As one of the cofounders behind CoFoundersLab, one of the largest networks for entrepreneurs, I naturally advocate for startups to getfunding via crowdfunding, as it provides several additional benefits that can prove very useful early on when doing startup fundraising.
On the flip side, other options to obtain funding include personally funding your venture, reaching out to friends and family, angel investors, and of course, the world of venture capital. Venture capital is popular among entrepreneurs not only for the money, but also to gain access and tap into the resources that are available through the alliance.
When approaching Venture Capitalists for the first time, it’s important to keep a clear and informed perspective. Every firm and VC has their own specific strategies, philosophies, and attributes they look for when considering an investment, and every entrepreneur seeking to approach them should give thought to these questions before making initial contact:
- Who am I approaching?
- What type of person are they?
- What is this firm’s specialty?
- Who have they invested in before?
- Where are they at in their fund cycle?
- Are they actively investing in new deals or simply reinvesting in their current portfolio companies?
- What is their investing strategy?
- How much does this firm typically invest?
- And most importantly, do I want to have this investor as a long-term partner?
I spoke with some of the prominent players in the venture capital world to gain insight into their own personal investing ideology.
Saar Gur – Charles River Ventures@saarsaar
Favorite quote: “Regret for the things we have done can be tempered by time; regret for what we have not done is inconsolable.”
Saar Gur has been involved in eleven acquisitions in the past few years with firms such as
Per year, Charles River Ventures receives several thousand inquiries, meets with several hundred, and invests in one or two deals. Saar Gur says, “Our average investments run from $3 million to $5 million, with general investments starting as low as $100,000 and rising to $15 million in any given company. We also have reserves so that we can follow up with investments. We are deeply committed to our founders, so we do follow up almost 100% of the time.”
If you’re looking for a way to attract Gur’s attention, he recommends Twitter. “Try to get someone we have in common to tell me how awesome you are.” Keep in mind that once you are on the team’s radar, the benefits can be huge. Gur and his team mentor their entrepreneurs and guide them through the entire process. Gur goes on to say “we help founders to think differently, while at the same time guiding them through recruiting by providing the startup with talent.” Gur is known for working extremely hard to ensure the startup’s success.
Jeffrey Glass – Bain Capital@jglass55
Favorite quote:“A man without a plan is not a man.”
Jeffrey Glass is a partner at Bain Capital Ventures where he joined during 2006. He has extensive knowledge and personal experience as an entrepreneur, named by Ernst & Young as “Entrepreneur of the Year” and mentioned inBostonBusinessJournal’s “40 under 40” list. Some of his investments include LinkedIn and Blip.tv. Bain Capital’s most recent fund is valued at $600 million.
To put the metrics in perspective, Glass says that, “In one year I see over a thousand business plans and meet on average with hundreds of companies, but ultimately only invest in one to two.” Glass notes that he typically finds his deals “from entrepreneurs I know, investors, etc. It is really a referral business.” When evaluating a deal, Glass looks for three key points: 1. Great Founders that have excellent domain expertise, strong personal qualities and outstanding integrity; 2. An attractive market opportunity, and; 3. A value proposition that is very compelling relative to alternatives. (such as a product differentiator or consumer benefit).
Working with Glass has obvious benefits, highlighted by his commitment to the success of his team. “I try to be the kind of board member that I admired when I was an entrepreneur/ CEO. I value strong relationships with honest dialogue and do my best to create connections and relationships between many of our companies across the Bain Capital network. My style of coaching is direct and empathetic, and I try to be as fact based as possible”
If you’re worried about a solid concept not reaching its potential, Glass has some comforting words. “Good ideas always continue to get funded. A good chunk of these businesses don’t need a lot of capital, and there are plenty of venture funds out there.” “There is a shortage of great ideas and entrepreneurs, not capital.”
Nikhil Kalghatgi – SoftBank Capital@NikhilKal
Favorite quote: “Sometimes you have to get lost, in order to find yourself.”
