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I continue to be amazed by the number of entrepreneurs that can show a relative lack of sophistication or business acumen in a conversation until the topic of their business valuation comes up. Once it gets to that point, they can rattle off every Andreesen Horowitz deal and how “X” business was acquired at 10x revenue.

For whatever reason, the math always seems to magically work out to a pre-money valuation of around $100 million. Indeed, there are numerous expansion (and some early stage) software companies that have raised outside capital at $100mm+ valuations, but I thought it made sense to share my (and many investors) thought process on valuation.

First, it’s important to note that in most other areas of investing, businesses are valued off of some proxy for cash flow (EBITDA, EBIT, etc). I point this out because I think some people lose sense of the fact that valuing a business as a multiple of revenue is, to begin with, generous.

It should also be noted that valuation is more art than science, or perhaps a more appropriate statement is that valuing a business is art rooted in science. Very simply, I like to take an average of a basket of publicly traded company EV/Revenue multiples, then apply a 25-50% illiquid discount and start there. On top of this, I’ll look at the revenue components and value each of those individually to get a sum of the parts total valuation.

So, for example, if a SaaS business is doing $15mm in total revenues, but $10mm of that is recurring subscription revenue, $2.5mm is professional services, and $2.5mm is maintenance, I might say that recurring part of the revenue stream is valued at 3x revenue, the professional services component is valued at 1x revenue, and the maintenance component is valued at 1x revenue, yielding a total valuation of $35mm. On top of all that we may layer a further discount or premium based on perception of team, risk, market, etc.

The bottom line is that this is one iteration out of many for how a business can be valued and should help explain where a VC may start a valuation conversation for an expansion stage software company.

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In his book, The 4-Hour Work Week, I love the importance Tim Ferris places on being a “dealmaker” and his dealmaker manifesto: reality is negotiable. Unless you possess a hugely valuable technical ability, I believe that being a dealmaker and having the mentality that anything is possible (and the resolve to work your butt off to turn that “anything” into reality) is the single most important trait in business people who find success at an early age. I also think that organizations that empower employees to act as “principals” are generally more successful and have a happier and more productive work-force.

I wish more college students and recent college grads understood the power of this concept and the fact that you have to go out into the world and mix things up. I realize that younger people are less confident and think that they may not have a ton to offer, but the truth is that almost everyone is a subject matter expert in something. Have you ever come across any type of consumer product (a candy bar, a pair of jeans, an energy drink) and thought to yourself “wow this is incredible, why can’t I find this in my hometown”? The dealmaker in you should lob a thoughtful call or email into the company and offer to help distribute their product in your region. So what if you have no idea how to distribute a consumer food/beverage product? You can figure it out. Have you ever used a service/product that you thought you could improve? Get in touch with the provider of that service and recommend ways to improve it or start putting together your own business that provides a better, cheaper service!

Often, nothing will come of these activities, but I guarantee if you get yourself in the habit of thinking that you have something to offer and are in a position to do something about it, opportunities will begin to unfold.

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I absolutely hate the term “networking.”

Growing up, I had never heard the term and certainly didn’t use it as a verb in my daily lexicon. When I was in college, someone recommended that I read Keith Ferazzi’s book, Never Eat Alone, which I dutifully read and remember thinking how disingenuous it made personal interactions seem. I think Keith’s intention was to write a book about how to be “genuine” in making connections and expanding your professional network, but I think it painted a different picture.  Does everyone have an angle? Does everyone have a hidden (or not so hidden) agenda? Maybe, but I personally find nothing more unappealing than when someone says they are meeting someone or doing something to “network.” I hate the word, and by the way, I maintain that it’s not a verb, though Merriam-Webster would disagree with me.

I do agree with Keith’s sentiment that one should never “keep score,” but do think that people should take care to be sensitive to other people’s time, interests, and past help. In his book, Keith took umbrage when an acquaintance did not immediately fulfill Keith’s request to meet a major Hollywood executive whom the acquaintance knew (and seemingly did not know well). Though it’s my genuine desire to be helpful to just about everyone I come in contact with, I can understand not wanting to bother a new acquaintance (particularly a very busy one) with a third party’s request for an introduction. I don’t think of it as using up “equity” in the relationship, as Keith’s acquaintance puts it, but I do think of it as using up someone’s time. One comes across as pushy and disrespectful of another’s time in immediately trying to “harvest” a new business relationship for your own or someone else’s gain. Use common sense, be genuine, and be respectful of others’ time and feelings.

