Recently I had a great discussion with a partner at a well-known VC fund. I asked her in what sectors of technology her firm is looking for potential investment. Some of the larger areas are mobile, consumer Internet and digital media. Specifically she said they look for companies that focus on:
- Optimization: in e-commerce, like short-term pop-up locations used by web-based retailers, or the development/utilization of infrastructure and tools that make business-to-consumer experiences better.
- Personalization: e.g., manufacturing of consumer products that is personalized from data analytics or directly from customer feedback.
- Monetization: businesses that focus not only on getting new customers but on retaining the ones they have already, and monetizing them repeatedly over time.
When asked what entrepreneurs should expect from venture funds:
- Often entrepreneurs are surprised by the percentage of equity VC will want in exchange for investment. The VC’s reasoning: it’s not enough to get the investment paid back when the target is sold or goes public, but there has to be an attractive multiple—say 3x or 4x plus—on that investment on top of recoupment to make it worthwhile. More often that not this is accomplished by the fund having a significant ownership stake.
- Investment by venture funds is not passive investment. VCs look at it as a partnership, with open, full communication in both directions. Building a relationship with the investment target is very important from the earliest stages.
- VCs expect the entrepreneur to have clear, detailed plans for managing the investment from the beginning, as well as specific fundraising plans (while funds can assist with fundraising, it’s preferred to have structured plans independent of them). This is just as critical as focusing on the entrepreneur’s customer, user experience, etc.