Nikhil Kalghatgi is a Principal at SoftBank Capital. He focuses primarily on mobile, e-commerce and social platforms. Prior to SoftBank Capital, he was Founder and Funder of Partner 6 Investment Group. Some oftheirportfolio companies include Gilt Groupe, Buddy Media, The Huffington Post, and Zynga. Current active funds under management total $500 million.
SoftBank Capital meets with about a thousand businesses per year, and in the past two years has made thirty-five deals. Each deal can range from a few hundred thousand to $4 or $5 million dollars. Kalghatgi says that he likes “another deep pocket fund involved in the deal as it can provide complimentary support to the entrepreneur.”
When considering an investment, Kalghatgifeels that the most important aspect is the team. “This is underscored at a seed level. They need to have the ability to iterate quickly and the ability to learn. They also need to attract and retain talent, and the ability to knock down doors and get partnerships and distribution deals that no one else can do.”
If you are interested in getting backed by SoftBank Capital, make note of Kalghatgi’s hesitation towards cold emails. Focus instead on connecting through a CEO of a portfolio company. As Kalghatgi puts it, “The warm intro is a natural way of doing it.” It’s good to keep in mind that Kalghatgi’s attention is currently focused on B2B e-commerce. Be sure to check out Kalghatgi’s site, which contains great insight into the industry:omg.vc.
Habib Kairouz – Rho Ventures @habibkairouz
Favorite quote: “Think differently or unconventional, maybe contrarian.”
Habib Kairouz is a Managing Partner of Rho Ventures. With over 20 years of experience, some of his investments include OMGPOP (acquired by Zynga) and TOTSY. The firm’s current active fund, which is their sixth, is $500 million in the U.S. and their second fund in Canada is $100 million. Rho Ventures‘ total funds under management are approximately $1.5 billion in the US and $200 million in Canada. The company’s new areas of interest are mobile and TV, but they invest in broad new media opportunities, software (current focus on software as a service), communications (current focus on mobile and applications), alternative energy and healthcare.
Per year, Rho Ventures receives about three thousand business plans, meets in person with around three hundred startups, and invests in approximately eighteen companies. Habib Kairouz says that, “Out of those eighteen new investments, we typically reserve additional funds to assist our portfolio companies throughout other financing rounds as they hit milestones.”
The company sources their deals from a pool of service providers, lawyers, accountants, co-investors, entrepreneurs and former entrepreneurs. Kairouz shared that, “80% of the deals we invest in come from our own network, while surprisingly 20% come from cold calls.” Initial investments can range anywhere from $1 million to $30 million, but the average cumulative investment per company that meets operating milestones ends up being approximately $25 million.
When Kairouz backs a company he brings a plethora of added value to the table. "In addition to our capital, we add value to our portfolio companies by bringing to them a network built over the last 30 years from our firm's investments in approximately 300 companies where we backed thousands of executives and partnered with companies across all the sectors we invest in."
Rick Heitzmann – FirstMark Capital @rickheitzmann
Favorite quote: “It’s not impossible, it just hasn’t been done yet.”
Rick Heitzmann is Founder and Managing Director of FirstMark Capital. Some of the companies he has invested in include Pinterest, Weplay, and Sulia. Rick was a founding member of the senior management team at First Advantage. Current fund is $225 million.
Per year, FirstMark Capital typically receives over a thousand inquiries, meets with several hundred and invests in approximately 10 businesses. Rick Heitzmann says that he finds leads from “entrepreneurs and our network – industry leaders, fellow VC’s and portfolio companies.” Our average initial investments range from $3 to $5 million and we anticipate to double or triple that over the course of time. Seed deals typically are under $1 million.”
When evaluating a deal, Heitzmann cites “a great team” as a key determining factor. “We look at their competitive advantage and see how the entrepreneurs’ address the problem.” The best way to gain the attention of Heitzmann and FirstMark is network to a trusted mutual connection “via mentor’s networks, alumni networks, or Techstars.” If you plan on cold e-mailing, Heitzmann advises that it’s better to do it during off hours, and to highlight the three compelling things of your startup (what you do, why it’s important, and who you are).
Daniel Schultz – DFJ Gotham Ventures@EdgeofVenture
Favorite quote: “Don’t skate to where the puck is, skate to where it is going to be.”
