photo: kenteegardin

Often when I speak with a company that is looking for a new round of capital, one of the immediate follow-up items is the preliminary data request. At this point, I’m assuming we’ve walked through a solid pitch deck that at least gives some high-level on the financials and helps answer these three questions:

• What is the pain point you solve?
• How do you solve that pain in a differentiated way?
• Who do you solve it for?

The preliminary data request that follows the investor presentation is usually more financially oriented and allows the investor to take a deeper dive into the economics of the business. Time and time again, I always ask for the same three pieces of data, regardless of the business. In order to maximize efficiency of the capital raise process, answer questions before they’re asked, and present the clearest picture of your business, I believe a CEO who is raising capital should have the following three documents readily available:

1) P&L

This seems like a no-brainer and I’m sure most CEOs will have a solid P&L handy. What really sets a strong P&L apart from the rest of the pack (in this sense, strong refers to the presentation of the data, not the data itself) is how much detail is provided and how that detail is organized in the spreadsheet. Here are some ideas:

• Investors like to see trends over time, so provide them with a periodic P&L over a period of months (or quarters) looking back and forward. I usually like to see 24 months of trailing data and 24 months of forward data. This does not mean you need to send the entire financial model your CFO has built (not yet, at least), but rather the output from that model for future years.
• Don’t just run a report from your ERP system. Take the time to massage the data into a cleaner format so the financials present how you want them to present.  This may involve consolidating rows/columns and/or relabeling the various accounts to have them make more sense to an ‘outsider.’
• Include a bookings line in the top of your report. This is especially important with SaaS businesses where there may be annual subscriptions that are recognized over the life of the subscription. Given that revenue recognition policy, revenue may not necessarily jump that much period to period and understanding bookings momentum over time may provide a better indicator of growth.
• Provide additional revenue detail. Investors want to know how the various components of revenue are being generated (SaaS license fee, perpetual license, hardware sales, professional services, etc.), so show that breakdown right in your P&L.
• Organize your operating expenses by department (Engineering, Sales, Marketing, G&A, etc.). Each should be fully-loaded and include all costs associated with the individual departments. For investors, understanding what you spent on Sales & Marketing is far more important than knowing your travel or rent expenses.
• If there are certain elements of your business that you focus on tracking (KPIs, headcount, customers, CaC ratio), include those towards the bottom of your P&L as it is helpful to understand how those are trending over time.

2) Revenue by Customer by Month Since Inception

This tends to be one of the more difficult items to pull and quite frankly, it is the most important (especially for SaaS businesses). In my eyes, it should go back to the start of the business and track every customer’s progression through time. It should list all customers to date (both current and former) along the left and should have months across the top (starting with the company’s inception month and moving right to current day). The data itself should be the monthly recognized revenue or billings per customer and should not include any one-time or professional services revenue.

While it may seem like a daunting task to pull this together, it is always easier to start doing this sooner rather than later. Assuming the business is growing, there will always be more data to enter in the future and it will be easier to update as new customers sign up rather than after the fact. This can be an incredibly difficult spreadsheet to pull together at the last minute when an investor is asking for it, so it is best to have it ready to go.

Additionally, while it is a helpful tool for investors, CEOs can use the same data set to help them better understand and manage their business. Here are some of the key pieces of intel that can be derived from the data:

• Churn: This will help you understand the true churn of your business on a customer-by-customer basis. It will give you a good understanding of how many customers you are losing, average customer life, lost dollar value, etc.
• Customer behavior patterns: By running various cohort analysis, you can understand how your customers trend over time. What happens to a customer after a quarter or a year — how has their monthly revenue changed? If you get really fancy and add additional detail about the customer (vertical, size, etc.), you can run some great customer segmentation analysis to better understand how specific groups perform over time.
• Customer Concentration: Pretty simple, but how is your customer concentration changing over time?
• ASP Trending: How is your Average Selling Price (ASP) changing over time? If ASP is moving one way or another, what is driving that change and how can you prevent (if decreasing) or encourage (if increasing) that behavior?

3) Capitalization Table

The cap table is an incredibly important piece of data that investors will want to see early on. Investors want to know how much preferred stock is currently in the business, how much management owns, and the availability of the option pool, among others.

Many cap tables I see are fairly complex models that look like they’ve been put together by over-thinking CFOs and/or lawyers. While there may be a place for this, I don’t think that sending the complex version is helpful to anyone — neither the investors nor the company, alike. I would recommend taking the time to construct a more basic summary cap table to share with investors during the preliminary data request stage. Here are some suggestions on what to present:

• Break the cap table down by share class first. If you have a business that has only one class of stock (common), break it down by founders, management (being sure to call out specific roles of particular significance if needed), other investors, and options (both allocated and available for allocation). For a business with multiple classes of stock, it is a bit more complex than that, but the same premise exists for the preferred series. Try to consolidate investors into a single grouping when you can, but still make sure to call out significant shareholders (>5-10% of total shares outstanding or so).
• Include both the number of shares per investor and the percentage of total shares outstanding owned.
• Break down the option pool into two individual lines: 1) Options that have been allocated to specific individuals, and 2) Available options yet to be allocated.  This will help the investor understand how much room is in the option pool and what adjustments (if any) will need to be made to make sure that the management has the proper incentives in place.
• Outside of the cap table (towards the top or bottom of the spreadsheet), call out a quick description for each of the preferred series. I would include the price per share, date of issue, and any additional features it may have (participating, convertible, kickout, liquidation preference, etc.) — anything that could help the investor better understand how that security works without having to dig into the legal docs.

At the end of the day, the usual preliminary data request consists of three fairly simple pieces of info that you are probably already tracking — this blog post is more to be used as a guide to help understand the presentation of the data that is most helpful in analyzing your business in an efficient manner.

Every business is very different, so some or none of the above may apply to your business. The reason I have called out the data above is that it has proven to be the most helpful in getting me up to speed on the types of businesses that OpenView invests in. I’m sure other investors will have a very different viewpoint.

The goal here is not to have you recreate the wheel (I know you have enough on your plate), so if you are raising now and don’t have this info pulled together in this manner, that’s fine. I’d still love to take a look. That said, if you are not yet raising and starting to think about it, this may be a helpful guide as you begin to pull your material together as I really do think it helps focus the investor’s eye on the components of your business that you care about most, and will ultimately increase efficiency in the process.

Do you have any detailed questions regarding an investor’s preliminary data request?

photo: Fey Ilyas

I hear it over and over again: “I have no plans to raise outside capital right now, so I don’t think speaking would be a good use of our time. I’ll reach out if things change.”

This (or close derivatives of this) is, by far, the most common response I get from a CEO the first time I reach out. Sometimes, it is a bootstrapped company with no outside investment. Others may have raised a few rounds of institutional capital at this point and don’t see a raise in the near future. In either case, I believe the CEO is missing a huge opportunity by blindly turning down calls from potential investors.

