
You are the problem: the reason why so many startups don't get venture funding - wheels
http://www.startable.com/2009/05/27/its-not-me-its-you-the-untold-reason-startups-dont-get-venture-capital/
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DanielBMarkham
At the risk of sounding like a jerk, it's ironic that VCs have hugely
difficult time of picking winning teams. One wonders who the losers are here:
the entrepreneur who can't pitch a VC, or the VC who picks teams based on
guessing how well they can perform and only hits one in ten.

I wonder if this is due to the friendly doctor effect? That's where one doctor
is kind and takes her time asking you questions. The other doctor is gruff and
terse. Studies show that patients naturally judge the quality of the doctor by
their personal perceptions of how kind they are -- which is the only thing
they have to go on. i.e. in a brief presentation and interaction with a team,
only superficial qualities at best are going to be demonstrated.

~~~
webwright
"One wonders who the losers are here: the entrepreneur who can't pitch a VC,
or the VC who picks teams based on guessing how well they can perform and only
hits one in ten."

Huh. As an exercise, take the next batch of YC companies and try a ghost
portfolio. See if you can pick the ones that will provide enough of a venture
return in 7 years to pay for the losers PLUS 7 years of salaries for everyone
at a small VC firm.

I've never done it. But these guys are trying to effectively predict what
markets are going to do AND how they team is going to work together in 5+
years. AND they have to hope that nothing catastrophic happens to the business
in 5-7 years (key founder falls ill, has a bad divorce, etc) -- startups are
fragile.

You don't sound like a jerk. You sound like the guy on the couch yelling at
the football coach on TV: "How hard can it be to call the right plays?"

~~~
DanielBMarkham
You're missing the point.

I know it's hard, almost impossible to find good teams.

My question is: how much stock are you going to put into a general feeling you
have about character based on a few short interactions? Is "gut feel" that
reliable? Or should you use some other criteria.

Lord knows it's tough. That's why your general feeling about the team probably
isn't such a good thing to go on, right?

~~~
webwright
Ah! I think a better way to describe VCs focus on teams is this: "A great team
is a necessary but not sufficient ingredient for us to be willing to invest."
The thing the OP is saying that the team is usually the first/most obvious
problem with the startup. It takes about 10 minutes to get a sense that a team
sucks (bad salespeople, abrasive, confused, misguided, insane-- whatever),
while due diligence on a product/market can be a pretty big task.

Most investors judge the whole package (market, timing, traction, product,
team).

Whether general feeling of team quality is a measure of anything useful is an
interesting question. Most of these guys have pretty endless deal flow. Like a
company that has way too many applicants for way too few job openings, they
look for early ways to thin the herd.

------
swombat
This fits with other advice I've heard: investors invest in teams, not ideas.
To raise money, you need a kickass team.

In practice, we also found that mention of the "core team" came back again and
again in our fundraising discussions (though they weren't with VCs).

What would be very interesting is to know what are the key indicators that VCs
look for. If, for example, they look at things like degrees or "demonstrated
industry experience", as someone mentioned on #startups, then I would think
there's a huge opportunity for someone with good hacker recognition skills to
bypass them and get to all the good deals that no other VCs want to touch.
Thoughts?

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mixmax
I think that it's very very hard to predict which team is the best to pull off
the creation of a hugely successful company.

Bill Gates and Steve Jobs would initially have failed all tests, having no
experience and no prior successes to lean on. Ars Technica is (at least
according to Philip Greenspun) a great example of how a supposedly excellent
and experienced outside CEO manages to run a company into the ground.

It's interesting to note that you can get a good idea of the market, the idea,
and the founders ability to pull it off technically: Are they good hackers or
not, do they have a working prototype, etc. But you can't really test whether
they'll be able to grow the company to a multimillion dollar business. The
pallette of succesful founders of software companies seems to be incredibly
varied, from the arrogant but stylish Larry Ellison, over the nerdy and
introvert Bill Gates to the frat boy that is Kevin Rose. I don't see many
correlations that would be obvious, or even detectable, at an early stege in
their careers.

Maybe what makes a company rise to the very top isn't the leadership but
external factors. Luck basiccally. Surely a company needs good leadership, but
beyond a certain baseline it probably isn't the defining factor of ultimate
success. The best VC's can do is to weed out the people that are obviously
unqualified to run a company, they obviously can't accurately pick the ones
that will win the lottery.

~~~
nostrademons
Bill Gates and Steve Jobs both had experience and prior (minor) successes.
Bill Gates had rigged - excuse me, programmed ;-) - the course scheduling
program at his prep school to seat him next to all the pretty girls, and had
done decently as a consultant doing traffic-light control software. Steve Jobs
had a prior profitable business with Steve Wozniak selling blue boxes.

