Monday, May 7, 2007
Venture Worthy?
We had a great time this this past week at the Entrepreneur Boot Camp. Thanks to Jack and George from Derby Management for putting it on and to Deb and Mary from TEN for organizing everything.
We took home many key lessons, but one of the questions we found ourselves continuing to discuss is: how does a company know if it's capable of raising venture capital, or even if it needs to raise venture capital? There are a few variables every company considers when trying to decide if it is "venture worthy."
How big is the market?
What type of pedigree do the founders and key management have?
Are there barriers to entry?
How quickly can the company ramp up?
These are just a few considerations, but let's be realistic, the make-or-break variables are the market size and the experience of the company founders and managers.
What's the secret number for market size? I've heard $1 billion from some, $750 million from others, and a host of other amounts. In my experience, anything that has the potential to be a $500 million market wouldn't get tossed in the trash. There's another consideration at play that I think too many people forget. What's the probability that I can own enough of a market to make it worth a VC's while? And no, that 1% isn't enough. It's easy to say that you have a $1 billion dollar market, but how realistic is it that you can capture the market and destroy your competition for the next three years? This is something investors and entrepreneurs should consider.
The other variable, and probably the most important, is pedigree. If you've created two $50 million companies in the past 10 years, it's a lot easier to get that funding, if not almost automatic. If you were hire #2 at a $30 million company, you'll be fine. If you have been one of 100 marketing managers at a Fortune 1000 company for the past ten years, you'll probably need a great team and a great product.
This isn't an attempt at an end-all to any VC discussion, but it's something everyone starting a company should consider. As for the second thought - do you even need VC money? People tend to forget that there are many other funding options - Angels, grants, loans, family, friends, business plan competitions, etc. There's plenty of money out there, and it's a great time to be fundraising.
We took home many key lessons, but one of the questions we found ourselves continuing to discuss is: how does a company know if it's capable of raising venture capital, or even if it needs to raise venture capital? There are a few variables every company considers when trying to decide if it is "venture worthy."
How big is the market?
What type of pedigree do the founders and key management have?
Are there barriers to entry?
How quickly can the company ramp up?
These are just a few considerations, but let's be realistic, the make-or-break variables are the market size and the experience of the company founders and managers.
What's the secret number for market size? I've heard $1 billion from some, $750 million from others, and a host of other amounts. In my experience, anything that has the potential to be a $500 million market wouldn't get tossed in the trash. There's another consideration at play that I think too many people forget. What's the probability that I can own enough of a market to make it worth a VC's while? And no, that 1% isn't enough. It's easy to say that you have a $1 billion dollar market, but how realistic is it that you can capture the market and destroy your competition for the next three years? This is something investors and entrepreneurs should consider.
The other variable, and probably the most important, is pedigree. If you've created two $50 million companies in the past 10 years, it's a lot easier to get that funding, if not almost automatic. If you were hire #2 at a $30 million company, you'll be fine. If you have been one of 100 marketing managers at a Fortune 1000 company for the past ten years, you'll probably need a great team and a great product.
This isn't an attempt at an end-all to any VC discussion, but it's something everyone starting a company should consider. As for the second thought - do you even need VC money? People tend to forget that there are many other funding options - Angels, grants, loans, family, friends, business plan competitions, etc. There's plenty of money out there, and it's a great time to be fundraising.
Posted by Adam Steinberg @ 5:48 AM 
