Beta
×

Welcome to the Slashdot Beta site -- learn more here. Use the link in the footer or click here to return to the Classic version of Slashdot.

Thank you!

Before you choose to head back to the Classic look of the site, we'd appreciate it if you share your thoughts on the Beta; your feedback is what drives our ongoing development.

Beta is different and we value you taking the time to try it out. Please take a look at the changes we've made in Beta and  learn more about it. Thanks for reading, and for making the site better!

Why VCs Really Reject Startups

timothy posted more than 2 years ago | from the busy-taking-notes-for-friends dept.

Businesses 217

itwbennett writes "Instead of simply not following up with startup proposals that he doesn't intend to pursue, venture capitalist Josh Breinlinger decided to change things up and not only hear every pitch request but respond with honest feedback. For those on the receiving end of that honest feedback, Breinlinger's silence may have been golden. It turns out that Breinlinger, and perhaps most VCs, reject your proposals because you lack experience and leadership skills and your team is weak. Would you rather hear the hard truth about why your startup didn't get funded or some vague dismissal?"

cancel ×

217 comments

Sorry! There are no comments related to the filter you selected.

Hard truth (5, Insightful)

Anonymous Coward | more than 2 years ago | (#40345663)

You can't fix what you don't know.

Re:Hard truth (0)

Anonymous Coward | more than 2 years ago | (#40346087)

Agreed. Additionally you can't make a strong argument against a rejection you don't understand. If you know why you are being rejected, next time you can say. Look I have experience X or even though Joe the programmer seems week, he actually is excellent at Y.

Re:Hard truth (4, Insightful)

SomePgmr (2021234) | more than 2 years ago | (#40346109)

Agreed. And even without asking for funding from an outside party, I wish I'd gotten some honest advice before pursuing some of my past ideas.

I suspect most would say this though... right up until they hear why their idea sucks. Then that person is, "just a cranky old hater trying to ruin my dreams".

Re:Hard truth (4, Funny)

SomePgmr (2021234) | more than 2 years ago | (#40346141)

I should've added, it reminds me very much of this:

http://www.youtube.com/watch?v=u6gZ4vk_Tw4 [youtube.com]

Which is a conversation I've had more than once with only minor variation.

Re:Hard truth (5, Insightful)

Anonymous Brave Guy (457657) | more than 2 years ago | (#40346187)

I suspect most would say this though... right up until they hear why their idea sucks. Then that person is, "just a cranky old hater trying to ruin my dreams".

Maybe so, but if my dream is going to be ruined, I'd rather it happened before my career and/or personal finances were ruined with it.

My immediate reaction to the original question, "Would you rather hear the hard truth about why your startup didn't get funded or some vague dismissal?", was that almost everyone who is ever going to succeed in business would want the hard truth, and a lot of people who were going to fail would think they knew better and didn't need to hear it.

Re:Hard truth (2)

chrismcb (983081) | more than 2 years ago | (#40347303)

The hard truth. If they say some vague wishy washy thing, you might try and fix the vague wishy washy thing, even though that isn't the problem.
As far as hearing why your idea sucks, I think it depends. If they say "your idea sucks." then yeah he is "just a cranky old hater..." But if he says "your idea sucks because of X, Y, and Z" You can either try to change X, Y or Z. or do further research on the subject

Re:Hard truth (0)

Anonymous Coward | more than 2 years ago | (#40346145)

Is it the hard truth though? Or just somebody's snap judgment? It's possible that the perception of one VC is way off.

Re:Hard truth (5, Insightful)

SomePgmr (2021234) | more than 2 years ago | (#40346231)

I'm neither a successful VC or a gajillionaire start-up guy, but I hope I'd think of it like this...

If someone points out a problem with my idea and I immediately get defensive, it's probably a very serious problem.

If it's something I've heard more than once, I'm probably really screwed.

If they made a judgement based on my pitch and I think it's because they just don't understand, then I'm probably not good at communicating ideas and I'll probably fail at communicating the idea to the masses, too. That's a big weakness, just of a different variety.

If I think I've explained it well, in a way everyone would understand, their concerns are not problems, and it's a very workable idea... I'd ask myself how someone that evaluates these ideas for a (successful) living could be that, "stupid". More likely than not, an amateur like me is wrong, not the other guy. Work from there...

Re:Hard truth (4, Insightful)

Kergan (780543) | more than 2 years ago | (#40346389)

"Had I asked my customers what they wanted, they'd have answered stronger horses". (Henry Ford)

Your points are valid, but only up to the point. Some people, and VCs are no exception, simply can't see the elephant in the room. I'd wager that more than a few VCs rejected, say, Google, or Twitter, or Instagram. When you're doing something completely out of the box, your audience will generally not get what you're onto.

The guy who started Europe Assistance is but one example. Faced with rebuttals from his potential financiers that there was no demand, he eventually showed them a phony market study that suggested there is. The rest is history.

Re:Hard truth (0)

Anonymous Coward | more than 2 years ago | (#40346599)

On the other hand, the other 1000 guys the VCs rejected were not Google or Twitter.

Re:Hard truth (1)

Kergan (780543) | more than 2 years ago | (#40346803)

On the other hand, the other 1000 guys the VCs rejected were not Google or Twitter.

Possibly... How can you know, if they never got the chance to try it out?

