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July 8, 2009 / Mike Su

VC Viagra – How to turn on an entrepreneur

ViagraSwitch
So I’ve been meaning to write a post about this for some time. There are a lot of VC and entrepreneur bloggers who write a whole lot about how to pitch a VC. There’s a ton of advice out there about term sheets, pitch meetings and demos, slide decks etc, which are incredibly useful to the entrepreneur. BUT, I rarely see any posts by entrepreneurs about what a VC should do to win the heart of the entrepreneur. And last time I checked, we both need each other to make money. And, despite the way it may seem, entrepreneurs aren’t just looking for a big fat check, but to work with someone they can trust and respect.

As I mentioned in one of my quarantine posts, I was taken away during a Startup 2 Startup dinner, shortly after Dave McClure gave his Startup Viagra: How to Pitch a VC (which is excellent, btw, both entertaining and informative). So with apologies to Dave, I’ve aped his title and turned it around to give VCs some advice about how to appeal to entrepreneurs (and in the process guaranteeing that I will never ever get funded).

We know you’re busy, but so are we

I ain't got all day buddy

I ain't got all day buddy

I hear it over and over again from VCs in their blogs and on panels, “we’re busy people, so when we grace you with 15 minutes of our time, make the best of it and don’t screw it up.” But here’s another news flash – starting and running a company is pretty time consuming as well. And while I appreciate the fact that my pitch is taking time out of your busy schedule, THAT’S YOUR JOB! You’re job, and the reason your LPs put money in your fund, is so that you would sit through 1000 of our boring, discombobulated pitch meetings and find the next Google.

On the other hand, an entrepreneur’s job is to build a freaking product and company, of which funding is a necessary evil. So as much as it sucks that we’re taking up your time in these meetings, believe us when we say we’re busy as well, and it’s not just so that we can get to the next pitch meeting. Here’s a tip – TAKE FEWER MEETINGS! If you find that your schedule is overrun, maybe you should scale back. If you have to be 20 minutes late to a half hour pitch meeting, and you’re gonna be pounding on your blackberry throughout the meeting like it owed you money, and then have your assistant pop in 5 minutes early with “an emergency call” so you can skip out on the rest of the meeting, then maybe, just maybe you’re taking too many meetings, and the quantity of your meetings are getting in the way of your ability to do your job right and find the next Amazon.


When I attend these VC panels and read a lot of these blogs, all these guys talk down like the VC is doing us such a huge damn favor to even grant us an audience. Well, is there a Google if John Doerr did not exist? What about if Larry and Sergey did not exist? Not to discount what I’m sure are enormous contributions Doerr made to Google, but when I hear some of these guys talk (not Doerr), you’d think that they alone make or break the company and we should just pray that we’re lucky enough that they’d pick us to be along for the ride. I’m not saying you have to worship the ground that we walk on, and I’m sure you guys come across a high percentage of idiot entrepreneurs that truly waste your time, BUT, I’m saying you’d have a better chance of an entrepreneur signing that term sheet if you showed more mutual respect.

Hope you guys make it!

Hope you guys make it!

The way I see it, VCs are in the business of shoving people off the plank into an ocean full of sharks, and in between martinis on deck and poker games, they check in with all the folks who are trying to tread water and point out where a few sharks may be coming from, and see who’s still afloat, who’s been eaten, and who’s drowned. Wait 7-10 years, and hopefully out of the dozen or so people they’ve thrown overboard, one or two of them have survived, and they fish them out of the water and then take credit for keeping them afloat. But guess what, at the end of the day, as long as one or two of those guys gets fished out, the VC is a hero. If not, well, at least they collected 10 years of “management fees”. Meanwhile, for the guys getting thrown overboard, if they die, they’re dead. It’s their one shot, their one life, so they have to either sink or swim. If they swim and make it through, it’s a great life, but most likely they’re gonna die. So again, just feel like a little more respect for the fact that all the entrepreneur’s eggs are in one basket, while yours are spread across your portfolio, would make us feel a lot better.

TAMs, SAMs, and other crap that McKinsey folk do well

While I completely recognize the value of understanding TAMs, SAMs, SOMs, SPAMs and whatever other market sizing charts are important to put in a presentation, we’re usually not that great at this. But you know who’s usually really good at this? Investment bankers, guys that work at McKinsey and Bain. But you know what those guys are also really good at? Working at McKinsey and Bain, or taking mid-to-senior level jobs at large companies. Don’t really know a ton of guys from McKinsey that have built great software companies. So while you may fall in love with a great presentation that has a great analysis of the market (because, afterall, that’s the language you speak), we tend to fall in love with the VCs who can see the potential in the product and can piece that bit of the puzzle together without relying 100% on our analysis (which we performed by reading some post on Venture Hacks and threw together the night before).