I agree – when running a startup, a CEO’s time is an extremely valuable asset and is highly coveted by everyone around him or her (employees, investors, board, management, family, etc.). I realize, wholeheartedly, that finding 30 minutes to speak with a single investor can be challenging – and chances are if one VC is reaching out to you, 25+ are calling you! That said, I believe it is extremely important to take those introductory calls for many reasons:

1) While you may not need capital today, you don’t know what the future will look like

Yes, you can reach back out to all of the folks that called you when you are ready to raise, but wouldn’t you rather have a ‘short list’ of pre-vetted investors based on earlier conversations who you would prefer to work with?

2) You’ll be surprised at what you can learn about your market from these calls

Given investors speak with thousands of companies each and every year, many of which operate in the same broad market (not necessarily competitive), there is a good chance they could offer a unique perspective on some of the market dynamics that can only be achieved from their position.  By no means does this mean divulging competitive information, but rather swapping notes on the market more broadly.

3) Expanding your network is never a bad thing

Whether that means directly with the VC on the other end of the line or perhaps with their portfolio.  There may be plenty of ways to work together in the future that do not include a direct investment!

4) You may learn something new about a VC’s model and or process

It may shift your thinking with respect to outside capital. For example, you may hear about their value-add approach and be excited about what those services and expertise can lend to your business and how it can accelerate growth (outside of the sheer capital investment).

5) It is a great way to collect valuable feedback (both positive and negative) on your business

You may uncover some new ways to think about how you approach and manage your business by hearing some outside perspective on your model.

There are plenty of other reasons to take the call, as well. If fitting them in throughout a day proves to be a challenge, my recommendation is to schedule the calls on your way into work or heading home. Keep the introductory calls to 15-20 minutes and keep them relatively one-sided — this should be your opportunity to learn about the VC, their approach, and ask questions about how they can be helpful to your business.

If that proves to be a good use of your time and you like what you hear, set up a follow-on call where there can be some mutual sharing/learning, and start to build the relationship over time. Maybe it leads to an investment down the road and maybe it doesn’t – either way, you’ll make a new contact, perhaps some new business relationships, and hopefully learn something new. Very rarely are these calls ever a true waste of time!

I get to have lots of conversations with really great CEOs each and every day. Though I’ll commonly ask a series of questions — all of which I truly care about (revenue, growth, margins, sales productivity metrics, market size, competition, etc.) — when it comes down to it, there are really three key questions I’m looking for great answers to.

Since they’re related and the answers tend to blend together, I usually ask them in order, only allowing the CEO to answer once I’ve asked all three.

1) What is the pain point you solve?

This is the most basic of basic questions and it’s a great opportunity for you to tell me about the problem your company/product is solving. This should help me grasp the complexity of the problem as well as get a better handle on why your company is important.

2) How do you solve that pain in a differentiated way?

This is where you should tell me all about your product relative to the competition and why you win. What’s different about your technology that allows you to solve your customers’ problems better than your competitors can? This isn’t the time to get overly technical describing the product, but rather to discuss specific features and functions that make the product a better solution than others out there.

3) Who do you solve it for?

Here, I’m looking for specific use cases – give me a great example of a customer who was struggling, how big of a problem it was, and how your solution fixed it. I’d also like to understand what types of customers you have and what other future prospects you may be able to help given similar problems. This will help me to better understand how widespread the problem is and get a better handle on the market opportunity for your business.

While I’ll certainly want to drill down on other pieces of the business to better understand the opportunity and assess fit, if I can’t get solid answers to these three questions going after any additional info is really a moot point.

There are lots of really great CEOs who get this and who do a great job building the answers into their elevator pitch. That’s awesome. There’s really nothing better than discovering entrepreneurs are prepared with great, concise answers to these three questions, because then we can spend more time on the phone actually getting to know one another and figuring out how OpenView can be the most helpful.

My suggestion is to think about these questions and work on developing your answers. Rather than providing on an overly technical or complex answer to a simple question, the next time someone asks you what your company does break it down into these three ‘sub-questions’ and provide them with answers they can easily translate to somebody else (perhaps another member of the investment team, a customer, a partner, etc.).

Doing so will allow for more streamlined and meaningful conversations around what matters most, while at the same time allowing you to get crystal clear on what you do (the latter part is more important for earlier-stage businesses).

Image provided by: letsmakeadeal.com

I’ve written about how to map “The Ideal Qualities of Your Perfect Investment Partnership” before. It’s a topic I’d like to circle back on as I continue to gain additional perspective on it. Specifically, there is really one part that I’d like to highlight:

Taking a VC investment should not be viewed as a transaction – it should be approached as a partnership.

After all, transactions are one-time in nature whereas partnerships are an ongoing concern. Changing one’s thinking around this will not only shape the type of partner you select, and but also how you go about selecting them.

When an investment/deal is viewed as a ‘transaction’ there is really only one key component – value maximization. This type of mentality should occur in some situations, such as:

• Real estate sales: You don’t really care who buys your home, you just want to see it go for the highest price.
• Other tangible asset sales (cars, art, etc.): The same rule of thumb applies here (though you may want to see that precious hot rod of yours go to a good home!).
• Company acquisitions: This actually depends; sometimes it really does matters who the buyer is, and value maximization may not be the sole motivator because — depending on the acquisition — you may 1) End up a shareholder in the acquirer; 2) End up an employee of the acquirer; and/or 3) You’ve built your business and its reputation to a certain point and you want to make sure it is maintained.

As you can see, the above ‘transactions’ get more complex (in terms of decision factors) as we move down the list. In my opinion, at the complete opposite end of the spectrum from the real estate transaction is a VC investment.

Sure, value maximization should absolutely be a part of your decision matrix when evaluating potential partners, but it should not be the sole factor (and perhaps it shouldn’t even be included towards the top of the list). You need to sit down with the rest of your team and figure out what is important to you all in both the near- and long-term, and you need to use that as criteria for selecting a partner.

It’s easy to be tricked into thinking you are selecting the right partner by picking the group that offers you the highest valuation (and just to be clear, on many occasions, the high bidder may very well be the best fit!), but you need to be sure that they are a group you want to work with over the long haul. I recommend asking questions like:

• Do I like working with this partner, and will he/she be a good contributor to my board and company?
• What types of value add does this investor bring outside of capital?
• What are some specific examples of how they’ve helped a company in a similar spot to us before?
• What do CEOs of portfolio companies have to say about them and their approach?

I cannot emphasize that last point enough. Just as prospective investors are doing reference checks with your customers, so should you be checking with their customers (which happen to be their portfolio companies).

Once you’ve figured out who you want to work with, getting to a valuation that is mutually acceptable to both parties is far easier as both sides are emotionally committed to making something work. You’ve essentially done the important work of assessing fit, now you just need to figure out how to make the economics work (and that is just math!).

Once an entrepreneur adjusts his/her thinking on viewing a VC investment as a partnership rather than a transaction or a deal, the decision factors that really matter rise to the top and the probability of selecting the ideal partner is significantly increased.

