Bankrobber – To VC or not to VC? That Is The Question
Fred Destin, Atlas Ventures
Fred Destin joined Atlas in 2004 and is a Partner in the technology group. He focuses on software and technology-enabled services and digital media infrastructure and applications. He previously co-managed OM Technology Investments, an IP Services and FinTech focused fund backed by Allianz/Dresdner. He served on the board of a number of companies including SGI-spinoff Kasenna, Xerox PARC-spinoff Inxight, Capital IQ (acquired by S&P) and Rainfinity (acquired by EMC). Previously he was a Venture Manager with Speed Ventures, a seed stage fund backed by Permira and Soros Partners. He was also an Executive Director at Goldman Sachs and has further experience with Zurich Capital Markets and J.P. Morgan. Fred authors a widely read blog at http://www.freddestin.com, commenting on European innovation and the digital media space. He currently serves on the boards of Atlas portfolio companies Dailymotion, Inspirational Stores, KDS International, NTRglobal, PriceMinister, RealEyes3D, Seatwave, Sporever and Zoopla. He also serves on the board of Seedcamp, which provides mentoring and seed funding to European start-ups. Fred holds a Masters in Financial Engineering from the University of Brussels (Solvay). He is on the Boards of: Dailymotion, Inspirational Stores, KDS International, PriceMinister, RealEyes3D, Seatwave, Sporever, Zoopla
Fred describes himself as being on the dark side of the force – way to get the geeks on side. Here follow’s Fred’s frankly excellent advice for European entrepreneurs looking for VCs.
Remember, VCs are human too! When you go to a networking event, don’t drop your business card straight away – have a chat, build a relationship. Once I see you’re a credible person, you’re intellectually a joy to deal with, that’s the first step.
The second step is, how to get a meeting? Statistically the chances of getting to the finish line are not high, but it doesn’t matter; I do this job because I like entrepreneurs, and I like helping businesses achieve their goals.
The realistic view of my priorities as a VC is the following: my family, my partners in the firm, my existing companies, my personal brand, managing my deal flow – that business priority at number 5 often comes in at number 1, because we’re obsessive about what we do. Every week we reassess what’s in the pipeline – generally about 30 deals a week.
The objective of the first pitch is not to tell me everyting about the business, it’s to impart to me the core elements that would excite me about the business within about 40 minutes. Get me hooked. It’s like show business – you’re setting a stage and you need to turn the story into an exciting story.
When I meet a company, within 3 minutes you know whether you like them, within 5 minutes you know wehther you want to fund them. In other words, I will have an urge to give you money. But because I’m a good VC, I’ll rationalise this urge asking questions that I know I’ll need when I’m selling the business to my partners.
Beware of pitch decay. What I need from you is the 4 or 5 bullet points that explain why this is a good opportunity.
Europeans are very bad at following up on pitches and meetings. It’s a sales job, and you have to keep yourself up in the mindshare of the VC. Even a short 15-minute call is sufficient – it helps get me comfortable with the startup you’re trying to sell.
At some point the tables turn and you start to feel that we’re hungry and hooked, we want your business. We’re going to start shooting questions back to you for more detail. And I find that people are very unprepared to answer what I think are just basic questions. I find that people haven’t done the work thinking about the next steps and so they start scrambling a bit.
You need to focus on the right things – the saying that ideas are cheap and execuition is king is really true.
If we fast forward to the partnership presentation – we don’t need 5 people and the banker in the room. People pay relatively little attention to this – arrive 15 minutes early, make sure your technology is working, and your pitch is prepared with the investor in mind.
Until you have money in the bank, you’re creating risk. Deals fall through, timing is everything, get the money while you can, you never know what’s going to happen. Be paranoid while you’re in the process about managing it well.
Afterwards, managing the relationship. We want to be partners, building a business is long and painful, it consumes your life. The key is that you have to think your VC is nothing more than a financing opportunity at heart – it’s the best tool that the market invented to fund startups, but it is still just a tool – they’re not going to build your business for you.
In a way, entrepreneurs and VCs share in a suspension of disbelief – we wouldn’t do what we do otherwise. But you need the emotional maturity to know when it’s time for the company to evolve, and when there is a need for founders to bring in the talent and manage their way down from the CEO position.
Questions from the floor:
Q. How do European entrepreneurs compare in aggressiveness with those from elsewhere?
A. Israelis, Chinese and Indians, West Coast Americans – these are all more aggressive than European entrepreneurs.
Q. How comfortable are you with single-person companies?
A. Extremely uncomfortable. The hardest hurdle is starting the company, then finding people to share the vision and work for free, and then to find funding. The perception that people have of their own value to the business is always out of whack. Companies work as a collective organism.