This is my market size

This is my market size

Besides, how do you even size the total addressable market for Facebook or Twitter? If Zuckerberg or Ev walked into a presentation when trying to raise a seed fund and said, “My total addressable market = The World”, wouldn’t they get laughed out of the room by most VCs? Maybe they did get laughed out of a lot of rooms (and shouldn’t THAT say something)? Not saying it’s not important, just saying that we’re not pros at this, and that we’d be turned on by VCs who understand the product and can do this type of math and see the potential regardless of how bad we botch this part up.

Checklists suck

I always hear VCs talk about various forms of checklists they keep in the back of their head when they’re evaluating companies. “Do they have patents?” “Are they repeat entrepreneurs?” “What is the competitive advantage besides we’re smarter?”, and the more of these you can check off, the more hot and bothered a VC will get. VCs love to quantify certain categories of risk, and whatever risks you can “take off the table”, you have a better chance of getting funded. It’s as if this magic formula of conditions would guarantee success. While these check marks can help a company, for every 10 examples of a pattern of success, one will come along that will completely blow all of those out of the water. The “V” in VC means venture. You’re going to have to take risks! Don’t come across as a guy who’s managing my grandma’s 401k account. We’re all swimming against the grain and doing crazy things. It’s a homerun business, and you’re not going to bunt your way into a homerun! You have a responsibility to manage risk, but most of that stuff is to cover your ass when the deal goes south. But instead of spending all your time building up ammunition to cover your ass for when it all goes to hell, find that fastball down the middle and just crush it.

yup

yup

On a related note, I remember hearing a VC on a panel about the crappy economy. They are a seed fund, but he started talking about not doing seed deals anymore cause the economy went south and they were able to get into Series A and B deals for seed money, and it’s hard for them to justify doing seed deals anymore. I thought that was one of the dumbest things I’d ever heard. Hey, I got an idea! Maybe instead of using the money in Series A deals, let’s put it in a CD at Bank of America! Yeah! That’ll for sure make us some money back. Well, if your LPs wanted to be in a fund that invests in Series A deals, they would have invested in a freaking firm that does Series A deals. If you’re a seed fund, it kinda seems like you should still be doing deals at the seed stage, unless you’re telling me that there aren’t any more seed stage companies? You’re telling me that if you were able to go back in time and fund Bill Gates right out of Harvard, that you’d pass on that because of a crappy economy and instead invested in crappysoft because it had a more favorable valuation?

Series FF Stock

I'm rich biiiiooootcccchhh!!!

I'm rich biiiiooootcccchhh!!!

I’ve heard arguments for and against letting a founder take some money off the table before the ultimate exit. But I haven’t really heard a good argument against this. Most of the arguments are VCs are afraid that the founder would lose motivation or get comfortable or distracted if they had too much money. Well, you know what’s kind of distracting? Bills, mortgages, and other crap like that that would blow up if you don’t hit an IPO jackpot. And you know what? You the VC seem kinda rich, and you seem to still be working, so I don’t see why taking some money off the table once the company has demonstrated some track record of making money is that absurd of a request. Remember the whole shark thing? Well, if we get eaten by sharks, at least it’d be nice to have a *little* something so we’re not left with broken credit, bad debt, and nothing to show for our hard work.

Participate in the web

If you’re a VC that’s investing in tech, you don’t have to blog or tweet, but if you do, it gets us a whole lot more comfortable with who you are and what you’re about. If the relationship is supposed to be like a marriage, then it helps a whole heck of a lot of we can follow you or read your blog and know what you’re like before we dive into a marriage. Plus, there’s a much better chance that we think you’ll get what we’re doing if you’re actually on the web and doing the things that we do that made us think of the idea that we’re pitching you.

Who the heck are you to be giving advice?!

Granted, I am not the founder of a company, nor am I in the process of fund raising, nor have I raised any VC money in the past. So what the heck makes me qualified to give advice to a freaking VC? Well, that’s exactly the point. Most entrepreneurs raising seed money are people with backgrounds like me. If I was a serial entrepreneur, hopefully at some point I’ve had a good exit, and I wouldn’t be asking for seed money. So I’m the type of person that would be looking for fund raising, so this is my perspective, and I would imagine one that’s shared by others like me. Aaaaand now I’ve bitten the hand that may have fed me, so maybe I won’t ever be looking for funding afterall 🙂

Raise your hand if you’re still reading

Congrats! Glad to have taken your valuable time away from taking pitch meetings to read this novel!!

