I’ve been very pleased over the past couple of years to see VCs writing about how they operate. What was once a very opaque industry, understood only by its players, has become a model of transparency. For this reason I think this is the best time ever for founders to raise money, but if and only if they take the time to read the numerous posts and books by prominent VCs. I’m perhaps biased, but I believe the leaders in the trend of VCs taking on a role of educating potential founders was lead by Brad Feld of
The Foundry Group and Fred Wilson of Union Square Ventures.
I recall being introduced to Brad via the founder of NetGenisis, a very early Internet based company. Brad become a member of my advisory group at Mainspring, and later was the lead investor in Throughline. Fred’s partner in his earlier firm Flatiron Ventures, Jerry Colonna was another investor in one of my startups. While I believe Jerry has since retired, Fred is more active than ever, especially on Twitter.
I’m not sure if it was competition, something in the water, or some megatrend which I could not identify, but many VCs started emulating Brad and Fred by posting very informative material to their blogs, being active on Twitter and even on Facebook and LinkedIn. I suggest you follow Brad and Fred on social media, you will learn a lot.
The article on TNW These common mistakes make tech startups less fundable, according to a VC is written by Promod Haque. Promod Haque is a partner at Norwest Ventures, where a former colleague Josh Goldman is also a partner. I really enjoyed working with Josh before he left for Harvard Business School and a highly successful career as an entrepreneur and VC. As I often tell people when I find a serendipitous connection, It’s a very small group in the startup world, we just change business cards every few years. Of course I’m showing my age as business cards are now going the way of the typewriter. I don’t know Promod, but that’s not surprising as I’m many years away from being an active entrepreneur, raising or attempting to raise capital from VCs.
His article does confirm one of my observations on the startup scene: Today’s tech startup landscape is vibrant and exciting, but it’s also important to underscore that
it’s a crowded landscape with many contenders vying for VC attention and funding.
So now more than ever founders need to avoid common mistakes when pitching VCs.
Here are three mistakes Promod calls out:
- Lack of transferable experience in the market sector you are targeting. Note the careful phraseology. It’s not that you must have direct experience in the domain your startup is focused on; you must have transferable experience. So if you are targeting a domain you don’t have experience in, such as retail, make sure you can demonstrate transferable experience, such as developing a successful mobile consumer app.
- You are unwilling to learn leadership skills and take feedback. We mentors also need our mentees to be willing to learn leadership skills and to take our feedback. VCs are not passive investors, meaning they don’t simply invest their money in their startup and hope they get a good return, as an investor might put money into a mutual fund. They are very active investors, coaching founders and helping them grow and develop in their jobs. Years ago there were many VCs who lacked any operational experience, they came out of elite business schools and Wall Street or other financial backgrounds. But these days the opposite seems true – most VCs, like Josh Goldman – have track record of starting and growing their own companies and delivering exceptional returns to their investors. Pay attention, listen, don’t just hear and realize they are giving you actionable information. Be open to constructive criticism and learn from your mistakes, as Promod writes.
- You’ve chosen an overcrowded market without a unique solution or advantage. I’m going to quote Promod at length here as this is a very important warning to entrepreneurs:
Usually, a startup will come to my team with an idea that we’ve already heard of because several other companies are attempting the same thing. If this is the case, it’s usually too late to invest because the “early mover” advantage is lost.
Instead, I seek to back the first players in any space because they will get to the market faster and undoubtedly gain an advantage. There are obviously exceptions, but more often than not, timing is everything.
Like Bill Gross, Promod emphasizes the importance of timing. You can be too soon, as I was with my mobile ecommerce company in 2002 or my father was with his wind energy company, 40 years ago. Too soon and the market lacks the supporting infrastructure you need to succeed. Too late and the market is saturated and the cost of dislodging incumbents is very high – you must have an extremely distinct and powerful competitive advantage.
Promod closes with some positive advice for entrepreneurs, what to do, rather than pitfalls to avoid:
…prepare for the inevitable bumps in the road, and embrace the learning curve. Armed with expertise, flexibility, and a unique advantage or solution, VCs will identify the promise in your startup and push it toward success.