Monday, November 17, 2008
So here I am, about to commit heresy . . . opening the kimono a little to tell you some of the things that VCs do that are really dumb. Now while these things are serious, please understand I got a lot of stuff I just could not let go to print. All you VCs who contributed, thank you! Shows y’all can still laugh at yourselves!
1. Too Much Me Too Philosophy
Okay now this may not be that big a thing, but just like there is first mover advantage in companies there is definitely a first mover advantage for VCs as well. VCs try to jump in after major activity in the given space has already happened. This is okay as markets can be big. But clearly, only the first 2-3 VCs capture the value. The rest at best make out marginally. The real value is when VCs create a new industry.
2. Well, it Was a Big Space . . .
So, earlier this year I heard a VC talking, just like a green CEO, about a market that was an $8 billion space and how it was out there for the taking. Now I am just a little naïve and come from a more operational background and I can tell you that while spaces can be very large they are never empty. And if they are truly empty I wouldn’t talk about it so much as take it and create a new industry - and then talk about it. Please leave the Carl Sagan imitation out of it. He is the only one who could carry off the “Billions and Billions” statement.
3. Acquiring Selective Amnesia
At a board meeting this VC began to seriously question the work being done by the rather competent technology team - forgetting completely that he had decided on the direction at the previous meeting. This is a personal peeve. I do not like people, VC or not, with selective amnesia. People, who after forceful direction manage to change the rules or goals just because they do not have the balls to stick it out. Hey, don’t get me wrong - all the other ingredients have to work, and if they don’t, changing direction based upon market conditions is justified. But please don’t mess with the troops!
4. Talking Like They
Know the Market
Too many times you get people who only talk like they understand the space and technology. I have seen the frustration of many a technical entrepreneur trying to make a nontechnical VC understand the space. Personally, I have to do a LOT of homework to really understand a space. Only then can you, the VC, have the right to ask for an elevator pitch that you will be able to understand. The good VCs invest tons of time in knowing the space.
5. Not Focusing on Cash Flow
Need I say more? This is one of the basic tenets of a good VC. Please do not tarnish all our names by calling yourself a VC if you do not believe in sustainable positive cash flow after a reasonable time. Yes, we manage risk, but not making money is not what we set out to do. Now, can the real VC please stand up.
6. Collusion
Done right it is called syndication, and it can create big value for companies…done wrong it is called collusion, and it usually results in founders, employees, and other VCs getting the short end of the stick. So be careful that you are not colluded out of the way. Make sure your relationship with your VC is like a good marriage. Please choose carefully, divorce is ugly, painful and can destroy you. Silicon Valley is littered with many of those wrecks. Take heed!
7. The Crazy “Lockup
While They Decide” Period
Sounds like an ol’ western trial to me! As the Golden Rule says, the people with the gold make the rules, and this is one I have had a lot of CEOs talk to me about. This is when a VC will “lock you up” and stop you from talked to other investors, while they are free to turn you down at any time for that period. I won’t defend it other than to say, hey, they got the money so they make the rules. By the way, for the really good companies or ideas it seems that this rule can be ignored.
8. Say What You Mean
and Mean What You Say
How many times have you come back from a conversation with a VC, looked at each other and asked, “what did she/he say?” Hey, I’ve done this too. Often I come back with the “duh look”, and as a VC I’m supposed to know the secret handshakes, signals etc. Maybe we VC just test ourselves that way - weeds out the weak ones, y’know? As much as VCs demand clarity, they can be confusing and obtuse, never saying what they mean. They end up looking like __________ (please fill in the word of your choice). Good VCs are very focused on not wasting their or your time, and will tell you clearly what they require in order to fund you.
9. Forgetting the Basics
Far too many VCs have forgotten the basics, although the recent market changes seem to be re-teaching that lesson to everyone. The basics of cash flow, real customer acquisition and the concept of building value are finally becoming the vogue.
10. Not Picking the Right CEO
Leadership is a very interesting thing, and most CEOs are the key to the success of any company. Most VCs cite this as the one differentiating factor that can ensure the success or failure of a company. The CEO is the conscience, yardstick, cheerleader, and monitor of the firm’s activities, and most of all the person most willing to be accountable for the success or failure of any company. As such he or she is, in my opinion, the chief indicator that allows a VC to choose a company to fund. Beyond that, most VCs will agree that most failures are companies that could have managed rather well with a capable CEO.
Yes, I did see the request for an article on “101 things to do with a Dead VC…” But I ain’t dead yet! Write to me at: supreet@corp.siliconindia.com.
