One man's opinion on Venture Capital Basics

Public Flogging

http://www.nytimes.com/2004/07/05/technology/05apprentice.html
The gong show for Bplans.

I wonder how people would react.

Then again, given Simon's success on Idol, people might not mind being told the bad news.

Granted, it would need someone with a lot of self confidence, and delusion. Why? because most VC's know we make a bunch of mistakes. Being able to plow forward, despite our mistakes is the only thing we can do.

Fold

Rounders is a lousy movie on poker.
However there was one line which keeps with me. "When you can't win, fold the hand."

Entrepreneurs have been touted as the guys who won't give up. In truth, they're actually the ones who will give up faster on a no-win situation. They'll move on to the next issue faster than most other folks.

You don't have to solve/resolve every problem out there to succeed. Just the important ones.

Outsource everything

Reading this article on Micro-Multinationals reminded me of something core.


You can and should outsource EVERYTHING except sales and innovation.

Finance, development, HR, operations, etc. Become a virtual company if/when it's possible.

Keep sales, because that's your link to your customers. No Customers = No Company

Keep innovation, otherwise your company is just a copy-cat, and will evaporate in time.

Folding, and saying no.

There are only a few things we can actually do in VC investing. It's almost mindless, OK, not so "almost".

After we see a company we can:
1. invest
2. decline

that's it.
Therefore, if there are only 2 things we CAN do, then there are also only 2 types of mistakes we can make:
1. invest when we should have declined
2. decline when we should have invested.

but these mistakes have different results.
if I make mistake #1, then what bad stuff happens?
1. I lost money on the investment

Learn to let go (fast)

You can never fire that person fast enough. This is a lesson that countless entrepreneurs have remarked about their first company. Always, they felt that if they gave that one guy a little more time, he would catch on. It rarely happened, and never in time. Also, how to handle the '5th wheel' founder. The guy who was there in the early years, but now, time/requirements/developments/stage have passed him by. He was fantastic when the company was 5 people, but now that you're at 80, he's still running it like the company's at 5 people. the quick answer, get rid of him.

Being Right isn't enough

For most of our youth, and even into adulthood, being "right" has been a shield we can hide behind. There is nothing so sacred as the "truth". It is involitile, and pure.

Unfortunately, there are few things that can hold up to absolute scrutiny. Stop trying to hide behind a perfect solution, perfect answer, or coaching your responses with a "Yes, but no" qualifier.

Experience

good judgment comes from experience
experience comes from bad judgment

Be prepared, but don't do paralysis by analysis. Go out and do. Most of the time you will be wrong. That's OK, it just eliminates the number of wrong things you can do next time.

However, avoid the stupid mistakes, rookie mistakes, the mistakes that everyone else seems to know about and avoid themselves.

This leaves more interesting and valid mistakes to make.

Hanlon's Razor

"Never attribute to malice that which can be adequately explained by stupidity."

Not just stupidity, but sloth, ignorance, indifference, etc. can be the root cause of a lot of problems.

Malice requires too much effort, energy and concentration.

Plus, with this attitude, it's easier to let things roll off. No one's really out to get you. Most of the time, you're not worth the effort.

What does a rejection letter mean?

In one word: No

Why did the 'perfect' VC group not like you? It's nothing personal, except when it is. Funds receive 300 business plans a year. Some more, some will get less. But let's keep it simple, 1 b-plan a day. Knowing that with the due diligence, investment process, investment committee meetings/memos, LP updates, etc. things will get backed up, it comes out to having to clear 3 business plans every day we actually get to it.

Rookie mistakes

Reading this article in the WashingtonPost magazine about a start-up with interesting technology.
http://www.washingtonpost.com/wp-dyn/articles/A50140-2004Jun17.html


The writer makes it a good read for a very old story. Techies who believe in their vision, ignore what the market is telling them, and proceed to reinvent everything. They make rookie mistakes along the way, and will probably drown underneath their errors.
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