While we were at Babson our professors arranged for us to attend a number of events where Angel Investors and VCs spoke of what they are looking for when they make investments. We were even able to sit in on the pitch session of one Angel group, hearing the pitches just as they did but more importantly hearing the discussion they have afterwards about whether to move forward. It was very interesting to hear the things they focussed on, which were much more about the team and progress in the market than I expected!
To many, Silicon Valley is the beating heart of VC investment and so I'm very keen to find out as much as possible about this entrepreneurial culture while I'm here. My first point of call was an event last night run by the SDForum VC Special interest Group and featuring a panel discussion on what it takes to get VC funding in the current climate.
Reassuringly most of the messages I heard were exactly the same as those we heard in Boston, and the current economic problems are not stopping deals from happening. Although few VCs will invest in ideas at the moment, companies with strong customer acceptance (even if not sales) and a well developed product (funded through Angel or Seed rounds) are still succeeding in getting Series A funding. The panellist from the Opus Venture Fund was able to speak of having already closed 6 deals in the $4-8m range already in 2009, and made the point that while investment in VC funds has slowed they are still taking in billions of dollars of new capital each year.
Just as in Boston, selecting appropriate investors and trying to get a warm introduction to them seems to be very important. The panellist from DFJ Ventures told us that they had made over 500 investments in their history, including Hotmail and Skype, but that they had only ever invested in 1 business plan that had arrived unannounced. Every other deal has come to them through their network!
With this in mind, I tried to take full advantage of the networking part of the evening too. I have contacts to follow up with a number of professional services providers in the valley, in addition to entrepreneurs with businesses in cloud computing, mobile payment and mobile advertising. All hot topic areas of the moment! Hopefully I will be able to get a bit more of a feel for what these guys are doing over the coming weeks.
One thing which we heard about that hadn't been mentioned in any of our Boston discussions was the model whereby legal and accounting firms provide professional services to pre-funding companies on a deferred fee basis. The fees only become due if and when funding is received. This is clearly helpful to companies in terms of managing early cash flow but it has another interesting effect. In trying to access services on this basis you are essentially seeking an investment from the professional services company and so you are testing your idea with the investment market (and hopefully getting feedback on it) long before you go out to Seed or VC investment funds. This seems like an excellent dry run, and any company that succeeds can use that success as an additional evidence of credibility.
Last night was a very interesting introduction to the Silicon Valley culture, and I'm really looking forward to doing more like this!