Re:Hard truth (2)

chrismcb (983081) | more than 2 years ago | (#40347361)

"Had I asked my customers what they wanted, they'd have answered stronger horses". (Henry Ford)

I would much rather have the customer or VC tell me that they want stronger horses. Rather than say "blah blah blah but quite the time" or some other vague nonsense. The hard truth is always better. It gives me a chance to refute it, or come up with an answer to it. Vague nonsense is just that, nonsense

Re:Hard truth (1)

westlake (615356) | more than 2 years ago | (#40347715)

"Had I asked my customers what they wanted, they'd have answered stronger horses". (Henry Ford)

Which isn't that far off the mark.

What Ford delivered, after all, was a tough little beast that could cruise the dirt and gravel roads of its era at 35 to 45 mph without complaint, while hauling a family of four plus dog and cargo.

Re:Hard truth (5, Insightful)

Surt (22457) | more than 2 years ago | (#40346447)

Exactly. A VC is a person who got lucky, once. It doesn't qualify them to judge startups, but allows them to do so.

Re:Hard truth (2)

Larryish (1215510) | more than 2 years ago | (#40346765)

Wrong.

Life is a meritocracy.

Re:Hard truth (2)

Pfhorrest (545131) | more than 2 years ago | (#40346823)

Life is a meritocracy.

Tell that to everyone who scores in the 1% across the board on aptitude tests but isn't in the 1% economically.

Re:Hard truth (0)

Larryish (1215510) | more than 2 years ago | (#40346897)

You are missing the point of that statement.

Life is a meritocracy.

Your benefit is the result of your action.

If you do not have the things you want, you have not filled the requirements to get those things.

It doesn't matter what you got on your report card.

Life is a meritocracy.

Re:Hard truth (5, Insightful)

Anonymous Brave Guy (457657) | more than 2 years ago | (#40346965)

Your benefit is the result of your action.

It is also a result of the opportunities you had.

Life might be a meritocracy if everyone started out with equal opportunities, but that obviously isn't even close to true.

Re:Hard truth (3, Insightful)

Surt (22457) | more than 2 years ago | (#40347209)

But the reality is that your benefit is NOT typically the result of your action. The most probable way to become rich in our society is to be born that way. That's the opposite of meritocracy, assuming you subscribe to the standard definition of meritocracy.

Re:Hard truth (0)

BitZtream (692029) | more than 2 years ago | (#40347517)

People born rich often lose it. Staying rich requires above average performance.

You're trying to redefine meritocracy to only apply to people who get rich from not being rich, which is just a false premise you're adding. You're initial wealth has nothing to do with your ability to maintain or grow it proportionally.

Re:Hard truth (4, Interesting)

Surt (22457) | more than 2 years ago | (#40347123)

I wish life were a meritocracy. It'd be so much better a world to live in. The actuality is closer to a corrupt lottery.

Re:Hard truth (5, Funny)

DigMarx (1487459) | more than 2 years ago | (#40347215)

I remember when I thought things could be boiled down to a meaningless three-word sentence. Then I turned 6.

Re:Hard truth (0)

Anonymous Coward | more than 2 years ago | (#40347581)

bwahahahaa! Thanks, I needed a good laugh. I suppose you think that the same person born in Mexico and in the USA and given the same amount of effort, skills and intelligence will reach the same station in life? How about in Uganda? You are describing a belief in a just world: "A just world is one in which actions and conditions have predictable, appropriate consequences." Go read and actually understand http://en.wikipedia.org/wiki/Just-world_hypothesis

Re:Hard truth (1)

ArsenneLupin (766289) | more than 2 years ago | (#40346747)

Is it the hard truth though? Or just somebody's snap judgment? It's possible that the perception of one VC is way off.

Then it is still useful to know. First you could give counter arguments. Or if that is not an option (VC may feel to lose face if he is swayed, or may think that it's bad form to "react to feedback"), then you could pre-emptively work your counter arguments into your presentation to the next VC, so that that one doesn't make the same "snap judgement" as the first one...

Re:Hard truth (3, Interesting)

timeOday (582209) | more than 2 years ago | (#40346203)

IMHO what's difficult is giving constructive feedback to somebody who doesn't interview well or doesn't perform well on the job simply because they aren't very intelligent. I don't know what to tell them. It's not helpful to say "don't get confused so often" or "have better ideas."

(And I say this freely admitting there are people smart enough to justifiably feel the same way about me.)

Re:Hard truth (5, Insightful)

AlexOsadzinski (221254) | more than 2 years ago | (#40346303)

Oh man, this is a hard one. I was a VC for almost 8 years, and made a point of giving feedback, because I'd done 6 startups before, and knew how frustrating fundraising can be. There's nothing worse than being turned down (or ignored) with a BS reason, because you can't learn from it.

If the reason was "I don't understand your space and so can't add value", or "We don't invest in companies at your stage" or "We already have a competitive company in this space", it went down ok with the entrepreneur(s). If it was "I don't have confidence in the market opportunity" or "I think that there's too much risk in your technology (this never applies to software, but often applies to new semiconductors, batteries, alternative energy and the like)", it sometimes annoyed the entrepreneurs.

But, if the reason was "You're not the right CEO", oh, boy, it usually went badly. The problem was, that was the most common reason.

Worst of all were the crazy people. #1 on the crazy list are the "lossless compression" types. Even taking them through the math that, of course, no compression scheme can reduce all arbitrary data sets (n bits can only represent 2^n different data sets) had no effect. They also tended to get the most annoyed when I turned them down. #2 was the astonishing number of entrepreneurs who would present business plans showing revenues over the next 4 years of $1M, $10M, $100M and $1B, with >95% profit in that 4th year. Telling them that they simply had no idea about how to run a business also went badly. You could invent matter transmission and not get that kind of profitability.

