19 December 2008

Web startups & venture capital

Is it just me, or is there an air of desperation whenever web startups are talking to venture capitalists (VCs) at events? I'm not talking about the formal meetings with VCs, rather about those informal meetings over coffee or in the breaks.

Was interesting to sit there at Le Web 08 and watch people lining up for an informal chat with the VCs. What has been interesting is the obvious tension in the startup folks as they wait. The tension is palpable.

I'm not sure that this kind of desperation makes for a healthy relationship. We know that in personal relationships where one person is more desperate for the relationship than the other it often tends to be dysfunctional.

People in startups are passionate about their product, that's why they are doing it. But they're not often exactly clear eyed on the commercial potential of their product.

More than anything this dance reminds me of dating. And dating is where people try to attract the other person by being or seeming to be what they are looking for. But for investment purposes surely we need a less subjective approach? But then I question if truly objective means of assessment are possible or valid.

Had dinner with some entrepreneur buddies in Paris recently. They reported that they'd checked out approximately 40 startups for investment potential. Of those only 4 had demonstrated any real potential in their view.

This made me think that we need to find better ways to assess the potential of startups. We also need better ways to assess different startups against each other - so we can decide for one or against the other.

I'm very interested to hear about formalised assessment methods for startups and venture capital investment so please let me know of any.

By Carruthers via Aide-mémoire

1 comment:

Karen Jenkin said...

This is certainly an interesting area re: potential startup assessment but there is no simple answer (and certainly no objective answer).

What may look good on paper for a startup may not be that good in reality when it comes to business execution and vice versa (many VCs passed up on Google in the early days). A majortiy of startups adapt as they go and end up being quite different businesses to what they planned at the beginning. The main concerns are around the drive, intent and vision of the founder(s).

There are some good resources around generic opportunity evaluation to do a quick review (e.g. New Venture Creation).
However, when it has proceeded to the stage of a meeting between the startup founder(s) and investors (so the market, tech, etc. should have been given the once over already), I see the important assessment area around the "people matching" aspect (like the dating angle you mentioned), yet there aren't many assessment tools in that department!

Also, to muddy the waters a little further, different investors have different goals and desires re: level of involvement in the businesses they invest in. For example, if there was an absolutely fabulous investment opportunity in manufacturing, I still may not invest because it does not fit my investment profile and interests. Timeframes, industry knowledge and exit strategies also affect investment decisions, so these should feed into an assessment tool as well.