Some thoughts on VCs hiring journalists/PR/media staffers on their teams

July 18, 2013

Dan Primack wrote an int’g article yesterday on Fortune titled “VCs and entrepreneurial ego“, to discuss his views on why a growing numbers of VCs are getting so active in the media/PR/journalism game, and in fact spending millions of dollars (over the life of a fund) to bring on-board specialists hired to do the same for them.

Below are my ramblings on the topic. Obviously opinions don’t hold true for all investors, all entrepreneurs, or all media as well. There will always be exceptions, quite a few of them actually, in a highly dynamic ecosystem.

VCs sometimes think entrepreneurs know a lot about fundraising and investors, or that they spend a lot of time thinking about investors. I somehow doubt that.

Reality is that entrepreneurs, esp first time entrepreneurs  and those that we consider to be awesome product guys starting companies, are often too busy thinking about their own ideas, the spaces they want to build businesses in, competition, next generation technologies, recruitment/hiring etc; and spend little time thinking about VCs, angels, investment dynamics and the like on a day to day basis. In my humble opinion when time comes for them to raise capital, their thought process likely goes as follows:

Priority 1: I want the most connected investors to invest in my company. After all, I want people who can connect me to customers, partners, buyers at the highest levels

Priority 2: I want the smartest people on my Board. Those who can help me with strategy, and also educate me about trends they are observing because I will likely have have less time for that

Priority 3: I want people who can help attract great talent. How can I hire that SVP out of Ebay or Google or Facebook

Priority 4: I want people whose name being associated with me, and whose networks, can prevent dilution for me in future rounds by getting me higher pre- money valuations (at least in early rounds where cost of capital remains high)

For many entrepreneurs some names are no-brainers, e.g. Mike Moritz, John Doer, Vinod Khosla etc. But that elite list is relatively short because those guys have consistently delivered billion dollar companies over decades (and in recognition some also sit on big public company boards they didn’t even invest in). After that elite list, there is a relatively sharp drop off after that. There are investors I know who may have returned hundreds of millions of dollars to their LPs in the past few years but young student entrepreneurs building the next Facebook have never really heard of them – unless of course they hover around TechCrunch all the time, and even then its doubtful.

So how do VCs get entrepreneurs to believe that we can do all of the above for them? There are a few ways:

  1. Do great deals so you get coronated as a king in the spaces you invest in. Unfortunately a bit of a chicken and egg problem for most new investors, though some get lucky early in their careers.
  2. Be a part of an already super well-known firm so your biz card goes further than you. This might be one reason why some big name firms have revolving doors for great people going in and out as investors.
  3. Be so present in media that you have the equivalent of a high SEO/SEM/Klout score (choose your favorite – you know what I mean). And we know how much harder it is to get attention now than it was in 2000. Just as an example, banner ads may have worked well to advertise your company in circa 2000 but have much less impact now. Occasional appearances in major publications like WSJ/Forbes etc may have worked 5-10 years ago but don’t have as much impact any more given how much noise exists in the media. Sensing above, VCs started occasional blogging in the middle of last decade to share their views a bit more publicly but now even that gets lost in the clutter. So now, in order to create a large enough (and persistent) signal amidst all the media clutter/noise, you have to be more social, subtle, indirect, personable, etc. You have to use Twitter, Tumbler, Facebook, Snapchat, show up in news feeds, get on Hackernews etc. But all that takes a lot of work and while 140 chars on twitter may be easy to write a few times a week, the rest starts to look like a lot of work. Hence, IMHO, VCs are increasingly bringing on-board full-time media folk to create more and higher frequency signal, to get themselves placed at the center of every article written about spaces they invest in, and to have their companies listed as examples whenever a space gets discussed. It is to do work that many VCs are actually not very good at, and probably don’t really find very interesting, but needs to be done to win at their actual day jobs. Result: they outsource it to the best person they can find for the job.

Anyways…at least thats what I think. And I also think there is nothing wrong with it. Its good for the entrepreneurs and for the startup ecosystem to have more thoughtful views out there, to have more transparency, and for investors to be more ‘approachable’. Entrepreneurs will hopefully develop a nose to sniff out the truth from the bullshit that aggressive PR sometimes brings with it.