There's another reason that VCs don't always give feedback: they don't want to miss the deal if another VC decides to invest. Maybe that other VC sees something unique, or has a plan to replace the not-good CEO, or something else. VCs really hate it when they invest in a company and it all goes to hell, and they lose their investment. They hate it even more if they turn down a deal and someone else makes a fortune on it. Some of the more self-effacing (and hence more likeable) firms will post on their sites a list of the great companies that they turned down. A lot of people turned down Google and Facebook, for example.

I still think that the best way is to give honest feedback, without being offensive.

Re:Hard truth (1)

Dachannien (617929) | more than 2 years ago | (#40347443)

Worst of all were the crazy people. #1 on the crazy list are the "lossless compression" types. Even taking them through the math that, of course, no compression scheme can reduce all arbitrary data sets (n bits can only represent 2^n different data sets) had no effect. They also tended to get the most annoyed when I turned them down. #2 was the astonishing number of entrepreneurs who would present business plans showing revenues over the next 4 years of $1M, $10M, $100M and $1B, with >95% profit in that 4th year. Telling them that they simply had no idea about how to run a business also went badly. You could invent matter transmission and not get that kind of profitability.

These are the same people who file patent applications pro se and then freak out when their application gets rejected. They usually call the examiner repeatedly, call the examiner's boss, and generally make a nuisance of themselves, because they're too cheap to invest in the not inexpensive process for appeal the same way they were too cheap to invest in an attorney. When that doesn't work, they take to trolling patent-related forums and the USPTO Facebook page.

how to explain it (2)

epine (68316) | more than 2 years ago | (#40347603)

1) If your universal lossless compression doesn't actually work, we want no part of it; if it does work, you already have enough funding in your personal checking account to succeed beyond your wildest dreams. What would you do if someone showed up asking you to invest in a 50lb bar of 28 carat gold? It's either fake, or the person bearing it is too stupid to live.

2) Your idea is great, but you simply showed up at the wrong address, not having done your basic due diligence to determine that we're too all dumb around here to recognize brilliance even if it bites us in the ass. If you also invent the cure for stupidity, come around again and give us another shot.

Re:Hard truth (0)

Anonymous Coward | more than 2 years ago | (#40347677)

Some of the more self-effacing (and hence more likeable) firms will post on their sites a list of the great companies that they turned down.

And to show just how self-effacing I am, I'll admit I've turned down Angelina Jolie, Scarlett Johansson and Megan Fox.

Re:Hard truth (1)

sribe (304414) | more than 2 years ago | (#40346537)

You can't fix what you don't know.

Yes, if you seek VC funding and do not get it, there are only 3 possibilities (and of course combinations):

1) Your business plan has the problems described and you should figure out how to fix them;

2) You did not communicate something well enough (management skills, risk mitigation, market potential) and need to figure out how to fix your presentation;

3) Your idea is not suitable for VC funding, and you need to figure whether and how to proceed without VC funding.

Re:Hard truth (2)

Anonymous Brave Guy (457657) | more than 2 years ago | (#40347069)

You forgot a very important one:

4) The VC made the wrong call.

Successful VCs will, on average, make successful investment decisions, but the "on average" really matters. No VC can possibly be an expert in every field that every candidate company works in, and no expert in any interesting, fast-moving field can possibly explain all the intricate details to educate the VC fully within the kind of discussions we're talking about. At some point, it's going to come down to a judgement by the VC of whether the ideas/assumptions/resources/whatever underlying the business plan are sound.

That means it is entirely possible that a given VC will decide against funding a business, even if in fact the plan was reasonable and would have been a good investment, simply because that particular VC didn't understand the business/market/whatever and there wasn't time to get educated enough to make a better decision.

Re:Hard truth (1)

sribe (304414) | more than 2 years ago | (#40347643)

You forgot a very important one:

4) The VC made the wrong call.

No, I did not forget it. I said "if you seek VC funding and do not get it". No one goes to a single VC, gets turned down, and quits. "If you seek VC funding and do not get it" obviously implies rejection by multiple VCs. If they're all turning you down, then it's some combination of the 3 reasons I listed. If you're think they're all making the wrong call, you're deluding yourself about 1 or more of those 3 reasons.

Re:Hard truth (2)

slew (2918) | more than 2 years ago | (#40347671)

I think some people miss a very important point about VC funding. For some business plans, you really need to get it (e.g., for corporate connection reasons if there is no other "exit-plan" for your business). It isn't just about the money. If it is the case you need to get VC money and you can't craft your business plan to attract VC funding, no matter how good your idea might be to your end customers, your business plan is a fail.

Sure, some VCs get it wrong, but many folks instead blame the VCs instead of their plan. A VC is simply a customer for your business equity like a end-user is a customer for your product. Many folks forget they are selling their equity to the VC and their product to the end-user. Sure the VC might be interested in the details of your product, but that's not what they are buying.

Of course some business just need money and that is something that can be gotten from Angel investors, relatives, or even credit cards, but if you need to strike while the fire is hot, sometimes VC funding is required.

Isn't that called Dragon's Den?? (0)

Anonymous Coward | more than 2 years ago | (#40345669)

Where Mr Wonderful drops truth bombs on the various yahoos that come on the show?

Old business doesn't want new business (2, Insightful)

GeneralTurgidson (2464452) | more than 2 years ago | (#40345677)

The business climate in the US is: old, entrenched businesses fight other old, entrenched businesses in a race for the cheapest shit. New businesses either make no money or bring something to the table that will eventually be bought by the old business. VC money is better spent on patent trolls and companies they can sell for a quick profit.

