Monday, December 12, 2005

What Two Experienced VC's Are Looking for from Entrepreneurs

On December 1, two veteran venture capital professionals gave an audience of software entrepreneurs some tips on the best ways to approach them to achieve a favorable funding outcome.

Source: American Venture Magazine
By Lew Koflowitz

Sita Vasan, an executive with Intel Capital, and Daniel F. Summa, a partner with Genesys Partners, both based in New York, were the panelists in a discussion about VC financing opportunities. The discussion was moderated by Raymer W. McQuiston, a partner with the law firm Brown Rudnick Berlack Israels LLP.

The discussion, sponsored by the Venture Capital special interest group NYSIA), was held at the Times Square offices of Brown Rudnick.

These days, Vasan said she is interested in innovative and disruptive technologies, especially in the areas of home automation (the digital home), mobility, and education.

Summa said that Genesys, an early stage VC and merchant banker, medical devices is a current area of interest for his firm.

Summa sees the current technology and VC expansion as a "new beginning" for VCs and technology entrepreneurs, following the dot-com bust several years ago.

Resource Frugality as a Key to Future Success

Whatever the technology or business in which an entrepreneur is involved, Summa says he is particularly impressed with startups that are extremely economical and frugal with their resources, and have bootstrapped and already built something of a track record, before they approach a VC for financing. He calls these startups "Depression-era babies," because of their extreme cost-consciousness, and believes that this is an indication that such companies will be similarly economical with any new capital infusions they receive.

The typical first round investment made by Genesys is in the $1-$3 million range. A second B round is usually $5-$7 million, with Genesys typically seeking to exit the investment after that, says Summa.

Both Vasan and Summa commented on the increasing volume of VC funding, on both the East and West Coasts, with greater applications, for example in the financial services area in New York, as would be expected.

Management Team is Key for Startup

What's important in a startup's business plan? The management team is key, both agreed. Summa said he evaluates a plan using a number of key criteria – technology, production, marketing, revenue model and business model. Each of these plays a critical role in the potential success of the business going forward.

Both agreed, too, that "it's important not to overwhelm the VC with too much information." As is typical of VC's, they are being inundated with proposals and plans, and entrepreneurs need to get at the gist in a hurry.

Vasan, in particular, recommends a 2-page executive summary – no more – adding that a good Powerpoint presentation would be an excellent accompanying document.

One particular no-no: Don't continuously call the VC. If they like your executive summary, they'll let you know, and they'll probably want to move quickly. Vasan noted that an entrepreneur recently called her 10 times, and "I crossed him off my list," she said.

If they're interested in your business, the typical deal can take 2-3 months to close; it could be as little as 45 days from the time of the term sheet. However, Summa noted, things can get slowed down during holiday and vacation periods.


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