful some local investors can be at this stage… This business has changed dramatically- entrepreneurs don't have to appear in VC conference rooms looking and acting like some Herculean figure… it's a myth.

  • http://erica.biz ericabiz

    Momentum is also what buys you a great exit later. The worst time to exit is when you have a growth curve that used to go up and up, but now has flattened or even started to go down. I was able to get a much higher valuation when I sold my business because my revenue curve was actually getting steeper every month.

    Of course, that is the point where most entrepreneurs don't want to sell the business. But sometimes it's worth going against the grain and selling–especially if the business isn't something you can see yourself doing for the next 5-10 years.

    -Erica

  • http://reecepacheco.com reecepacheco

    re: networking early. totally true. i wish i'd built relationships prior to starting my business.

    i actually hit on these points a while ago from Bussgang's “Mastering the VC Game.”
    Make Connections Early and Often
    http://reecepacheco.com/post/616379141/make-connections-early-and-often
    Mastering the VC Game – VC's Aren't ATM's
    http://reecepacheco.com/post/608202053/mastering-the-vc-game-vcs-arent-atms

  • http://twitter.com/maxniederhofer maxniederhofer

    Interesting. I've always thought of this as the “Three T's” of evaluating startups: team, tech and traction. Generally an A+ in any of those will be enough to have a 2nd meeting. Generally an A+ in tech is not enough to get it over the line. An A+ in traction will almost always be investment-ready. An A+ in team only is very much a “traditional” VC investment (I'm more of a momentum trader). I think you're right to put focus on market as a criterion.

  • drorm

    Ouch, how the mighty have fallen! It's not often that the shoe is on the other foot and the Entrepreneur turns down an offer to meet with the VC. So Marc, this does raise an issue. Are you saying that you will meet Entrepreneurs early in the game when they only have an Alpha and little traction? My perception is that VCs are always super busy, and want to be pitched when there's enough there. What you say makes sense, but it would mean that you'd have to meet more companies early in the cycle.

  • http://twitter.com/Alaskanpoet michael ridley

    thoughtful as always; relationships are not like bar pickup at 1:30 a.m. when everything looks either good or the pickings are very thin, thin indeed. best to start the interface early so you have more of a story told and read than a story to be told and not yet read.

  • Matt Cameron

    Great advice – And an anecdote that others might be interested in is that I moved from Sydney to San Francisco 12 months before we anticipate needing funding primarily to get to know investors and build early relationships with the ecosystem. In addition to building rapport, I have found that every interaction with a VC or Angel provides valuable feedback to product/business development. Personally, I would never turn down a meeting with an experienced VC because there will inevitably be learnings.

  • http://technbiz.blogspot.com paramendra

    Well said. I hope you get your meeting.

  • http://www.missi.com/ Peter Beddows

    This coming, as they say, “straight from the horse's mouth”, what could be more helpful in guidance than this?

    Very clearly stated set of unequivocal recommendations by which any erstwhile entrepreneur should be able to understand, follow, and thus, get funded.

  • http://www.facebook.com/people/Liliana-Panic/611370758 Liliana Panic

    Yeah, me too , I am sending to my Swiss friends entrepreneurs, already sent some Guy Kawasaki's advice on VC.
    Wondering why they gave so much importance just to management team at business schools…

  • http://www.facebook.com/profile.php?id=27603493 Cristian Joe

    The amount of information you've provided on this blog so far is amazing. Thank you and please continue to 'drop gems' as you see fit. Ten years ago It would of been close to impossible for those outside of elite schools or circles to obtain a 10th of the info presented here. Keep up the good work Mark!

  • http://naamanetworks.com/ David Bloom

    Mark: very helpful as always. I am struck by the 20-25% number. Totally understand wanting a big enough piece that the investment can really have impact. I've been struck, though, in some of my early meetings that VCs are willing to adjust the numerator and denominator to solve for to 20%. This is not based on term sheet experience, just the way VCs and I have been feeling each other out. One guy, after negging my traction, gave a strong indicator he come in with much more money and a higher valuation. I was totally confused until I ran the numbers in my head and found the Golden Ratio: 20%. Am I imagining things? Makes me think my ask should be higher just to push the valuation. Am I crazy?

  • http://gokode.com/mark Mark

    This is actually very good advice. Thanks.

