Venture Capital
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"The No": Making the Most of Getting Rejected
Published June 23, 2009 @ 07:46AM PT
When you get to the point where you're ready to present a business plan to investors, be prepared for an onslaught of rejection.
The idea generation and executive summary process can be very encouraging - it's relatively easy to find people who are willing to give you feedback on your ideas.
Getting people to part with their money, on the other hand, is incredibly difficult. Educating yourself on the what type of investment is right for your business will likely save you from a series of meetings with investors who were never right for you in the first place. Remember: investors are not all equal, and finding the right type of investment will add value beyond providing needed cash.
But first, you must learn to deal with rejection. Some of the most successful, seemingly no-brainer investments get rejection after rejection - for example, Bessemer Ventures said no to FedEx SEVEN TIMES. Rejection is a reality of the fundraising process.
Here are three ways to make the most of "the no":
1. Proactively ask for feedback
I have heard/read many stories from investors about entrepreneurs that flip out after hearing "no". Not every investor (and many times, only a small sliver) will "get" what you're trying to create - that is a reality of the investment process. Say thanks and see if the investor has any feedback for you.
Ask them what they don't like, and how you can improve your product. Listen to criticism and, if you think it's valid, incorporate the feedback for your next presentation.
2. Try to separate yourself from your business
There is an inevitable emotional attachment that you'll develop with your business and in the startup world the lines between personal and professional are so blurred that it's tough to distinguish between the two. When fundraising, put in extra effort to establish boundaries between your business and yourself - a rejection from a investor shouldn't feel like a personal rejection (though for many people it does).
3. Keep in touch with potential investors
If someone tells you no, that doesn't necessarily mean they never want to see you/speak to you again (though if you flip out at them they most definitely will never want to speak to you again). Sometimes an idea is not at the right stage for an investor (too early or late stage). Make an effort to keep in touch with investors you like - they might have passed on your current deal, but could very well be interested in the next one.
Persevering in the face of rejection requires a unique mix of confidence and modesty. You should be confident enough to believe that a pass from an investor doesn't mean your idea is dead, but modest enough to ask for feedback and know that you are not the only person who really "knows" the business. If you work on making the most of rejections, you'll soon notice that hearing a "no" might actually be beneficial.
For more on dealing with rejection - Y-Combinator founder Paul Graham's piece from Aug. 2008 has some great advice as well: http://www.paulgraham.com/fundraising.html.
This column is part of Amanda Peyton's "Bank It: Ca$h For Your Ideas" series about how to be successful in business plan competitions and the fundraising process in general. Amanda is an MBA student at MIT Sloan and one of the lead organizers for the MIT $100K Business Plan Competition. She is also on the executive committee for Sloan Entrepreneurs for International Development (SEID).
Venture Capitalist and Entrepreneur Humor
Published June 13, 2009 @ 05:23PM PT
This post is probably a bit more relevant for those who are coming at things from the for-profit, webtech startup side of things. In the last couple weeks there have been a couple slideshows going back and forth about things you'll never hear a venture capitalist say, and in response, things you'll never hear an entrepreneur say.
First, the VC:
And of course, the entrepreneur is not immune:
I'd love to see some creative person do this for the nonprofit world. It's worth trying to distill which of our instinctual tendencies are worth poking fun of in good spirits, and which actual harm our ability to produce sustainable change.
Startup Incubator TV
Published June 10, 2009 @ 07:53PM PT
(photo via andrewhyde.net)
Every time I watch a TED Talk or discover new information on Wikipedia, I'm once again reminded of the power of the internet for sharing information and democratizing education. Today I discovered that the Boulder (and now Boston) based TechStars incubator has started their very own behind the scenes reality show.
TechStars has really great mojo. It's a summer education and mentorship program for (generally) software/web tech startups through which 70% of the participating companies have either received funding or left the program profitable already. Similar to Y-Combinator, they provide $6,000 per founder for 6% equity, but the real value is in their unique mentorship program, and the access to institutional investors they provide.
Maybe their most impressive accomplishment though is that everytime someone talks about the program - from the founder and executive director David Cohen to their participants - there's a big smile on their face. Today, co-founder (not to mention one of my favorite venture bloggers) Brad Feld posted about their new, once a week five-minute segment about the program.
The videos (two of which have been released so far) are an incredibly cool behind the scenes look at the program. What's more, they led me to TechStars.tv where the group has just tons of awesome videos and content from their educational section. The absurd amount of information could keep any entrepreneur busy for weeks and that gives the program and the community around it even bigger ups in my book.
I'm going to be watching the TechStars show weekly, particularly since the very first company they feature in the very first video is the super-cool Northwestern University-started The Next Big Sound, which makes it easy for anyone to become a mogul and discover new musical talent.
For all the aspiring entrepreneurs out there, get over to TechStars.tv and soak up the knowledge.
Government Bridge Capital for Startups?
Published April 28, 2009 @ 02:18PM PT
In a blog post on BusinessWeek.com yesterday, CMEA Capital partner Jim Hornthal proposes that rather than a venture capital bailout, as was suggested in a much debated column by Thomas Friedman a few months ago, the government should be exploring how to provide bridge funding for promising mid-stage startups who would in a better capital climate have access to the debt they needed to expand.
Without access to further capital, many innovative and promising companies will fall by the wayside. This is especially true in the area of clean technology, where companies need to invest heavily up front in R&D and manufacturing, and it can take 10 years or more to see a return on investment. There are many companies ready to build new plants and create hundreds of jobs if only they could secure additional funding. These are "shovel-ready" jobs worthy of stimulus dollars. And this is the technology that Americans are counting on to lead us to energy independence in the future.
We don't need the government to invest in startups. We do need it to provide a financial bridge to make sure that successful midstage companies have access to growth capital until the capital markets revive. This is the kind of project where it makes sense for the venture capital community to partner with the government.
It's a really interesting position, and worth thinking about. It's a plan that provides a strategy for the government to sustain proven (or at least highly promising) innovation, without either getting into the business of backing VC firms or directly supporting startups, which is perhaps far more outside of their mandate.
Of course, there are some that just think the government shouldn't have any role in the venture industry. There are many who point to queasiness with government interference or simply the lack of experimental innovation in the field in general and suggest, as some argued with auto bailouts in Detroit, the government should stay away. I guess my question is, while theoretically the need Hornthal seems to make theoretical sense, are their examples of the type of company he is talking about who can't access capital right now? Would this be helpful for social enterprise expansion?
