VCs talk about entrepreneurship at NextGen event

Posted By Andreas Bubenzer-Paim In Your Wealth | No Comments

The U.S. start-up economy appears to be strong. Venture capital (VC) and “angel” investors invested a record $82.87 billion in 2017 [1], according to data from PitchBook and the National Venture Capital Association.

The author (Andreas) at left onstage with the four seated panelists, with the "Plug and Play" banner behind them. [2]When does it make sense for an entrepreneur to work with a VC?

To help answer that question, Bank of the West Wealth Management and BNP Paribas hosted the second annual NextGen Experience [3] – Silicon Valley, where I had the pleasure of moderating a panel of venture capitalists who shared their insights about the current global VC landscape.

Here are six key things I suggest entrepreneurs keep top of mind when launching a business and considering working with a VC firm:

Consider timing.

“Timing is everything in our business. Why does a company make sense today, but not yesterday?” asked Venky Ganesan, managing director of Menlo Ventures [4]. “Uber in 2007 would have been too early, and Uber in 2012 would have been too late. We needed a lot of things to happen for Uber to make sense in 2010. You’ve got to have people out there with smartphones ready to connect with people driving their cars.”

Research your partners.

“Never invest in anything because of a brand name. Be skeptical. Be cynical,” Ganesan told the millennial entrepreneurs. “Check everything. Some VCs are living off past glory.”

Seek a ‘value-add.’

Entrepreneurs should look for the “value-add” that VCs can bring to the table.

“All of us have built companies and built teams in the past, so we try to be as empathetic with founders as possible,” said Cheryl Cheng, general partner at BlueRun Partners [5]. “We don’t want you to repeat mistakes we have made, so we try to impart some of our wisdom at the early stage.”

VCs in the U.S. and emerging markets differ.

In emerging markets, VCs often take majority ownership of a company and put in a lot of terms when they make investments, according to panelists. In Silicon Valley, the founders expect to take 20% to 25% from each round they raise.

In China, Israel, or Latin America, for example, there is a different venture culture. “If the VC owns too much of the company, it is not a good thing,” Cheng noted. “It won’t be worth it for entrepreneurs to keep slaving away to make a start-up successful if they only own 10% of the company. So that is something to consider in the context of where you come from and how you’re thinking about how you’re investing or taking money.”

Accept strategic advice.

At the growth stage, VCs still play an important role in a company. For example, the VC may advise a start-up on key executive hires before going public, said Elizabeth Weil, managing partner of San Francisco-based 137 Ventures [6], a growth-stage VC firm. “How do you actually work some of the financial levers internally, so this company can really continue to exist on its own?”

“At the growth stage, you know who your customers are. I’ll ask, ‘Are there any doors I can open to help you get that new big client or purchase order?’” she said.

In addition, Weil said she often helps those growth-stage entrepreneurs take some money off the table. “In Silicon Valley, you’re trading so much of life to work on your company,” Weil noted. “We can come in and provide little bit of liquidity to the executive team prior to going public. So maybe they can upgrade from that apartment to a home, or send kids to college.”

Do you have the right team in place?

“We always take a board seat in every investment that we do,” Cheng said. “I think of it as a professional marriage. Probably one I’m going to be in for the next six, seven, or eight years. On average we get to know our founders for seven to eight months before we write their first check. The diligence is something we do over time.”

A lot of it really comes down to getting to know the team, according to panelists. “I ask entrepreneurs, ‘Are you doing this idea because you have extreme passion and expertise in building it?’”

Or, as Cheng put it another way, “An unemployed person can always be a founder.”

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