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VC Crash Course - Feb 24 2009
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VC Crash Course - Feb 24 2009

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VC Crash Course - Feb 24 2009

VC Crash Course - Feb 24 2009

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  • 1. ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group Jason Mendelson Guest of Silicon Flatirons February 24, 2009 Boulder, Colorado Venture Capital Crash Course - Everything that you wanted to know about VCs, but were afraid to ask
  • 2.
    • Today’s Agenda:
      • What Makes VCs tick?
        • How do VCs answer to?
        • How do you impress them?
        • How do you know if you are talking to the right one?
        • How is today’s economy affecting them?
      • What’s Hot?
        • What companies are getting funded?
        • How do I make my company more attractive?
        • Do I need a team before I approach a VC?
      • What’s Not?
        • Exits and IPOs
      • What’s VCs don’t want to tell you
        • How they value your company
        • Failure isn’t always bad
        • Returns, Ownership and Fundraising
    ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
  • 3. About Me
    • Co-Founder and Managing Director of Foundry Group
    • Managing Director, CAO and GC at Mobius Venture Capital
    • Adjunct Professor at CU
    • Co-author of www.askthevc.com
    • Lawyer at Cooley Godward Kronish
    • Software Engineer at Accenture
    • Frustrated Musician
    • House-poor home remodeler
    • www.jasonmendelson.com
    ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
  • 4. What Makes VCs Tick ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group Fund Raising Cash Equity Returns Investors Venture Capitalists Firms ( aka Start-Ups; Portfolio Companies) Who Do VCs Answer to?
  • 5. What Makes VCs Tick ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group Besides cash, What do we do?
  • 6. What Makes VCs Tick
    • How Do You Impress?
      • Know the “rules” beforehand
        • Short communications, versus long. Emails versus phone calls, Executive Summaries versus Business Plans
        • Well crafted communications, just doesn’t save VC time, but shows quality of thought of the entrepreneur
        • Don’t make rookie mistakes like asking for a NDA
      • Know your market, know you competitors and be original
        • Being the 256 th social network is not original
        • Saying you have “no competition” is not believable
        • Not knowing the market is not wise (especially for you!)
      • VCs need to invest in transformative companies, not “next best”
        • It’s hard to sell stuff as a startup. Be compelling
      • Be smart, but don’t be arrogant
        • VCs have large egos and some even are smart
    ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
  • 7. What Makes VCs Tick
    • How Do You Know If You Are Talking To the Right VC?
      • Do they invest in your similar companies?
        • You don’t want a VC that’s invested in a competitor, but worry that the VC hasn’t a clue about what you are doing
        • Do they invest in your stage?
      • Do they have money to invest?
        • Don’t be afraid to ask about the status of their fund
      • Do they have the power to get a deal done?
        • Partner versus Associate
        • Lots of Associates go “fishing”
      • Do you like them?
        • Would you rather have a beer with your mother-in-law?
    ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
  • 8. What Makes VCs Tick
    • How Is the Economy Affecting VCs?
      • Depends who you are:
        • If you are an early stage fund with plenty of money, life is good
        • If you aren’t, life is less good
          • Later stage investors don’t see exits
          • VCs without money are finding fundraising brutally hard
      • Limited Partners are cash constrained. Rumors of missed capital commitments abound
      • Boulder versus the rest of the U.S. versus the World
        • All about the same – it’s tough all over
        • Interesting factoid:
          • Most of Boulder VC money comes from out of state
    ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
  • 9. What’s Hot
    • First before we go “there,” are you sure you want VC funding?
      • Bootstrapping
      • How much do you want to raise?
        • Many VCs need to invest substantial amount of cash
    • What companies are getting funded these days?
      • Capital Efficient Businesses
        • Much hard for VCs to get their deals funded by others
        • Bank financing is harder to come by
      • Experienced management teams
      • Early Stage versus Later Stage
      • Sector Review:
        • Cleantech, Software / IT, Medical / Bio, Mobile, Gaming, Retail, Sustainable Markets
      • Experience Entrepreneurs who lived through tough times before
    ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
  • 10. What’s Hot
    • How do I make my company more attractive?
      • Do your homework
      • Talk to people – even VCs!
        • Informal conversations are good
        • Fundraising conversations before ready are bad
      • Do all that YOU can do / don’t sweat what you can’t
    • Be crisp
      • VCs have two limited resources – time and money
    • Do I need a team?
      • You need at least one partner
      • No one person knows everything
      • Also proves that someone else believes in what you are doing
      • A good management team has comprehensive experience and great self awareness
    ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
  • 11. What’s Not
    • There are no exits
      • IPO Market is gone
      • Mergers are scarce
    • What is the affect on VCs and your fundraising?
      • Going to scare some VCs
      • Going to really scare late stage investors
    • What normally are VC expectations of exits?
      • 50% of companies return zero
      • 70% probably don’t return that “much”
      • Really need big returns on the rest (5x? 10x? 100x?)
      • Old days and exit was around 5 years, now more like 7 years
    ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
  • 12. What VCs Don’t Want To Tell You
    • We aren’t valuation experts. We don’t know your valuation, either
      • It’s part art and part science. Okay, it’s mostly art
    • We don’t know the right amount of money for you to raise as well as you do. We have past experience as our largest guide
      • Get to a milestone. Don’t get stranded
      • Raise an amount appropriate to the particular VC
    • You can know everything we know about negotiating term sheets
      • www.feld.com (Term Sheet Series)
    • VCs have certain ideas regarding ownership
      • 10% / 20% / 30% - more?
    • Nothing is better than an intro from a VC’s friend / trusted source
      • However, an introduction from another VC who is not investing in your company is usually bad
    • Failure is not always Failure. It can be attractive
    ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
  • 13. Questions and Answers
    • Q&A
    ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group