  • Kevin

    I think you're way off here. This is no longer 'venture' investing, it's risk minimization. No major company or innovation in the past decade has come out of investments made on your criteria, only minor ones. VCs used to talk about passion and vision. Now it's all about risk minimization. Bill gates, Sergey Brin and Mark Zuckerberg had zero management experience. Twitter was funded as Odeo, which failed. With all due respect, this kind of post feeds the pull-up-the-ladder mentality of most cashed out entrepreneurs turned VCs. You're so focused on not losing that you've forgotten about winning. Your four points are minor, obvious, and correctable. The next big thing will never come from these criteria. Never.

  • Peter

    (Like!)

    … and this is why I can't be bothered with a VC investor. If they won't do their own research to look for promising companies, how likely are they to recognize a new idea?

    All the VC's I talked to about my company (purposely unnamed) did not understand the key value prop that our customers want.

    So how could the VCs value my company as an investment? Sorry Mark any john-come-late investor such as yourself in this case only gets the crumbs.

    Look on the bright side – maybe he was telling you that he want to see “traction” before he could take your fund's money. Maybe in a couple of months after you prove yourself to him he might take your call.

  • bethtemple4u

    Overall great advice and I've passed it along. The only item I don't fully agree with is 'bio first' (went back to your original post to confirm context). I've been helping start-ups create pitch decks for over 10 years (so long it use to be actual business plans). What I've found to be successful is being able to tell the right story. And while you state here (correctly) that bio should come first when your talent/experience relates directly to the business, I think that is not a 100% rule. I've seen well-experienced people tell the story of the problem they are solving or the size of the market first to capture intrigue and top it off with the team which becomes the cherry on top. I've seen VC's react just as excitedly about the idea, market or positioning as they do to a good team. All I'm saying is that a solid story doesn't always start with who the characters are. Thanks again for some great concise wisdom!

  • http://twitter.com/RonCWilliams Ron Williams

    Thanks Mark. Fantastic advice! Appreciated & tweeted!

    Have an excellent day!

    Ron

  • http://bothsidesofthetable.com msuster

    I know that people enjoy making personal attacks on the Internet. I can take it but I wish they were at least based on facts.

    OK, let's look at your claims:

    First, on management I never said you had to be a long time executive. I said that the management team had to be talented. None of the individuals you mention scored 980 on their SATs or dropped out of their local community college. They were all creme of the crop. They ALL had some momentum before their raised real amounts of venture capital (or frankly even angel money).

    Mark Zuckerberg – TheFacebook already had traction long before Peter Thiel invested. Peter's was a risky VC bet but only a $500,000 check. He was introduced by Sean Parker who had already created Napster and Plaxo. By the time Accel invested he already had significant traction. They paid a really high price and were mocked for doing so. They look very smart now. But the question for people wasn't whether they had momentum – they did in spades. The question was the price paid. And to say that Mark isn't strong in the management area – note that I talk about the skills / potential of the person not whether they ran a public company. He had 1,600 on his SAT. He went to Harvard. He was considered a programming guru. Hardly a slacker. Finally, market size. Everybody had seen MySpace get huge quickly and monetize the F out of the user base. So it wasn't hard to make a stretch to say if Facebook could get to 50-100 million users it would be in a big market.

    Sergey Brin. He was a Stanford Phd student in computer science along with his co-founder Larry Page who was also a Phd student at Stanford. You can qualify these people as the .005% of people that VCs see. Their PageRank system that they had built using free Stanford resources already had significant traction before Andy Bechtolsheim gave them $100,000. They had Mo. They then tried to sell the company for $1 million to Excite who turned down the offer. They raised money from 4 prominent and wealthy Silicon Valley entrepreneurs. By the time the shopped it to Kleiner Perkins and Sequoia they had significant traction. That was never a question. Once again the only question was price. KP and Sequoia paid up dearly for the times. Excite & Yahoo! (in particular) were already big businesses so market size wasn't an issue. If you want to read all of this it is in this book I recently read: http://www.amazon.com/Googled-End-World-As-Know/dp/1594202354

    Bill Gates was a Harvard student. That doesn't mean he'll be successful but he does meet the criteria for which VCs will lean forward and pay more attention. He started Microsoft in 1975 with childhood friend Paul Allen (an investor in our first 2 funds). Microsoft launched off the back of an agreement with Altair to distribute software and had not yet raised money. They didn't develop their first OS product until 1980. Their big break came when IBM agreed to distribute its personal computer with MS-DOS (before that there was only PC-DOS). I know this because as a high school student in 1984 I worked in a computer store and sold both. Microsoft didn't raise its first VC round until about 1981. They already had momentum with IBM and could basically decide from whom to raise capital.

