by Randell Young, General Partner, Venture-Net Partners
From the venture capitalists’ point-of-view, it would be truly wonderful if every startup came with a seasoned CEO who had done it all before. That situation, however, is extremely rare because the guy or gal who has achieved such a level of success now has his or her own money to work with. They don’t need any help capitalizing their new venture. So don’t let the fact that you’re not Larry Ellison deter you from accessing institutional venture capital. Mr. Ellison is not your competition.
Every venture capitalist is looking for the same three things:
1. A competitive advantage;
2. In a market large enough to support a liquidity event; and
3. A leader who can execute and make it happen.
Let’s assume you have a competitive advantage in a market big enough to be meaningful. How would anybody know if you are the sort of guy or gal that can make something happen?
The best way to demonstrate your ability to execute is to show the world what you can do with little or no money, with smoke and mirrors. If you can turn a profit, that’s fantastic. Most of the time, however, you don’t even need to do that. Product development that has gone a long way without burning a lot of cash can also be impressive. Investors figure, if you can do something with little or no money, just add cash and you’ll do a lot more.
You don’t need to convince VCs that your new venture is a slam dunk. Venture capitalists are risk takers. They are not looking for a guarantee that your project is going to successful. You’ve got a pretty good chance at cutting a deal the moment a managing general partner starts to think you just might be successful.
If you have a competitive advantage in a market big enough to be meaningful and you’ve demonstrated tangible progress toward your strategic objectives, you’ve done what you need to do in terms of establishing management credibility. Now you just have to put your deal in front of the VC community and keep it there – and keep making progress – until the timetable of a VC fund active in your space syncs up with yours.