Erick Schonfeld and Mark Pincus just took the stage at TechCrunch50 to ask twenty (or so) questions to top venture capitalists, most of which were submitted by readers. Sumant Mandal (Clearstone Venture Partners), George Zachary (Charles River Ventures), Roelof Botha (Sequoia Capital), Raj Kapoor (Mayfield Fund) and Ross Levinsohn (Velocity Interactive Group) participated.
My real time notes follow. You can also watch the video here.
Schonfeld began by asking how the venture capital industry has changed over the years.
He mentioned Peter Thiel’s comments yesterday on stage that the venture capital landscape has shifted over the decades. Today, Thiel argues, there’s too much money chasing too few ideas:
It is the case that venture capital, throughout the 70s 80s 90s, the balance of power was towards the VCS away from the entrepreneurs. That is starting to shift. It basically means that the correct business model for venture capital is undergoing a big paradigm shift. The correct way to be venture capitalists to work more collaboratively with founders.
Botha argues that the best funds provide far more than capital, helping to guide startups through early pitfalls, assist with marketing and introductions, etc. Zachary says there’s a place for a different model, particularly very early stage angel funding with less handholding to allow funds to invest in a lot of different companies.
Schonfeld: Is innovation dying in Silicon Valley?
Botha says the question isn’t whether it’s dying here, but rather that innovation is no longer limited to Silicon Valley. He also says VCs need to continue to take big risks with crazy ideas in order to win.
Schonfeld: What’s the difference between the typical Hollywood script funding process and the VC funding process?
Zachary: “About 100 points of IQ.”
Levinsohn: The process works the same way. Scripts trickle down from Spielberg on down until it dies or gets funded.
Kapoor: Startups have the chance to innovate and change when they hit problems, movies not as much. With startups all that matters is the people. With movies people chemistry matters, but the team only works together short term. And for the most part the actors work for cash, not equity. Levinsohn says the world is starting to change – and we’re seeing different types of media deals that look more like traditional VC.
Schonfeld: Why do VCs invest in me-too startups?
Mandal: Its definitely a problem, but each of these companies are trying to do things a little differently.
Botha: Sometimes investing in copies is still rational and can be profitable. He adds that second movers often has an advantage, cites Google and Kayak.
Schonfeld: What’s more important, great revenue model but no user traction, or great user traction but no revenue?
Zachary – great user traction is really important.
Roelof noted that PayPal had terrible cost issues and little revenue, but founders focused on creating a highly efficient architecture.
Pincus asks how important an obvious monetization strategy is in the early stages. Botha says they’re willing to take the risk.
Schonfeld: What are the most common mistakes by entrepreneurs in pitches or in the early stages of a business?
Levinsohn – if you can’t tell the story in a couple of sentences, its a problem. You need a story. Pincus asks what percentage of investments are made on formal pitches versus connections. Levinsohn says more formal pitches because they are fairly new.
Zachary: Whatever the mistakes, recognizing them quickly is important.
Botha: Number 1 indicator of entrepreneurial success is how good of a listener they are?
Mandal: In a pitch, make sure you prepare and understand your audience. Also, realize that VC decisions are largely emotional, you have to tell a story and connect with the VC.
Pincus flips the question, offers advice to VCs: When you find an entrepreneur or deal that you like, be faster velocity and lower friction. Don’t worry about how to add value as much as make it easy for them.
Lots of talk about the speed of the decision making process at VCs and whether it’s caused by the real need to get to know a company or rather due to too much risk aversion.
Audience Question: How do you feel about founders taking some money off the table in a stock sale prior to an exit?
Mandal: No problem.
Pincus: If a VC believes in a company they shouldn’t worry about a founder taking money off the table. Care about the next Google or Facebook, don’t worry so much about founder motivation.
Levinsohn: If liquidity markets stay the way they are, taking some money off the table isn’t a problem.
Question: Number one indicator of success in a company? Botha says good listener. Thiel says low paid CEO.
Zachary: A good team that doesn’t want to take too much money early. Shows they believe in themselves.
Levinsohn: A sincere passion for the product.
Mandal: People. And honesty.
Kapoor: Ability to adapt
Audience Question: Adeo from TheFunded.com – What measures are you taking to prevent confidential information from leaking?
Zachary: hiring partners that have high integrity and are honest.