5 Tips for Entrepreneurs 1 Year after Switching Sides of the Table
Exactly one year ago today, I announced that I had left RWW (3 months post our acquisition by SAY Media) to join Birchmere Ventures both to invest out of their existing fund and raise a seed & studio fund Birchmere Labs. I was really excited to become a VC and the reaction from the press was really great.
Warren Buffet has a great quote (paraphrased) that he is a better businessman because he’s a good investor and a better investor because he’s a businessman. I definitely feel like this is true for me: I can’t imagine doing this job having not been a founder / operator for 12 years and conversely I’ve learned a ton watching our amazing portfolio companies.
I also have had an interesting view into early stage venture fundraising process from the “other side of the table”. Below are 5 tips …
Tip 1: Simplicity Trumps Complexity
Oliver Wendell Holmes is attributed as saying “I wouldn’t give a fig for the simplicity on this side of complexity; I would give my right arm for the simplicity on the far side of complexity” After hearing hundreds of pitches every month, this quote rings so true. Entrepreneurs who know their business inside and out are able to describe it in simple but complete terms and then appropriately dig into the areas we investigate in our diligence. Make sure you know your material cold and can describe it completely yet simply.
Tip 2: Worry About Quality of Your Business Not Your Pitch
I think way too many entrepreneurs think it’s a magical process to get funding. After 1 year, I can unequivocally say it’s not magical. Venture Funds want to invest in great businesses at rational valuations. Obviously, what is a “great business” and “rational valuation” is a subject of debate. However, spending time focused on building a great business is a much better use of your time that “tweaking your slides” one more time.
Tip 3: Understand What Investments Fit a Particular Fund
It’s really important to understand what types of investments (stage, sector, business model) a firm is targeting. We’re investing out of two funds at Birchmere both Birchmere Ventures and Birchmere Labs. In both cases, we try to be very transparent abut the types of investments we’re looking for. Also, our portfolio demonstrates this as well. Remember it’s not how many people you pitch, it’s how many reasonable targets that you pitch.
Tip 4: In Search of 10x+
The math of managing a portfolio of early stage companies, requires you to optimize for each investment to possibly create a huge (10x plus) return given the risk associated with each investment. Over the last year, a number of interesting businesses have pitched me on investing where I though they were great businesses and much lower risk but if everything worked out they wouldn’t be worth enough to create that mysterious 10x return. In each case, I tried to be helpful and introduce them to potential customers and angels who may be able to help them achieve their dream. These aren’t bad businesses to be clear, just a specific (and surprisingly common) type of way that a lot of businesses don’t fit.
Tip 5: Don’t Describe Comps to Me You & I Both Know Nothing About
Finally, I love reading TechCrunch, ReadWrite, Pando Daily and other publications that follow high growth startups, but most entrepreneurs don’t give every detail about their strategy and accomplished milestones to these outlets. Therefore, the “fact” another firm invested a lot of money in a “competitor who has made far less progress” is a very questionable fact if your only source is a link to a blog post. In a few cases, I’ve even met the other company later and realized how much more to their story existed. It’s certainly important to pay attention to what your competitors are doing but don’t try to use that to validate your business.