Fun and Crazy and Frustrating and Hard and Rewarding

Venture Capitalists come in all shapes and sizes. I, for example, am short and fat. Ok, that's not really what I meant. What I meant to say is that not all VCs are alike when it comes to how and in what they invest. There are VCs who invest in early stage companies and others that invest in late stage companies. There are VCs who invest in particular sectors and others who invest broadly across all sectors. There are VCs who invest in only technology and others who invest in non-technical businesses. There are VCs who invest a few hundred thousand dollars in a business and others who invest a few hundred million.

Given the variety of venture investors, it is pretty important to do your homework about what precisely you are looking for in a VC before you decide to whom you are going to pitch your company. Pitching an early stage opportunity to a late stage VC is as big a waste of time as pitching a late stage opportunity to an early stage VC. So I am often asked to describe the things in which August Capital and I invest, which is a perfectly fair question. That said, the answer for August is a little broader than most. We will only invest in high tech businesses but we are pretty much stage and sector agnostic. In our last fund we invested in companies across a variety of sectors (consumer, chips, enterprise software, hardware, services, etc.) and across a variety of stages (two guys and an idea to millions of dollars in revenue). We invested as little as $500,000 in a company and as much as $130 million in another. We've invested in professors with a deep technical idea to domain experts with a deep insight into some process reengineering.

As I look at the companies in which I have invested, it would appear that I am pretty fond of very early stage opportunities. Only one of the companies in which I sit on the board had even developed a product at the time in which I invested. All the rest had prototypes or PowerPoint slides or a good idea, but nothing close to a product. In those instances it is a bet on a team and the beginning of an idea, which is what I find the most fun. There's a pile of risk in early stage opportunities but it is really exciting to help a company grow from an idea to a business. I recently got an email from an executive at one of my portfolio companies that I think does a great job of capturing both that risk and that excitement:

Things are wild ... as you know, it's a business with a million moving parts ... but the big question WILL get answered this Fall ... can we garner consumer interest/enthusiasm? I don't know the answer (largely because it involves the behavior of humans), but I do know that we're doing enough to get a real read ...

Bottom line: Fun and crazy and frustrating and hard and rewarding ... the entrepreneur's roller-coaster for sure ... We will have solid/interesting learnings ... and just maybe (please G-d) a great business!!!

The email really resonated with me. Early stage investors face similar challenges to early stage entrepreneurs. As I work with the companies in which I've invested it is unquestionably "fun and crazy and frustrating and hard and rewarding" and maybe, just maybe, they will turn into great businesses.

Comments

[Eric Olson]

I agree, it really has a lot to do with the team, especially in early stage investments but even in public companies. The best idea with a bad team or a team that doesn't get along will not work.

An investment that I, along with my team, recommended to the Bentley Investment Group (BIG) back in college called LifeCell (nasdaq: LIFC) had a great product and even better ones in the pipeline but it was the team that really brought out the best in the company and caused the extrodinary returns for investors. I had the opportunity to meet the management team during an internship I held in the summer of 2003 (pre-investment) and after meeting them I knew this was a company BIG needed in its portfolio.

[Ravi Kalidindi]

David,

Interesting.., as an early stage Entrepreneur, I am having similar experiences but from the other end of the table.

When I am juggling through good ideas to approach suitable VCs, I hold on to two good ideas.

The first one is to reach investors through Pod casting (your idea) or web casting and the second one is through blogging. I still wish there was a better communication mechanism/product to reach the right VCs so that both sides will be benefited from it.

Ravi Kalidindi

Founder

http://www.findica.com

[DaveMc500Hats]

David -

you may be short & fat, but you are one of the more enjoyable VCs to hang out with :)

any entrepreneur who has your ear (or time) should be thrilled to get your insights... not to mention your potty humor.

- dave 'short & fat & getting moreso' mcclure

[Nike Shox Deliver]

You have to believe in yourself. That is the secret of success. We should insist on no matter what we meet. Have a good mood every day.