This is part of my series on Raising Venture Capital.
I’m sure I’ll spark the ire of some VC’s for saying so, but there is certainly such a thing as black-out days in venture capital. It’s worth you knowing this so you don’t waste your time. It’s also very important to understand so that you can properly plan when you raise money.
Let me first tell you the black-out periods and then I’ll explain why. It is very difficult to raising venture capital between November 15 – January 7th. It is also very hard to raise VC from July 15 – September 7th. (you need to have had your first meeting even earlier.) If you’re thinking about raising VC and have not yet started the process, you’ve probably already missed the boat for 2009.
If you’ve had your first partner meeting but haven’t had the full partner meeting then you had better schedule it for Monday, November 23rd. Full partner meetings are almost always on Mondays and if it isn’t already booked yet for Monday, November 16th (e.g. this coming Monday) obviously that’s not going to happen. If your VC is reluctant to schedule the partner meeting by the 23rd it’s a clear signal that they want to wait until the new year (or they aren’t committed to your deal).
So why is Funding Season over for the rest of the year? The VC process is almost universal in how it works across firms. You meet an initial person from a firm – an associate, a principal or a partner. If it’s one of the first two you’ll probably meet a single partner before coming into a full partner meeting where (by definition) all of the partners will be in attendance.
It’s true that some VC’s will work a few days of Thanksgiving week and many will work the first 2 weeks of December.
Montgomery & Co Projects Deal Volume to Grow by 167% in Just 2 Years with No End to Growth in Sight
On the third Wednesday of every month I co-chair a meeting called the SoCal VCA (venture capital alliance), which represents participants from all of the top venture capital firms in Southern California as well as prominent members of the Tech Coast Angels (TCA). We meet to discuss trends in the industry and to find ways to work together to help with SoCal deal syndication – somethings that happens automatically on Sand Hill Road in NorCal due to proximity.
We feature a prominent speaker at every event. This morning we heard from Jamie Montgomery, CEO of the venerable Montgomery & Co investment bank who is at the heart of what is going on in M&A for venture backed companies. They do around 7% of the total VC-backed deals in the US per year or just under 40 deals / year on average (present year excluded!)
I have to admit that I was greatly encouraged by Jamie’s outlook for venture backed companies, which if true will be a welcome relief for our industry.
This is part of my ongoing series about Raising Venture Capital. This posting was inspired by an email from Rajat Suri who wrote me an email in response to Chris Dixon’s blog post (link below) from August, which recently re-ran on Business Insider and has generated much Twitter chatter.
A few years ago it became fashionable for large VC’s to do seed funding. With open source software (LAMP stack) and cloud computing infrastructure it just wasn’t that expensive to get your company going and founders just wanted to raise less money. Some larger VCs felt they were being “scooped” by some younger, nimbler and smaller VCs. So they set up seed programs that allowed for rapid decisions for $500k or less, often done as convertible debt for both speed and cost reasons. There are multiple firms that did this.
I was an early cynic. I told entrepreneurs that it was a bit of a Faustian bargain. If the large VC doesn’t agree to do your A round then you’re in a bit of trouble.
This is part of my ongoing series Startup Advice. I wrote recently about the role of Advisory Boards in startups, which I expected to be a bit controversial. People love their advisers and I don’t blame them. It’s just that many companies waste equity on advisory boards, pick the wrong advisers or set up advisory boards with the wrong expectations.
Since I already attacked one sacred cow, let me come right back with my second: Board Observers. Before I get all the comments about how valuable your Board Observer was I’ll state this – sometimes they’re helpful or benign. But they can be a problem. If they’re so great, why are they not just Board Members? And what I mostly want to do is make entrepreneurs aware that they have nearly as much power as a real board member so you may have more people making decisions at board meeting than you thought you would. If you agree to have a board observer at least know what you’re signing up for.
In the first post in this three part series I described why I believe the VC market froze between September 2008 – April 2009. In the second post I argued that as of September 2009 the pace of VC investments has increased rapidly (at least for software / Internet investments – the only sector on which I’m competent to comment), but only for those remaining VCs who have new enough funds and aren’t plagued by “the triage problem.” This is a direct result of innovation around the iPhone / mobile computing, Facebook / Social Networks and Twitter (as distinct from Social Networks). It is also a result of pent-up demand.
In the following post I argue that this increased pace may be temporary. I obviously don’t have a crystal ball so the economy could fare better than my gut, but here’s why I’m cautious for some time in 2010 or early 2011:
Why is the future still so unpredictable?