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I’m writing this post for one simple reason: to be able to point every would-be-entrepreneur who asks me what it takes to “get venture capital” to the permanent link rather than continue to explain to them. It’s all about efficiency. So, what are VCs looking for before they decide to invest in a start-up? The good news is that I’ll disclose the secrets here. The bad news is that even if you cover all of these elements it still doesn’t guarantee you will get funding (more on this point later). Without further adieu, here is a short list with brief explanations (see if these sound familiar)…

Some sort of differentiated, proprietary technology / competitive advantage. You need to be able to convince VCs that your idea/company is differentiated from the current masses as well as those that will inevitably come to market if it is such an attractive market. I think Jack Welch said it best when he said, “If you can’t be #1 or #2 in your market, why bother…” Spend the time to understand how your idea/product/service is different from what is currently being offered and make sure it is a material and valuable difference. You’ll often hear VCs complain about the plethora of “me too” companies that flood any particular market of interest these days. Most VCs don’t like making these types of investments.

Large ADDRESSABLE market. VCs invest in companies that are going after very large markets. How large? We’re talking annual, aggregate sales in the hundreds of millions to billions of dollars. Most entrepreneurs make the mistake of assuming “available” = “addressable” when calculating the size of the market they want to sell into. Be realistic here and spend the time to understand that market segment with the total available market that you can pragmatically sell into near-term.

A clear plan, budget, and use of proceeds. I use the term “clear” here loosely as most VCs are willing to overlook the fact that such a plan hasn’t been articulated in writing if they can see it for themselves (under principles of “been there, done that”). Having said that, you should have at least thought through how much money it will take to bring the product/service to market, have an idea on how you might actually go about achieving such results, and how - if funded - the money will be spent. To elaborate a bit, there needs to be a correlative use of the VCs dollars such that he or she knows how the money will be spent so as to reduce/eliminate any technical, market, financial, and operational risk of the company succeeding.

Manageable Risk. You can read my previous post on risk, Arbiters of Risk, for more information but it suffices to say that we VCs are “risk masters” and attempt to create value through the calculated and systematic reduction of the technical, market, financial, and operational risk found within start-ups. One of our jobs is to be able to reasonably and quickly identify such risks, calculate them, and then work with the management team to mitigate them. Some funds take bigger “leaps of faith” than others, but almost all of us focus on this aspect of the business from the first day.

Strong team able and willing to work with the VCs. Have you seen the acronym D.O.E.? No, not the Department of Energy. I’m speaking from a human resources perspective. D.O.E. stands for “depending on experience” and is typically associated with compensation but, for VCs, it’s a subjective measurement of operational risk based on a company’s founders/management team’s background. The more empirical evidence that you can show that you/your team can succeed the better your chances of attracting and obtaining venture capital. This criteria is a bit more nebulous that the others in that funds differ on how they judge the strength of the individuals involved. Even if you have all the relevant academic degrees from all the top universities, all the relevant work experience from all the right companies, you still may not get funding. The entrepreneur/ VC relationship is a marriage of sorts in that you will be working closely with your VC (some more closely than others) for an extended period of time and VCs must want to and enjoy working with you. I’ve seen hugely successful entrepreneurs essentially ostracized by the venture community after having developed a relationship of being too difficult to deal with.

This last criteria brings me to my final point. Even if you satisfy all of the aforementioned criteria by anyone’s definitions, you still may not get funding for a couple of reasons. Objectively, despite the public’s perception to the contrary, there is actually a finite about of money that any one fund will invest and your investment opportunity will not be simply measured in a vacuum. VCs see a ton of opportunities and often decline to invest in companies they actually think would be good investments in favor of those opportunities they think are better. Subjectively, I’ve seen VCs turn down investments simply because they didn’t like the people personally. I know it may be hard for many of you to imagine this, but VCs are people just like you. As such, we each have our own idiosyncrasies, ideologies, and sector preferences that we bring to any table we sit at.

In conclusion, hope is not a strategy. If you want to obtain venture capital, spend the time to understand these criteria, do a little planning, and work hard to present your investment opportunity in the best possible light. Happy venturing.

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It’s been almost a decade since my first visit to Russia, but I’ve been thinking about my experiences there a lot lately given what all is going on in the world and Russia’s impact in today’s global innovation economy. There was a period of time when I spent 7-10 nights per month in Russia so I thought I’d write a bit about some of my experiences there. In case you’re wondering, da, ya gavaryu nimnoga paruski (excuse the phonetic spelling, I don’t have Cyrillic fonts installed).