In my brief adult life, I have generally found success in reaching out to people that I am genuinely interested in meeting or talking to. Of course, I’m interested in meeting with certain people because I am looking for insight, guidance, mentorship, a specific business purpose, or sometimes plain curiosity. I’m always up-front with my intentions and generally have a pay-it forward attitude when people reach-out to me for similar purposes. I have a hunch that if people stopped thinking of “networking” as a calculated activity and started thinking of it as an opportunity to meet someone you can learn from or be helpful to, they might find more success and satisfaction.

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Do you have a killer business that you’d really like to fund with venture capital? Do you want VCs to battle each other for an opportunity to give you money? Here’s what you can do to present the business opportunity opportunity on a silver platter:

• Paint a compelling growth story: It goes without saying, but what excites many VCs above all else is incredible revenue or operating margin growth.
• Clearly articulate a large market size: VCs love to see a market size large enough to support your business. It becomes increasingly attractive if you’re able to further segment the market and define your projected market penetration.
• Have market analysts and customer references ready: A VC will typically want to speak with several market analysts who are experts in your industry as well as current customers. If you have names and contact information available immediately, the investor can get to work immediately and with little friction
• Define the competitive landscape: VCs will always want to understand exactly who your competition is, how crowded the market is, and what your competitive advantage/differentiation is. I have found that a simple grid highlighting the overlapping/non-overlapping features across all the companies in your space to be most helpful
• Map out your exit: Professional investors evaluating an opportunity will typically want to understand potential exit scenarios. I have always found it helpful (and been appreciative) of entrepreneurs who spend time analyzing and articulating who likely acquirers may be, whether their research supports an IPO scenario, etc. It pays to be thoughtful with this exercise: If you suggest selling your business to publicly traded company X for $500mm but company X has $3 million of cash on its balance sheet and a market capitalization or $35 million, you’re not going to appear very smart

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Probably the hardest single aspect of my job as a venture capital neophyte is efficiently managing my time for the greatest productivity. Making great investment decisions is pretty hard too but as far as this post is concerned, we’re talking time management. I’m fairly certain time management is an issue for many people in many professions so I thought I’d outline my time management challenges, and how I attempt to overcome them.

OpenView is a small investment firm and as such, we run pretty lean and mean. My core job is to find great companies to bring into our portfolio, evaluate and execute investments once opportunities are sourced, and then support those investments once they are in the portfolio. Sounds pretty simple right? That’s what I thought…until I came on board and found out that its really difficult. Seriously fun, but very difficult. Why is it so difficult?

Each element of my job is multi-faceted and I can seldom focus on one discrete task for a long period of time. For example, any on any given I’ll have a number of phone calls with prospect companies, an in-person meeting, a post-LOI piece of financial analysis to produce, dozens of emails to respond to, a market research call with an industry expert, an interview with a prospective OpenView employee, and the list goes on.

So what do I do to keep myself on task and organized?

It may sound simple to some of you, but below is the “blocking and tackling” of what gets me through the week in a productive fashion:

• Block Scheduling: I try to block my mornings (from 8:30am to noon) for calls/meetings with prospect companies. This way I always have a time reserved on my calendar for an activity that otherwise may get pushed to the back-burner when new items up pop-up during the week
• Create a weekly “backlog”: Every Monday (or Sunday night) I create an excel sheet with the most important activities that I need to accomplish during the week ahead of me. I also add an estimation of time to completion for each task. I try not to have more than 35 hours of “scheduled” activities on my backlog as this last year has taught me that a) I generally underestimate how long it takes to get certain things done, and b) 35 hours seems to be the magic number when it comes to how much highly-focused work/work-product can be produced in a work-week. You might think that sounds like a small number for a hard-working VC, but if you consider your own week, I have a hunch that you do 35 hours or less of highly-focused activity.
• Schedule time for email: Email is highly distracting. I get emails all day-long almost every day of the week. If responded to every email as I received it, I’d become even less efficient than I already am! As such, I try to schedule an hour every day, or several hours over the weekend (typically on Sunday night) to get my inbox as close to zero as possible.