Daniel Schultz is Co-Founder and Managing Partner at DFJ Gotham Ventures. He has worked with early stage startups for the past 20 years. He focuses on the industries offashiontech, e-commerce,financial services, mobile technologies and enterprise software. Some of his investments include Totsy and Yipit.He is also responsible for the firmsexitsin Pivot, Magnolia Broadband, Massive, XOSoft, andis currently managing a $200 million fund.
Schultz and his team focus on the New York metro region, targeting “entrepreneurs located in New York or re-locators,” while the remaining 15% stem from outside the surrounding area. Seed deals at DFJ Gotham Ventures range from $250,000 to $500,000, while Series A rounds increase from $1.5million initially to $8 million over the life of an investment. Each year DFJ Gotham receives around five thousand inquiries, which are narrowed down to under a thousand meetings, to an eventual investment of five to six deals per year.
Schultz lists chemistrywith entrepreneursand a relevant background as key elements when choosing an investment. “We like to see people who have been able to take an idea andactually buildsomethingwith that vision. It doesn’t necessarily takea lot ofcapital to do that. We like innovative entrepreneurs that are going after big opportunitiesand aren’t afraid to fail.”
If you are interested in catching the attention of DFJ Gotham Ventures, Schultz cites community events and conferences as great platforms for exposure. He recommends that all entrepreneurs create a list of their key VCs and target the speaking events they are attending.You can also email him atdanny@dfjgotham.com.
Gregory C. Gretsch- Sigma West@greggretsch
Favorite Quote:“I think empirically first, creatively and strategically second, and all of them have to come together. “Gregory Gretsch is a Managing Director at
Sigma West with over 20 years of high-technology experience and has been a managing director in funds with more than $1.5B under management. Prior to joining Sigma, Greg was the founder and executive of three start-up technology companies. His previous investments include EqualLogic (Dell), Postini (Google), and TalkingBlocks (HP).
Sigma West has five investments in it's most recent fund–the first post SigmaPartners fund. When asked how many investment deals he receives, Gretsch answered,“I generally hear about more than I look at. I meet with two new deals per week, so call it a hundred per year” but mentions that thousands of business plans cross his desk.
Sigma West expects to invest onaverage $8mtotal in each of it's companies, but initial investments will range from a couple hundred thousand dollar seed investment to a $6 million venture round. Interestingly he notes, “Historically, the average could be closer to 10 million over the life of a company. Now that is coming down because it’s cheaper to build a company today then it used to be. This is mainly due to cloud usage and outsourcing different functions to drive down the capital required to start and build companies.”
Gretsch sees the entrepreneur as a key attribute in evaluating a potential investment. “I’m a people investor. It doesn’t have to be the whole team, but the entrepreneur has to be compelling. When I pass on a deal, it typically is because the space isn’t big enough or they need more traction.”
Phin Barnes – First Round Capital@phineasb
Favorite quote:“Good companies should be able to be described simply in a sketch, on a napkin.”
First Round Capital explores about four thousand businesses per year, and invests in up to thirty. Barnes says that, “on an average week, I see up to eight entrepreneurs a day. For every hundred and fifty people you meet with, you are only going to invest in one. Regardless of the outcome of the meeting, I always try to add value to the entrepreneur.” First Round Capital investments range from $500,000 to $2 million.
When identifying the key investment attributes, Barnes cites three things: product, market, and team. He says, “The team is the most important, market is second, and product is last because it will change a million times.” Once they have selected their team, First Round Capital acts as a mentor for the first twenty to thirty-six months. Barnes says, “This could be with product, services and anything else that will help to get the product off the ground. In summary, we help build the real DNA of the company.”
If you’re thinking of approaching Barnes, he suggests to be creative when it comes to forming contacts. He first got connected to First Round Capital through two degrees of separation by utilizing a former college roommate’s contact.
Jeremy Levine – Bessemer Venture Partners @jeremyl
Favorite quote: “If everyone else is excited about it, I am probably not.”
Jeremy Levine is a Partner at Bessemer Venture Partners. Prior to joining BVP, he was VP of Operations at Dash, an Internet software publisher. Some of his investments include Pinterest, Shopify and Yelp. Bessemer’s current fund is $1.6 billion, and total funds under management are approximately $4 billion.
