I was at a VC firm networking event this past week and the conversations I had with other entrepreneurs and CEOs got me thinking about the decisions we all made to end up with the investors we have. Some of the CEOs/entrepreneurs I spoke with have been entrepreneurs for many many years and so, no doubt, had options that that the, as of yet, less experienced or accomplished people in the room did not have. But at some point, we all made the decision not only to raise capital from an institutional investor (a VC or a PE firm) but also to raise it from a particular firm. For those who only really had one bidder at the table when they sold stock, they still made an important decision: they did not choose between VCs but they still made the critical decision to take VC money at all. So some quick thoughts on things to think about as you raise money. Each of these topics could be – and will be – a full post but for now, a list:
- Do you need a VC? this is probably the biggest decision you will ever make. It’s a marriage from which you cannot get divorced. It’s not a loan - even though the preferred stock typically has a dividend accruing on it – so you can’t ever pay the money back. Raising equity is not an accomplishment – all it means is that you sold a piece of your company to someone else. The accomplishment is what you do with the money you raised by selling off a piece of your company. There are businesses that should never raise VC money. Ever. There are also businesses that while good businesses, will almost certainly not be able to raise VC money. That does not mean that the entrepreneur is not talented or that the company in question is not valuable – it just speaks to the nature of the VC business.
- Value add or just money at the best price possible - some VCs – like Kleiner Perkins – have built incredibly powerful firm brands. The brand, in turn, attracts entrepreneurs looking for the success halo that the firm brings. Since the firm has broad access to a lot of very talented entrepreneurs (often called “deal flow”), they have many options to pick from. Does a great VC firm make entrepreneurs successful or is a great VC firm successful because it found a way – typically brand developed because of an early successful investment – to attract great entrepreneurs through the power of their brand? Either way, if you are choosing a firm based on value add, be sure to assess what the real value add is. Brand is a form of value add but is not the only kind of value add there is. I personally start with the point of view that at it’s core, the reason VC exists is to allocate capital properly to people who will be successful independent of any post investment value add the VC might bring. The role of the VC is the money they bring you – carefully allocated money. For a company to be successful, everyone in it has to do their part and specialize on doing their part well; the part a VCC needs to do better than anything else is invest money with the right entrepreneurs pursuing the right opportunity. Anything beyond that is a bonus. There are investors that add value by being great board members and advisers but like greatness in any field, they are the exception rather than the rule and that’s ok. As I learned from an investor I respect and trust, “First, do no harm”
To be continued… other thoughts will include:
- Do your diligence – reference check
- See what your options are
- Get to know them
- Contracts are always about when things go bad – you rarely, if ever, look at them when things going well.
PS - unrelated aside – if you use a Blackberry, Bolt is a far better blackberry browser.