    Odeo was founded by Evan Williams. He and Biz Stone (co-founder at Odeo) had built and sold Blogger.com to Google. Jack Dorsey had the idea for Twitter and it was an internal project used by Odeo employees. At SxSW in 2007 it “blew up” and went viral. That is when Fred Wilson invested with Bijan Sabet. It already had momentum – believe me. I was there. Odeo wasn't working so they shut it down and returned investors' money. Twitter was separately financed.

    As for your claims of my “pull-up-the-ladder mentality of most cashed out entrepreneurs turned VCs” – I have invested in 6 deals since become a VC. 4 were seed deals and 2 were A rounds. None had brands. None had proven technology. 5 of the 6 were first time CEO's. 4 were in their 20's and 2 were under 25. All of them were built on strong technology / IP by talented individuals passionate about creating a new market. So how am I “so focused on not losing that you've forgotten about winning?” If I were then I would have just paid up high prices to invest in proven B rounds.

    I don't expect an apology from you. People who launch personal attacks with no knowledge seldom do. At a minimum I appreciate that you wrote your post with your name rather than the usual anonymous attack. That's the reason I took so much time to refute your unsubstantiated claims.

  • http://bothsidesofthetable.com msuster

    Aside from asking you to read the comments I made above to Kevin who at least had the courage to post under his real profile, I might state the followings.

    1. You're wrong about me but you'll have to read above as I don't want to re-type it
    2. You can shoot the messenger but I'm trying to educate entrepreneurs that most VCs they see will expect traction / momentum. I have invested in deals without it. Others have, too. But to NOT tell entrepreneurs that most VCs expect to see it would be to not educate people about the truth. Whether they like it or not.

  • http://bothsidesofthetable.com msuster

    Thanks, Arnold. Nice to finally meet at TC and have a real face / person to your avatar photo!

  • http://bothsidesofthetable.com msuster

    Thanks, David. It's OK to talk about not having yet made complete progress but I would caution people from going to see investors if your concept isn't well thought out. You can change the model over time but if you come across as 'not thoughtful' then a second meeting is much harder.

  • http://bothsidesofthetable.com msuster

    Yes, VCs invest in momentum, M&A buyers acquire for momentum and even public stock market investors reward momentum with high P/Es.

  • http://bothsidesofthetable.com msuster

    Yes, and you reached out to me early. I enjoyed hearing your business concepts and one day if we ever talk about your business again I've got a baseline to ask questions like, “How did you company evolve to where it is now from where we discussed? How did you make these decisions? How did those decisions play out?” Static decision points are much harder.

  • http://bothsidesofthetable.com msuster

    Agree 100%. Momentum will always attract early investors even if they question team. It's hard to argue against results. But obviously most VC investors want to make sure traction is in a monetizable category [e.g. a big market] (at least in their minds). IM is a perfect example. I saw many who came in the past 5 years with big user numbers and couldn't raise VC. But Meebo stood out, had a great team, a unique product and a plan to morph from IM into a broader web play.

  • http://bothsidesofthetable.com msuster

    I will meet any talented team with a big idea as early as they're willing to meet. The problem is that I'm approached too early by a large number of teams without exemplary skill sets / tech teams / product concepts. On these I prefer to delay meeting until I can see some proof that they can ship a product that I can believe in with users who validate it.

  • http://bothsidesofthetable.com msuster

    Thanks, Matt. Great advice. And surprisingly most VCs want to help entrepreneurs that they perceive to be talented so you're likely to massively increase your Rolodex and mentor roster if you know how to maintain these relationships.

  • http://bothsidesofthetable.com msuster

    ;-) it wasn't about the meeting. it was the broader point. but, yes, the ceo did read this and reach out to me.

  • http://bothsidesofthetable.com msuster

    Thanks, Cristian. That's part of my driver. When I was a first time entrepreneur there were no public resources. It was much harder.

  • http://reecepacheco.com reecepacheco

    open invitation to coffee anytime you're in the Northeast.

    in the meantime, my answers:
    handsomely.
    based on user feedback and instinct of the market.
    awesomely.

