Who Is The Venture Capitalist's Customer?

by Larry Cheng

Venture capitalists always talk to their portfolio companies about how important it is to define your customer, understand their needs, and create a compelling value proposition for them.  Though, if you talk with enough VCs, we have a hard time defining the customer for our own business.  I was having a recent discussion on this topic with some colleagues in the industry and no unified consensus emerged.  It is always a debate between our limited partners ("LPs" – those who invest in VC funds) and entrepreneurs.  We all know that we ultimately get "paid" by LPs.  But, we also know we don't survive if entrepreneurs don't want to work with us.  So, who is the venture capitalist's customer? 

To try and get some feedback, I decided to ask my twitter friends: Who is the VC's customer?  I specifically asked VCs to respond.  Somewhat surprisingly, no VCs responded, but I got a slew of responses from entrepreneurs.  They were quite aligned:

1. apsinkus: "institutional investors are real customers of VCs (in my opinion).  Entrepreneurs are merely suppliers.  No LPs, no money."
2. brandonhaskins: "Although not one myself, a VC is ultimately in investment management, so customers are investors – entrepreneurs are products!"
3. muhammadkassim: "VCs' customers are investors into the fund. Entrepreneurs are VCs' business partners."
4. gmsheehan: "their investors"
5. AppStruck: "The VCs customers are the institutional investors you raise money from."
6. meetthestreet: "LPs…pension funds and endowments are clearly VC customers. In money management the people who give you money are your customers."
7. CameronHerold: "unfortunately for entrepreneurs the Investors are the VCs customers. The entrepreneur is the VCs product."
8. EdLoessi: "the VC's customer are the people who gave them the money the tool is the company invested in and sometimes you break your tools!"

I'd say 85%+ of the respondents said the VC's sole customer is the LP.  Not a single responder said that the entrepreneur is the VC's principal customer.  So, in an unexpectedly round about way, I got my answer from entrepreneurs, not from VCs.  If entrepreneurs are the VC's customer, surely entrepreneurs would know that.  Since they don't know that – either VCs are doing a terrible job taking care of their customer (which is possible) or in fact the entrepreneur is not the end customer of the VC. 

My personal belief is that the VC's primary customer is the LP.  There is a clear and constant relationship between VCs and our investors which is consistent with the traditional definition of a vendor/customer relationship – they pay us for providing a product/service to them.  We have to provide a great product/service to our LPs and service them well as our customer or they can take their business elsewhere. 

Then what are entrepreneurs to VCs?  First of all, entrepreneurs should be no less important to VCs than LPs.  Without LPs, VCs are out of business.  Without entrepreneurs, VCs are out of business too.  Entrepreneurs can take their capabilities elsewhere, same as LPs.  So, while entrepreneurs and LPs are equal in importance, it is a different relationship.  I do not have a vendor/customer relationship with the entrepreneurs I work with.  In my mind, the entrepreneur is not the VC's customer any more than the VC is the entrepreneur's customer.  Nor do I think describing entrepreneurs as the VC's product or supplier is accurate.  Neither of these lines of thinking fit for me as the right way to describe the relationship. 

I think the best term to describe the relationship between VCs and entrepreneurs is partners.  The official definition of partner is: "a person who shares or is associated with another in some common action or endeavor".  I view the entrepreneurs I work with as my partners.  I think they view me as their partner as well.  I am sure that any of my CEO's will tell you the effort that I put in towards being a value-added partner to them.  We partner together for the common end goal of building great companies and creating value for shareholders.  So entrepreneurs are not customers, suppliers or products for VCs, they are partners.  We work side-by-side as partners at the end of the day.  I wouldn't have it any other way.

Term sheet tune-up

by Babak Nivi

I recently received an email from an entrepreneur who had questions about a term sheet he received. Here are his questions and my answers.

Bridge before Series A

The entrepreneur says,

"The investors are in the process of closing a fund so they want to give us a bridge loan now and do the Series A later in a few months after they've closed their fund."

VC firms make seed investments all the time. If you have alternatives, take money from a firm that actually has the capital to invest in a Series A. And even if the firm has capital, you won't be able to raise a Series A from anyone if the bridge firm doesn't like your progress after the bridge.

Read this article from our archives: Keep your Series A options open if you raise debt.

Board

"The board consists of 2 investors, 1 independent, 1 CEO, and 1 founder."

This is too heavy for a bridge or a Series A. I recommend 1 investor, 2 founders for the bridge. Worst case: 1 investor, 1 founder, 1 independent. Best case: 0 investors, 2 founders. Use this quote from Marc Andreessen as normative leverage:

"In many cases, we don't even think today's raw startups should have boards."

He's talking about seed stage companies like you.

For the Series A, the worst case is 2 investors, 1 independent, 2 founders, 1 CEO (if and when we hire one).

Read these articles: Create a board that reflects the ownership of the company, Make a new board seat for a new CEO, and Control is a one way street.

Valuation

"What are you seeing for valuations nowadays? Our prospective investor tells me 'market' is 40-40-20 (founders, investors, option pool) after the Series A."

Market is whatever the market says, not what one investor says. You need at least two competing offers to create a market. If you have only have one offer, you're going to have a tough time negotiating — although it can be done and companies do it all the time.

