I've got a meeting with venture capital people on Friday, help!
February 16, 2008 3:37 PM   Subscribe

A while ago, I started this open-source project called StupidFilter. Things are proceeding well, albeit a bit more slowly than my initial rather optimistic estimates. Recently, a local venture capital firm contacted me about the project and I've got a meeting with them on Friday. Now, I've got a business plan, and I think it's a pretty good one, but I'm not sure what they'll be expecting or looking for. Anyone have experience with getting a tech startup off the ground with VC funding?

Like I say, I've think I've got the business model down, and I'd rather not discuss those details at this juncture, as this has been a pretty high-profile project so far. Basically, what I'm looking for is general advice, relevant anecdotes and the like. I'm a young, fairly talented technologist with good business sense, but I've never dealt with investment capital before and I feel like I'm getting a little out of my depth here. Thanks in advance!
posted by signalnine to Work & Money (14 answers total) 17 users marked this as a favorite
I've got no experience with which to judge their accuracy, but the guys who write Venture Blog have lots of good articles on working with venture capitalists. Their sidebar has a bunch of links to other places that might also offer helpful advice.

I'm sure you know to get/already have a really good lawyer that you trust.
posted by katyjack at 3:49 PM on February 16, 2008 [1 favorite]

Be vary careful. Similar experience, but spent so long in negotiations with the *angel* that the focus went away from what I was achieving in the first place. Get a deposit asap into the process if you're sure they are the one.
posted by mattoxic at 4:09 PM on February 16, 2008

The whole "how to pitch your company" section of Venture Blog is probably what you want. I haven't seen too many accounts from the flipside, where company owners talk about what VC meetings are like.
posted by mathowie at 4:27 PM on February 16, 2008

Don't talk to any VC until you know exactly what you want from them and how you intend to get it.
posted by Nelson at 4:55 PM on February 16, 2008 [1 favorite]

Make sure you really need the money before going forward. You've been working on it so far just fine. Not only do you give up a piece of your company, you now have another group of people you have to work with, who can put their own people in your fledgling company, and otherwise take control away from you. Then there are the sleazy ones that actively try to screw you out of money, and fire you after the product starts making money.
posted by cschneid at 4:58 PM on February 16, 2008

I've pitched dozens of times, each time I got better and more polished.

One of the most common things I heard when talking with VC partners is that the guys who were pitching didn't practice before hand and it was a waste of everyone's time. Make sure you run through your pitch a ton of times (in front of people if you can). Remember that there will be questions. Do not kill them with powerpoint slides, but have them if you need them.

Keep notes during your meetings. Bring some cards. Do your research on the VCs before hand.
Ask for feedback.

I've pitched some VCs who loved it when when people were able to use the white board and use it to explain things on the fly.

Get your expectations together about ownership expectations and everything else. Anyone else help you (angel, other people who coded), make sure their expectations align with yours.

Get a handle on your IP situation (any open source license issues, incorporation issues). You can typically deal with everything post close, though you may want to know before hand.

Get a lawyer, don't cheap out.
posted by bottlebrushtree at 5:14 PM on February 16, 2008

I love StupidFilter. Good luck.
posted by unSane at 5:54 PM on February 16, 2008

Reread what Nelson wrote.
posted by Good Brain at 5:58 PM on February 16, 2008

Marc Andreessen has a good take on his blog: The truth about venture capitalists (part 1) and part 2. I was invited to be part of a local 'angel' group eight years ago, and what Marc writes rings true with my experience.

You might also take a quick look at VCs are conspiring to take your business and Fixing Venture Capital.
posted by F Mackenzie at 6:21 PM on February 16, 2008

Know precisely why you want to take someone else's money. They want to take part of your company in exchange.

Taking someone's money is like getting married to them. Make sure they're the right people. Ask for references, do your research.

Leave nothing as an article of faith. The infamous underpants gnomes business plan is not a good pitch.

Field of Dreams is a lie: If you build it, they won't necessarily come.

Have an answer for every question, even if that answer happens to be "I don't know". Bullshit will help no one.

Have a plan for the money, and be sure you really, really need it. Have a plan for not getting the money, because all things considered you probably won't.

As soon as you don't need the money anymore, people will be falling all over themselves to give it to you. When you need it most, it will be hardest to get.

Start raising money 8-10 months before you'll need it.

Each partner at a VC firm takes on at most three deals in a year. Why should your deal be one of them?

What makes your business scale in terms of revenue?
posted by Freen at 7:47 PM on February 16, 2008

Seconding Freen - know your stuff before you walk in. Some things are acceptable to not know, but others aren't. Know your financials inside and out. Spend some time with a friendly MBA or even a textbook to understand ratios & business analysis tools a bit more. You don't need to be an expert, but you need to understand if the meeting starts veering into financespeak. It also might reassure the VC that you are interested in the business side of your business. Don't talk out your backside, but a little knowledge can't hurt.

Listen to their questions. What does this VC want to know that the other one didn't? They are telling you as much about what they want out of this deal, and how they see you in your company, by the questions they do and don't ask.

Also, be prepared to talk candidly about things like how you've valued the company, what you need the money for, exactly, and what you see as the nature of the VC's involvment. A VC is not a bank, they're a partner. I worked for a company who was pressured to take on the slacker nephew of the VC, because the nephew thought working in our industry would be cool. The nephew was a nightmare, but the company officers felt they had no choice but to keep the guy on to sweeten the relationship with the VC.

And yes, research the VCs before you go. You want someone who has more than cash to offer, someone who can help develop your product/project/vision. Money isn't hard to find, experience, contacts & mentoring are.

Best of luck! You have to post back to let us know how it all went.
posted by Grrlscout at 5:24 AM on February 17, 2008

I've raised successfully at 3 different companies. Shoot me a message back channel and I'll be happy to answer any questions.

That said, most of the negative stuff you're reading above is DEAD ON ACCURATE. The water is full of sharks, and you just took a chumbath.
posted by wflanagan at 11:36 AM on February 17, 2008

Update for you all. They want to fund me via their gap fund, so far everything looks good. I'm in contact with other CEOs who've recieved funding from this particular VC, so hopefully I should be able to make an informed decision in the next couple weeks.

Thanks again, everyone!
posted by signalnine at 9:47 AM on February 26, 2008

I truly, honestly hope this works out for you. I also fear you are naive. That first "we want to fund you" means very little. And taking funding comes with all sorts of potential risks to you, your idea, and your business.

You mentioned in your initial question that you felt in a little over your head. I hope you've been able to find some good, experienced advisors who are entirely on your side to help you evaluate your investment options.

Good luck!
posted by Nelson at 10:44 AM on February 26, 2008

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