Venture Capital Investment Competition at USC in Los Angeles
Mar 8 2008

For the past few years I have served as an Advisor to The University of Texas at Austin MBA team that competes in the Venture Capital Investment Competition (VCIC).  

It all started when I was an adjunct lecturer of entrepreneurship at UT Austin and since then I’ve continued to advise as they need me and my schedule permits.  This competition did not exist when I got my MBA, and even if I had the opportunity to participate I was too busy trying to start my first venture.  What a plus it would have been for any entrepreneur to have seen a term sheet presented by experienced investors in an academic environment rather than in real life when you feel like you have to learn another language just to understand parts of the investment terms!

This year the regional competition was held at USC in LA on March 7, 2008.  The UT team this year was comprised of:

Ben Jones – MBA 2008
Kyle Reese – MBA 2008
Rajiv Bala – MBA 2009
Ryan Sanders – MBA 2009
Scott Chiou – MBA 2009

I connect them with local venture capitalists and entrepreneurs to help them prepare but we had a late start with only about 5 weeks to get ready and midterms in between this year.  Other teams have semester long classes to prepare for this competition!

At the competition, 6 teams were given business plans for 3 real companies including NiLA, makers of environmentally friendly lighting, on Wednesday, March 5 at 5:00 pm.  They use the Internet and other relevant sources to research the companies and come up with questions for the entrepreneurs.  On Friday, they heard the entrepreneurs pitch their business concepts in front of 11 real live venture capitalists, including Aditya Mathur of Revolution Ventures, Nathan Joyner of Pacific Ridge Capital, Neal Hansch of Rustic Canyon Ventures, representatives from Tech Coast Angel Group and many more. 

They then go into little rooms and subject the entrepreneurs to answering several of the same questions over and over again from the 6 different teams.  Why would any entrepreneur do this you might wonder? Because the VCs are in the room while they are being asked the questions so they are getting exposure that they might not have had otherwise to them.

After the questioning sessions are over, the teams again regroup and come up with a PowerPoint presentation which outlines which company they would chose to invest in and why.   For the company they choose to invest in, they create a term sheet.  They present their choice in 3 minutes in front of the VCs.  The VCs then grill them for about 15 minutes on their company choice and investment terms.

At the end of the day, the judges decide who wins and who takes 2nd place.  The 1st and 2nd place winners get money and the opportunity to compete in the national competition at University of North Carolina Kenan-Flagler Business School in April.  I have personally seen one student get a job on a team I advised in venture capital because of participating in this competition.

As an advisor I get to be a fly on the wall and watch the VCs deliberate and observe the decision making process.  Plus I build my network in areas outside of Austin.  Personally, I believe this experience has helped me gain better perspective on what venture capitalists are looking for which is why I’m currently seeking money from angel investors or smaller boutique/seed stage venture firms. 

So I’m sure the suspense is killing you as to whether or not our team placed and unfortunately they did not. They picked the company with the biggest market potential but with the highest risk and the VC judges picked NiLa, which has a great opportunity but less risk and less upside.  Goes to show you that most VCs are not early stage investors!

There are so many variables that go into winning from judges backgrounds, to student’s experience, to understanding of the market of the presenting companies, etc. that you can’t always prepare for everything.  But what an experience! 

Flying back to Austin today for SXSW Interactive and will post about my experience as a newbie SXSW attendee.  I’m looking forward to meeting many of the people I’ve met through blogging and twitter!

Author: | Filed under: competition, entrepreneurship, fundraising, venture capital | Tags: , , , , , , , , , , , , , , , | 2 Comments »

A Story About Angels And Venture Capitalists
Feb 5 2008

angel_button_frame.jpgSeveral readers who saw my Fundraising Toolkit post have asked me about my experience raising funds from angels and VCs for my first entrepreneurial endeavor.  We raised about $15 million of which $3.5 million was from angels or what I would call boutique VC firms (i.e. a group of angels under one investment roof).   Keep in mind that was all before the bubble burst back in 2001.  Here are some of my observations based on my experience and from stories I’ve heard from other entrepreneurs.


Angels

They tend to invest their own money and reputation in earlier stage companies that can benefit not only from dollars but also their advice and contacts.

The really good ones (yes, there are fallen bad ones) have built their own businesses from the ground up.  They have a great appreciation of what it takes to build a business and are creative with solutions to the inevitable unexpected issues that arise.

