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Posts Tagged ‘vc’

thefunded-logoAdeo Ressi, the founder of the TheFunded.com has joined a long list of entrepreneurs and investors that say that the venture capital industry is broken. However, Ressi decided to put his (didn’t use outsider funds) money where his mouth was and built a site that allows entrepreneurs to critique and rate the actual audience that was evaluating them…the investors.

Ressi argues that airing the venture industry’s dirty laundry will ultimately improve the efficiency of the funding process as well as the rocky relationships that exist between investors and entrepreneurs. TheFunded also allows entrepreneurs to view and share term sheets, to assist one another finding good investors, and to discuss the many facets of operating a business. While many entrepreneurs applaud Ressi for clearing out the cloud of smoke that surrounds the VC world, many simply see TheFunded as only an arena for disgruntled entrepreneurs to vent.

“The problem with sites like TheFunded.com, or any site with user reviews is that the reviewed product will always be at a disadvantage. For every unhappy customer, they tell 9 of their friends, and for every happy one they tell 3. The odds are against the VCs here. Of course the majority of turned away entrepreneurs will put a negative review – it’s a form of vengeance. But those that did have a happy experience will have little reason to post anything. They have already researched for information from the site, got what they were looking for and will not likely return without proper incentive.” Ian Bell, Entrepreneur

Because of this lack of positive reviews, many entrepreneurs accuse the VCs of gaming the system where they’ve asked entrepreneurs they’ve backed to submit a favorable commentary about them and their fundraising experience. This boosts the firm’s rankings on TheFunded’s leaderboard, and has resulted in many in the industry to question the sites credibility.

For example, if a disproportionate number of members enter the site to provide a single comment on a given firm’s profile, this sends a red flag to TheFunded’s system. TheFunded looks for other behavior, too, for example, unusual semantic characteristics of the written fund reviews, such as excessive use of exclamation points and superlatives. It also looks at how many entrepreneurs voluntarily admit they were asked by their VC to submit a review (entrepreneurs are asked this when they provide a comment, and they check a box to say they’ve been asked).

Before this site can truly becomes a quality resource for the start-up community, they’ll need to become more respected (from both sides) by attracting additional traffic and even more helpful reviews to their site (Psst…a new Toyota Prius has over 160 consumer reviews on Edmunds.com compared to just 30 entrepreneur reviews of Kleiner Perkins on TheFunded.com). Unless these numbers pick up, it’s hard to look at this site without some real bias. At the end of the day tough, the TheFunded has definitely made Investors way more aware of their perceptions in the venture marketplace, and if that’s the nudge they needed to become more transparent and helpful to entrepreneurs; they deserve some applause, but not quite a standing “O” just yet.

“If their tool did such a good job, they’d raise a fund themselves and beat the tar out of us.” – Paul Kedrosky, investor & entrepreneur

“It’s a wantrepreneur focused product. Real VCs and real companies with a legit shot at VC money wont use it.” – Jeff Martens, strategic consultant

younoodleThe above quotes are referring to the highly controversial YouNoodle.com, an online platform for start-ups and early stage ventures. The feature that has sparked a lot of debate in the investment community is their YouNoodle Start-Up Predictor that analyzes data on early stage ventures and generates a report on what that start-up will be worth in three years. For real? Yes, they’ve developed a software program that claims it can predict the valuation of early-stage start up companies (yes, companies that haven’t come within a whiff of a dollar in revenue…). The model relies on basically four areas: 1) the team; 2) financial factors; 3) the concept; and 4) advisors. How’s it work? The entrepreneur fills out the survey and provides a little detail, and like pulling a rabbit out of a hat, presto…YouNoodle spits out a valuation. Smells about as real as the future predicting information Miss Cleo (the famous TV psychic and shaman), provided after calling her “900” hotline. misscleo

It’s hard for us to look at this with a straight face. Seriously. Has the venture community been Punk’d? After all, a “noodle” is defined in the dictionary as a fool or simpleton. Can you really believe that two teenagers working on a few lines of code in the basement have developed a $2.75 million dollar idea? Ridiculous. Be very afraid of this tool, looking at some number on the screen followed by a huge string of zeroes right next to the name and your start-up feeds the entrepreneurs ego like nothing else can. Think about the Far Side cartoon where the kids are all eating ice cream in front of the windows of a gym filled with overweight people sweating on treadmills. It’s pretty sick. We think it’s nothing more than a way to grow their real ambition – – yet another social network for entrepreneurs. If it isn’t, then why haven’t their own founding members run themselves through their magical predictor?

