Today I had an opportunity to participate a pitching event arranged by FundingPost.com, in Palo Alto, California. The event consisted of group of entrepreneurs pitching for the audience and then the panel of Venture Capitalists giving comments on the state of the industry and the presentations as well.
It was stated that Friends&Family investment rounds can typically be up to half a million dollars (unless you have really rich friends and family) and VC investments typically start at 2 million. So there is a great gap in between, and that has increased the deal flow for angel investors. At the same time “time to liquidity” ie. time from investment to exit has doubled. Today, investors may have to be prepared to stick with the company even more than 10 years.
As always, some companies are more “hot” than others. That influences the interest to invest. In the best position is a company whose product or service is creating traction, revenue and is growing. Those companies may enjoy, even today, receiving several competing term sheets. On the other hand, rest of the companies have much more difficult situation.
Comparing the pitches to those seen back at home, there were few differences and many similarities:
- wider range of industry segments
- generally older and more experienced entrepreneurs
- looking for funding in the range of 300,000 to 8 million
- quality of pitches varied but in general, again, more or less same range than in Europe
- in some cases more “forward-looking” pitches, with probably less substance but true interest
There were number of investors in the panel, moderated by Adrian Shulman, Partner at Bingham McCutchen.
I’m sharing some of the most interesting comments, in my opinion, what they said.
Ho Nam (General Partner & Co-Founder of Altos Ventures) said that they are looking for interesting phenomenon.
Obviously the best time to raise money is when you don’t need it. Venture Capitalists are like sheep, they move in herds. It’s entrepreneurs who think out of the box and are the smart ones in this room.
John Hall (Managing Director of Horizon Ventures) said that typically an entrepreneur should get investor’s attention within one minute. The problem and the solution must be so simple that your mother could understand it. Only after that message has gone through, it makes sense to go to the details. He also advices entrepreneurs to do background research on the investors, like have they done similar investments before. That way you also know to contact the right partner at the investor company. A good resource to check VC background, by the way, is The Funded.
Steve Goldberg (Partner at Venrock) said that they are looking for evidence of big market, early customers, great execution plan and team of people who can do it.
We fund entrepreneurs and we fund CEO’s.
Eric Chen (Venture Partner at WI Harper Group) was comparing the US entrepreneurial scene to that in China. He said in China even those start-ups who have million dollar revenue may not get funding as the competition is tough.
So what’s the biggest difference, say between Silicon Valley and Finland?
I’d say it’s the atmosphere, at least. And as it is all about motivation, acceptance of entrepreneurs but also competitiveness. It’s more likely here for entrepreneurs to keep trying, even after failing.
And how does our upcoming Venture Bonsai relate to this? As it’s a tool for entrepreneurs, it makes running a (crowd)funding round (with many investors) easier. It’s primary not meant for getting VC’s onboard, as it’s more for the seed stage. The standardized documents such as Shareholders’ Agreement, however do take into account VC investment being possibly the next step.
In summary, it was quite interesting to see the event, and gave a lot of things to think about, again.