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Justin Hibbard
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January 27, 2005

Entrepreneurs, Pay Heed

Justin Hibbard

Tom McMakin, a VC at Thrive Capital Partners, recently circulated a list of ten questions every entrepreneur should ask a potential VC investor. This week, Jeff Nolan, a VC at SAP Ventures, posted his answers. The Q&A has good insights for anyone trying to raise venture money for a startup.

McMakin's queries provide a useful way for entrepreneurs to determine whether their goals match those of a given VC firm. For example, if a would-be Sergey Brin is trying to raise $1 million, he can quickly screen out unqualified firms simply by asking, "How big is your fund?" A $1 billion fund isn't likely to make investments as small as $1 million.

Nolan's answers shed some light on what VCs want from their investments, which doesn't always match what entrepreneurs want. Consider his response to this question: "What do you think the exit will be on this investment?" He lists four possible outcomes: "1) you go out of business and lose all my money, 2) you get acquired by someone, 3) you go public, 4) this becomes a nice little business that is run for cash flow." To a company founder, number one might seem like the only bad outcome. But to Nolan, number four is bad too because he doesn't get a return on his investment, even though the entrepreneur may be content to run a small business indefinitely. That kind of business may be better of with a bank loan.

Entrepreneurs: Any other questions you'd like to ask VCs?

VCs: Any other tips for entrepreneurs?

02:17 PM

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