Re:Old business doesn't want new business (2, Insightful)

TheRealMindChild (743925) | more than 2 years ago | (#40345791)

Capitalism at work

Re:Old business doesn't want new business (3, Insightful)

Grishnakh (216268) | more than 2 years ago | (#40345933)

Crony capitalism at work

FTFY

Re:Old business doesn't want new business (3, Insightful)

turbidostato (878842) | more than 2 years ago | (#40346035)

"Crony capitalism at work"

As if there were any other.

A good old guy going to business with another good old guy he is confident of.

Wouldn't you do exactly the same?

(Yes, it's an aporia: you either answer "yes", making my point, or you answer no, and then I'd say "that's why you are not a millionarie in the position of becoming a VC").

Re:Old business doesn't want new business (1)

Grishnakh (216268) | more than 2 years ago | (#40346977)

I don't think that quite fits. A VC isn't going to fund "another good old guy"; the other "good old guys" already are running big companies, and don't need VC funding. The whole point of VC is to fund risky start-ups, which are usually being run by younger guys, not anyone established; that's why they're risky, but also why they have big potential.

Here's an article [wikipedia.org] for you to read about crony capitalism. It's not about established businesses at all; it's about businesses getting special favors from government, which tilts the "playing field" in their favor against smaller competitors that aren't getting special treatment by the government.

Re:Old business doesn't want new business (0)

Anonymous Coward | more than 2 years ago | (#40345891)

If you've ever seen the Family Guy with Lois and Mayor West fighting over the undecided voters, that's basically what it is. Tech people are going to end up wasting a lot of tech time on them, when VCs really just want to be hugged and kissed and build relationships and see pretty things.

Really, outside investors are the last thing you want to plan on when starting a business. Build a business first, they'll come to you then. If you need millions of dollars, start instead with something that'll sell for a few dollars, and add a few years to your business plan before thinking about hitting millions of dollars.

Also, don't make a business plan. Just do your thing, make money by selling shit, however small it is, and work your way up. You'll get the "experience and leadership" aspect within a few years by the time you get to your first VC meeting.

Re:Old business doesn't want new business (0)

Anne Thwacks (531696) | more than 2 years ago | (#40346099)

VCs really just want to be strangled

FTFY

Re:Old business doesn't want new business (1)

noh8rz3 (2593935) | more than 2 years ago | (#40346575)

wow you've never run a business have you. i bet you'd never make blueprints for a new house. just start by building a room, then work your way up.

Re:Old business doesn't want new business (4, Insightful)

Anonymous Brave Guy (457657) | more than 2 years ago | (#40346213)

The business climate in the US is: old, entrenched businesses fight other old, entrenched businesses in a race for the cheapest shit.

Which is, of course, why young/rejuvenated companies like Apple, Google and Facebook have never made any money and are just looking to get bought out by older and more entrenched players like Microsoft, Yahoo and IBM.

So did Steve Jobs (2)

bmacs27 (1314285) | more than 2 years ago | (#40345689)

So did all of the greats. They were just passionate about something. If all of these business majors want us to start creating jobs, maybe they should go back to keeping the books, or at least teaching us to keep the books, like they did in the golden days.

Re:So did Steve Jobs (4, Informative)

slew (2918) | more than 2 years ago | (#40347847)

You may not believe this, but Steve Jobs's wasn't the first or even the second CEO of apple computer.

In fact, the man behind the initial venture capital foray of Apple was Mike Markkula (who served as the CEO). He was an initial angel investor who was referred to Mr Jobs by a few other VCs. Mike provided the "adult" supervision to Jobs and Wozniak during the fund raising part of company's existance. Initally, Mike hired Michael Scott (from either national semiconductor or fairchild, I forgot which one) as the first CEO. It was only later after some turmoil that Mike took over the CEO position and then yielded the CEO position to Jobs (and later supported Sculley which led to Jobs' departure, and then helped lure Jobs back).

So even Mr Job's didn't just walk into VC offices and get funded as the CEO of the company. But, Jobs was smart enough and passionate enough about doing the work that was able to put his ego enough in check to know that in order to get the money they needed to get it done. I believe that the Google story is very similar with Eric Schmidt performing the "adult" supervison...

Not surprised. (2)

johnny cashed (590023) | more than 2 years ago | (#40345691)

If the reason is lack of leadership skills/experience and a weak team. If they had those qualities, they might not need to go seeking a VC for help. On the other hand, sounds like a catch all for VC rejection.

Re:Not surprised. (2)

whisper_jeff (680366) | more than 2 years ago | (#40345729)

If they had those qualities, they might not need to go seeking a VC for help.

Just because you have the skills to run a business and create something profitable doesn't mean you have the money to start it up. Perhaps you've heard of this company called Google - started with a $25 million investment from Kleiner Perkins Caufield & Byers and Sequoia Capital.

Re:Not surprised. (4, Informative)

ShanghaiBill (739463) | more than 2 years ago | (#40345807)

Perhaps you've heard of this company called Google - started with a $25 million investment from Kleiner Perkins Caufield & Byers and Sequoia Capital.

No. Google had been around for years, and had a solid track record by the time VCs got interested. They did get angel funding of $100K earlier, but even that was after they had been up and running for over a year.

Re:Not surprised. (1)

whisper_jeff (680366) | more than 2 years ago | (#40345907)

They still got venture capital funding. The point remains the same.

