

Rejection Letter from a VC [pdf] - kschua
http://mengwong.com/sg/capital/venture%20fundraising%20rejection%20letter%20latest.pdf

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graycat
There are two good parts in the PDF: First there is:

    
    
         We must ask: why are you seeking
         venture funding?
    
         o    The business seems capable of
              bootstrapping to success.
    
         o    You claim to have a successful
              exit behind you.  Why not fund
              it yourself?
    

Good points. My guess is that with the amazing improvement of the ratio of
price and performance of computer server hardware and Internet bandwidth, more
and more entrepreneurs will just bootstrap their startups.

Second there is:

    
    
         However, none of our funds are
         currently in an investment mode, so
         we won't be investing.  So why did we
         take the pitch?
    
         o    Because an hour of our time
              doesn't really cost that much.
    
         o    We just wanted to hear what was
              going on in the industry, and
              it's cheaper for companies to
              come to us, than for us to go to
              conferences.
    
         o    We have a company in our
              portfolio that is in your space,
              and we're going to help them by
              passing them your business plan
              and your best ideas! Sorry.
    

Some VCs may do these things or somethings close to them.

There are two problems, not just with the form letter but US information
technology venture capital:

First there are the definitions:

    
    
         o    You're pre-seed because you have
              an idea but no prototype or
              users.
    
         o    You're seed stage because you
              have a prototype or some
              nonpaying users, but no scalable
              way to convert those users to
              revenue.
    
         o    You're early stage because you
              have revenue, but are not yet
              profitable.
    
         o    You're growth stage because you
              have hit cash-flow-positive, but
              only in a small market, and you
              want to roll out new products
              and services to new markets.
    
         o    You're pre-IPO because you've
              got a solid track record of
              dominating your market.
    

A problem here is that the list assumes that the company will go to market
with just a prototype. Bummer.

These definitions of pre-seed and seed assume that the product development
needed and deserved no equity funding and is done but somehow is still not
nearly enough for a going business and the project, for a business, still
needs equity funding. That view cannot hold very often for projects that have
the potential VCs need. Really this view is being lazy, that is, just don't
look at the product and, instead, look at 'traction' in the market.

Of course, there will occasionally be, for whatever reasons, good, bad, or
otherwise, some cases of promising startups that have everything done but need
some 'go to market' equity funding, but more and more in information
technology such cases will in niches.

Second, there is

    
    
         Typically we look for:
    
         o    a fundamental innovation in
              technology or business model.
    
         o    we're looking for someone who
              lives at the frontier of
              innovation in their field, and
              knows where the puck is going.
    

Nearly no US information technology venture partners are either willing or
able to evaluate such considerations.

We have to keep in mind: Surprisingly, shockingly, US VCs are doing poorly
making money. I.e., on average they are failing at business. Two telling
examples:

(1) As in Fred Wilson's post of

    
    
         Feb 21, 2013
    
         Venture Capital Returns
    

at his

    
    
         http://www.avc.com/a_vc/2013/02/venture-capital-returns.html
    

over the past 10 years, early stage US venture capital on average has had
return on investment (ROI) less than the S&P 500.

(2) As in remarks on venture capital at the Web site of Peter Theil's The
Founders Fund, at

    
    
         http://www.foundersfund.com/the-future
    

where click on "Read More" in a tiny image near the bottom of the page, with

    
    
         'Founders Fund:'
    
         'What Happened to the Future?'
    
         By Bruce Gibney
    

in section "VC's Long Nightmare", see:

"Along the way, VC has ceased to be the funder of the future, and instead has
become a funder of features, widgets, irrelevances. In large part, it also
ceased making money, as the bottom half of venture produced flat to negative
return for the past decade."

Wow! Negative return for a decade!