    ;)

  • http://bothsidesofthetable.com msuster

    You're not imagining. I tell people this all the time. A VC will want 25% of your company. They'd rather invest more money at a higher price to get in rather than own 10% for a much cheaper price. Rightly or wrongly – this is most often the case.

    So it begs the question – why not just raise at a higher price? Well, let's assume that you're a pure startup and want to raise $1m. Raising that at a $3m pre money (e.g. you dilute by 25%) is about where the market is at for first-time entrepreneurs and early-stage companies. If you're in a hot category or drive demand could you increase your valuation to $4.5m pre? Sure. And that would mean potentially raising $1.5m for 25%.

    This is about the normal range of discussion with some companies able to raise only at a smaller price due to lack of demand from investors (say $1.5-2m pre) which means people are less convinced. And some outliers can raise at a $6m pre – but usually only if they're experienced, are showing traction already or are perceived as super “hot” so investors chase them and bid up the price.

    The trade-offs on raising price and therefore raising more money is that at some point investors just say “no” at a given price. That's the job of the entrepreneur to assess how much demand they actually have and therefore the price / amount to raise.

    Good luck.

  • http://bothsidesofthetable.com msuster

    thanks for the input. as I admitted in my post not everybody agrees with my point of view on this topic. but I'm 100% convinced it's the right thing to do (opinion, not fact). If you've got a strong background then the story resonates even more when you tell it.

  • http://naamanetworks.com/ David Bloom

    Thanks, Mark. All things being equal I'd love to raise as much as I can for the equity and control I give up. Time to start focusing on the price sensitivity curve, I guess. Maybe a topic for another post?

  • Dave W Baldwin

    Thanks Mark, for the main issue is people like yourself and Fred are offering to those who are interested how you would like to see it.

  • http://www.lionite.com Eran Galperin

    I'm wondering about something here, Mark – it seems you are placing a lot of weight on academic success, while it has been my experience that it doesn't translate that well to the real-world. Is there a reason why you keep mentioning SAT results and top colleges instead of real world performance and experience?

    A lot of successful entrepreneurs didn't go to Ivy League universities or dropped out of college to pursue their startup aspirations. Isn't that more telling than SAT scores?

  • http://bothsidesofthetable.com msuster

    I did not say only academic success matters – I'm just pointing out that these successful entrepreneurs in question (the ones he mentioned, not me) were all of the highest quality academic backgrounds. I stated management matters and he tried to say that was outdates and used as evidence a bunch of “unproven” guys who succeeded.

    I'm pointing out that when a VC sees a Phd from Stanford in Comp Science he is obviously going to start by placing more emphasis on that than a random guy off the street. I'm not talking about me (although I would place emphasis on this) but the industry on the whole. I doesn't mean you're doomed if you're not a Stanford Phd. But investors care about the quality of the individuals on whatever metrics they can define.

  • http://www.ryanborn.net ryanborn

    I've never had an investor ask for an SAT score (I think Mark was just trying to prove a point here) and you are right that academic success does not always translate to real world success; however, the real point here is that in the real world, people (including VC's) still do discriminate based on academic success so if you can't show it, you'll just have to make up for this in other areas. One suggestion would be to add a team member / advisor with strong academic success. Of course, there are many other ways you can make up for lack of academic prowess, this is just one “off the top of my head” example. Lack of academic prowess is certainly not a total deal breaker.

  • Keenan

    Flipping killer response, way to break it down and b-slap. Kidding aside,clearly Kevinhas had a negative interaction with VC's. I have no proof, but it feels that way.

    I think what might be helpful is a breakdown of the different stages of funding and the appropriate investors; from friends and family to private equity. I think people look for money from the wrong people in the wrong phase of the funding cycle and become disheartened.

    People take risks with tons of emotion attached when they hear NO, it can create very negative reaction. Unfortunately many folks lose out of the gate by going to the wrong funding sources at the wrong time?

  • drorm

    Mark (with a k this time), fair and clear. Really appreciate your philosophy and that you take the time to clarify these things. I'll make sure to approach you early when in my next startup, whenever that'll be. I guess I'll find out if we qualify as “exemplary skill sets / tech teams” :-).

  • Dsaezgil

    Great post!
    About the entrepreneur who told you he's not taking meetings with investors, I think it was a certain form of revenge. It's incredible how rude investors can be when entrepreneurs want to meet them.