Re:Not surprised. (3, Informative)

Missing.Matter (1845576) | more than 2 years ago | (#40346041)

A venture capitalist is typically distinct from an angel investor. Angels typically are individuals who invest in very early companies and take on very high risk. VCs are typically institutional investors who invest at later stages at higher capital levels. They also take on risk but not ask much as an angel investor.

Re:Not surprised. (1)

AuMatar (183847) | more than 2 years ago | (#40346137)

Doesn't matter for the GP's point. They still needed outside money, because despite having the ideas and skill to implement it, they didn't have the capital needed to do so. Most business starters don't, if they need to hire any employees at all. Salaries are expensive.

Re:Not surprised. (0)

Anonymous Coward | more than 2 years ago | (#40346455)

this. I've been just one on the other side of the trenche, and running a small three man shop with wages and costs just for a one year small project is serious money.

Re:Not surprised. (1)

theRunicBard (2662581) | more than 2 years ago | (#40346497)

True, but didn't they have no idea what to do with their algorithm for a good chuck of their first year? While they were successfull by the time the VC's came around, their angel investors must have been pretty optimistic. I do think it's interesting though that Google at its heart is run by people who do software, not business (Larry Page, Sergey, even ES, who majored in Electrical Engineering). Maybe more companies would be successful if they weren't run by people who don't know what a computer is?

Re:Not surprised. (1)

turbidostato (878842) | more than 2 years ago | (#40346055)

"Just because you have the skills to run a business and create something profitable doesn't mean you have the money to start it up."

Just because you have the skills to run a business and create something profitable doesn't mean you have the curriculum to show it up to a VC.

The point is: I value very positively this guy being honest but the message is clear: if you are not already one of us, you won't get the money to become one of us.

Re:Not surprised. (1)

Anonymous Coward | more than 2 years ago | (#40346373)

No shit, sherlock. He has a pattern that works. The pattern is to have a strong management teAm. If you don't have one, you're going to learn a lot of things the hard way.

Re:Not surprised. (1)

makomk (752139) | more than 2 years ago | (#40346113)

Sounds like a vague reason for VC rejection that can encompass all sorts of prejudices. For instance, I wonder how often it really means "he doesn't have the right skin colour for leadership" or "she doesn't have the right gender for leadership" - and the VCs wouldn't even necessarily realise that was the reason, because pretty much everyone is awful at spotting their own cognitive biases. This is especially true when there are so many convenient ways to rationalize their decisions.

Re:Not surprised. (1)

Hentes (2461350) | more than 2 years ago | (#40346795)

Exactly, this is true to almost all startups.

Toughen Up (5, Insightful)

whisper_jeff (680366) | more than 2 years ago | (#40345713)

Would you rather hear the hard truth about why your startup didn't get funded or some vague dismissal?

If you can't handle hearing the cold, hard truth then you are in the wrong line of business. Period.

Re:Toughen Up (1, Insightful)

theRunicBard (2662581) | more than 2 years ago | (#40345761)

True. A polite lie isn't going to help anyone improve.

Depends. (1)

aepervius (535155) | more than 2 years ago | (#40345975)

It could be that your startup is about graphology, phrenology, astrology, or even homeopathy. In which case the "cold hard truth" would be the wrong line ;).

Just kidding.

Re:Toughen Up (1)

omz13 (882548) | more than 2 years ago | (#40346185)

If you can't handle hearing the cold, hard truth then you are in the wrong line of business. Period.

Whilst that may be true, I've found these days people are so wrapped in cotton wool, that when you tell them the truth (your idea sucks, you screwed up, etc), they just can't accept being told it...

Ideas are worthless (5, Insightful)

Schezar (249629) | more than 2 years ago | (#40345719)

Ideas are worthless. We have great ideas all the time (or at least, ideas we think are great). The value of a business proposal isn't in the idea, it's in the execution of the idea.

The most important things to a serious VC when it comes to a startup have almost nothing to do with the idea itself. You don't have to convince them of the idea: they've probably heard it before already. You're trying to convince them that YOU are the one to EXECUTE that idea, and that you can do it better than anyone else. If you can't, then the'll fund that other person instead.

When you approach a VC, the only thing you bring to the table is your ability to execute the plan you've proposed.

You got that right. (1)

Anonymous Coward | more than 2 years ago | (#40345867)

When you approach a VC, the only thing you bring to the table is your ability to execute the plan you've proposed.

And for the majority of us techies, that means we are not qualified.

Ted Turner was told by his father that he needed to go to business school so that he could take over the family billboard business. Ted didn't want to be a manager. He wanted to be a leader. So he studied Classics.

Yep, CLASSICS!

Why? Because that's where he could learn about people like Alexander the Great - real leaders. Leaders so great they convinced folks to fight to the death for them.

It's a hard pill to swallow, but technical people are relatively easy to come by. Leaders that can build something great are a one in a million.

Re:You got that right. (0)

Anonymous Coward | more than 2 years ago | (#40346259)

Well, if the main thing getting you there is classics, I think I know why that is.

Re:Ideas are worthless (1)

turbidostato (878842) | more than 2 years ago | (#40346085)

"When you approach a VC, the only thing you bring to the table is your ability to execute the plan you've proposed."

Maybe, but that's not what this news is about.

Is about "when you approach a VC, the only thing you bring to the table is your past record".

No wonder how high a percentage of founded start ups come from previous board of directors members (and how, in fact, so many previous board of directors members parasite new enterprises -so you can reach the VCs).

Re:Ideas are worthless (2)

Anonymous Brave Guy (457657) | more than 2 years ago | (#40346421)

Ideas are worthless.