Reality is that at least for now VCs are as much in the marketing/sales business as any other business. Several ex-VCs tell me what they were most surprised by (and often hated) most about their jobs was that sales-y aspect of it. I actually don’t mind that part of my job. In fact, I like it. Marketing to entrepreneurs, marketing to other VCs & potential investors for our portfolio companies, marketing to corporate partners & buyers of our companies, marketing to LPs, even marketing to our families/friends when we are less present than ideal. If it helps my portfolio companies, I am game. That’s just how it goes, and we all roll with it. And compete.

Early stage cleantech investments: Is there an angel vs VC debate?

April 6, 2010

Had an interesting 3-way discussion/debate last night on twitterstream with @cleantechvc and @ataussig. Both I highly respect as colleagues, and consider them smart investors and thinkers in the cleantech space. The topic revolved around when/where should angels or VCs invest. I have a feeling we agree with each other more than it seemed on twitter. Regardless, it was interesting to have a back and forth conversation limited to 140 characters per statement. How the world has changed!

@cleantechvc has written a blog post on this today and I think you should read it to get a perspective on our conversation. I am writing up some additional thoughts below to share since some of you asked.

I think this whole discussion about angels as somehow pitted against VCs has been totally blown out of proportion. I have a feeling some of it started in the IT sector where some angels may have tried to create a market for themselves by taking an anti-VC stance – and that may be affecting other sectors as well where entrepreneurs are trying to understand when, where, how to approach the right investors for the right dollars.

I personally do not buy into, or want to give much airtime to the angel vs VC debate. It’s a waste of time. Both are investors, both complement each other, and much more often than people might think, collaborate closely together on successful startups. Look at Ron Conways and Desh Deshpandes of the world. (I feel I should add I do know a bit about cleantech angels (despite being a VC with a relatively large fund) because my last startup did, after all, raise more than $20m from angels…and it was a cleantech startup).

Let’s talk about some myths that surround early stage investing:

  • Myth #1: VCs want to shove money into capital intense businesses. When and where this myth originated is unclear to me. I am a young VC and clearly can’t even speak for my firm, let alone all VCs. But I do speak to a lot of VCs and I don’t see anyone complaining they can’t find enough capital intensive deals. VCs look for successful companies, and the metric they use is to find large exits. Hey – if you can bring me back $100m for just $1-5m in investment, you are my favorite person on earth! Come hither…We do seed projects all the time, not because we think they will one day require $50m in investment…but because we think they are disruptive enough in large industries to warrant a high exit valuation.
  • Myth #2: VCs look for 10x, that’s it. While 10x returns is not a bad metric to keep in mind, it is not enough. VCs are also looking to bring back large sums of money back to their fund (regardless of size of fund). As I have said before, I am more interested in building multi hundred million dollar (say, billion dollar) companies, and the least amount of money you take to get there, the better my returns look. But let’s look at the math that @cleantech VC kind of hinted at. He suggests entrepreneurs should not go to VCs if you are looking to raise <$10m. Let’s assume we take that number of $10m itself as the investment amount needed. If investors get to own approximately 50% of your company for $10m, you will still need to build a $200m company to give a 10x return to your investors. If you look at history, it would seem that you as an entrepreneur better be trying to build a $500m company at least to have a chance of hitting a $200m exit 5-8 years down the road.
  • Myth #3. VCs are not interested in service businesses. I have been asked multiple times how I think about service based companies. VCs are open to service based businesses, but they look for reasons why that particular business could scale rapidly and capital efficiently. I am not an expert here but this is the simple math I do. A service based company would probably have a comp of 1x revenue on exit. If that is the case, and you think you can build a $100m service revenue company (e.g. energy efficiency services) in 5 years, you better give me 100% of the company for $10m, or 50% of the company for $5m, to have a shot at getting a 10x return. A tight fit, no? Even in such a case, I am more likely to tell my partners this is deal can more realistically only get us 6-7x return since entrepreneurs are often (as they should be) overly optimistic. Many VCs, including us, would take a serious look at such a business but obviously much would ride on the specifics of the team and situation. This is an example of a company where angels that are very happy with a less risky investment netting them 5x return over 5-7 years would also be a good (perhaps better) fit.
  • Myth #4: Angels are not looking for home runs. Angels are also making financial investments at the end of the day, and while your friends and family might write out a check because they love you, or simply because they want to give you a shot at it, more sophisticated angels and esp those who have a capability of providing you a bit more help in addition to money are also looking for big commercial successes. A 5-10x exit is a 5-10x exit, and angels want such exits (see example above). That said, it is also true that few angels in cleantech believe their startups will only require <$5m to reach exit. It is more likely that they are thinking that with $5m angelish investment they can take the company to a place where they can raise some more growth equity at much higher valuations to prevent significant dilution.
  • Myth #5: Angels are somehow in competition with VCs. Strong angels develop good relationships with other investors (VCs ad other big angels) who they can introduce their CEOs to if and when the situation needs it. My angel investors were regularly in consultation with investors like KPCB, Firelake capital, Rockport capital etc to have them take a look at us in case we thought their money would bring more value to us than our high net worth individuals. When time arose they did make those introductions, and we did not take a VC investment but certainly started a business development deal with one of their portfolio companies.
  • Myth #6: Money is a commodity (so take cheapest money). Well, money can some times be a commodity but an early stage investment should not be that. Good entrepreneurs are also always thinking ahead and planning for what their path could potentially look like a few years out…and managing their investors/BoD expectations along the way. They also try to carefully understand what they need besides money and who can bring that value to them. Such entrepreneurs often talk to angels and VCs simultaneously at the early stages in the company to flush put their thinking, and to develop alliances. Depending on what help they need in terms of business intro’s, key hiring, board mgmt etc, they might try to get an institutional VC signed up even if angels are able to cover their costs. Just to give one example, I have heard often from executives we are trying to recruit into early stage startups that one key factor for them was the fact that the startups were backed by strong investors (not just financially, but also in terms of relevance to the industry). In my startup’s case, we felt in 2003 not many VCs really had a clue how to evaluate us, and not many brought much to the table in terms of intros/BD efforts etc that our esteemed group of sophisticated angels could not. So we stayed with the angel group that included key executives from our industry.

