Learnings from the VCs

April 8, 2009

I had an opportunity to meet up with bunch of VC folks in BLR area. Here are my notes from those discussions.

  • dollar-signWhen funding VCs look for the core team to be in one place. It has been proven time and again that when the core team is together, success rates are higher.
  • 2/3rd of the companies that get VC funding don’t even return their capital money. This means that 7 out of 10 companies fail. This is actually an optimistic number than what I had read about Bay area startups which had a failure rate of 9 out of 10!
  • In most cases, VCs are interested in funding a company and exit in 4-5 years timeframe. As such they are looking to build a company that becomes a good acquisition target
  • VCs tend to invest in growing markets and also in larger markets! Market size should be more than $2-2.5 billion for VCs to get interested in it.
  • As per VCs, product companies should own IP. This means having patents!
  • VCs want to make $5-15 million investment and wants to know how you will reach $75-100 million mark!
  • Usually raising capital takes about 6-12 months time!

Some words of wisdom from a reputed VC from a reputed global VC company out of BLR

  • Articulate why you exist and then articulate why would you exist 5 years from now!
  • Parallelize Sales and Marketing Geographics first rather than build next set of features.
  • Have a 10 page price list. Longer price list means you have given enough thought to how to sell your product in various situations.
  • Always increase price with every new customer! The VC gave an example that after funding a start up they immediately doubled their product license price. Customers did not flinch and continued to flock. As per VCs, more often than not, founders tend to under price their products.
  • Rule of thumb for pricing discounts, if it costs $1 in US, then it should be priced 1 pound in UK, 1 euro in Europe and $0.60 in India/APAC
  • Don’t build a product because you love it. Build a product because your customers love it.
  • Second round of financing hurts founders more than the first round VCs

If you want to further look into what VCs are looking for then visit this link. It has point by point description of what VCs are looking for when evaluating an idea. Good luck for your next venture!