Nonsense. That's just Silicon Valley start-up wishful thinking, usually parroted by people who haven't had a really good big idea yet and think that because they are awesomely elite hackers and greedy they will make millions from the next mobile social networking gimmick that is slightly different from the last mobile social networking gimmick. These are the same kind of people who think "I've started three failed companies!" is a badge of honour.

Of course the execution matters. No-one is disputing that. A good idea with poor execution is unlikely to be a great success.

And of course learning from failures is valuable. But the value is in the success you hopefully have later, not in the failed company or any failed idea behind it.

Apple didn't rise from irrelevance to become the giant they are today just because they had a good technical team or smart marketing. They also had a series of great ideas, some of which were a bit like ideas a few other people had had but better. Just as importantly, they also wasted very little time and money on ideas that weren't great, allowing them to concentrate on the good ideas.

Google didn't become the dominant search engine because they tweaked what Yahoo and Altavista did, they did it because they had a new idea for how to generate search results that was much better than what went before. And they didn't become filthy rich just because of all their technical wizardry, they also had the brilliant insight that they could hit people with targeted advertising right at the time those people were looking for something.

When you approach a VC, the only thing you bring to the table is your ability to execute the plan you've proposed.

Well, no, you bring the plan as well. And as anyone who follows sites filled with entrepreneurial buzz can see, a lot of people's plans suck right from the concept onwards, and a lot of start-up failures were, unfortunately, all too predictable to an impartial outside observer. When you approach a VC, they're trying to spot those kinds of failures, not just the team with a great idea who won't execute it effectively.

Then it's not VC (4, Insightful)

donaggie03 (769758) | more than 2 years ago | (#40345801)

If you want a strong experienced team with great leadership, then you aren't a venture capitalist. You're an investor.

Re:Then it's not VC (3, Interesting)

Anubis IV (1279820) | more than 2 years ago | (#40346091)

You've created a false dichotomy where there is none. Venture capital is a form of investment, it merely tends to be higher risk and higher reward than the general case. Just because they're willing to accept higher risk does not mean that they're fools interested in squandering their money on worthless endeavors that have no hope. It's still an investment, and they still want to see a return on it.

While "venture capitalist" wasn't the correct term, we do have a term for people who don't insist on strong leadership before investing: fool. And you know what they say about fools and their money...

Re:Then it's not VC (1)

AlexOsadzinski (221254) | more than 2 years ago | (#40346371)

Exactly right. As a VC, you don't just throw money against the wall and hope to get lucky; you try to make your own luck.

The experience of the team is important, but that varies by space. If the company wants to build, say, a new power-management semiconductor, you should have someone on the team who's done something like that before, and someone who has connections to possible customers. If, however, you're building a social networking web site, like Facebook, all that matters is the drive, vision and smarts of the CEO and the team that (s)he assembles. You also need a lot of luck, but smart people have a way of making their own luck.

A lot of focus is on the CEO. If (s)he can attract, hire, motivate and lead strong people, that's most of the battle. I worked at Sun in the early days. Scott McNealy was not an experienced leader: he was a manufacturing manager at a Unix box company, and then came to Sun. We were all in our 20s. But Scott did one thing above all others that made the company successful: he hired the best people into key roles like R&D, Sales, Marketing, Manufacturing. He was a first-time CEO. Others that come to mind are Ken Olsen (DEC), Steve Jobs (Apple), Larry Ellison (Oracle), Mark Zuckerberg (Facebook), Reid Hoffman (LinkedIn).....the list goes on. They all hired great people onto their teams.

Re:Then it's not VC (1)

thetoadwarrior (1268702) | more than 2 years ago | (#40346849)

Those first time CEOs were a success because they were natural talents at that job which is rare and something most start-ups don't have which the article is kindly pointing out.

Because your idea sucks (4, Interesting)

alen (225700) | more than 2 years ago | (#40345833)

In the 90's people were getting funded to build a website and a forum

Today it's the same thing except its called social media. Seems like every other idea I read about is a Facebook/pinterest/instagram clone

Unless you have a cool idea that solves some kind of problem like square or one of the other payment startups go back and think up of something new

Re:Because your idea sucks (0)

Anonymous Coward | more than 2 years ago | (#40346483)

Seems like every other idea I read about is a Facebook/pinterest/instagram clone

Unless you have a cool idea that solves some kind of problem like square or one of the other payment startups go back and think up of something new

There is a demonstrated audience for Facebook/pinterest/instagram type sites, whereas something truly original often turns out to have never been done before because of lack of demand, not supply.

You could just have easily said that Facebook was redundant because of Myspace, or Instagram was redundant because people will just post photos on Facebook, or Google was redundant because of AltaVista...

Re:Because your idea sucks (1)

dcollins (135727) | more than 2 years ago | (#40346755)

For what it's worth, the VC in TFA seems to say the opposite. The quality of the idea is not discussed; it's whether you're fidgeting in your chair when you present it.

Re:Because your idea sucks (1)

Savantissimo (893682) | more than 2 years ago | (#40347795)

Fidgeting in your chair should be a pretty strong positive signal. Michael Dell came to my Austin boarding school for career night back when he was only worth about $20M. The man simply could not sit still. He fidgeted like a whole third grade class. (He also gave a presentation on managing growth that was not all that useful to anybody there. We need to know how to have some growth before we can manage it.) Steven Weinberg's talk the same night wasn't all that much more helpful, something about how the math in superstring theory was threatening to break his brain. He looked like the results of thirty years of all-nighters. The twelve or so of us who showed up were impressed, but it didn't really help with the career thing. I doubt a VC would have shelled out money to either of them based on that night's performance though.