Again, I do not want people to somehow walk away thinking that I am advocating all kinds of entrepreneurs should look for VC funding. Not at all. We did not do so in the company I co-founded. But when you are deciding on (a) who to talk to in your early days to get feedback, and (b) whose money to take if you do have a healthy interest from investors, pay close attention to all the issues you will face as an entrepreneur and don’t get caught up in the hyperbole. All set and done, I want to see passionate entrepreneurs succeed in building businesses that also make them rich along the way. My job at GC is to “look for entrepreneurs who want to change the world and build bigger companies”.

My twitter handle is @bznotes.

Presentation style matters when pitching to VCs.

November 24, 2009

My colleague Adam Berrey has a great post on his blog about pitching to VCs. I see hundreds of pitches/year and it still amazes me that so many people don’t pay attention to their presentation skills even when they get the coveted opportunity to present to a VC partnership.

Here are some  general recommendations:
Do some research on your audience before the meeting –
Enable yourself to connect at least some names to faces when you walk in the room. Maybe look up what Boards some of the partners sit on? Are any of their portfolio companies  familiar to you. Do you you know any of their CEOs, CTOs? Spend the first 2-3 minutes developing a rapport, breaking ice for communication, and setting the tone for the rest of the hour. It also helps to tell the story of the genesis of the business in the beginning. But keep it short, and tell only if it makes the entrepreneurs stand out as special.

1. Learn to Present – Public speaking is a skill. Apparently more people are more afraid of public speaking than dying. To paraphrase a comic, they’d rather be in the casket than give the eulogy. Public speaking is a skill worth taking the time to learn with a good coach. (VCs like entrepreneurs who are knowledgeable, confident, networked, know their customers, and have a constructive dialogue with their audience during a presentation. Additionally, not a bad idea to run your presentation by someone who has pitched to (ideally these) VCs before).

2. Practice – Any good speech requires practice¬—out loud and for real. There is usually a curve: the first few runs our good, then it sounds canned, then you get great and it becomes natural and fluid. (Best presenters can almost deliver the talk without the slides)

3. Plan for Questions – Most investors ask questions. I’ve seen entrepreneurs who start getting peppered with questions before they even get to their first slide. You have to anticipate that. A few steps make a big difference:

  • Create an FAQ – Take the time to brainstorm all the questions you might get, and prepare short, specific answers that don’t ramble. You should never hear a question you’re not ready to answer. Investors rarely ask mystical questions. (If you hit upon a question you do not have answer for, do not stumble into an answer. Let audience know this is an area worth looking into)
  • Make Time – Expect that at least half the time you have to pitch will get eaten up with questions. Plan for that accordingly by cutting down the formal stuff and leaving time for the constant questioning. (If you are not getting questions, chances are your audience is not engaged)
  • Roll With It – It’s better to just answer questions quickly, clearly and confidently as they come up. Then continue with the presentation as if there was no interruption. Don’t defer questions to a slide you already have, and don’t start going out of order. Stick to your story even if there is a bit of repetition. Half the people probably missed it the first time. (You need to leave the impression that you know this space dead cold. Anything less is unacceptable)

4. You Are More Important than Your Content – Every time someone pitches, the first follow-up topic among the partners is what people thought of the entrepreneur, not the business. If you are clear, confident, relaxed, prepared, smart and articulate, that goes a long way. (Of course, you need a good business too.)