I grew up a military brat in the Reagan-era believing that the U.S.S.R. was the “bad guy” and was a big fan of James Bond, Tom Clancy, and other espionage genre content focused on the Soviets so it was with a bit of both trepidation and intrigue that I took my first trip there in ‘99 on behalf of Intel during an acquisition we were in the middle of in Nizhny Novgorod (f.k.a. Gorky). I returned from Nizhny feeling a bit confused — either my expectations had been too low or something in my thinking was amiss. I would go on to discover it was a combination of both as I developed many friendships in Russia and a great sense of respect for the Russian people I encountered during my travels there. For example, I was in Moscow during Reagan’s funeral procession and was actually the only American in a room full of Russians and was surprised to find that I was the only one not crying during the procession while watching it on TV (more posts on this incident later).

In addition to Nizhny, I traveled extensively throughout Russia and spent time in Moscow, St. Petersburg, Novosibirsk, Akademorodok, Sarov (f.k.a. Arzamas-16…the closed nuclear city akin to Los Alamos, New Mexico), and surrounding regions. I found the people to be compassionate yet dour (some more so than others) and managed to put on roughly thirty pounds thanks to palmeni, vodka, and Georgian wines. In total, I was involved in four acquisitions, a couple of investments, and a litany of other corporate/economic/emerging market development activities there and spent forty-something weeks “in-country” over a six year period.

Toward the end of my Intel career, I participated in a number of “Russia related” symposiums and conferences such as the annual U.S. - Russia Investment Symposium (see the picture below and see if you can point me out) and learned a great deal about Russia as well as myself.

While it my time in Russia was at least partially responsible for my decision to leave Intel, it was simply a matter of being away from my family rather than anything else. I have nothing but truly fond memories of Russia its people. To put that statement in perspective, during my first trip to Novosibirsk, I exited the plane wearing only a suit (thanks to the last minute nature of the trip and my re-routing from Cologne, Germany)…and walked down the steps of the plane to the tarmac in -47 degrees Celsius and swear I could hear the blood in my ears crystallizing before I reached the tarmac.

I have many more thoughts here, but I’ll save them for later posts and simply use this post to set the stage. So, why the seemingly sudden musings on Russia? Well, I continue to encounter Russians (or ex-Russians) in my profession to the extent that there are so many of them in scientific and engineering professions and my career continues to revolve around innovation… so I thought I’d start spending some time on the matter since a number of you have asked about my experiences there over the years and there seems to be a renewed interest in Russia’s VC landscape.  I’m not going to share all of my Russian stories here, just those relevant to my profession and Russia’s future impact on the global innovation markets. Until next time, na zdarovye!

I recently received an auto-reply from a VC acquaintance of mine, Mark Solon, indicating that he is currently running an experiment that I’m somewhat jealous of: he has essentially been off the grid since Memorial Day and intends to continue to do so until Labor Day. He has a few caveats, but is “off of email” for all intents and purposes for the next few months. As I think of what it would be like for me to follow suite, a couple of things come to mind. First, despite going off the grid 1x a quarter, I think Brad Feld (another VC acquaintance of mine and author of Feld Thoughts) would be hard pressed to be off email for so long (sorry Brad, I couldn’t resist). Second, as much as I’d like to cut down on the several hundred emails I get a day, I’m not sure I’d be willing to take the risk that I can be as effective. I use email threads to jog my memory and, on occasion, avoid “taking notes”. If I did all my communicating in person and/or over the phone, I’m afraid I’d begin to suffer from carpal tunnel syndrome from all the writing I’d be doing or — worse yet — forget something really important.

Having said all that, it’s nice for me to dream about being email-free but I really want to hear from all of you. What do you think…is email a productivity enhancer or destroyer???

Last year, I wrote a piece about things to consider when selecting company counsel for your start-up so I felt compelled to briefly revisit the topic after reading some very insightful musings from Jason Mendelson from the Foundry Group (appropriately titled: Why Start-Up Lawyers Frustrate Me). Jason is another recovering-attorney-turned-VC like myself, so I encourage you to read his rant.

One of my current frustrations is when a portion of my fund’s investment in a company goes to paper the transaction and pay said start-up’s past legal bills. I realize it is a necessary (evil) for a number of reasons, but it doesn’t mean I have to like it. To add to this frustration, I’m beginning to think that the time spent going back and forth on “non-material” terms is an even bigger disservice to the company than the fact that a portion of it’s first institutional investment is going to pay for legal fees.

So, what’s a conscious entrepreneur to do when choosing counsel? First, read my prior Legal Eagles post. Second, choose wisely. Finally, understand the situation and manage counsel accordingly.