Image provided by: http://abpopwarner.com/

Since the second week of August, my 8-year-old son has dedicated an inordinate amount of time to one thing: football.  This Sunday, he’ll wrap up his second year of Pop Warner football.

And while there have been a lot of highs and lows since the team first got together for agilities week in the hot summer, two things are certain: they’ve had a ton of fun and learned a lot! In fact, I think the players learned quite  a few lessons that they will be able to take off of the field and apply in school and life more generally.

But the players weren’t the only things to learn something along the way.

I have as well. And, quite frankly, I think some of what I’ve learned are entrepreneurial lessons that startup and expansion-stage founders can apply to their businesses. For instance:

1. Do something you love doing and the hard work you’re putting in won’t seem like work at all

These kids worked hard. In the summer, while all of their friends were swimming or taking vacations, they were practicing from 5 to 7:30 p.m., four nights a week. During the school year, practices went to two nights a week plus a Saturday (7 a.m.) walk-through. Sunday is game day and that means being at the field by 7 a.m., which can often involve waking the kids up around 6 a.m. (so much for sleeping in!).

All of this hard work on the field — along with plenty of school work, too — meant that these players were tired. That said, they love football. So, while going to practice and waking up early can sometimes get old, very rarely did it seem like work at all. This is so true for many entrepreneurs I know.  They may be ‘working’ seven days a week, but the truth of the matter is that they love what they do. It is an extension of them and they enjoy that part of their life.

2. In order to be successful, you must surround yourself with a great support system

In the case of the AB Pop Warner Colonials (E Team), that support system is the parents and coaches. As I described in the first bullet point, football is a HUGE commitment.  That commitment is not just for the players, but also for the parents and coaches. Carting the kids around to the practices and games, and waking up early are all things the parents must deal with as well. They must also be there for their child when they have a tough loss, miss a big play, get injured, or are generally just frustrated with the game. The coaches are an irreplaceable piece of the support system for these young players, as well. They dedicate an amazing amount of time to the team and each of the players, making sure that everyone is learning, having fun, and is in the best position for success.

Great entrepreneurs surround themselves with great support systems, as well. Those systems come in many different forms, but may include one’s friends and family, employees, mentors, investors, board members, and advisory board members, among many others. Surrounding yourself with the right group of people that believe in you and will help you achieve your goals is a hugely valuable asset to any entrepreneur.

3. One great team member can’t carry an entire team; the entire group needs to work as a team

I grew up playing baseball and I loved it (and still do). I always thought of it as a team sport until last year when my son started football. I then began to think about baseball as a team sport built around a series of individual accomplishments. With baseball, at any given time a play revolves around a select subset of the team. With football, everybody needs to do their job in order for the play to be successful.

Whether that means blocking, throwing, running, catching, or faking, there are a lot of moving pieces and they all need to work together to achieve the desired outcome.  Similarly, while an entrepreneur may be great at many things, he or she is likely not the best at everything.  Surround yourself with great people who can take on specific roles and responsibilities within a company. Doing that will allow the organization as a whole to hit its goals and move forward more quickly.

4. Iterate often and fail fast

This is what football is about — you get four downs to move the ball ten yards. Each attempt allows you a different play to try something new. It provides instant feedback to the team. What worked on that last play and what didn’t? Knowing what we know now, what should we do to get past the defense? Football is a game of iterations that allows for quick failure and the opportunity to try again immediately.

When building a business and/or product, you should try and do that as much as possible. Figure out if what you’re working on is going to work and if it is, go faster.  If it’s not, it may be time to revisit the playbook.

5. Break up your goals into a series of smaller additive accomplishments

Similar to the above bullet, this is what football is about. If your goal is to win the Super Bowl, you must first make the playoffs, which means you must have a good record, which means you must win games, which means you must score touchdowns and stop teams on defense, which means you must get first downs, which means you must have successful plays… Thinking about it in the reverse direction and focusing in on the goals that are immediately within your control allows you to see measurable progress against your end goal, motivating the team and allowing for rapid data collection.

The same goes for business. While having a big vision of what you want the company to become is important, recognizing the steps along the way to achieving those goals is what your team should focus on in the short-term.

6. Don’t be afraid to try new things

This lesson came late in the season for me when I saw my son playing a position he’d never played before due to a player on his team being out that week. I was a bit nervous for him because he hadn’t practiced there and I wasn’t sure he knew his roles and responsibilities in that position. However, he really stepped up that game and made some very big plays. It was pretty clear he felt perfectly comfortable in that position.

The lesson here is that if you settle into a routine because it is the easiest way to survive at the time, you may never figure out that there is a better opportunity or better way of doing things. It’s important to make sure that you’re constantly innovating and staying on top of the best ways to do things.

7. Keep pushing and don’t give up

It’s cliché, but I’ll say it anyway. These kids faced some tough times this year — whether it was being shut-out, losing a couple games in a row, or missing a touchdown by a yard or so. Through all of that, they never gave in, always played out the rest of the game, and showed up ready for battle in the next game. They could’ve easily given into their frustration and lost their motivation to keep playing, but they didn’t.

The same goes for great entrepreneurs. When their backs are against the wall, they find new ways to attack. If they fail, they chalk it up as a learning experience and look to see what they can do differently next time. Great entrepreneurs don’t give up.

—

I’m sure there are many more lessons I can draw from this season, but these are a few of the common themes and entrepreneurial lessons that seemed to stand out week after week. Here in the final week of practice and heading into the last game of the year, the team cannot be more excited or more ready for their next opponent. They’ve had an amazing season and it has given them the opportunity to learn a ton about themselves and their teammates. Those are lessons they’ll be able to carry throughout their lives, both on and off the football field.

GO COLONIALS!

I’m talking about valuation — so what do you think your business is worth?

It’s not an easy conversation to have. So often it gets pushed aside until it’s impossible to avoid. According to most “good” negotiation tactics, it’s best not to be the first side to set a marker – will you come in too high or set the bar too low? Unfortunately, when both sides are following this methodology, deal momentum can sputter or stall out altogether.

I LOVE when an entrepreneur has a clear vision of what they want a transaction to look like, and is able to clearly describe that to me (ballpark valuation included).  Sometimes, it is a number based on a specific data point they have (acquisition offer, the last round’s post-money, etc.), and other times it is just a gut feeling or even a hope of where the deal should be priced at. In either case, from my perspective, it is super helpful. With that piece of information, paired with additional data about the business, we can figure out if continuing the dialogue is a good use of everyone’s time. That doesn’t mean we’ll agree with the figure right away or even ultimately, but simply that we believe there is a reasonable path to getting close to their goal based on the data we have today and the information we expect to receive in the future. This can save a lot of time for both entrepreneur and VC, and the quicker the transaction moves towards a close the faster the management team can go back to refocusing 100% of their efforts on running the business, rather than closing a new round of funding.

