My Journey to Venture Capital: Part 2

April 26, 2011 by Fuchsia Mac

I can’t believe that I wrote Part I of this series over a year ago. How time flies!

So, what has happened? Well I had a baby, that sort of ate up a few months of my time. Back on track now, we’ve been noodling through some new venture ideas lately, with the hope of acquiring investors to fund them. This has thrown me back into the “To Get VC or Not” journey. As I mentioned in my last post, our structure and approach is a bit unorthodox, coming at ventures with an established team and business, with the hope of building out not just one great idea, but many. It’s not a model that you really see, so instead of wasting my time and anyone else’s time moving in this direction, I made a really good decision. I asked for some advice.

I decided to reach out to some of the connections that I’ve built up over the past six years and ask some pointed questions on what could work and what definitely won’t work when it comes to attracting investors. I had the opportunity to connect with a former client, who also happened to be a serial entrepreneur, tech start-up CEO and angel investor based in Silicon Valley. He was gracious enough to answer some of my questions and offer some valued advice.

Question: Is our multi-project model something that would be appealing to the average investor?
Answer: Here in Silicon Valley, no.

Plain and simple the model that we were aiming for just isn’t a great starting point, and there’s no point trying to fit a square peg into a round hole and selling an arrangement that is too far outside of the norm. The reason? Investors are not looking for consistent income from an investment. They are wealthy people looking for rapid growth, the potential to sell or bring a concept public, and receive a sizeable return on their investment. Coming to them with ten ideas is less compelling than coming to them with one really good idea that both you and they can get behind fully.

Question: How do we build out some of our unique ideas, with or without funding?
Answer: Make time to build out the initial concept yourself. If you won’t take a second mortgage out on your house to fund a project, why should your investor?

Basically, do basic market research. Throw a landing page out there and see what type of traffic you get from an ad campaign. If that looks promising, go a step further and launch a scaled down demo, without all the bells and whistles, and see if the concept has legs. Once it does, put enough into it to show six months of rapid growth. THEN start shopping it. A start-up is not unlike a house. The more features you add to it, the more work you put in, the more equity you are adding to your asset. It’s a lot harder to sell a blueprint for a house, than one that is move-in ready.

Question: How does our business evolve once one of these projects takes off?
Answer: Best case scenario is probably a “spin-off.”

A spin-off is when one facet of a company begins to grow rapidly enough, draining significant resources from the main operations of the company, that a separate entity needs to be created. The options are to refocus the main operations of the company to this very successful facet, spin it off into its own company with its own team, or kill it so it stops draining your resources. Well, it’d be a shame to bury a perfectly good idea, so when building out our side projects, we’ll be keeping in mind the team that we build around it and send off with it if it gets to a point where it needs to exist as an entity separate from Pearse Street.

Question: Where is the best place to look for angel investors?
Answer: In your local area.

Getting investors is so much more than writing a business plan. In fact when I asked about what people will really be interested in, in terms of documentation, I was told basically a solid paragraph. This absolutely does not surprise me. If I was an angel investor, the last thing I would want to spend my days doing would be reading 50 page business plans. Give me the elevator pitch! And ultimately, people invest not just in ideas, but people. People they trust, people who inspire them, people who they can trust with their second mortgage.

By the end of the call, my thought process on approaching venture capital had completely changed. The model that I had in my head seemed a lot better in my head. As much as I’d love to get a big check to start building out my dream social networks, I understand more than ever that I need to buckle down and make time to invest in them myself. If they grow the way I’m confident that they will, the sites will sell themselves with significantly less effort.

His best advice? “When you ask for money, you’ll get advice. When you ask for advice, you’ll get money.” Good to know!

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