The thing is, _many_ readers of this site have had successes of similar
magnitude. And very few, probably none, will ever create something like
Microsoft or Apple. So a VC might see someone who created a bunch of websites,
some even mildly successful - but lots of people created a bunch of websites,
and the vast majority of those won't grow into a billion dollar business.

~~~
philwelch
"Bill Gates had rigged - excuse me, programmed ;-) - the course scheduling
program at his prep school to seat him next to all the pretty girls, and had
done decently as a consultant doing traffic-light control software. Steve Jobs
had a prior profitable business with Steve Wozniak selling blue boxes."

Notably, only one of those things (traffic-light-control software) is
considered a socially acceptable use of one's talents, though rigging the
course scheduling program is more of a prank than a crime.

------
alain94040
This article finally discloses the elephant in the room.

It's so true that very often, the VC just doesn't like you. But they can't
tell you that. So you get frustrated...

I am realistic: for every entrepreneur who dreams of funding, how many really
should get it? I have seen good friends pitch lousy plans. But for some,
although they are friends, I just don't see them as successful CEOs. But who
am I to tell them to stop dreaming?

Plus beauty is in the eye of the beholder. So you never know.

------
geeko
It's quite normal to have people not believing in you or your idea. Jeff Bezos
wasn't able to pitch the online book store, google was turned down by yahoo
and for me more tangible, my professor Goetz Werner, was turned down by his
former boss and consequently started his dm drugstore chain. It's now a
multibillion dollar business for him. He has since then passed on daily
operations and is now teaching entrepreneurship at our uni (Universitaet
Karlsruhe, Germany).

Just like ideas, people evolve. The trick is to not feel too depressed about
rejection. Practising helps :)

------
steilpass
Lets say I am not the CEO type of guy and I know that. I find hard to approach
a VC, pitch an idea and tell them: "BTW I don't have to be the CEO"

~~~
coopr
That's when you need to find someone like me - a serial startup CEO who is
probably not as good at you as coming up with great business ideas, but is
certainly better than you at pitching VCs - there was a post on HN recently
about finding co-founders that might be helpful.

------
kingkawn
Its important to point out that this is not an overall judgment of the
presenting team as people, only the VCs impression that they will be able to
work with them. This does not often require more than a cursory interaction
and the confidence to trust your opinions. I don't think the VC has any
obligation to see past their own biases and plumb the depths of your
personality. If they don't think they can work with you, thats for their
purpose.

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psranga
The reasons listed are "ability to market the product, produce the technology,
manage/recruit a team, think strategically etc". It's good to see he didn't
list crap like confidence, firm handshake etc.

I think it's valid to not fund teams/founders who don't have these skills.
Going to a VC for money is basically a CEO interview; you've got to at least
be able to talk the talk :).

But the article could have been more objectively titled instead of saying "You
are the problem."

------
ivankirigin
I hate reading about bullshit a VC might be thinking but not saying. Either it
is generally true and VCs aren't honest, or it isn't and there is either a
personal problem with the VC or founder writing the post.

