A VC in Vacationland

Fortunately, or unfortunately, requests for potential investor meetings with founders come in many flavors:

• Can I just have 15 minutes to tell you about my world-changing idea?
• My company is doing OK/well/making progress, I just want to update you on our status.
• I've hit all my stretch targets for profitable customer acquisition and want you to invest in me.

So, if you were a VC, which meeting would you most be interested in taking? If you said the last one, you'd be correct. It's not that I don't take some of the other meetings, but I really like to see a well developed plan with successful execution, rather than a work-in-process.

You might find this curious coming from someone who does a lot of early stage investing. Not really. A lot depends on how you pitch yourself to me and the first two pitches are pretty underwhelming. If I get such a request, I usually turn down the first attempt, saying that you have given me no real reason to meet with you. I'm looking to see if the entrepreneur has the fortitude to keep trying. Often, they just quit and I never hear from them again. Too bad, since I did express interest.

Another faux paux with VC's is having an intermediary approach me. I don't deal with 'consultants' hired to raise money for a company. If a founders does not have the time to approach me directly, I don't have the time to deal with a consultant who wants me to sign NDAs and other stuff. I'd be out of business quickly if I signed NDAs around Mobile Resource Management technology, for example. Also, don't have your Business Development director, or some other staff person, try and get a meeting with me initially. I want to speak with the principals.

It's perfectly OK to have a chat with VC's you met before, might have passed on the first round, but said they were interested when you had sufficient market traction. Just don't waste their time with meetings that don't meet their stated expectations from your earlier discussions.

VCs are generally really nice people who will try and help you if you make sure that any meeting  'ask' is valid and that the VC will get a useful update.

I see it all the time. One of my portfolio companies raises a decent round and a subtle change comes over the company.

'We have money for 6/9/12/whatever months! Time to go kick ass in the marketplace!'….or not…

First off, the money is probably not going to last as long as you think it is. Rather than a spending spree, keep the tight budget controls and the burn rate low until you really need those additional resources. Hiring too far in advance of market needs, or moving to an expensive office, just ramps up burn and may not really yield more market success.

Second, sit down with the team and carefully understand collectively what the best uses of funds are going forward. Even last month's plan may be out of date, given a fast changing markets or competitors. Sticking to some 'investment plan' because that what you sold to the investors can be a big mistake at times. Be sure you spend time with the investors explaining carefully why there has been a change in priorities.

Finally, keep on raising capital. Just because you have a war chest does not mean it lasts forever. The big sin here is complacency–waiting until you have only 3-4 months of cash in the bank and then starting out to get another round is….stupid. I'll explore the wrong and right investor meetings to do this in another post.

I spend a lot of my time pointing out to founders/entrepreneurs how successful they are, in spite of the whining they are doing to me at the moment. My role as a cheerleader is one I try to impress on founders that being a cheerleader is their role as well. When I visit one of my portfolio companies, see the founder(s) down over some issue, I remind them that their staff can see their 'despair" and think something is wrong, lose productivity, look for another job, whatever. I politely remind them of this and tell them to confine their despair to discussions with me.

But projecting success goes much farther than having a positive attitude around company offices. Startups have to take on the Big Boys (or Girls) in their industry, convince potential partners they are worth working with, selling top-tier customers and talking investors into giving them money, among other feats. You cannot do this without projecting success. People who you want to do business with can smell fear and immediately put you in a different category than you want.

Here's a few tips on how to project success:

    1. Project positive attitudes–no whining, please, except around your closest counsellors. 

    2. Count your blessings–It's easy to dwell on failures. I do it all the time, especially around the millions I have lost in unsuccessful start ups. rather than the many more millions I have made on the successful ones. When in a funk, I look at all my successes and realize that I'm well ahead in the success/failure game. You should too.

    3. Take a walk–when I'm wallowing in self pity, I take a nice long walk. I generally come back with a positive attitude and a better outlook on life.

Although Gene Kratz in the movie Apollo 13 (I know, terribly old school) did not in invent the phrase 'failure is not an option' (it was the screenwriters, according to wikipedia…who knows?), the quote is sprinkled through start up literature and presentations. 

The NY Times magazine last weekend featured In Praise of Failure, well worth the read as it shows how failure does often lead to spectacular successes. But what's the role of failure in the start up world?  I'll posit that there is good failure and bad failure, and how to identify/avoid bad failure.

Bad failure is often when you run through all the red lights and really screw up. Your board members, friends, employees, among others are all telling you you are headed in the wrong direction, but you go anyway. I know how that works–it has happened to me a few times, with nasty consequences. Sometimes, it's just ego that keeps you going in the wrong direction; other times it's just not listening to those that care about you.

Here's the tip: have the courage to listen and respond, even though it's not something you want to hear. If you can engage in a meaningful dialogue with your 'critics', you are likely to see the error of your ways. If not, you will continue to block them out and continue down the wrong path. Problems won't go away just by wishing they would…

Perhaps the major sin I have recently observed in my portfolio companies is letting available cash get below 6-9 months of cash burn.

There are many good reasons for this, according to my CEO/founders, but I do not buy any of them. The CEO/founders first responsibility is to ensure that the company has enough cash to reach three months beyond its next key milestone, and thus easily raise their next tranche of capital. If not, then the CEO/founder has made a big mistake.

I'll save you a recital of the excuses, and they always seem rationale, but they just don't cut it. No matter how many times I remind them, the message does not always get through, we end up in near panic situations and scramble for cash. Thankfully, so far, Dave and his investing partners have come up with the needed cash.

But it is a tiresome and drama filled period while available cash hovers near two months and the investors scramble to fund a bridge of extend and equity round.

Here's a few words for advice for founders:

1. Put a Cash Calendar on the wall above your workstation. Circle the projected cash depletion date on one month, then the same date ten months earlier. Plan on beginning new fund raising on that date.

2. Set up a list of thirty VC's you are going to approach. Yes, thirty. Be sure you have something to tell them about progress each moth after you meet them. Keep in touch!

3. Develop a short list of VC's you most want to invest. This group will get you highest level of attention, including in person visits every few months.

4. Under promise and over deliver. Decide on your minimum acceptable funding metrics and beat them every month, rather than setting unattainable goals and missing them. Communicate these monthly to your VC target (actual versus promised).

I dragged myself out of bed at 430 AM this morning (should not have watched that Seattle/Washington MNF game) to attend a 730 AM Healthbox Investor meeting in Boston. I do this often as one never knows who they might meet and what connections can be made. 

It turns out I met someone who can be very influential in helping one of my portfolio companies be more successful. And I can help her by proving insights into her industry. A win-win morning.

The truth is one never knows whether it will be worth showing up for a meeting. If I had time to stay, I'm sure I could have made at least one more useful connection among a number of influential Boston area investors, but I had to interview a CEO candidate for another one of my portfolio companies.

The lesson for founders? Just show up. As much as you want to hang around the office and bang out some neat piece of code, get out and meet people…constanly. You never know what or who you might find.

It's a lot harder than that…