Straight Talk About Venture Capital
Lots of entrepreneurs want to know if they should raise venture capital, what venture capitalists are looking for, and how to get VCs to say yes. There couldn’t be a better person to answer these questions than Ben Narasin, because he’s been on both sides of the table, as an entrepreneur and as a VC.
Narasin officially became an entrepreneur at age 12 when he started a comic book resale company with a $50 loan from his dad – which he quickly turned into $1,500. From there, he founded a number of startups, including FashionMall.com, one of the first e-commerce companies on the web, which he took public in 1999. He went on to build a significant portfolio of seed investments, becoming one of Silicon Valley’s most successful seed investors. His latest move is becoming a partner at Canvas Ventures.
Narasin agreed to share what he learned as an entrepreneur and investor at our Envestnet | Yodlee Incubator Bootcamp in an effort to help founders avoid making the same mistakes he made along the way.
Here are Narasin’s top 12 insights and tips to help entrepreneurs understand the VC mindset and make the most of all opportunities:
- VCs are looking for huge markets that don’t exist yet. We see a lot of good or great, but venture was built to fund phenomenal businesses. Wow is what we all want.
- Venture folks are super time constrained and entirely ADD, so you either grab their attention right away and keep it, or they get bored, make an excuse, and leave the room. If you can’t tell me what you do in one line, you are not ready to pitch anyone.
- A VC’s job is… to say no! A great VC invests in one or two startups a year. That means saying no to dozens – or hundreds – of startups every year. The other job of a VC is to return the fund, the whole fund, and more.
- As a VC, I need 5 things to say yes: People, people, people, a great idea, and a huge market.
“Think about it like you’re baking a cake. Show me your recipe and the formula that works.”
- There’s one true secret to being a successful entrepreneur, besides high intelligence which is a given, and a good idea, which is also a given. It’s tenacity. It means you won’t give up, even when it gets dark and death is coming for you. Being an entrepreneur is a hard and lonely job, and wimps come in all shapes and sizes.
- VCs can add meaningful value, but you really have to vet them. Every VC firm has its own DNA. If you like two partners, you will probably like them all. If you only like one of the three you meet, it’s likely you won’t like the next person you meet. You can’t judge a book by its cover, but you can judge a firm by any of its partners.
“I tell my seed investments: ‘I will help you raise series A if I believe, (read: not if you believe), you’re ready.’”
- The people who’ll be the most helpful to you are the least filtered. These are the people who say things that are true, whether or not you want to hear them. Their honesty is much more useful than b.s.
- When you take venture money, be prepared to give up control, step by step. You will lose control of your board in almost every instance, and you’ll get significantly diluted while your outcome will have to get bigger and bigger. In the old days, 40% of entrepreneurs who raised venture capital did not remain as CEO. If I had gone for VC, I would have gotten fired.
- Venture capitalists want straight-up growth (the “J” curve), which is super difficult to achieve. If your business faces that type of opportunity, to grow a lot in a short time frame, VC makes a lot of sense.
“Velocity is the drug of venture capital.”
- Lions only eat meat. So you have to be a match. You have to be meat for that particular lion. And meat for venture is the possibility of a public company. You can build the most beautiful salad, but it won’t get eaten.
- Speak the truth and it’s more likely you’ll get the right investors. Try to match investors to the outcome that is right for you. If you’ve got a goal that you aren’t allowed to take advantage of, you may never get over it. To try and fail is one thing, but when you don’t get to try, that’s another thing. That’s why you need to fight for the thing you need to achieve, and let the people who match up to that desire take part in your business.
- Think about what you need. It doesn’t matter what venture needs, it matters what YOU need. Everybody has something inside them that they need to do, so match your fundraising to people who can reinforce it. As an entrepreneur, it may not be about the money, but what you desire as a person. If you don’t need a multimillion-dollar public company, then don’t go for that.
“Money is a replacement for time and sweat equity. Time is your asset.”
Ben’s straight talk gave the Incubator’s entrepreneurs a vivid picture of how Silicon Valley venture capital really works. This picture was bracing at times, but it will serve the entrepreneurs well as they seek venture rounds after graduating from the Incubator.
Check out a video of Ben’s talk here.