So I am just sitting here in the rain – actually I am in our house and it is raining outside – just thinking about a couple of things that really tweak me. Here is my current Top Five list…
Number 5: “These projections are conservative.” Sure. How many times have I heard that one? You are raising capital; why would you share projections which are below what you think you can do, Mr./Mrs. Entrepreneur? Of course in year 3 your start-up will have 33% market share in a multi-billion market.
My suggestion is that CEO’s simply put forth a sensible set of projections with easily understood assumptions that are consistent with how other comparable products were released and at price points which are defensible. Believable projections will not be discounted as heavily as projections which are deemed “conservative.” When someone tells me these projections are conservative I know they are not.
Number 4: “Can I just get a few minutes of your time?” Really? This happens all the time between vendors and clients, VC’s and LP’s, entrepreneurs and VC’s, service providers and anyone who will listen to them. Nothing ever takes a few minutes. Ask me for 30 minutes of my time and I will happily give it, but don’t ask for 5 minutes and make me late for my next appointment 20 minutes later.
Most VC’s are happy to track an entrepreneur’s idea as it takes shape. In fact I met two of my portfolio companies almost three years before we funded them (Taris Biomedical and PolyRemedy). I welcome the chance to track someone’s progress which is a great way to see if the opportunity hangs together and whether the entrepreneur can deliver on what is promised. In fact my personal goal is to meet two new companies and one new entrepreneur not raising money – every day.
Number 3: Great company/market/technology, wrong team. This is always disheartening. On a very regular basis I meet with great investment opportunities, often led by a very talented young technical founder, which is being shepherded by someone who has inserted themselves into the senior ranks of the management team. Founders and entrepreneurs should be very selective as to whom they let into the party, particularly in the CEO slot. Investors are often deciding whether the CEO is someone they can work with for many years; take great care who you bring in to represent you when raising capital. It is very hard to unhook a bad CEO hire.
Number 2: “Shutting down venture firms is a good thing.” Are you kidding? For entrepreneurs this can only be bad news. Fewer choices from which to raise money can not be good, and frankly can not be good for innovation overall. As a venture capitalist less competition may make my job easier but it is not a good thing if you happen to be with one of the firms which are shut down. In fact the venture model is predicated on other investors investing in my portfolio companies’ later rounds so I need there to be a strong VC marketplace with many players.
As Chairman of the New England Venture Capital Association, which has nearly 140 member firms, I was struck when I went through the membership list recently and counted only about 45 active firms. My guess is that over the next two years the number of active firms in New England may be closer to 25 firms.
And lastly, Number 1: “It is a great time to start a company.” No its not. It never is a great time. If it were everyone would be doing it. Starting a company is hard and a labor of love and devotion. Only a few people are good at it. Entrepreneurs need everything to go right – great people need to be recruited, products need to be designed and built, customers need to be found, capital needs to be raised. When economic times are good, there are plenty of “me too” companies being formed. When times are tough (like now), nothing seems to go right.
But don’t be talked out of trying. I think I have the best job in town given the small role I play in the company creation process. When it works out, there is no better feeling.
So have your new CEO swing by my office for a few minutes to walk me through his conservative projections. Hey, I may be the only one who will listen to him.