5. Slides are Visuals Not an Outline – PowerPoint has all but destroyed the art of public speaking. Don’t print your speech on your slides and don’t read your slides. You should have a speech memorized, and your slides should be visuals that support your speech. Because slides are what get passed around, I’d suggest interlacing the visual slides you use in your live presentation with the detail slides you expect people to read offline. When you present, just hide those supper detail slides. (If you are new to the art of slide building, do a quick google search with .ppt included with keywords and go through a few examples to get ideas for visual layout/colors/fonts etc).


8. Be Quick – The investors you want to work with are smart, and they get it. Don’t waste their time, stick to the point and move at a good pace through your content. If you capture the imagination of an investor, you will get many more chances to go deeper. Also, pay attention to their mood, and speed up when they are getting bored. Generally you don’t need those context slides about why the Internet is mainstream, etc. The investors you want should already have the fundamentals on your space.

9. Get Advice – If you’re presenting to a partner meeting, get some advice from the partner that is bringing you in. They know the landmines, the people who matter, and questions that will come up, and they can help you prep. (If you are presenting to the partnership, make sure your sponsoring partner looks at your presentation at least a week in advance and get feedback. Ask what would the partnership’s top 3 questions will be).

via 004. Your Pitch Sucks | Startup Blender.

A new idea for VCs: Third leg of the liquidity stool

January 14, 2009

I have not thought about this very much in the past…but it deserves attention, esp in these times of dwindling exit options even for great companies built by entrepreneurs. Why don’t more VCs engage more in such transactions? Diversify portfolio, trade risks, provide returns to LPs, increase liquidity options?

Three legs of the liquidity stool: (1) IPOs, (2) M&A, (3) sponsor-to-sponsor sales?

Source: Dan Primack in PE Wire

Last week, we got word that a Boston-area venture firm was informally shopping one of its hottest portfolio companies to other VC firms. Not shopping the whole thing, mind you, but just the venture firm’s stake. So I called one of the firm’s managing partners, who was understandably cagey in his response.

“We’re always talking to other firms about our companies. Sometimes we call them, and sometimes they call us. And we’re obviously scouring other firms’ portfolios, to see if there’s anything there that we might want to express interest in.”

My point here isn’t to report on the specific situation (still not quite comfortable enough, despite the non-confirmation confirmation), but rather to suggest that venture capital may finally be getting around to recognizing sponsor-to-sponsor sales as a viable exit avenue. It’s what helped buyout firms begin their gold rush earlier this decade, and may be venture’s last best hope for juicing wilted returns.

“If you look at buyout transaction and liquidity data since 2000, you’ll find that about half of the buyout proceeds came from sponsor-to-sponsor sales,” explains Ken Sawyer, a managing director with direct secondaries firm Saints Capital. “VCs have got to get a clue, and realize that they have a third leg for liquidity.”

To date, it’s not something VCs have done much of. Sure there have been the occasional sponsor-to-sponsor sales and uses of direct secondaries firms like Saints, plus some situations where VCs (and company employees) sell stock as part of follow-on financing rounds. But that’s all been insignificant compared to what the buyout folks have done, and has almost always involved non-influence stakes.

The buyout and venture markets obviously aren’t apples to apples. For example, venture deals are typically more broadly syndicated on the equity side, which could make sponsor-to-sponsor sales more difficult. But that’s manageable. The larger issues, Sawyer suggests, are structural. For example, buyout investing often requires more back-end infrastructure than just a partner and an associate with sector expertise. Some firms have already begun to build this, but most have not. Buyside firms also would have to get more comfortable with lower return expectations (2x rather than 10x), while sell-siders would need to get over their conditioned bias toward and IPO or trade sale.

I have to think this is coming. The only question is whether it will be sooner or later.