DISQUS

RK · 3 years ago

As I predicted about Alien and Passive RFID market in my past postings few months back, there will be no takers in IPO market. Not surprised. I think Alien will have diffcult time surviving now, there largest customer Gillette/P&G, will have issues finding there 5 cent tag as they had Alien locked in 5 cent tag price by placing an long term 100 Million plus tag order. reality is tag cost to build today is 25 - 30 cents depending on type of packaging. Well to bad VC's will loose few bucks!

Mark Wendman · 3 years ago

A wise, superbly talented and experienced VC recently summarized his biggest successes as being partly characterized by $1m or less initial investments. (Silicon Beat had a nice post about this)

While a small initial investment will typically not get one to positive cash flow, it is often a superb litmus test of the motivation and skills of the founders.

Are they Entrepreneurs, or Spendthrifts? Are the Founders skilled sufficently or not?? Can they sell sufficiently or just go through part of the motions...

[sell early, sell profitably and sell often, comes to mind]

The main aspect ignored by some investors who think More money is THE solution (I have heard certain folks say too often - YOU Could Never Compete Against XXX, because YOU don't have the CAPITAL [yet], even if the technology and people were there), is that motivation + skill + EQ (Entrepreneurial Quotient) trumps a whole lot of misspent cash in many notable instances.

The history of tech startups is truly littered with overfunded missteps, where either a key technical issue was overlooked and vainly hoped to be solvable without the necessary hard changes, or management business missteps being optimistically overlooked until too late. A fascinating study really and many many useful lessons to learn from, to hopefully avoid repeating.

A useful proverb or two includes - "Trust But Verify"[honestly], and "Only the Paranoid Survive" (Ed .."with a grain of salt and a bit of humor for balance")

Before one SCALES (ie possibly becomes a spendthrift) it is quite useful to look closely at the early dynamics. Is the "roll up your sleeves and get it done attitude" sufficently present? Are there always expensive pushouts / excuses that conveniently delay the critical business and technical milestones being completed? Is the big MO [momentum] evident, or is there a whole lot of second guessing by know it alls...Which is a larger effect?

And a pet peeve of mine - is physical stature of key folks used a a false crutch for warm and fuzzies about credibility and realism in the effort and skills? IE you might be executing technically, but if you frequently say - it could never be a real business (about possible alternative markets for example) are you a credible Entrepreneur? You might be making lots of progress in the complicated technical milestones, but always pushing out cost effective results, intimating that cost effective results needs more capital?

There are different hints of some of these in both firms missteps. Capital is not a panacea unless the right management execution is present - credentials or no credentials of key staff.

You cannot eat credentials for profits, nor market / revenue growth.

Both firms can have potentially viable businesses, but I suspect a degree of either call it entitlement or complacency is present in both endeavors. Bears learning some lessons from if you want to invest as successfully as desired. More money, can in some instances mean just bigger losses.

PragmaticEntrepreneur · 3 years ago

Incentives matter. VCs are compensated through management fees and carried interest. If your company is poised for success, they want to increase their ownership % in your company. These days they want to do it enough to make up for all their losses which are a lot. Putting more money means more management fees and also more carried interest for them. As the saying goes, in for a pound, in for ten. This pattern is especially egregious these days with big funds and poor IRRs of earlier funds. VCs on the board will encourage higher spending, etc. to force a financing; they will bring in new management that will be compensated highly; all to increase their ownership and make their returns look better (in the face of their numerous other failures).

If your company isn't doing well the VCs will look for a quick exit. A firesale or a simple shutdown and sale of IP.

The best VCs are those that help a company take flight on a single or few rounds. Google, Yahoo, Cisco, etc. did it on a singe round. Sequoia excels in this as does KP, though there are exceptions (Webvan, Infinera, etc.)

The worst VCs are those that look to invest a lot of money and force/encourage/support companies that want that. Check 3ParData, OnStor, Force10, Infinera and the amounts raised already. $300M raised already for each company and an ever receding timeline for profitability. Explains why LPs at Worldview, an investor in all of those highly capitalized companies, pulled out their support.

Use the ViraMetric to evaluate a company. Total up revenues over the years for a company and see if it is >, =, < the amount of capital raised for that company. What a story it tells!