

Venture Capital Tutorial - fmgg
http://www.vcic.unc.edu/entrepreneur-tutorial.html

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pg
I don't know about VCs in North Carolina, but in Silicon Valley numbers 2 and
6 are false. VCs here aren't looking for experienced managers; they're looking
for Larry & Sergey. And number 6 is subsumed by number 1. They're hoping the
company will do so well that they don't need any specific exit strategy.

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neworbit
Based on this article, I have one piece of advice to anyone entreprenurially
minded in North Carolina: Leave.

If you have a tech startup idea, build a skeleton of it and come to San
Francisco. Raise an angel round. Get connected to people who can actually make
things happen. Don't take money from people who are undervaluing your company
and can't contribute to improving your prospects.

If you can't stand SF, try Boston, Seattle, Atlanta, Austin, etc. Valuations
will still be much better and people will be connected to your industry. I
don't want to take anything away from Mr. Vernon, who clearly understands the
core elements here, but this feels like 1995 era advice and doesn't really
reflect what people can and are doing today.

My other advice, if you simply cannot leave: wait. Valley money and valuations
will spread, and VCs and other investors will start chasing deals and being
willing to pay more instead of the cited "VC takes 66% of your firm for $1M".
(Seriously? WTF. Let me know who that VC is so that I can NEVER LET THEM
HANDLE MY MONEY. Way to convince the entrepreneur to NOT hang in there.)

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TimothyBurgess
Thanks for the advice. I believe your post is the tipping point for my
decision to leave NC.

I've lived in NC my entire life but a number of factors have basically been
saying, "You need to get the hell outta there, dude!" Entrepreneurship is the
main one. And maybe it's just me but I haven't come across many people here
throughout my entire life who have a similar mindset to my own.

People out west seem very chill. California would probably be my first choice
but I'll definitely look into the others as well.

~~~
neworbit
If you make it to Palo Alto, I'll buy you a cup of coffee, swap war stories,
and see who I can introduce you to. Good luck to you no matter where your road
takes you!

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tzm
The criteria seems rather academic and out of sync with the market.

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nickpinkston
I couldn't agree more with the sentiment that this is at least outdated and at
most academic BS from people with "PhD's in entrepreneurship" or some such...

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gawker
Regarding number 1, where would you get the facts or validation to prove that
it has at least a billion dollar potential? A lot of times, I see people with
business plans projecting all kinds of things but I'm darn confused at how
they can come up with the numbers.

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NY_USA_Hacker
They have:

"3. Sustainable competitive advantage. This is a really tough one that most
start-ups don’t have, and you can’t just change strategies to get one. If your
venture is not built off of some protectable and scalable technology, VCs
won’t usually be interested. It is conceivable that in the right type of
business you could build barriers to entry if you are a well-funded first-
mover, but it is quite rare that that will suffice."

Nonsense: The author and UNC B-school people have been sitting too long in
their small, dark offices with the door and blinds closed engaging in
intellectual self-abuse imagining how things are. Instead, what is much closer
to being true is:

For "protectable and scalable technology" ('secret sauce') for "competitive
advantage", "VCs won’t usually be interested".

As a parody, for investors, secret sauce and a dime won't cover a ten cent cup
of coffee. Some "protectable and scalable technology" and some customer
'traction' are not nearly as good as just some customer 'traction'!

Or, without knowing it, the investors believe in Markov processes: For
predicting the future of the business, customer traction is as good as
customer traction and secret sauce. More technically, the future of the
business and secret sauce are conditionally independent given customer
traction.

In particular, the investors will not do any competent or reliable expert
technical review of any claims of any "protectable and scalable technology".

Why? (A) Actually investors do not know how to do or even direct such a review
(they aren't editors in chief of peer-reviewed journals). (B) They make
decisions quickly without the time of such reviews. (C) They see so few deals
with important secret sauce that they choose to neglect any such secret sauce.
(D) The big wins they see had little or no valuable secret sauce. (E) Secret
sauce technology has a bad reputation as generalized, useless academic
nonsense solutions looking for problems. (F) Claims about secret sauce
investors can't evaluate can make investors feel inadequate, and investors
like to feel that they are 'on top of and better than' the entrepreneurs and
not anything like 'inadequate'.

Here in principle the investors are badly wrong; secret sauce can be
fantastically valuable. In practice the investors are somewhat wrong. Still,
the most successful investors are not very technical people (that's being
generous) and are making money anyway.

If there is some powerful, valuable, difficult to duplicate or equal secret
sauce, then there is a chance that the secret sauce will be the difference
between just some good, early traction and a really solid, valuable business;
in this case, good for the entrepreneur; but with the claims of secret sauce
the investors will try not to be offended and try to look just at 'traction'
anyway.

The article also describes "funding stages":

o "$1M early stage round to get to prototype or perhaps get first customers;

o "a year later, another round of $3-5M to test the business model and whether
it can scale, milestones of $1M in sales or some of customers;

o "then maybe 18 months later, $5-10M to go BIG and try to position yourself
for an 'exit' (sale of company or IPO)."

I don't think so!

So, my guess about the funding stages is:

(0) Pre-Seed Stage.

If there is no prototype Web site an investor can connect to and "play with",
then the project is regarded as "just an idea" and "Ideas are easy and
plentiful", that is, worthless. No chance of a check.

(1) Seed Stage.

The prototype Web site works, and investors can connect to it and evaluate the
user interface and user experience. If everything looks good or promising,
then maybe write a seed check for $25,000 to $1 million.

(2) Series A.

If there are users and the number of users per month is increasing quickly,
and even better if there is some revenue, then write a Series A check for $1
million to $5 million.

(3) Series B.

If the 'traction' is growing like a weed on MiracleGro, and/or so are revenue
and earnings, and if the M&A or IPO situation looks promising, then write a
Series B check, maybe for $10 million to $20 million, or more in extreme cases
or if the founders want to 'take some cash off the table'.

From all I can see, these are the criteria. They are simple enough that could
teach a dog to do it in a weekend. My guess is that the criteria are what are
wanted by the major limited partners. Since the major limited partners have no
real control over some of the angel investors, the angels are free to have
their own criteria.

Let's see: The article was from Duke, right? As I recall, there was a coed
there with hots for the Lacrosse team? Are we getting a consistent pattern
about the seriousness of Duke?

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expertio
that's how university works. based on books instead of reality.