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15 Comments

Leave a Comment
  1. dave mcclure / Jul 8 2009 7:20 am

    awesome post mike!

    love the line: “you’re not gonna bunt your way into a home run!”

    🙂

    • aproductguy / Jul 8 2009 10:23 am

      word…thx for the retweets!

  2. Thomas / Jul 8 2009 7:39 am

    “. And you know what? You the VC seem kinda rich, and you seem to still be working” One of the greatest lines I’ve read in a long time. Killer post. You’re nailing the VC delusions about their value to the wall. At the end of the day all they really are is money. God help them if people find another way to get that money…

  3. david fishman / Jul 8 2009 7:40 am

    Amen brother…..can you spare a cup of coffee?

  4. Danny Moon / Jul 8 2009 7:51 am

    Fantastic post.

    Love the line – “… and you’re gonna be pounding on your blackberry throughout the meeting like it owed you money…”

  5. Mark / Jul 8 2009 8:31 am

    Awesome post. It’s about time entrepreneurs turn the table on VCs and make it clear that we are their CUSTOMERS not their worshippers. As such, we expect basic customer service: attention, courtesy, respect, valuable service, etc.

    Also, given that the VC industry is in shambles entrepreneurs should be putting out their own checklists to ensure that the VCs we’re talking to are viable, valuable and have the ability to venture. The balance of power has shifted. The days of sucking on the teat of management fees, taking Friday golf days and sitting in ivory towers are over.

    • aproductguy / Jul 8 2009 10:14 am

      Whoah! I was kinda hoping that the golf days and ivory towers would stick around in the event that some day I could be lucky enough to score a gig doing that! 🙂 To be fair, if you can turn $1 into $10, that’s a talent, you can and should make good money doing that. But what we need is a more balanced relationship founded on mutual respect and trust, since you can’t turn that $1 into $10 without us.

  6. julespieri / Jul 8 2009 10:04 am

    Really fun reading. Great writing and insights. I am shocked you never raised VC funds…you sound like you did!

  7. marksuster / Jul 8 2009 11:05 am

    Hey, Mike. Great post. Many of your points resonate and funny timing since, as a former 2x CEO and now VC I just wrote the following post about VC being too fat and happy http://bit.ly/lsoTd

    I also wrote the following comments on Fred Wilson’s blog, “Dave’s comment on Twitter, “If Fred were an investor in my (fictitious) company, I’d insist he represent the interest of both users and the company and put me last.”

    I like to quote the founder of Southwest Airlines, Herb Kelleher, who said (I’m paraphrasing) that, “Everyone in the industry says put customers first. I think that’s wrong. I put employees first and customers second. By hiring the best customers and treating them accordingly I ensure that they are the people who provide the best customer service in the industry.”

    And so it goes in VC. I try to back the best CEO’s (and founders) who are people that I feel understand the need to serve users through great products and lead teams and treat them with respect. In doing so I serve the needs of users and the company. But my customer is still the CEO (and co-founders).”

    You’re obviously in LA and I’m friends with Keith. Would be great to connect. I’m all about product guys.

  8. spiderpoman / Jul 8 2009 10:19 pm

    Great writing and I enjoy reading although I hate reading, disappointment that you didn’t raised VC funds… I wish you did
    spiderpoman

  9. jason yeh / Jul 9 2009 3:34 pm

    awesome post man. i have heard a turtles on the beach analogy to seed funding, but your throwing dudes off a plank into shark infested waters analogy for venture investing is spot on. that being said, the real top VCs, and partners specifically, you can judge their quality by their relationships with their CEOs. best way to do background checks on a VC are to talk to a CEO of a portfolio company that had both ups and downs (especially downs), because that is when a VCs true colors shine through. look forward to lunch/coffee monday.

  10. Ray Macy / Jul 13 2009 11:39 am

    Thanks for sharing this nice article. I get additional info from it. I should say this website has lots of interesting information.
    Thanks

  11. Jose Carlos / Oct 18 2009 11:03 pm

    funny to read this post

  12. Christian Sanz / Nov 14 2010 10:23 pm

    great post Mike, so true.

    you know me, I’m always thinking of new ideas, but I’ve never had the desire to ask a VC for funding because of this very reason…. I”m always looking for ways to grow organically… perhaps some day they’ll come to me….

    I can’t stand entrepreneurs that do anything to get VC’s attention, in part, I believe they are the enablers of this kind of attitude and VC’s are just playing along.

    I ran into your blog after clicking on your TC post. nice work.

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