Scott Kupor, who is the Managing Partner of Andreessen Horowitz, just published a book called Secrets of Sand Hill Road. Contrary to the title, there are no secrets in venture since quite a few venture capitalists have been blogging about the industry for years. A startup founder can find out online what to expect from most VCs before meeting with them.
But most of what is written online is unorganized. Scott’s book is a good start for those unfamiliar with early-stage venture.
So what do you do? Well, it turns out that there are qualitative and high-level quantitative heuristics that VCs use to evaluate investment prospects. And they generally fall into three categories: people, product, and market.
People is by far the most qualitative criterion and, for early-stage investing, likely the most important. When the “business” is nothing more than a handful of individuals—in some cases only one or two founders—with an idea, much of the evaluation will focus on the team. Many VCs delve deeply into the backgrounds of the founders for clues about their likely effectiveness in executing this new idea. The fundamental assumption here is that ideas are not proprietary. In fact, VCs assume the opposite—if an idea turns out to be a good one, assume that many other startups will emerge to pursue it.
Although founding a startup is cheaper and easier than ever before, new sources of capital is entering the industry and transforming it.
But the broader point I was trying to make is that capital is no longer the scarce resource. That was what characterized this industry for the first 35 to 40 years — capital was limited, VCs had it, and therefore, VCs had more leverage and control in the relationship with entrepreneurs. In the last 10 to 15 years, that’s completely flipped. Capital is no longer the scarce resource, so it’s a wonderful time to be an entrepreneur because there’s so much leverage to be had in identifying capital sources.
So whether it’s crowdfunding or ICOs, if all you are is going to be a capital source, that’s probably not a viable long-term strategy in this business. The industry’s going to continue to get more and more competitive and capital is going to be a non-scarce resource, so you’ve got to figure out what your edge is. If venture capital has value 30 years from now, it’ll have to be because it’s more than just a financing source.
Post by Marcelino Pantoja