Where Dell really shone was in salesmanship. My family visited him back when he was selling refurbished computers out of a 2nd floor apartment (not a dorm room). Most people don't know he sold Apple gear in the early days. He had an Apple III there which was apparently just so he could advise people against getting one. This obviously raised the trust level (and if the customer wouldn't take the advice, well, at least Dell could unload the POS.) I think we ended up getting our 2nd hand Lisa from his company later, but it might have been CompuAdd.

I don't think Dell ever needed VC money - he was profitable from day one, and when he had cash flow issues, his loans mostly came from unwitting suppliers, or so I have heard. There's no doubt that he could have gotten VC money, he was just too smart to accept the loss of equity and control he would have had to take.

Re:Because your idea sucks (1)

DogDude (805747) | more than 2 years ago | (#40347133)

I was with you until you started praising payment startups. Those are truly moronic. They're aimed at people who don't know how the credit card system works, and are too dumb to do anything that doesn't have an "app". Square? Really? How is forking over an extra 1-1.5% of gross to a company that adds no value, "solving a problem"?

So... (1)

Greyfox (87712) | more than 2 years ago | (#40345939)

If I beat this Klingon in a fight, THEN will you give me ten million dollars?

Re:So... (2)

Anne Thwacks (531696) | more than 2 years ago | (#40346133)

No. VCs invest in virtual crap because no one can tell how much can be sold to suckers, and therefore the hype can claim the market is infinite. Real crap has only got a limited market, no matter how big the market, even a fool can see there is a limit.

VCs are looking for something they can hype to the stratosphere and then sell through brokers on a percentage who need plausible deniability to protect their asses when the shit hits the fan.

This is the nature of Ponzi land.

Re:So... (1)

Greyfox (87712) | more than 2 years ago | (#40346651)

I was thinking more from the perspective of "You and your team are weak!" Which seems very much like something a Klingon would say...

Startups are made of engineers (4, Insightful)

Missing.Matter (1845576) | more than 2 years ago | (#40345961)

Slashdot loves making fun of management, marketers, financial people, MBAs, and pretty much every business unit that is not R&D and engineering, but these people are essential to making a business successful. Startups are generally comprised entirely of engineer types who may have amazing technical know-how, but they don't know how to sell their product, they don't know how to manage money, they don't know how how to manage a company and personnel, and they don't have any business experience.

Anyone whose ever managed a business will tell you it takes much more than a good idea to make a business successful: it's 10% idea, 90% execution. Thus, if you go to a VC with nothing but a good idea, you're falling 90% short.

Re:Startups are made of engineers (0)

Anonymous Coward | more than 2 years ago | (#40346589)

A buddy of mine worked at PlayFirst. The VCs slowly took over the company and have been driving it into the ground with all of the 'experienced management' they've hired.

Re:Startups are made of engineers (2)

shutdown -p now (807394) | more than 2 years ago | (#40346905)

Slashdot loves making fun of management, marketers, financial people, MBAs, and pretty much every business unit that is not R&D and engineering, but these people are essential to making a business successful.

Good management and good marketing is essential to making a business successful, absolutely. The problem is that the average manager or marketing person in the industry is anything but good.

You can point out that the average programmer isn't all that good, either, and you'll be right. There is an important difference, though. Where engineers run the show, it tends to be a pretty hardcore meritocracy - a lot of character flaws can be forgiven, but not technical incompetency. So the people who rise to the top are those who are actually good at doing their job. For MBAs, on the other hand, it seems that the opposite is true - the worse you are at actually doing something useful, and the more time you spend kissing asses, the more stellar your career will be.

Re:Startups are made of engineers (1)

DogDude (805747) | more than 2 years ago | (#40347121)

You're right. I've been reading these train wreck Kickstarter ideas with people throwing hundreds of thousands of dollars down the drain on people with ideas who don't know how to execute (and largely, dont).

duh? (1)

sociocapitalist (2471722) | more than 2 years ago | (#40345989)

"Would you rather hear the hard truth about why your startup didn't get funded or some vague dismissal?"

Only a complete idiot would prefer a vague dismissal. If you know what's wrong you can fix it and move ahead. If you hear that the idea is great but the team is wrong, you can fix the team.

God says... (-1)

Anonymous Coward | more than 2 years ago | (#40345991)

The Lord be with you all.

3:17 The salutation of Paul with mine own hand, which is the token in
every epistle: so I write.

3:18 The grace of our Lord Jesus Christ be with you all. Amen.

Five VCs show up at a Bodege.. (1)

Invisible Now (525401) | more than 2 years ago | (#40346143)

... In East San Jose. The night before the humble owner of the place had bought a ticket on his own Ca Lottery machine. He won $34 million. The VCs each say "Take my deal. Here's millions of dollars... You're our guy... Your're EXPERIENCED!"

Reminds me of Hollywood. (0)

Anonymous Coward | more than 2 years ago | (#40346159)

They say: "Harry, you killed us in that audition, you're a natural for the part of Boss, and maybe for the part of Sonny as well. We love your acting, like what you did in 'Bad Dreams Part II'. We're definitely gonna figure out how to get you in this movie."

They mean: "Don't call us...."

Real Value Approach (1)

NEDHead (1651195) | more than 2 years ago | (#40346167)

To be really useful, VCs should respond with a decision tree:

Like/don't like concept
        If don't like, done
            If like
Like/don't like balance of package
        If like, here is an offer
              If don't like, here are areas of deficiency
Areas of deficiency overwhelming, done
          Areas of deficiency require remediation as follows: xxx
                  Conditional offer based on fixing xxx by ddyy date to our satisfaction.