To be quite honest, the above rarely happens. It’s far more common for negotiation to devolve into a dance between the VC and CEO to see who is going to commit to a figure first. Many times I’ll try to back into the answer by asking about the ideal investment amount and the dilution they’re willing to take on. Sometimes we can get to a range that way, which can suit the purpose of keeping the conversation going. But the usual response to that is, “We’re going to let the market figure that out.”  Sometimes the entrepreneur will ask, “So, based on what you know about my business, what type of valuation would you place on it?”  This can be a very difficult question to answer, and it usually results in a very large range of valuations that may or may not appease the entrepreneur’s request. Many times, we simply do not have enough data to provide an accurate picture of what we’d be willing to pay without really digging into the details (customer references, management meetings, financial/pipeline review, etc.).

Honestly, I don’t have a great answer on how to get clarity around this topic more quickly. Many times it simply comes while continuing to build the relationship and while learning more about the business and market opportunity. And maybe that is the most appropriate way for it to play out – the more we get to know a business, it’s team, and it’s potential, the higher the valuation we’re willing to pay. Similarly, the more CEOs get to know OpenView and our unique approach to adding value post-investment, chances are the more willing they’ll be to move a bit away from that initial number they had pegged in their minds if they feel we are the right partners. Perhaps this is the way the valuation gap naturally closes.

Obviously, I think both sides would prefer to figure out if there is a good “deal fit” earlier in the conversation rather than later, but to me, it’s not clear there is always an efficient and accurate way to figure that out without building the relationship first. Please chime in with any suggestions — I’m all-ears and eager to see if there is a more preferred method by both VCs and entrepreneurs.

One of the aspects of diligence we find to be incredibly valuable is the customer reference call – it offers a unique perspective on your company, people, products, etc. that can’t be gained through conversations with management and reading through your company’s marketing materials.

From a customer reference, we look to understand:

• Value Proposition: What does your organization allow your customer to do? Does it cut costs, increase revenue, create process efficiency, or something else? What is the use case and what pain point does it solve?  Does the actual value they’re seeing match up with their expectations they had heading into the relationship? Is there a measurable ROI?
• Differentiation: Why did your customers choose your company over others? Were there certain features or functionality that made your product better than the alternatives? Is the solution technically superior to others they may have evaluated? Was your offering the most affordable? Would they ever consider building in-house? What were they using prior to your solution?
• Customer Satisfaction/User Experience: Are they a happy customer? Are they likely to renew when the contract expires? What could the company do to improve and make the customer experience better? What has customer service been like?
• Purchasing Process: What does the procurement process look like? Is there budget set aside for the purchase? Is it an RFP that the company responded to? Who makes the buying decision from within the organization? What does the implementation look like? How many vendors did they speak with? How did you come across these vendors?

These are just a sampling of some of the questions we look to answer as part of these reference calls – many of the above questions may not apply for certain companies, and there are likely some other questions that are more specific to the business and the market. By asking many of these questions, we’ll have a 1^st-person perspective on your business and how successful you have been at achieving your stated goals.

At OpenView, we try to get to the customer reference calls as quickly as possible once we have interest in a business. It allows us to have a more complete view on a business before entering into a term sheet and provides us with more confidence that we’ll be able to close the investment once a term sheet is signed. I know there is sensitivity around sharing customer contacts with multiple firms prior to reaching an executable term sheet, and I think that is a fair concern. Prior to sharing references, I’d suggest:

• Trying to answer all other outstanding pre-LOI diligence items first. There may be a “deal breaker” in there and you’d rather not expose your customers prior to getting the other items settled.
• Figure out if there is a deal that makes sense for both sides. Why go down the path of sharing references if there is an unbridgeable valuation gap?
• Share references with as few firms as possible. Seems like common sense, but try to limit the amount of conversations your customers are having with potential investors – mix up references between firms and share with as few firms as possible.
• Provide as much context to the reference as possible. Make sure your customers know that your company is evaluating potential investors and, as such, you would love them to share their experience in working with your company. This will let them know that you are in the driver’s seat on the capital raise and if it doesn’t work out with an investor they spoke with, you can simply say that they weren’t the right fit for your organization.

Also, feel free to ask for feedback from the investors on how the conversation went – whether or not they ultimately decide to invest. Hopefully, they can provide you with a perspective that will allow you to keep improving your business. Sharing customer references may seem like a huge pain at first glance, however if your company is performing well and your customers are happy, chances are they will be more than excited to speak on your behalf!  I find that most references do not feel inconvenienced by the call and love the opportunity to provide feedback as well as help a company that has helped them.

There are plenty of different routes to take to forge an investment partnership:

• Prepare your investment pitch
• Finally return the calls and emails from the countless investors who have been reaching out to you
• Reach out to people within your network for introductions 
• Speak to other CEOs who have successfully raised capital to see how they went about it
• And multiple other options…

In my personal opinion, before even thinking about any of the above, you should sit down with key members of your team to understand why you are raising capital and what each member of your team is looking to accomplish through a capital raise. Have a whiteboarding session where everyone can contribute thoughts on how an investor can add value to the business. By having an open dialogue with your team, it will quickly become evident which factors and qualities your team values most in a potential investor. You can then use this session as a jumping-off point to find your ideal partner. Chances are you are not simply looking for cash – if that was the case, there are LOTS of options out there. You want someone who can bring meaningful value to the table that goes well beyond their dollars. By establishing a list of qualifiers,  you and your team can quickly hone in on the smaller group of firms who are right for your company and easily ‘cross off’ firms that are not a fit.

One of my favorite questions to ask CEOs is “What would your ideal partnership look like?” This is not the same question as “What would your ideal deal look like?” While the latter question is important and relevant, an investment won’t get done unless the deal terms make sense for both sides (i.e., the risk/reward is reasonable for all parties). The “ideal partnership” question can be answered with a little bit of prep work from you and your team – by huddling together, you can figure out what is most important to a successful relationship and share that with the potential investor.

Once you figure out what you want to get out of your investment partnership, the rest is “easy!” Decide on the right amount of the capital raise, prepare the appropriate materials, and start talking with potential investors – by doing some homework, you can get past the fundraise stage more quickly, and get back to the stuff that matters: RUNNING YOUR BUSINESS!

For a company that has been bootstrapped by its founders, the dilemma is somewhat magnified. With no experience of raising outside capital historically, the decision to bring on a new financial partner can be a hefty choice, and one not to be made lightly. For the most part, these CEO-owners have contributed meaningful dollars into the company — likely taking significant personal pay-cuts to ensure they make payroll every month — and dedicated 100% of their time and attention to the business (not to say that’s not also the case with venture-backed companies, of course). They’ve learned to do more with less and figured out exactly how to maximize capital efficiency. Quite frankly, the CEO of a bootstrapped company is probably a VC’s dream.

More to that point, that CEO has found a way to get his company to break-even — perhaps even turn a profit — very quickly and with very little investment. She might even be able to pay herself meaningful dividends while continuing to grow the business.

So why on earth would a CEO like that ever want to raise capital? Here is their big dilemma:

If I raise outside capital, I can then invest in the resources I’ve been holding back on, growing more quickly, increasing market share, and increasing customer satisfaction at the same time. That said, I currently own 100% of my company, and I don’t answer to anyone else – I like that. A VC is just going to come in and tell me how to run my business.”

