Babbling VC

What should you ask the VC?

I was thinking about what I'd ask were I raising venture capital. Funny is that I often think about what I should ask entrepreneurs when determining whether to invest. I've often enough told entrepreneurs they should be asking their VC's just as many questions. I never really said though what they should be asking. My bad! Well, in order to be fair, here's what I'd be asking a VC were I interviewing him for the highly coveted position of investing in my business (note the satire!)

1. Who's responsible for your track record?

The boring question would be "what is your track record?" This doesn't answer what you'd like to know plus it's where you'll get the most personal marketing bullshit. Who are the VC's "go-to" people is probably the more important detail. How does he get you in the door where you need to be pitching? Has he been opening doors in the past that led to revenues, partnerships, mergers, acquisitions, exits?  Is he all lip-service about all that he can do for you or does he execute? No one works alone on the VC side. You have to have a strong network of people not only whom you can call but on whom you can depend. I answer this question as honestly as possible when asked. I know where and even better where I can't help you. I'll tell you openly when I can't add value.

2.  How involved do you plan on being in my company?

This is a double-edged sword. The answer can be as little as "I'll be a board member" to as much as "I'll call you every day to see how things are going." Be afraid of both! It sucks if someone only comes to board meetings and is otherwise completely unreachable. At the same time, someone who's on your back each and every day is taking up too much of your time. If you need them there every day, you're not good enough to be running the company anyway.

3.  How much vacation a year do you take (no, seriously, ask this)?

There are hardcore VC's out there who work night and day. At the same time, there are basically "racehorses out to pasture" as well. They've been superstars but they are "doing this for fun" now. If accessible, there's nothing better than these guys. On the other hand, they tend to take month-long "trips" without any interest in business, calls, interruptions or whatever. Ask! It may make the difference between getting the advice you need or trying once again to figure it out on your own.

4.  Will I have access to your partners?

I have really smart guys working with me. I often ask them for their help, advice, insights. Why shouldn't you? Ask the partner you are dealing with if you can also access his partners in times of need and how they can fill in the gaps when it comes to making your business successful.

5.  What is the process for a follow-on investment and how much capital will you reserve for this?

People usually are so focused on getting the first round that they forget the rest. Ask about the process for a follow-on investment. Will there be a whole new due diligence process? Will the VC have to prepare a whole new investment proposal? Who will determine whether additional capital is injected. How long does it take? Most importantly, will there be capital for a follow-on investment? Sure, you're pitching that this round will take you to an exit or break-even. Hey, how about planning for a rainy day? Ask what will happen....just in case!

6.  What stage of the fund's lifecycle are you in?

Remember, as a VC, we're investing other peoples' money (as well as our own). There's a lifecycle for a fund (which I won't go into but find out more here!) If we're towards the end of the investment lifecycle, we're probably looking for a different stage company then were we at the beginning of the fund's lifecycle. Sure, there are exceptions and we make them often but it doesn't hurt to ask.

I'm sure there are more and even better questions but these are the ones initially popping into mind when I think about the process of raising money from VC's. Feel free to add your own in the comments if I missed any.

If not in the Valley, at least compete with it!

In one way or another, I've addressed the topic of "Where is it like Silicon Valley in Europe" a hundred times, be it in interviews, blog posts, on Twitter or on panels. Nevertheless, there really isn't a "Valley" in Europe, only some places kind of like it. If you want my ideas on that, I have other posts regarding that topic.

Yet, as an entrepreneur in Europe, don't forget that the Valley exists. Measure yourself by "Valley standards" and not just  by your peers in Europe. It's been irking me a bit when I speak with start-ups that they compare themselves only to their local competition. So often I hear a pitch and ask who the competition is in the US. Often enough I've heard (unfortunately never directly) "we haven't taken the time to figure that out yet." If this is your take on things, you're nuts. There is most likely some entrepreneur in California who would of swum to the US if possible, worked four jobs for money to launch his venture and wouldn't of thought for one second about "quality of life" nor "spending time with the kids." Think what you like about that entrepreneur's priorities in life but don't forget he'll enjoy crushing you if you're competing against him or her.

The Valley may be sunny and inviting but everyone is there to win. If you don't, you tend to leave quickly. Those who've stayed and continued to start new businesses or finance them have the loftiest of goals. They're probably also not about the money. Sure, they enjoy the perks of an exit but my experience is that lots of people there want to change the world. If not change it, at least try. You hear it in their pitch and you see it in their eyes. Ask me the one thing I see lacking most often when it comes to start-ups in Europe and I'll answer "hunger, drive and lofty goals." The few that have it you recognize immediately. They usually end up succeeding quickly and you chase them to invest in their companies. Those that don't have it probably never will. It's also not about being "American", which also often comes up. The Valley is made up of people from every corner of the earth. Each and every start-up I've visited there was a pot pourri of backgrounds, often Europeans.

So do we need a "Valley" per se in Europe? No, who cares. It's just a term anyway. Do we need entrepreneurs who are hungry, passionate and aiming high? Yes and in order to remain competitive, we need to know who our true competition is in order to know where to aim.

Next09 - When Money Talks

Here's the session I moderated at Next09, featuring Jeff Jarvis and Umair Hague. If you're interested in their thoughts on how to make money in a Google-world, take a look.

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Go For Lock-In: Perfect Example from T-Mobile

I was kind of surprised when I realized this recently about a couple services I now use. Most importantly, when it comes to T-Mobile. Very simply, after being a customer for over 10 years, I'm completely locked-in to the service. I could leave whenever I like but I won't. Why? Because I've reached Diamant status and T-Mobile simply delivers when it comes to the benefits of this status. It's similar to the airlines where you collect miles for benefits. I've used T-Mobile enough to get a status which offers me a level of service I won't get elsewhere. Basically, they've delivered every time when it comes to my needs. I've had phones replaced within 24 hours, billing issues remedied immediately and requests fulfilled as necessary. Would I leave? Nope, highly unlikely. There is no way I would get this level of service from another carrier since it would take so long to attain this status. I'm also significantly less price sensitive. This is truly a benefit for T-Mobile. Obviously, the same goes for the airlines. They lock you in once you've achieved a certain status level. It's almost painful booking with another carrier knowing you won't collect miles on that flight.

The social networks are also trying to do this to some extent. Be it Facebook, LinkedIn or Twitter. Once you build up your network of friends or achieve a certain number of followers, you are much less likely to leave. A competitor has such a high hurdle to get your attention that it's almost impossible. It would be too much work for you to switch and hence you stay. If the service is also good, then you're locked-in.

If you offer services to your customers then make sure you are locking them in. Make them not want to leave. You need an angle which keeps them using your service because it's too hard to switch. This may sound like common sense but I often run into companies who can't explain to me why people won't leave for a competitor as soon as that competitor launches. Sometimes it's as easy as offering spectacular service. Other times, it takes a bit more and usually requires time and innovation. If you're launching something new, think about what T-Mobile has achieved and try to incorporate lock-in into whatever you are doing.