  • http://www.victusspiritus.com/ Mark Essel

    I never quite understood why Twitter wasn't a pivot of Odeo. I assume Ev & team gave first option of investment to the original Odeo investors, perhaps they didn't. The investors that took back their money and didn't choose to reinvest are probably kicking themselves.

  • http://twitter.com/judyshapiro judyshapiro

    The comments (respectfully) are more educational than the piece itself. Investing has always been both an art and a science which accounts for the wide range of criteria used by different types of VCs. I actually like Mark's list because it is practical and track-able.

    But what I find most interesting here is how the comments verbalize the somewhat unspoken “trust chasm” that exists between VCs and entrepreneurs. I was part of a VC organization (Bell Labs New Ventures Labs) and this trust gap always existed – but in those days VCs were more emotionally invested. The really big Internet wins had not happened so everyone’s expectation was more manageable.

    Now that I turned new tech CEO (since Feb 2010) and the shoe is on the other foot and I have not even started any conversations with any VCs. It's too scary TBH since the risks do seem much higher, the language VCs use is often very obtuse (what’s a roll-up vs a joint venture – I ask you) and they seem more focused on protecting themselves.

    One VCs has just asked for a meeting with me and yes I will take it, but not without a lot of trepidation on my part. My funding plan that I am currently operating under is a; “build, sell and then beg”. Meaning, I have built a working model which I am now selling to companies (we are a “many to many” integrated marketing technology platform selling to companies and media buying agencies) It does make for more sleepless nights (funding for updating my website is low on my list for example) – but it seems cleaner and less scary that way.

    Judy Shapiro

  • http://www.lionite.com Eran Galperin

    Yes, of course – I didn't mean that you said only academics matter. I just noticed that you put a lot of weight on it, and in my experience it has little correlation with real-world performance. I would much rather have someone who is self-didactic and can grow by himself rather than needing a system to push him forward.

    Also – a Ph.D for me is a warning signal – why did this person stay in academics for so long instead of getting real-world experience? you would not believe the amount of CS Ph.D holders out there who couldn't write a line of code to save their life. They can create algorithms in pure math or explain the merits of a certain design pattern, but once you put them against a real debugger and they need to actually make something work – they fail miserably.

    There is even question whether SAT itself is a good predictor of academic success – and current belief holds that it is not – it is merely better than having no metrics at all. It just bothers me that investors put such weight on metrics that are irrelevant (again, in my opinion) to the decision of whether to invest. By the way, I'm not saying this because I bombed my SATs (I had 1490 which is nice considering English is not my native tongue), but because I'm tired of those standardized tests used to measure everyone. People are individuals and should be measured as such.

  • http://www.lionite.com Eran Galperin

    I'm not denying that many people are impressed by acceptance to big-name schools. It's just kind of sad that you might need to add another team member just to impress VCs with academic prowess instead of them looking at the team and its performance thus far.

  • http://twitter.com/neilellis Neil Ellis

    Great article, one of the most useful I’ve read, and straightforward too.

  • Claudius02

    test.

  • http://twitter.com/myasmine Yasmine Mustafa

    What about barriers to entry? Or Moat to match your “M” criteria. This question seems harder and harder to answer with web-based companies.

  • http://twitter.com/profitero Profitero team

    Hi Mark!
    Thanks for consistently solid advice for startups. As geeks in startup – SeedCamp 2010 winner – we gained most of our learning about VCs and investments from your blog posts. I started to read it long way before got offered investment, and now eventually most of basic stuff seems pretty clear.
    Thanks again!
    Vol @ Profitero

  • Arnold 'Cy' Sidun

    I am currently working with getting a start-up off the ground. We are about two to three days away from finalizing our presentation.

    This discussion was part of our focus in our meeting yesterday. Wish I had seen this before then. Nonetheless, great info.

    PS: This is from another Arnold.

  • CustomerCam

    Hello Mark,

    We are days away from launching what I believe to be a quite innovative web based customer engagement tool. I see SalesForce and other CRM platforms as ideal distribution partners and I am in the process of going through the SF affiliate / reseller ranks in order to make my way to the right decision maker within the SF infrastructure but I seem to be having a hard time getting to the right point of contact. I am familiar with your background with SalesForce and I wanted to know if you could point me in the right direction. I would also love to demo my product for you and see what you think. We are literally only a few days from launching.
    Best
    Kennan
    Direct: (321) 302 5850
    Email: Hostmaster@customer-cam.com