I’ve had this conversation countless times with CEOs. They may very well recognize some of the value of bringing on a professional investor, but it always comes back to how things will change when an investor comes along. It’s true, things will change, but not always in the way the CEO is thinking:

• The company will be well-capitalized and ready to execute as opportunities come up.
• With the financial backing of an institutional investor, customers may be able to place a bit more confidence in the business, growing sales.
• Depending on the nature of the transaction, the CEO/owner may be able to take some chips off the table – so that she can now focus her attention on growing the business without the daily worry of paying the mortgage or saving for her kids’ college tuition.
• The CEO will have a board-level advisor in a Partner who has been in this situation before and has experience in working with growing companies, ultimately readying them for the ideal exit opportunity. By professionalizing the BoD with outside directors, the CEO will gain unique perspectives on her company that she may not have had access to in the past.
• Ideally, the investor who the CEO picks will also bring added value to the table outside of capital. With OpenView, we look to help our portfolio companies by providing them with access to our team and resources in OpenView Labs.

Will the CEO have to give up some ownership in her business to bring on an investor? Of course. But, as we all have heard, owning even just a sliver of a big business can be much more meaningful than owning 100% of a small business that doesn’t go anywhere. That’s not to say that having a VC will guarantee a big, great outcome; nor to say that by not having a VC on board the company won’t have a spectacular exit – there have been plenty of cases proving the opposite!

In any case, it’s a decision that shouldn’t be taken lightly; if the CEO wants to run the business as a lifestyle company that she eventually passes on to her children, raising outside money is not the best decision. If the end goal is positioning the company for a big exit, maximizing overall return, however, then bringing on a value-add partner might be an excellent next step in the company’s life.

• Not enough time for the call.  I am far too guilty of this myself. I often try to cram more meetings/calls into a fixed time period. Half an hour may not be enough time to discuss OpenView’s approach, how we look to add value to expansion-stage businesses, AND come away with a good understanding of what makes the potential company a compelling investment opportunity. My advice is to try and give yourself some time on the back-end of a call in case the conversation is going well and you need to spillover. Or, simply set up the call for 45 minutes to an hour. If it is clear early on in the conversation that there is not a mutual fit, you can always ended the call prematurely.
• Do your homework. Again, this goes both ways for the entrepreneur and the investor.  Spend some time on the company’s website to pick up an understanding of what they are doing so you can spend your time on the phone together more wisely, asking the right questions to each other.
• Don’t assume. We’ve all heard this one before. Don’t make the common mistake of assuming the person on the other end of the line knows what you are talking about. Per the previous point, hopefully everyone has done their homework, but by no means does that make the VC an expert on the potential portfolio company and visa-versa. Make the conversation comfortable and engaging by allowing each other to ask questions of clarification or request specific examples.
• Playing games and/or not being forthcoming. Trickery and games won’t move the conversation in the right direction. Each party should do their best to answer questions as honestly and openly as possible. That doesn’t mean that you have to tell a VC all of your trade secrets in conversation #1, but it is important to give clear answers to questions to help them assess whether or not there is a good fit. A common question is regarding revenue and growth – many CEOs just aren’t comfortable divulging that information and that is OK! A quick way around this is to talk in the form of ranges for the initial call – i.e., “we’ll just about double this year to $4 or $5 million in revenue.” This directional feedback should be enough for the VC to assess whether you fit their criteria while not holding you to specific numbers right out of the gate. If you want to keep the conversation going, however, I would be prepared to share more-detailed information soon after that first conversation.
• Give just enough information. I find that the most productive conversations are ones where CEOs spend less time on the history of the business, but rather focus on what is going on today. Similarly, while a technical overview is helpful, you may lose your audience by diving too deep in the weeds on the technology. I’d focus on how your technology is unique against your competitors’ and how your customers are using it. That helps answer a lot of the fundamental questions that a VC may have.
• Have a two-sided conversation. I like to hear myself talk – I know that. But I make it a point to try to limit my OpenView pitch to a few minutes so that I can spend more time answering questions about our firm and approach. The same should go for the CEO – far too many VC pitches are one-sided, dropping a lot of information, buzzwords, acronyms, etc. into a long-winded appeal for capital, only coming up for air once they’ve finished. Pause every now and then to engage your listener to make sure he or she is following the story and that you are driving home the points that you truly care about.

Again, I’m sure I missed plenty of other items that could halt a highly-productive conversation, but these are a few of the more common ones that I run into (and that I’m guilty of myself). I think if we can make a concerted effort to focus on understanding the way we approach these introductory conversations, we can break through these roadblocks and have very valuable, productive, and fun discussions that move us all towards finding the right partners much more quickly.

Image provided by: flickr.com

As an Associate on the Investment Team at OpenView, I have the opportunity to speak with a lot of really great entrepreneurs every day.  While very few conversations will end with an investment by OpenView, I try to make the best out of each call by learning as much as I can and trying to be as helpful as possible.

To set up some context, OpenView is an expansion-stage venture capital firm, investing in high-growth software and technology businesses.  With that backdrop, it is easy to see that we have a relatively narrow focus – we are not generalists with a multi-stage/strategy approach.  Given that narrow focus, it can be pretty easy for us to quickly determine whether or not an opportunity is for us given where it is today:

• Is it growing very quickly? (actual growth rate can vary based on scale of business)
• Is it in our revenue range? (>$500k in quarterly revenue)
• Is there real technology there? (i.e. do you have IP around software or tech?)

Obviously, just because your company checks those three boxes doesn’t mean it is going to be an investment, but it is probably worth spending some more time figuring things out (and there will be plenty more questions that need to be answered).  As a firm, I think we do a good job at being flexible to try and understand businesses and specific situations to see if we can be helpful, though more often than not, I just go back to those 3 simple questions above.  If I can’t easily answer those questions about the company, chances are we’d have to stretch too far to make the investment work.  As I mentioned in my last blog, I don’t enjoy turning down entrepreneurs, but I think the conversation can still be positive and productive.

So finally (now that I’ve officially buried the lead), it brings me to ‘the classic case of the chicken and the egg.’  This, like turning down CEOs, happens way too often in my conversations.  The chicken and the egg scenario can be applied to any of those 3 questions above (along with many others):

VC:  How quickly are you growing today?

CEO:  Well, we’ve been resource constrained, so we’ve been flat for the past 3 years.  But, with a $10M investment, we’ll grow 350% this year!

VC:  How big is the company today?

CEO:  Well, we did $50k this month, but with your $10M investment we’ll be well into your range by the end of the year.

VC:  Tell me about your product?

CEO:  Well, today we are entirely a services organization without any IP, but we plan to use the investment to productize and should begin seeing product revenue within the year.