They tend to get their ‘hands dirty.’  Our lead angel investor for my first company was Marc Seriff, founding CTO of America Online.  You may recall that in 1999/2000 talent was scarce and the Internet bubble was close to its biggest.  Marc actually manned a career fair booth that we had at The University of Texas at Austin.  He also participated in the interview process of finding great developers!  Needless to say we found some good people.  Since Marc was our lead for our first round, he even assured our vendors that he would make sure (i.e. personally guarantee) they got paid if for some reason we couldn’t close the round!

They tend to bring their friends along for the ride.  Marc and another of our angel investors, Jack Baum, brought in their friends and contacts making the fundraising process a little bit easier.  Jack also introduced us to the owners of our very first big paying customer who ended up doing a nationwide rollout with us.  I remember framing the check! He and his partner Steve Winter brought in two of our three venture investors.  The two good ones!  Steve even served as our interim-CEO between the time we parted ways with the first CEO we hired to replace me until we found the next one.

They don’t necessarily have to invest money to be an angel.  Richard Benkendorf was one of our advisors who introduced us to our first key customer in the Coca-Cola bottling system that helped us achieve our first $1 million in revenue!  We framed that check too!

When the dollars needed get big for future financing rounds, angel investors usually voluntarily step back or can’t provide the needed growth capital.

Some of them may not have sat on a Board or been involved in building their own businesses making some board meetings interesting to say the least.  In other words, an angel who made his/her money from their own business versus someone who came in later at Google, Microsoft, or Dell have different perspectives and experiences.

Venture Capitalists

They tend to invest in later stage companies with some revenue, product completed, and market traction.  They seem to like to come in after an initial angel round of investment (if the deal structure is not too messed up).

The really good ones (yes there are bad VCs – in case you haven’t heard) have had repeated success with other portfolio companies, have built their own businesses, and come with a big rolodex of contacts and partners to help you cross some of the early hurdles.  One of our venture investors, SAP Ventures, led by Jeff Nolan who blogs at Venture Chronicles (the only former investor I found who blogs publicly) introduced us to departments within SAP who were targeting the same customers that we were.  He also gave me a copy of The Monk and The Riddle by Randy Komisar (see below for book link) that was a great read at a time when I think he sensed I was no longer enjoying the journey.

They tend to be more bankers/financiers than operating (i.e., built their own business) people.  They tend to look at a business with a black/white eye on numbers and how fast they can get their money plus a nice return on their money out.

The good ones will often bring along investment partners in what is called a syndicate.  A few VC firms who have worked together before will join forces to fund a deal which makes life easier for the founders because they can go back to building the business versus fundraising sooner.

They seem to use and apply a formula that they have achieved financial success with before which often means replacing the founding CEO or other key founders with people they have worked with many times before.  If more often than not something has worked for them with a portfolio company in the past, they’ll apply the same logic to future deals companies.

They are investing other people’s money (i.e. their limited partner’s money – insurance companies, wealthy individuals, other corporations) and if they perform well those people will give them more money to invest.  In other words they are risking more than just their finances and reputations, they are risking other people’s finances and reputations as well.

Who To Choose?

Personally, I think it all comes down to the investor fit and the stage of the start-up game you are in.  It’s definitely better to have people who have built businesses on your side.  It’s also good to have people who have backed high-growth businesses if you plan to IPO or sell to an established business in the near future.

Most technology start-ups don’t make it big.  It’s a unique combination of talent, dedication, luck, timing, and great people that make the difference between the companies who become household names and those who shut down on the wayside or find another comfortable existence.   We often forget that it is more than OK to start a good profitable business that provides value to your local community.  If you want to play with venture capitalists, then you need to aim for the ‘household name’ category like Google or Yahoo! even if chances are high you won’t make it to an IPO.

My biggest learning was how important it was to be able to communicate with your investors openly and honestly.  Trust your gut and if they respect and trust you as a person and you respect and trust them, it will be much easier to weather the inevitable storms.  It’s easy to take money for money’s sake but in the end it can end up being more costly than what it was worth.

As Ben Yoskovitz says in his Startup CEO School of Hard Knocks post, you must have fun!  When you are no longer enjoying the journey, take a break and look around to make sure you are doing what you should be doing.  Make sure you are in the right place at the right time for yourself and don’t be afraid to make changes.

Author: | Filed under: angels, entrepreneur, entrepreneurship, fundraising, marc seriff | Tags: , , , , , , , , , , , , , , , | 15 Comments »