The following excerpt is taken from Breaking Through The Broken: The Transparent Guide To Overcoming The Inefficiencies In Early Stage Venture Capital.

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tigerroar
Unfortunately, today’s early stage venture investing market is a little bit like following Tiger Woods on the golf course. This trend makes it extremely difficult for new innovative ideas to grab the attention from their desired audience. While there are hundreds of world-class golfers playing on any given weekend (who are plenty entertaining to watch), once the crowd following Tiger roars, everyone turns their eyeballs to Mr. Woods (even when he’s 6 strokes back). Because of the inherent high risks involved, the investing community is so susceptible to this herd mentality; when a top tier firm or individual invests in a space, it seems that everyone follows.

These “me too” investments lead to businesses, which often are inferior to other start-up ventures, receiving full funding simply because they operate in a space that has garnered some interest from the recognized big boys (i.e. Sequoia, Kleiner Perkins, Greylock, etc.). Is this playing it a safe or just playing it stupid? If innovation is going to solve the problems of tomorrow, do we really need investor dollars going to yet another video streaming site with a social networking component that’s primary revenue model revolves around advertising?

Another problem with the industry is that it has become entirely too incestuous, with the top firms and individuals pouring larger and larger amounts of money into only a very small percentage of the companies that actually need it. As VC funds have grown, so has the size of their investments, leading to a “handful of big bets” mentality that leaves a lot of promising early stage companies standing in the cold. Although placing large chunks of capital into ventures with established traction is valuable (and lower risk), it also means true innovation is being left on the sidelines when it should be cultivated in an efficient manner. We don’t need seven great new companies right now; we need seven hundred. Young stars who are new to the game are being overlooked for individuals with more experience, not necessarily because it’s the experience that makes their venture better, but simply because they know someone who can get them money.

“The real issue is that getting financing is difficult and inefficient for the investor. I’m having to create a whole slew of personal relationships, networking, etc… – just to get small amounts of money. While I like being social and getting out there, it’s slow. We need a Wal-Mart model for “common’ money” (i.e. under $500k using a typical business model). The real issue is that many people could be funded so much more efficiently, with better returns, if the industry was more transparent.” – Adam Nelson, Founder of varud.com

While investor attention is being paid to the Tiger-like entrepreneurs and ideas of the world, the next great phenom is sitting on a hell of a smart concept and still waiting to be discovered. How can this talented bunch break through and get some time on the field?

Excerpt taken from Breaking Through The Broken: The Transparent Guide To Overcoming The Inefficiencies In Early Stage Venture Capital.

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MAKING THE REGISTER RING

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Sales and marketing is the knife’s edge for all companies, as these two disciplines can make or break any business. It’s always easier to manage growth when there is top line revenue and some cash flow rolling in. A few key elements to look for in the Sales & Marketing strategy: 1) Leveraged sales; is the sales strategy set up in such a way that the business can gain access to an existing pool of potential customers quickly?; 2) Sampling; while there are many products that can be effectively sold without the consumer getting a hands on experience? Do successful products lend themselves to an extremely low barrier of entry?; 3) Viral marketing and distribution strategies or strategic channel partners; one of the most common problems when launching a new business is finding the budgets for marketing the new product or service. Smart entrepreneurs often find highly leveraged, strong word of mouth, strategic partnerships or other distribution channels; and 4) Clear and compelling brand strategy; a unified brand can provide a powerful springboard for all sales and marketing initiatives.

The only way for a company to make money, and let me emphasize this, the ONLY way to make money is through sales.  Everything else (marketing, customer service, etc) either facilitates or supports your sales efforts.  What and how you sell whatever it is you’re selling is up to you, but if you want to make that register ring then  go SELL, SELL, SELL.

This is just one of the key criteria forward-thinking investors use when evaluating the strength of entrepreneurs and their new ventures. How do you measure up? Go to www.venturephenomeproject.com to read all 80 criteria and swap knowledge with other entrepreneurs & investors.

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