Obviously, all of those responses may be true and we may miss out on some really interesting opportunities by not investing today, but in most cases, we simply aren’t the right guys for the company at its current stage.  While we spend a lot of time trying to understand the future of the business, we also care about what the company has been able to do with the resources it has had to date.  We look at the historical picture to understand where the company has been and how we can be helpful in getting it to that next level.  In the 3 scenarios above, we have no meaningful track record on which to base our investment – all we have is the CEO’s promise that with our investment they will soon be able to check all of our necessary boxes.  This is the classic chicken and egg situation – we VCs want to see growth before we can invest and you need the VC investment before you can show growth; how do we get out of this cycle?

Sometimes there is no avoiding the chicken and egg scenario – and I’m sure there are investors out there that would make those bets.  My suggestion would be to try and build as much of a track record as possible with as little resources as possible (totally easier said than done) – if growth is what you are going for, invest a small amount of capital (your own or an angel’s money) into the sales and marketing effort to fine-tune it so that you can show an investor a proven track record of return on capital (in this case, growth in revenue for investment in sales and marketing).  I think that will make conversations with VCs much easier as you look to raise a larger round to hit your goals.

Image provided by: flickr.com

Now the fun part begins: Pitching your business to a bunch of VCs until you find the right one.

Chances are, you’ve received a lot of inbound interest from VCs who want to learn more about your business and see if there is a chance to invest.  It likely makes sense to start reaching out to those folks to (re)introduce your business.  We receive these calls several times a week, and we are always excited to take them. I love getting the chance to meet new people and hear about new businesses, while having the chance to share the OpenView story.  Unfortunately, many of the conversations don’t necessarily lead to an investment.

Many times, it ends with:

Me:  I’m sorry, but we’re just not a fit for this current round of funding.

CEO:  But you reached out to me!  Now you’re telling me that we’re not a fit for one another.  What a waste of my time. Why did you reach out to me in the first place?!

Having a conversation end like this is frustrating for both parties, trust me.  On my end, yes, I did reach out to you. But chances are my knowledge of the operating details of the company are quite limited to what is divulged on the website or in press releases.  In fact, the only way to figure out whether or not we are a fit is to have that conversation.

On your side, I completely understand that you have put in a TON of work and I did reach out to you first. So, why am I then telling you ‘no?’

There may be a few different reasons, none of which have to do with your business, but rather reflect the investment criteria of the VC.  For example, OpenView focuses on expansion stage businesses. If your company is looking for capital to find a way to monetize its product, we’re probably not the right fit for you.  Maybe your company hasn’t historically grown as quickly as we are looking for.  Or perhaps, you are in the process of moving from a service to a software and aren’t far enough along in the transition yet.  As you can see, it is commonly the classic case of, “it’s not you, it’s me.”

So, here are a few pieces of advice for when you get turned down:

• Don’t take it personally:  This is very easy to say and very tough to do. Your company is your baby and someone just told you that they have no interest in holding her.  As I mentioned above, chances are that it had nothing to do with you or your company. In our case, we are focused on finding the best-fit opportunities that will allow us to be most helpful in building a big business.  Try and separate yourself from the conversation and look at the facts. If the VC who turned you down is telling you they are not a fit today, they probably aren’t the guys you should be focused on getting to invest anyway.
• Know who you are talking to:  Don’t have unrealistic expectations that you are going to get an expansion stage firm to invest in your pre-revenue company just because “with investment, we’ll be within your criteria in the next 12-18 months.”  While that may be true, you aren’t there today and therefore we can’t be helpful.  Do your homework on the firm before the call and find out what types of businesses they look for (sector and size).  If you know they are not a fit today, but still want to return their call out of courtesy, tell them that.  Leading off the conversation with “I know we are not a fit for given where we are currently, but I wanted to get on your radar and tell you a bit about what we are doing,” can lead to a much more productive conversation in the end.
• Ask for feedback:  This is a great opportunity to find out what is exciting about your business and its pitch, and what needs work to be more interesting to a VC.  Use that information and continuously iterate on your pitch, deck, financial model, etc.
• Keep the relationship open:  Just because we are not a fit today, doesn’t mean we won’t be in the future.  While your plan may be to raise one round of capital and never have to think about it again (in those cases, we may certainly miss out on a really good opportunity because of our narrow focus), there is always the chance that you may need more money to execute and take your company to the next level.  So keep in touch. I love to get updates on how the fundraise is going and how the business is progressing against its plan.

I think that having an open mind and trying to remain as objective in your response as possible will take you much further toward closing a round of funding than an emotional response. Doing that will allow you to quickly narrow down the field of interested and capable investors and keep the door open for future conversations about additional rounds at this or other ventures.

Being turned down (and turning down an opportunity) is never what you hope for heading into a conversation, but I think there are plenty of ways to keep the conversation productive and the relationship on good terms.

image provided by: freedigitalphotos.net

Consider the following segment of a conversation between a VC and a CEO looking for funding:

VC:  What does your ideal raise look like from an investment size perspective?

CEO:  We are thinking somewhere in the $7-15M range.

VC:  That’s a pretty big range. Why?

CEO:  Well, we’ve calculated that we’ll need $5M to hit our plan for the year. The extra $2M is cushion as we have some big things in the works and would rather not have to go out for capital again.

VC:  That’s smart. Why up to $15M?

CEO:  Some of the firms we’re speaking with need to put that amount to work in order for it to make sense for them.  While we don’t have a near-term plan for how we can spend the extra $8M, I’m sure we can find plenty of ways.

This is a frustrating conversation on a couple of fronts, and it happens all too frequently.  First off, let’s think about the range that was thrown out here – the high end of the range is over double the low end!  That $8M difference is not an insignificant number.  If the company is building a proper budget, one of the key assumptions should be the capital raise and how they are planning on spending that money to help them hit their goals for the year.   I understand having a range of options and scenarios, but this is too extreme!

Secondly, this CEO has obviously put together a “use of capital” plan.  The plan shows that the company really needs $5M to get them where they need to be (acquire the necessary resources, infrastructure, people, etc.), but the CEO also understands that things don’t always happen the way your financial model says they will – therefore, he increases his fundraise to $7M, providing $2M of cushion.  This is a smart move as raising capital can be quite a distraction and having to go back out later in the year because you see that you are going to run out of cash can send your business that much farther off-plan.  Raising $15M without having a detailed strategy behind how you plan to use that capital is a scary thought.  As it is, your ‘budget’ only calls for $5M, so that is an extra $10M sitting on the balance sheet.  This surely isn’t a good investment for either party!

Let’s now think through the effect it has on the founders. Consider a case where the business has been bootstrapped and is 100% founder-owned.  Let’s use a pre-money valuation of $20M and look at the math:

With a $7M investment, the post-money is $27M and the VC would own 25.9% of the company’s shares.  In the $15M example, the post-money is $35M and the VC would own 42.9% of the company’s shares.  In this scenario, the founders incurred an additional 17% dilution due to their willingness to take a larger (and unneeded) investment from a firm who’s minimum check size is significantly larger than the total dollars required to hit the budget.

