Raising capital for new ventures may have suffered a setback when the dot-com bubble burst, but that has not impeded the flow of bright ideas that cry out for funding. A panel of venture-capital experts recently met at MIT — arguably innovation headquarters of the world — to discuss venture capital today and to answer questions from an audience of inventors, entrepreneurs and others. The panel discussion, appearing here in edited form, offers practical insights not only into what entrepreneurs should look for in a VC firm, but also what venture capitalists seek from startups.
Howard Anderson: What do entrepreneurs want from a venture-capital partner? Money, right? Is your money different?
Vernon Lobo: Money is money. Entrepreneurs need someone who’ll help build the company, who has knowledge about the market space and access to similar companies, who understands financing.
Craig London: Our network of 300 companies helps young companies get customers and revenue faster. Startups that make “warm” calls instead of cold calls can get launched quicker.
Scott Lawin: Entrepreneurs need well-connected, experienced people dedicated to building the company. GSVentures wants to partner, not just invest. Look for value beyond cash.
Russell Siegelman: Kleiner Perkins offers operational experience. Any venture capitalist can write a check.
Howard Anderson: Sitting on startups’ boards, maybe you get to one company’s meetings six days a year. Is that what you offer?
Vernon Lobo: The question is: How much work do VCs do? Entrepreneurs should check references — even talk to portfolio companies that aren’t stars and see how they’re treated.
Craig London: The first criterion for choosing a VC is chemistry with your company — between the person you’ll work with and your management team. Second is how the VC’s technology fits your goals. Third is a network you can tap.
Scott Lawin: Add “alignment of interest.” Does the VC want to enrich you, not just itself?
Audience member: Is it better to take the money or wait for the right partner?
Vernon Lobo: Wait. The wrong partner will cost more. Although if you’re running out of cash, you have no choice.
Russell Siegelman: Don’t wait forever. Deals can go dry. I’m wary of deals that have been marketed for six weeks. Take the best deal out of the first three weeks and move on.
Howard Anderson: Where can entrepreneurs get advice on the arcane aspects of proposals?
Vernon Lobo: A lawyer.
Russell Siegelman: Insist that you don’t want something complex.