Fighting Past Fatigue, Venture Capitalist StyleBy
I was reviewing some information from one Venture Capital firm that described their annual efforts. Far from the laid-back lifestyle that some people imagine, this successful VC firm spent much of their year traveling to meet with over 6,000 companies. A few hundred would be selected and screened more carefully, and then a dozen or so might be selected for funding. Whew, what an exhausting funnel. But they are looking for gems in the rubble of entrepreneurial activity, most of which is bound for failure.
The experience of skilled venture capitalists points to a few key issues that all of us can apply to increase the odds of success in our entrepreneurial efforts and help us be more selective and less fatigued in filling the limited funnels of our own innovation efforts. Mike Alder, one of my favorite gurus of start-up success, now head of the Technology Transfer Office at Brigham Young University, once told me that the most important thing in his experience was the management team. Great technology with a dysfunctional or incompetent team will go nowhere. It takes a good team and especially a good leader to have a serious chance of success. That’s been our experience also at Innovationedge, where we have worked with a number of start-ups to assist them in commercialization (though most of our focus is on helping larger companies with their new product and innovation efforts).
Inc. Magazine has a valuable little piece, “6 Thoughts Inside the Mind of a Venture Capitalist” by John Warrillow. Read the whole article, but here are the six key questions that many VC people consider when they hear a pitch. Even if you never deal with the VC community, you should be using most of these questions as you evaluate your own entrepreneurial activities and plans.
1. “Why you?” (Are you uniquely qualified to play in this space? Do you have the expertise it takes to have credibility and a chance to succeed?)
2. “Should your concept really be its own product?” (Or is it just a new feature for an existing product? If it’s the latter, you should be licensing your product to the existing players in the market, not launching a new one.)
3. “How much will it cost to get someone to buy your product?” (I’m often amazed at how many start-ups haven’t carefully considered this. Details of distributing the product, for example, are often neglected. Demand for the product is almost always wildly exaggerated.)
4. “Can I protect your idea?” (If you want to sell your company or license your invention and lack means to prevent direct copying, you’ve got an uphill battle. One VC leader told me that they are simply much more interested in technology with a patent, even if the patent isn’t rock solid. Of course, sometimes know-how from proprietary research can give you a hard-to-imitate-lead without a patent. Sometimes.)
5. “How much money do I need to invest before your company will be worth more than it is today?”
6. “Can I fill the holes on your management team?” (A related question: Are you located in a place that high-powered business leaders would never move to? Can I relocate you to a more interesting area?)
The questions begin and end with consideration of the qualifications of the team and its leader. If you sink in that area, the business isn’t going to float.
Screen your projects with the VC lens, and you’ll be less likely to plunge into futile innovation fatigue.