That said, there are certain situations where having a wider range may make sense.  Perhaps there is potential to repurchase shares from existing shareholders to provide some meaningful liquidity.  Or perhaps the company is in the process of acquiring another business and if it closes, they will need the extra capital to fund and integrate the acquisition – if it doesn’t close, the capital need is much less.

A company should raise the funds that its plan calls for and should not base their capital requirements upon the needs of the investment firm (we all have our own investment mandates and minimum check sizes, OpenView included).  If you find yourself bending over backwards to stretch and invent ways to spend money to make an investment from one particular firm work, they probably aren’t the right firm for your company at its current stage.  It is OK to be flexible around your capital needs as plans and budgets do change and capital needs may as well – but try to limit your range to something more reasonable; chances are it will streamline discussions with potential investors and you have a better chance of ending up with an investor who is a better fit for your organization (in addition to minimizing your own dilution and getting a better return on the invested capital).

I asked, “what companies are you interested in investing in?”  After weeding out LEGO (privately held) and BeyBlades (a toy that he and all of his buddies are obsessed with), we started to see some legitimate companies popping up.  Always relying on his iPod Touch to get him through our long car rides to visit family in Connecticut, Apple was his first choice.  He wasn’t thinking about the fact that Apple grew from $65B to $108B in FY2011 or the fact that they have ~$80B of cash on hand – he just likes the way he is able to play Angry Birds or Cut-the-Rope on his iPod anywhere he goes.

I told him we’d set up a pretend trading account on Google and that he could “invest” $3,000 of play money in any companies he wanted.  He started with AAPL and then added GOOG to round out the high-tech portion of his portfolio.  He then went in a direction that I didn’t anticipate – General Motors and Harley-Davidson.  When I asked why, he simply said, “Dad, cars and motorcycles are cool.”  Enough said.  He then rounded out his portfolio by adding McDonald’s, NIKE, and TJX.  We made his allocations and we haven’t looked at the portfolio since.

That was until last night when he said, “Dad, can we check to see how my money is doing?”  I was expecting a bloodbath.  After all, we didn’t look at any data – growth, P/E Multiples, beta surely didn’t find their way into our conversation.  In any case, here are the results we found:

Image provided by: Google

Image provided by: Google

I was shocked and he was ecstatic.  Not only did he do quite well, he absolutely crushed the indices over that 6+ month time period!  Let’s go back to his rationale behind his portfolio – buying NIKE because he LIVES in NIKE shorts and buying TJX because they are the cheapest place to buy NIKE shorts.  He ended up picking all really good winners except for one (GM) – pretty amazing!  It truly goes to show you that there is likely no rhyme or reason to why some people can do very well in the stock market.

This morning, as I was staring at the results again, I began thinking about it from an OpenView perspective.  What did these companies do that made my seven-year-old want to buy them?  In Apple, Google, NIKE and McDonald’s – it was a product decision; my son is familiar with their products.  He has had great experience with all of their offerings and thought it would make sense to own their stock.  The underlying thought here (not his now, my own) is that if you build a good product that works and people enjoy using, you will sell more and increase your company’s value – overly simplistic, I know, but it clearly works!  My son picked TJX because he knows that when we shop there, we get a lot more for our money – for the expansion-stage company, that is simply having a good value proposition.  For GM and Harley (and, to a certain extent Apple as well), marketing won my son over – seeing a Corvette or Harley commercial gets you excited about the product and the business – it’s Marketing 101.

While I set out to teach my son a thing or two about the stock market, he ended up teaching me a whole lot more!  Now, if only that $3,000 “investment” wasn’t just play money!

Image provided by: flickr.com

It’s a fact: VCs love data.

Many love data so much that they are even focusing some of their investing effort into finding businesses that help corral much of the large amounts of unstructured data that exists today in order to make it more usable.  I think there are already some really interesting businesses doing exciting work within the space and that there will be plenty of work to go around given the large and growing amounts of information associated with individuals (social/mobile/healthcare/etc.).

While I think that the above could result in a very interesting investment thesis, that’s not what this post is about.  Rather, it’s about looking at the business-level data that expansion stage entrepreneur should be focused on when running their companies.  As you may be aware from your own experience or in hearing from others, VCs can ask for a LOT of information before making an investment.  As VCs are notorious for always asking for more data, it seems like the information requests may never stop.  Ideally, you’ll have all of the necessary information readily available and be able to easily produce it without much effort on your end.  Unfortunately, that is rarely the case.

Investors may want to drill down on an aspect of your business you had never thought about; perhaps they had a similar investment where focusing on one particular business metric was a great indicator of success and/or failure.  Chances are you and your team will have the data they are looking for, but you likely just haven’t sliced it in that particular way before.  As the potential investors are asking about your various operating metrics, try and think about “why are they asking for that?”  Don’t be afraid to come out and ask what analysis they are using the data for and what specific metrics they like to focus on.  Try to get an understanding of what they are looking to accomplish in looking by the data – you may have a better way of presenting your information that isn’t represented in the metric they are looking for.

More importantly, learn from the process.  Whether or not you get funded may or may not be very important, but either way, you’ve likely had the chance to gain extremely valuable insight about your business from a complete outsider.  Take a hard look at the questions and the data the investors asked for and try to understand why they are relevant.  Drill down on what you think are the key factors for you to focus on – revenue growth and profitability are very important, but, chances are, they won’t give you the full read on your business.

Here are a few examples that can commonly sneak up on entrepreneurs if they aren’t paying attention:

• Customer Churn – Most likely, you have an idea of your customer retention rate, but it is important to have a good understanding of which customers are churning and why they aren’t continuing as customers.  Think about slicing up the churn data in a few different ways: size of customer (Revenue/Year), industry (is one particular subset of customers churning away for a particular reason?), length of service (perhaps the likelihood of churn is significantly decreased when someone’s been a customer for > 2 years?), or by product (maybe one product is not as “sticky” as another).  Having an understanding of which customers are not renewing and why will go a long way in increasing your customer retention.

• Average Revenue Per User – Obviously, to calculate, you’ll need to know the number of users you have (seeing this number increase period-over-period is a great indicator in itself).  ARPU is important because it tells you if your sales force is doing a good job at upselling the clients with additional products. Many times, when a client comes aboard, they are not using the full product suite right away; ARPU trends give you the insight into whether those “seed sales” are able to grow over time.

• Customer Acquisition Costs – Being able to say, “we doubled our bookings this quarter to $1M,” sounds like a very good thing.  Unfortunately, it only tells you part of the story.  What if you spent $4M to acquire those customers – how does that $1M in bookings look now?  Alternatively, what if you only spent $250k to acquire that same $1M – chances are you are underinvesting in sales and marketing and could achieve higher growth with additional investment.  Having a handle on how your investment in sales and marketing translates into revenue is hugely important to the longevity and overall success of the business model.

