Bad VC / Good VC

Monday, November 1, 2004

William Luciw, Viewpoint West Partners, http://www.vpwpartners.com

Better Business Management & Planning Practices

The Personal VC Funding Checklist [Holiday Edition]

Greetings Entrepreneurs!
Just in time for the Holidays, here's your very own Personal VC Checklist to use when shopping for funding; especially for that Special Project you hold so dear.

So not just any funding will do! No no no! Make sure to get your Special Project the gift of perfect funding, tailored to meet your needs perfectly, by using this handy & battle-proven checklist.

BAD VC / GOOD VC:
The Personal VC Funding Checklist [Holiday Edition

(-) BAD VC: Only accepts proposals from referrals, i.e. "friends of friends".
(+) GOOD VC: Evaluates the merits of proposed opportunities when & where they materialize.

(-) BAD VC: Refers to "Winning DNA" and uses this nebulous criteria as an excuse to fund friends and family.
(+) GOOD VC: Never, ever(!), makes eugenics references. [Note: The word eugenics comes from the Greek for "good genes."]

(-) BAD VC: Refuses to drive more than 30 minutes to see entrepreneurs but is concerned about their "China Plan".
(+) GOOD VC: Understands that you must go to the market to actually transact commerce, and does not sit on an Ivory Hill refusing to roam.

(-) BAD VC: More interested in your personal contacts than your proposal.
(+) GOOD VC: Interested in you and your proposal in that order, like a good mensch.

(-) BAD VC: Makes noises about "personal attention" while juggling large numbers of portfolio companies amongst the overloaded partners.
(+) GOOD VC: Has deep knowledge of investment areas and builds a manageable number of winners via careful attention to details.

(-) BAD VC: Tries to re-label a leverage relationship into a "trust" relationship. One-way.
(+) GOOD VC: Builds trust relationships through actions, not with words, and does this over time.

(-) BAD VC: Never signs an NDA and freely shares information with portfolio companies.
(+) GOOD VC: Never signs an NDA and provides full disclosure of conflicts, working to build bridges of "safe" communication.

(-) BAD VC: Makes a distinction between a "lifestyle company" and an enterprise.
(+) GOOD VC: Knows that for the true Founders, the company is their lifestyle.

(-) BAD VC: Wants completion guarantees AND multiple pre-term "liquidity event" exit options. In writing.
(+) GOOD VC: Understands the related concepts of business partnership and shared risk for the duration of the partnership.

(-) BAD VC: "Price-fixes" Series A deals in the $2 to $4 million range for majority interest in one round (i.e. >50% equity participation) Also limits Series B to $4 to $6 million as the "going market rate".
(+) GOOD VC: Fairly evaluates the value proposition of ventures on their own merits, w/o preconceived notions of value limits or capitalization.

(-) BAD VC: Requires deal terms like "2X (or worse!) participating preferred", redemption, "drag along rights", Series by Series provisions. If you don't understand any of this, you are IN BIG FINANCIAL TROUBLE as an entrepreneur, so look it up... NOW dude!
(+) GOOD VC: Provides clean capitalization term sheets.

(-) BAD VC: Wants to be "hands on" once the money has been wired to the entrepreneur.
(+) GOOD VC: Understands that "too many cooks" spoil the sauce. The Special Sauce where the investment value actually comes from, that is.

FOR MORE VC INFO SEE: THE PRODUCERS (on broadway, the original, or the upcoming remake).

http://www.timesonline.co.uk/article/0,,7943-1309786,00.html

"...Once a successful Broadway producer, Max Bialystock is now known for his flops. But when he meets timid accountant/aspiring Broadway producer Leo Bloom, they figure out a scheme in which they'll raise a lot of money for a Broadway show, but then produce a flop and pocket the money. They search for the worst musical ever written and come up with Springtime for Hitler, written by former (but still fervent) Nazi Frank Liebken. ..."

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