I tend to think there are enough VCs that you can't generalize easily. Just
the other day I made the mistake of generalizing VCs saying they suffered from
short term expectations that hurt innovation. Then I recalled how biotech is
funded.

~~~
wheels
I don't think this is really specific to VCs -- it's just usual social stuff.
You don't tend to tell people you think they suck to their faces. I wouldn't
call that dishonestly so much as, well, just normal human interaction. You
wouldn't tell a job applicant, "Sorry, but we just don't think you're very
good at what you do."

This is compounded by the relative oddity of the venture capital business.
You're basically asking people you don't know to trust you to a pretty amazing
extent and to drop more money on you than most people make in a decade or two.
Imagine how jittery you'd be screening job applicants if you had to pay 20
years salary in advance. And imagine that there was also a steady stream of
application coming for that same job -- so many in fact that you couldn't even
really look at all of them. That's kind of the mental image I use for the VC
evaluation process.

Edit: One amusing postscript to that -- the second job I interviewed for after
college they didn't think I was good enough for. I didn't let it put me off
too much and eventually became good friends with the guy that didn't hire me.
I could easily have gotten that job later if I'd wanted it. I suspect it's not
too different with VCs. A rejection isn't a rejection until the end of time;
it's their snap assessment and they'll miss sometimes.

------
pj
This is not a problem limited to entrepreneurs. It's an ego problem and
entrepreneurs have a lot of ego -- they have to -- so I can see that it is a
big problem for VC's.

Have you ever tried telling someone they are wrong? It's not easy. Most people
don't like to be wrong. Most people don't like knowing there is something
about their character or their outlook on life or their past or their
perceived future that is going to stop them from achieving their goals.

It can be a dramatically "dejecting" feeling to be told no. That is painful
enough. To be told no because, you're too arrogant, or your vision isn't big
enough, or you are going to burn out, or your family problems are going to get
in the way or you aren't smart enough...

These are painful things to hear. As a self-preserving individual, the natural
response is to recoil, to lash out at the messenger. We do it because we have
to believe we will be successful... without that hope, that faith in
ourselves, we may give up.

Add to that, the issue of internal motivation and external motivation. Say for
example, a perceived lack of internal motivation is all the reason the VC
needs to say no. It takes a lot of internal motivation to see a company
through and if a VC notices there isn't enough, that's also an indicator the
entrepreneur is going to attack the VC for trying to help them understand the
personal changes in their philosophy of the world that may be required to make
the company succeed. The VC is an external factor. For the externally
motivated, there is something wrong with the world -- in this case, that's the
VC. It's very difficult for a person to even understand the concept of
internal vs. external motivation, much less change it, so it's probably a
waste of time to even mention it. It just won't do the entrepreneur any good.

I'm not pro at this by any stretch of the imagination, but I have
conversations all the time with people who have some great idea or a patent on
the way or something like that and they don't have the desire to understand
that none of that stuff matters. It's a lot of work too and it takes a lot of
reading and experience and research that person just hasn't done yet.

Sometimes in a situation like that, little clues and signs tell me, this just
isn't going to work. Just from the little experience I have gotten from people
as a software developer, it's kind of the same. They have this great idea to
do blah blah blah and they don't even know that there are already 5 of those
websites out there. Or you can tell just by the way they formulate sentences
that they aren't going to "get it."

Sometimes you can tell they have been told in the past and they just refuse to
believe it, so you don't bother telling them again. You can tell they are
driven by the hope that one day it is going to succeed. For them it's about
_that_ idea succeeding rather than the company succeeding or they themselves
succeeding. Sometimes you have to start over. If they have to start over -- in
their mind -- they are a failure and who wants to be a failure?

That's hard news to hear and some people don't react so well to it. I would
say the majority of people don't react well to it. Unfortunately for those few
people who will react well to it, they get passed up. They don't get the good
advice they need to improve and move beyond the problems because of the
negativity received by all those who lashed out at the teacher in the past.

I suppose that's the issue, not everyone is a good teacher and even fewer are
good students. If you are going to start a startup, especially your first
startup, you are going to have to learn a lot and be taught a lot and not let
your ego get in the way of your success. You gotta have ego, arrogance and all
of that stuff but those things are tools just like any other part of human
character and you have to know how to use them appropriately.

Sometimes knowing how to use a tool appropriately takes experience and
training and some people believe that comes naturally. If it isn't, they are
less than perfect or whatever.

Remember Kill Bill? If you haven't seen it and want to, then stop reading
here, because I am going to spoil some of it for pedagogical purposes. Anyway,
there's a part where the old guy took the student to the teacher in the
mountains. That teacher knew the 5 step punch trick and Uma Thurman's
character didn't like him at first, but she stuck it out and she learned a
lot. She checked her ego at the door and because of that she learned some very
valuable martial arts skills.

The other student with one eye, she wasn't such a good student. She had a lot
of ego and was determined to "show up the teacher." She wanted to show that
she was better than the teacher, rather than take the opportunity to learn
from someone widely regarded as the best. All of us in the audience of course
saw from the outside that she was only hurting herself, but would you be the
one to tell her she was too arrogant to be the best herself? She'd probably
kill you with one punch.

------
jexe
VCs seem to start with whether they like you and get swept up in your vision,
and work backwards from there to come up with reasons why they should or
shouldn't invest. The same probably goes for any supposedly rational decision
founded on human interaction.

------
dunk010
There have been a lot of stories saying the same thing recently, but it really
just comes down to common sense - You're marketing your product, and yourself.
It's human nature for an investor to put a lot of weight on how much they
trust your abilities.

------
gscott
What confuses me is if they like the idea but don't like the team. Why not buy
the founders out right then and there and just put in there own people.

~~~
coopr
Because there is not nearly enough value there to make it worthwhile to "buy"
something - you've probably heard again and again that the idea is relatively
worthless, it is the execution that brings value.

VCs doing this could also get a bad rep - "Yeah, I pitched those guys - they
offered me $50 if I'd give them the company and quit so their guys could run
it" - not good for the deal flow the VCs need.

------
access_denied
Just to make something clear here: the VCs are not the ones with the special
stuff. The special stuff is the next Apple II, Tesla car or what have you.

Get real: how many people are there that wouldn't be "the problem" by these
"measures"?

~~~
wheels
Justified or otherwise, this is simply descriptive. We've heard this before,
and it didn't slow us down. On the contrary, it motivated me at least twice as
much to prove them wrong.

This is why I think if you're a first-time founder it's best to not show up
empty handed. The best way to convince an investor that you can pull something
off is by already having measurable progress on the way to doing so.

It's true that investors _aren't_ the say all and end all of technology.
They're trying to catch the wave, not make it. But understanding how they
think, if you're planning on dealing with them, is definitely a good thing.

