A Peek Into the Mind of a VC

Ashmeet Sidana

General Partner,
Foundation Capital

This sometimes creates a dilemma; because right now the economy is improving an we are seeing a lot of activity in some sectors. In a strong economy, entrepreneurs’ expectations for valuation are sometimes unreasonable. So there may be a gap between our position and the entrepreneur’s expectation. It is often the case that in a favorable environment such as the current one, people will expect a higher valuation, a change from the tough environment we had a few years ago. Even though it can cause tension, we stand behind our more neutral viewof the world; which is focused on the long term.

A VC’s take
Focus on building a long term business that is profitable, and everything else should align itself behind that. Think carefully about anything that does not seem aligned with that goal.

Every entrepreneur will have certain expectations from a VC. I always say that entrepreneurs should approach a VC with the same mindset we have when we approach an entrepreneur. This means asking if this is someone you want to partner with for a long period of time to build your business?

Do not have a transaction oriented view of an investment but rather a partnership oriented view of how together you can build a business. Let that perspective guide your approach towards the specifics of your interactions; how you evaluate terms sheets, how you reach agreement on a valuation, and how you plan who should be on your board.

Common mistakes that young entrepreneurs tend to make
The most common mistake is not having a clear and deep understanding of who the customer really is and why they would buy your product. Great entrepreneurs usually have an instinct for what their customers want, and which is a good way to start. However, that is just the start. The reality is that there should be a lot more learning that must occur for a company to be successful, and that learning must be ongoing. I encourage entrepreneurs to personally visit and talk with actual people who have paid for their product. Entrepreneurs need to understand why customers bought what they were selling, how much they paid, whom they bought it through, and what are they going to do with it. Having a deep understanding of these are critical to the success of building a company.

Entrepreneurs have so many things to do when they are building a company and it is easy to get enamored with a product or idea, and distracted from understanding the customer. However, this should be the highest priority.

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