Jeremy Levine meets with about 300 companies per year and commits to two or three investments, so the pressure is high. Levine says that he finds his deals “all over the place, from Russia to Eastern Europe. With almost every investment I have made, either a colleague or I emailed or cold called the company that I was interested in.” Size doesn’t matter to Levine who says, “We don’t care what stage a company is when we invest. In the last couple of years, the smallest we invested was $25,000 and the largest was $40 million, ranging from an idea on a napkin to a business that is already up and running.”
If you feel strongly enough about the merits of your business, don’t hesitate to contact Levine directly. He says, “I tend to respond well to cold emails and cold calls when they’re in an area of interest.” Levine is currently “very excited about companies that offer services for software developers, as the number of developers has grown substantially within the past few years. I used to be into e-commerce, but now I try to stay far away from those startups given the competitive intensity. But my investment targets change regularly.”
In addition to the above heavy hitters, I also wanted to include some notable names in the VC industry that all early stage startups should keep in mind.
Alfred Lin - Sequoia Capital @Alfred_Lin
Alfred is best known as the former COO/CFO of Zappos, and the co-founder of Venture Frogs. He is an absolute rockstar from a personal and professional standpoint. Some of his notable investments include Trippy, and his most recent one, Romotive.
Fred Wilson - Union Square Ventures @fredwilson
Wilson is best known for Co-Founding Union Square Ventures and for working with brands such as Etsy, ITXC, Patagon, Kickstarter and Starmedia. Wilson was one of the first institutional investors to see the real potential behind Twitter.
Theresia Gouw Ranzetta - Accel Partners @tgr
Ranzetta is best known for her work with Accel Partners for online media and software investments over the past 12 years. Birchbox and Trulia are some of the notable companies she’s invested in.
Reid Hoffman - Greylock Partners @quixotic
Hoffman is a Co-Founder of LinkedIn and a Partner at Greylock Partners. His areas of focus have been in online media and gaming, and some of his notable investments include Airbnb and ShopKick.
Ben Horowitz - Andreessen Horowitz @bhorowitz
Horowitz is best known as the Co-Founder of Andreessen Horowitz and for his work with FourSquare and Netscape Communications. Some of the companies his firm has been involved with include Skype, Digg, and Foursquare.
Chi-Hua Chien - Kleiner PerkinsCaufield & Byers @chchien
Chien is a general partner at KPCBand focuses on investments in consumer technology.Chien is best known for his work with Klout, Spotify, Twitter and Path. At Path he funded the Series A and currently serves on the board.
Shana fisher - High Line Venture Partners @shanaglick
Fisher is best known for her work with early stage startups at High Line Venture Partners, as well as her seven years as the SVP at IAC. Her portfolio includes ShopHers and Pinterest.
Michael Dearing - Harrison Metal @mcgd
Dearing is best known for his seven years at eBay and for his work with companies such as Buy-it-Now, the listings upgrade business, eBay Stores, and ProStores. In 2008, Dearing founded Harrison Metal. His firm’s portfolio has companies like DocVerse or BancBox.
Steve Anderson - Baseline Ventures @standers
Anderson is best known for his work at eBay, Microsoft, Kleiner Perkins, Starbucks and Digital Equipment Corporation. He created Baseline Ventures in 2006. Investments of the firm include Instagram and OMGPOP.
Jeff Clavier - SoftTechVC @jeff
Clavier is best known as the Founder of SoftTechVC, and for his 16+ years of experience in the software industry. Eventbrite and Fab are part of his firm’s portfolio.
Patricia Nakache - Trinity Ventures @pnakache
Nakache is best known for her work at Trinity Ventures where she has a particular focus on social media and the mobile industry, as well as her work at McKinsey & Company and Fortune Magazine. Care.com and BeachMint are part of her active investments.
Mike Maples, Jr. - Floodgate Funds @m2jr
Maples is best known for his founding work with Maples Enterprises and as the co-founder of Motive Inc. His firm’s investments include Digg and BranchOut.
