Last night I showed up at an event called the “Venture Capital Task Force,” a mixer for the venture capital community topped off by a panel discussion starring several VCs, lawyers, and entrepreneurs (all women, interestingly enough); and held at the Palo Alto offices of the famous technology law firm Brobeck. Brobeck, which has had layoffs this year like its clients, has also just moved into spiffy new offices in one of those half-empty buildings all around Silicon Valley.
Although times are supposedly tough in the tech world right now, the room was full and the event cost $75.00 in advance, $85 at the door. The chicken was excellent, as were the brownies. The wine was abundant. Hardship is relative.
The panel, which included Lisa Buyer, who just left Technology Partners, Elaine Bailey of Novus Ventures, Kate Mitchell of BA Venture Partners, and Nancy Yee of NIF Ventures was very forthcoming. Women in venture capital seem not to be as pretentious as men, and they don’t posture as much; they cheerfully confess their limitations, and they share information.
No, they still don’t take business plans over the transom. Yes, they still see about 5,000 deals a year each and do about fifteen.. No, they have not stopped investing, although they have learned some lessons. How quickly can they do a deal they really like? Three weeks if the due diligence has been done for them by trusted advisors. The time is taken negotiating out the term sheet.
What was hot right now? Security. E-learning is out. But by the time you get to them, that will have changed. What do they look for? A good, protectable piece of IP (since if the company fails that may be all there is left of value) a good management team, and a market. Each firm has its specialties, and they seemed stunned that entrepreneurs didn’t do enough homework on the web to find out what those were.
Interestingly enough, they weren’t big fans of technology transfer from universities that merely license their patents. They want the entrepreneur to own the IP, not merely have a license to use it for a particular application.
Basically, they all said repeatedly that they had started as entrepreneurs themselves – people who had raised venture capital -and that they knew how entrepreneurs felt. Yet they still don’t fund a company until they have had dinner with the management team, and most of their deals are brought to them by trusted advisors (although almost never by brokers). It’s a very, very tight little network, they admitted. It is all in who you know.
Thus, if you are outside Silicon Valley, the chances that you will be funded by a Silicon Valley VC are slim to none, especially today. One of the lessons they all learned was that they had to stay very close to their portfolio companies in order to help them survive. This makes serving on the board of a company outside the Valley undesirable. “I’d never get on a plane for a one-hour meeting,” one of them said.
Their advice to someone with a company in another state: “get your state to start a seed fund with about $35 million.” Elaine Bailey did that in Michigan before moving to California, and the Michigan fund has been quite successful. She said there’s a five-year time horizon to growing a state-assisted seed fund. If you want to live in a place outside Silicon Valley that is not a technology center (and those are Austin, Boston, and Seattle), you pay the price, unless you have an active angel network.
Angels were viewed by the VC panel as easier to work with, “because they invest small amounts of money in relation to their net worths and they don’t do as much due diligence.” Everyone in the room seemed to be quite grateful to angels for taking the real business risk of innovation. The panel reminded us that venture capital was not a risk business; it was a money-making business. One of the
panelists, Lisa Conte, was a current entrepreneur — the founder and CEO of a natural pharmaceutical company, Shaman Pharmaceuticals. Although she looked awfully young, Lisa had raised over $200 million for Shaman, including: several private venture capital rounds; a $45 million IPO; several corporate alliances valued at tens of millions of dollars; debt financing; innovative structures during “down market” times; and a restructuring rights offering. Her career had gone in the opposite direction from the others: she started at a VC firm, analyzed their health care deals, and then started her company.
As the evening ended and I headed to my car, a woman roughly my age walked out with me. “Let’s get together and share contacts,” she said. “I’ve been here two months, but I have a great network in Denmark.”