Fundraising from VC firms is a nebulous and murky world for most entrepreneurs, and a lot are not so trusting of it. Some entrepreneurs recommend bootstrapping (doing it on your own without outside money) to avoid the messiness entirely. But the truth is there are reasons people do seek out VC funding, and they’re pretty tempting ones. Being able to say someone’s made a bet on you instantly boosts your credibility, and as money goes, it’s a snowball effect–the more funding you have, the easier it is to get more. (Which sort of stinks if you’re lacking cash to begin with.) You get access to knowledgeable and skilled people and, via their Rolodexes, you can tap into a whole other pool of knowledge and skill. And of course you get a windfall of cash. That’s helpful too. So it’s not surprising that a LOT of entrepreneurs, as wary as they might be of the whole thing, still keep VC funding on the radar.
This past week, Phil Black from True Ventures gave a great talk about evaluating VC firms when looking for funding. (I can think of a lot of people who’d have liked to sit in on this one!) Two points in particular really stuck with me.
Makes a lot of sense. Find out what other people think of them. I don’t know what other resources are out there, but The Funded is a useful website that collects entrepreneur-generated reviews of VC firms. (Incidentally, True is rated 6th highest! Not bad. :P) If you know of other places to look, let me know.
Number 2: Ask yourself: What do the terms they’ve set forth say about them?
Phil claims this is the single most important thing about a term sheet. Think real long and hard about the term sheet they hand you. As Phil put it, “Are they builders or extractors?” In other words, are their goals aligned with yours or in competition with yours? Are they going to be the kind of partners you want to be with for a long-term financial relationship, which is a pretty darn important relationship?
Both were very good points I hadn’t really thought about before, and useful for any would-be entrepreneur to consider. Thoughts?
A second topic that’s been on my mind this week is networking. Or rather, how one should network. My whole conception of what networking means has gone through an evolution in the past year, and I like to think I’ve gotten past some of my misconceptions about it and how the whole thing works. I’d definitely love to hear what other people think about it too.
I’ll be frank, networking was kind of a dirty word to me until a few months ago. I haven’t always been interested in business, and one thing that kept me from having an interest for a long time was the whole idea of networking, which most everyone claims is essential if you want to succeed in business. Every few weeks on Harvard campus, there’s networking lunches that are advertised. They’re extremely popular with the eager hordes of would-be Wall Streeters. As a friend put it (who’s been to a lot), the undergrads zero in on the influential alumni and jostle to be the one who gets the handshake and initiates some sparkling conversation that will impress them. Can you imagine, I thought, whole events organized for the sole purpose of gladhanding everyone within arm’s reach who looks like they could do you a favor? It was all just extremely distasteful and phony to me. I never could bring myself to go to one of these things, and I thought I could never bring myself to go into business if that’s what it required.
I’ve come to believe it doesn’t have to be like that. Throughout the jobs I’ve had in college, I’ve made wonderful friends and met wonderful people who were kind and gracious enough to do me a good turn later, by writing recommendations or by introducing me to further opportunities. But every one of those people who did me a favor is someone I really like as a person regardless of their position and developed a great relationship with over time. They’re people I really respect and really think are awesome, and I think that comes through. I mean, I can’t speak for others, but if I were a recruiter being approached by an undergrad who clearly had no interest in me as a person, I wouldn’t feel all that compelled. One of our speakers this week, Jared Kim, boy genius founder and CEO of WeGame, said as much in his talk: Do go to the networking events, but approach people because you’re actually interested in them, not just because you want them to help you. All of my connections that helped me out weren’t built on an exchange of business cards–they were built on real relationships that took time to grow. But that time is time you could be using to meet more people. It’s a trade-off. So yeah, that maybe means my total network won’t end up being as broad, but I’m going to prioritize depth just as much as breadth if not more. Partly because it’s a way of networking that I feel good about, but also because I’m making a bet on the ultimate value of a relationship that goes beyond “Can you do me a favor?”
I do have doubts sometimes, though, and wonder if the picture I’m painting for myself is rosy but impractical. Is there actually value in just meeting lots of people, if only briefly? Does throwing your name and card out there get your foot in the door? I’d love to hear how other people have approached networking and what they think about it.