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Over a decent cup of coffee and not so decent breakfast, I crowded into the Tyson’s Ritz Carlton with an audience of about 200 other entrepreneurs, service providers and investors for a fairly entertaining and insightful VC panelist discussion (focused on mid-Atlantic region) sponsored by a regional publication, Potomac Techwire.  I hope you find this information to be thought provoking and potentially good information to pass along to friends and clients.

What I’m sharing here are some factual bullets, or statements, including some amusing anecdotal descriptions (albeit from VCs local to the DC area.) Panelists included Partners from Novak Biddle, New Atlantic, Red Shift, Columbia and Core Capital – and they did a nice job of keeping the panel discussion reasonably lively, and worthwhile. (Disclaimer: these are based on shorthand notes, so no accuracy guarantees, but the insights mostly stand regardless as to what the panelists stated perceptions are…)

 

• Freewebs – was a recent investment that had some interesting stats: 12M user base, adding 500k users per month - including international users. Skewed “older” (30+ demographic) less fickle of an audience. 60% profit.
  
• Intelliworks – CRM for higher education: could be another blackboard. 
  
• ClearSpring – widget syndication – helping monetize small web products.
  
• Mobile365- an engineer corporate dropout who’s solving the problem to allow texting internationally to US.
  
• Mutual interview of VC and entrepreneur for fit is key to determining investment
  
• In the communications space, there is becoming a wider understanding that a 5^th layer is required: one of session control. For delivering video & audio content
  
• Video compression is a hot space, whereas it used to take 3-5 to 1 ratios of bandwidth for storage AND 9:1 ratios for compression to transmission; some companies are working in space to accelerate that down to 1:1 ratio
  
• Widely held view of web2.0 as a more intelligent internet with a log of investment activity, BUT thinner in terms of the size of capital raises, smaller hurdles to profitability, and the ability of companies to get to cash positive and even sustainability on under $1M raises.  Some companies are being designed to the point where companies can sustain on $3-500k worth of revenue!
  
• VC’s like businesses that are focused on a clear path of:
  
• • Here’s the business problem,
  • Here’s the solution and the team making it happen,
  • Here’s the revenue behind it,
  • Here’s the size of how big it could get,
  • Here’s the cost to growing the business to that point.
    
• There is an order of magnitude shift regarding capital to get products to market. 10 years ago, $8-10 M would get a product launched, now being done on $750k, and another shift is coming that could realistically take this down to $50-100k level.
  
• A shift of web tech from destination (youtube) to enabling (google maps). 
  
• A view on web 2.0 is that it is about time, the infrastructure and the value of the internet has caught up to market penetration – as well as consumers have changed their behaviors – something that consistently takes 5-10 years to happen
  
• Venture groups that are investing in web2 have shifted to a portfolio approach, namely investing smaller amounts in a lot of companies, and then carefully evaluating which bests to double down in and not second round investing in companies that don’t hit certain hurdles.
  
• Telecom discussion centered around the fact that it is a heavily middle-man/carrier oriented industry that it is critical to have teams with relationships in the industry, only way to get over this huge hurdle.
  
• Discussion of Enterprise space – Some bullishness on fact that web2 technologies will seep into the Enterprise – think about this: you can get 2GB of free email space on gmail, yet most corporate users only can get about 2MB of space-  why? Consider who will capitalize on this… lots of enabling business opportunities.
  
• There was a unanimous discussion that there is a bottom line focus on teams and relationships with investors, (bad relationships and bad teams don’t make it)
  
• The highlight of the panel: TOP 5 things NOT to SAY to VC while fundraising:
  

1. “You are the only guys who get what we are doing… “
2. “We are the only ones who can do this… “
3. “Our unique service proposition will take 30 minutes to describe… “
4. “You need to sign an NDA to hear about this… “
5. “We’ll hit break-even in 4 years… “
   

    

• And the counterpoint: TOP 5 things TO SAY while fundraising:  

 

1. “We recognized this problem, came up with this solution, here’s the model that supports growing a business in the space.“
   
2. “Here are our great revenue numbers, consistent growth, and reasonable valuation.“ (this one generated a raucous laughter – reminding me of Robert Kiyosaki’s standby comment “to make a lot of money in real estate, buy property in Hawaii about 30 years ago”)
   
3. “We’re here for the partnership with the right investors, not just the investment, and we’ve researched you guys, your specialty and see the fit“
   
4. “I sold my last company for $20-100M“ (record of a big success, yet still small enough to be hungry to make a bigger success…)
   
5. “We’ve got a strong advisory board of relevant, strong, accomplished supporters“ (shows that you’ve successfully sold your concept, team, and opportunity to reputable people who are putting their reputation on you.

• Recurring Revenue, recognition of issues expected, and cash efficiency are strong supporters - and needed in addition to knowing the value of the opportunity.
  
• Only raise if you know you need the capital, AND what you are getting into.
  
• Investing in A Players, prototype, client feedback, strong advisory board.
  
• Question founder being evaluated on: “how far can YOU take the company?”
  
• On Hockey Sticks and Financials…
  
  
  • It’s not the numbers its how you present them.
    
  • Specificity on numbers 5years out is crazy and discrediting – instead, show the drivers of the business model, costs, and revenue projections.
    
  • How you present your financials shows how you think about your business.
    
  • How big can your company get (max reasonable), how quick?
    
  • How big is the market, a big one is compelling, and forgiving of inevitable mistakes
    
  • Be within a drive or shuttle flight of your investors, or be prepared to move to such a location
    
  • Most VC’s are looking at 4-8 year timeframe to sell
    
    
• Status of Early stage investing?
  
  
  • Seems decreasing from ~40% to 20% of VC investments in early stage
    
  • Driven by VC fund economics – bigger funds more lucrative, so shift to later stage investments, fewer, larger bets to manage
    
  • There seems to be an early stage GAP in under $2M investments
    
  • “stage agnostic” means the VC does early deals, IF they know the team…

     

• Top 5 Investor/VC mistakes

1. Letting “Deal Heat” momentum impact winning the deal vs deal you want to do objectively
   
2. Not firing management soon enough - when it is clear that even if performing, that they cannot get company to the next inflection point of growth
   
3. Don’t sit on more then six boards, cannot maximize the value opportunity if board management effort is diluted.
   
4. Things are never as bad – or as good as it looks
   
5. On a quarterly basis, every quarter has new challenges: “You go to war (market) with the company you’ve got” and improve along the way.