These are just a few of the common metrics that many investors will look at when analyzing your business – though these may or may not be relevant to your business.  The type of business you run will determine the metrics that make the most sense for you – maybe you run a chain of grocery stores and looking at Same Store Sales Growth would be more relevant.  Or maybe you are running a “profitable” business, but you are having trouble seeing that result in an increase in cash on the balance sheet – it would probably make sense to perform a working capital analysis and also look at A/R and A/P days to see where your money is tied up and how you convert revenue into cash.  No matter which metrics are right for you, the important thing is to find the right pieces of data and the relevant metrics that will make you run more efficiently and grow faster.  Once you have a handle on the metrics that are important you your business, figure out the relevant levers you can pull on to adjust them in your favor – drilling in on the detail here can have a significant impact on the bigger picture.

The next time you have an investor asking you for a seemingly endless list of data, figure out why they are asking for it and try to understand why it may be important for you to focus on it as well.

Image Provided By: Kookkai_nak / FreeDigitalPhotos.net

As a venture capital associate, I’m privileged to speak with entrepreneurs every day about their businesses.  In over three years of conversations, I’ve had the chance to speak with all kinds of founders.  I’ve spoken with CEOs of varying ages (from the kid who started his business in his dorm room to the 75-year-old third-generation owner), who have businesses in vastly different industries (ranging from software to healthcare to manufacturing and everything in between), and companies of all sizes (from pre-revenue to over $50M of cash flow).

It’s crystal clear that entrepreneurs can come in all shapes and sizes, but I’ve noticed some common traits/qualities/skills and management concepts (not all of them are inherent and most can be learned)  from the truly successful ones.  Below is my attempt to categorize those ideas.

10 concepts many successful entrepreneurs have mastered

1. Be passionate.  I believe passion is contagious – an entrepreneur should be excited about their business and be able to convey that excitement to others.  If a CEO isn’t excited about his or her business, how will they ever convince an investor that the business is a worthwhile bet? (More importantly, how will they convince their customers?)  Have confidence in your business and believe in what your company does – this will go a long way in earning respect from others and help you to enjoy the journey that much more.

2. Be persistent.  I think most entrepreneurs know how slim the odds are of their startup eventually becoming a real, substantial business.  I also think that many successful entrepreneurs aren’t afraid of failing – when they believe in their idea they are willing to push to the brink of failure to produce success.  Unfortunately, sometimes in that process, businesses do fail.  That certainly doesn’t mean that the entrepreneur is a failure or even that it was a bad idea – it could be a number of things that led the business awry (bad economy, lack of funding, market timing, etc.).  A bit cliché, I know, but the important thing is to learn from those failures and use that education in your next venture.

3. Surround yourself with great people.  Having a great idea is one thing (and a hugely important one), but having the ability to execute is another.  When you are looking at building out your team, don’t settle; make sure you get the best and brightest available for the position.  These people will be responsible for turning your great idea into a great business. Get the team you want to build the business you want.

4. Delegate.  Now that you’ve built a team that you are excited to work alongside, use them.  Have confidence in the team you’ve assembled. If you’ve done a good job at gathering the right folks around the table, they should be more effective at their tasks than having you manage everything throughout the organization.  It’s certainly important for a CEO to have a handle on multiple fronts of business operations, but it is highly inefficient for them to try and handle everything.

5. Know your numbers.  Nobody is expecting an entrepreneur to be a CFO if he or she is really not one.  However, it is extremely important to have a good handle on your financials.  You should know most of the common operating metrics (revenue, gross margins, growth rate, etc.), but perhaps more importantly you should understand the drivers behind those numbers.  Understand your revenue model (subscription, transactional, perpetual license, etc.) and why that is the best way to sell your product.  You should have a handle on not only your projections, but WHY you are going to grow by, says, 45%.

6. Listen to feedback.  Whether it’s your customers, employees, investors, or someone else, allow people the chance to give you feedback on your ideas, business model, workplace culture, and so on.  Without being open to feedback (and potentially criticism), you run the risk of missing huge opportunities or simply becoming stale.  You must not only be willing to listen to feedback, but also be open to changing directions if that’s what the business requires.

7. Have an elevator pitch.  Be able to describe your business in as concise a manner as possible.  It shouldn’t matter whether you are speaking to the CTO of a potential customer or the person sitting next to you on an airplane – have a plain-English, brief description of what your business does.  Have a brief case study you can cite of how your solution worked in a particular instance so your audience can have a real-world example of what your company does as well.

8. Know your value proposition.  What pain point are you solving for your customer?  Is it a have-to-have or nice-to-have?  Be able to clearly address whatever issue your product solves and what other solutions exist today.  If you can’t make a clear pitch as to how your product will make your customers’ lives easier (one simple way to look at it – does my product save money or generate revenue for my customers, maybe both?), it is going to make for a tough sell.

9. Know your competition.  Who are the large incumbents in the space that you are stealing customers away from, and who are the other startups that are attacking the same market?  Have an understanding of why potential customers are choosing them over you and figure out a plan to change that.

10. Know your differentiators.  Similar to the topic above, it’s important to have a handle on why your product wins against your competitors.  What makes your offering different and/or better than theirs?  If you can’t easily articulate how your product is different, it may be time to go back to the drawing board.

This list is not meant to be comprehensive, but rather highlight some of the shared qualities of many successful entrepreneurs (at least, entrepreneurs that I’ve been in touch with). It’s also worth noting that being an impressive CEO does not necessarily mean that you will have a successful business, but it certainly can’t hurt.

I’m aware that I’m missing more than a few key qualities and I’m also certain there are plenty of successful CEOs who would disagree with me on one or more topics.  Feel free to suggest (in the comments section) other concepts that can increase the chance of entrepreneurial success.

Image provided by: flickr.com

My first blog. Finally. In my first month here at OpenView, I’ve learned a ton, met some great people, and had a lot of fun. But there was one thing I was dreading – writing my first blog. I’ve never blogged before and was a bit intimidated by the thought of it. What would I write about? Who’s going to read it? What will people think about what I have to say? Why would they care?

I found myself spending countless hours at night reading the blogs of other OpenView employees and continually being blown away by the material they were putting out. I’d always end up saying, “I wish I had thought of that,” or “how do they come up with these ideas?”

I searched around for advice and I got a lot of great input, including:

• Write about what you know
• Think about your audience and what they are looking for
• Find your voice and stay with it
• Producing new, original content isn’t always necessary

So here I am, writing my first post. I figure a logical place to start is telling you who I am, so here it goes…

I’m OpenView’s newest employee, an Associate on the Investment Team. I enjoy speaking with entrepreneurs who are passionate about their businesses – I truly feel that excitement about an industry and company can be contagious. Not surprising given our focus, I enjoy working with expansion stage companies that deliver software and tech-enabled services. Outside of work, I spend most of my time with my family – my wife and I have two children who are an incredible amount of fun and keep us very busy. I grew up in the northeast and have been a Boston sports fan all of my life.

So, there it is. My first blog. It wasn’t as difficult as I thought it was going to be and I think I did a fairly good job of sticking to the advice I was given. For anyone else who is struggling with getting started on a blog, I have just one last piece of advice (and it comes from Nike): Just do it!