Real truth is that VCs are not reliably better at picking winners than the average monkey with a dart board. They just have enough of other people's money to play the game. Like any other random distribution, a few of them have lucky streaks. Doesn't make them smarter than their peers, just lucky.

Re:Real Value Approach (1)

DontScotty (978874) | more than 2 years ago | (#40346819)

Your decision tree, dear poster - is BROKEN!

What MONTH is ddyy which they need to have the fix submitted?

"Conditional offer based on fixing xxx by ddyy date to our satisfaction." ;-)

Re:Real Value Approach (1)

NEDHead (1651195) | more than 2 years ago | (#40347801)

Really? This is what you comment on? Had sad to be you.

Ignore venture capitalists (0)

Anonymous Coward | more than 2 years ago | (#40346275)

Don't start businesses that require large amounts of startup capital. Use ideas that scale, so you can start them as a project on the side of your day job, and then scale it up when you know that it actually works. By the time you're at the point that you need outside investments, you'll already have solid proof that your idea is good and you can convince normal investors to buy shares.

Of course, patents fuck this way of starting businesses in the technology world. Which is probably why large corporations like them.

Really appreciated (2)

slazzy (864185) | more than 2 years ago | (#40346315)

I really appreciated his feedback on my recent venture idea pitched to them: Step 1: Gather underpants
Step 2: ...
Step 3: Profit!
Apparently I need to figure out step 2...

fundraiser (0)

Anonymous Coward | more than 2 years ago | (#40346433)

how to start a fundraiser [fundingjar.com] ? it is safe to say that most of us donate to these causes to either get the kid off the doorstep or simply out of the goodness or our hearts;

I'd prefer the truth (3, Insightful)

Todd Knarr (15451) | more than 2 years ago | (#40346477)

If I don't know what's wrong, I can't fix it. A vague dismissal doesn't help me improve things. And I'd posit that it doesn't help the VC either. VCs don't themselves come up with startup ideas, or they'd be doing that startup instead of looking for startups to fund. Where do they think the startups they can fund will come from? The more marginal ones take the feedback and use it to improve their plan, the more good opportunities the VCs will have to choose from.

Re:I'd prefer the truth (1)

ultranova (717540) | more than 2 years ago | (#40347327)

VCs don't themselves come up with startup ideas, or they'd be doing that startup instead of looking for startups to fund.

No, because funding startups means you can try several in parallel while starting them yourself limits you to one at a time. Most startups fail, so you need to go through a lot of them to get a succesful one.

And of course working yourself is a lot harder than just investing.

I'm applying for a position as CEO at Wal-Mart. (2)

MyFirstNameIsPaul (1552283) | more than 2 years ago | (#40346601)

My only experience is running a small town convenient store.

I've long been under the impression that someone needs to take the Moneyball approach to venture capitalists, because what they seem to sell as a model they are looking for doesn't jive with the success stories that I'm familiar with (e.g. Wal-Mart, HP, Apple, Microsoft, etc.).

That's a good point (0)

Anonymous Coward | more than 2 years ago | (#40346625)

The biggest issue with startups is that they good idea (vision), but poor execution (leadership). You need translate the idea into a business, which means to make it solid the way that it works from the procedures and hierarchy, as the processes and so on is not enough. You need products and without them you cant be named as "startup" but rather a "seed".
This means, that at some point, the company must change its ways from being inventive to being actually a product oriented working business. If you dont do this, you cannot guarantee that you will ever go past this point, because many people will think that the idea is all what they need, and pursue their "creative" ways instead of making a place for an INDEPENDENT leadership.

How bout No. (0)

Anonymous Coward | more than 2 years ago | (#40346785)

How bout No.

What more needs to be said? The fact is that, most startups fail. Most VC funded startups fail.

If you can't go it on your own and you can't get VC funding, you're done. The reason is irrelevant. Even if the lack of funding is due to your lack of "leadership", hiring a charismatic CEO to get the funding will still likely result in failure. The reason is that most startups fail.

If you can't stand the hard truth, then ... (1)

DontScotty (978874) | more than 2 years ago | (#40346801)

1) If you can't stand the hard truth, then it's probably better that you were stopped before you got your feelings hurt in the world of business.

2) You cannot fix what you don't know is wrong. (c) Scott Summers - Motto.

If you are told "Denied, due to weak team leadership" - guess what?

You can BRING IN QUALITY LEADERSHIP, and not only strengthen your bid, but increase your chances for success in business. Yes, it might hurt your ego a bit - however what is more important? Ego, or making your dream into the next Microsoft+Google+Facebook (oh, bad example on that last one ;-) ) ??

VC's reject startups? (1)

DogDude (805747) | more than 2 years ago | (#40347097)

What VC's reject startups? An absurd number of startups have an even absurd amount of money thrown at them every day. All I read about is stupid VC's throwing stupid money at stupid ideas.

Communication is THE problem (1)

GodfatherofSoul (174979) | more than 2 years ago | (#40347655)

The VCs never want to tell you what they're looking for because, just like the banks used to do with secret credit ratings, they're afraid you might tailor your message to woo them. Back in the DotCom days when my boss was trying to expand the company, he could never get funding to expand in spite of owning a very profitable business. What he'd hear by milking the underlings, off to the side of meetings, was that something about his pitch made them think he was merely trying to sell the company.

I don't think he ever figured out what it was, but there are apparently flags VCs are looking for (and in our case it was false).

Load More Comments
Slashdot Login

Need an Account?

Forgot your password?