I would strive for 70 - 20 - 10 (founders, investors, option pool), depending on how much you're raising. I would settle for 60-25-15. These goals will be dramatically easier if you only have one investor in your Series A syndicate.

Read these articles: Create a market for your shares, Tips from a ex-VC who helps entrepreneurs raise money, and Should I shop around?.

New CEO

"The investors want to replace the CEO during the Series A."

This is a big red flag, especially if you aren't interested in giving up the CEO spot right now. Fred Wilson says it well in The Human Piece Of The Venture Equation:

"I've learned that nothing can replace the entrepreneur's passion and vision for the product and the company. If you rip that out of the company too early, you'll lose your investment. I think it's best to wait until the initial product has succeeded in obtaining a critical mass of users and a business model has been developed that works and make sense for the business and is scaling. Then, if its warranted, you can sit down and have the conversation about bringing in experienced management."

Use this quote as normative leverage.

Startups are not assets under management

Finally, who are the investors? If the investors are a well-known firm, they're probably trying to anchor you and there is a lot of room to negotiate.

But if the investors are from an unknown firm, they might think this is a fair deal. They might have the mindset that they're investing in an asset that's going to be "managed" by the founders or new management. That's not the way startups work. If the founders give up too much of the company too early, they lose their drive to create value for the common and preferred shareholders alike.

by ReachVC 桂曙光

(本文以刊登在《商讯-公司金融》09年9月刊）

第一部分：VC的十大卑鄙（上）

6、抢班夺权

VC通常宣称他们只参股，不会控制公司的日常经营，只在董事会占少数席位，听取管理层汇报。事实看起来也是如此，VC通常在第一轮投资时，只要求获得公司30%左右的股份，在3个席位或5个席位的董事会里，VC也只占1席或2席，的确看起来一切都有创业者领导的管理团队说了算。

且慢，在董事会里，VC席位虽是少数，但他们有一个尚方宝剑——“否定权”。翻开VC的投资协议，你会发现，有一大堆跟企业经营相关的事情，VC都拥有1票否决的权利。这好比是创业者在开车，但VC却可以在关键的时候踩刹车。如果公司有后续融资，原来的VC通常会追加投资，保持股份比例，而新来的VC也会要求20%左右的股份，这样一来，创业者幸运的话，还能成为单一大股东，如果一开始公司有多个创始人，股权比较分散的话，VC就有可能成为单一最大股东了，他们可能只需要成功游说1个创始人股东就能控制董事会。

另外，VC投资的时候，一般都会要求对赌协议，如果公司经营没有达到既定目标，VC会说“我们投资时的估值偏高了，需要给予更多的股份补偿。”但如果公司的发展比VC投资时预想还要好，VC是不是应该将一部分股份返还给创业者呢？但可惜，这种情况基本是不存在的。一旦VC拿到更多的股份补偿，就会将创业者的股份稀释。我见过一个创始人在经过几次VC融资之后，只剩下5%股份的情况，但最严重案例的莫过于“太子奶”创始人被投资人净身出户了。

很多VC公司都储备有一些管理人员（创业合伙人），他们在通常有丰富的创业和企业运营方面的经验，平时主要是做VC的顾问。当VC准备向你的公司投资时，他们会详细了解你公司管理团队的经验，如果他们觉得你的团队不够好，VC会给你配备必要的人员，比如他们有时候会给你派一个新的CEO，让创业者以股东的身份，做一个技术总监什么的。这些VC派来的CEO当然会跟VC一条心，他通常会要求一定的股份或期权，董事会上当然也要有席位，创业者的地位岌岌可危了。

7、拉人下水

先来个假设小故事：一家小服装店，一年赚10万。老板成功引入VC，投入300万，占10%的股份，那这家小店的市值立即彪升成3000万。老板很高兴，一年后这家店有能力做到每年赚20万了，还开了3家分店。于是，老板和VC一合计，又出让公司10%的股份，引入另外一家VC，融资额为3000万，这时候，服装店（连锁）的市值变成了3个亿。可是这个时候，服装店整体的利润还是每年10万，因为运营成本上升了。又过了一年，两家VC又拉来全球知名的投行，他们承诺只要给3%的佣金，就可以把服装店包装到香港上市，市值可以做到300个亿！最后，创业的老板、VC、投行都赚翻了，服装店的利润还是每年10万。最后，公司变成了股民的了。可以看到，这家服装店的股份价格一路飙升，VC要想赚钱，就要拉新的VC来哄抬物价，最好拉投行进来临门一脚，以最高的价格把股份交给最后一棒：股民。

当然，上面的故事，结果是美妙的。国内某知名服装连锁集团的真实经历，99%跟上面的故事雷同，它拿到了超过1亿美元的投资，有国际知名的投资人和投行参与，但结局比较惨，倒在香港证券交易所门口，上市失败，公司经营状况也随即被大白于天下。我不认为这些投资人和投行是无辜的，他们只不过是在传递一个商业模式的谎言，上一棒坑下一棒，只不过最后没有成功交给最无辜的股民手里。创业者可以忽悠VC、VC可以忽悠新的VC、大家一起忽悠散户股民，如果达到目的，就是成功的案例，伟大的企业家和伟大的VC们又多一笔伟大的投资案例！

通常来说，被VC投资过的企业，在融资时会容易一些，因为前面的VC已经做过尽职调查、公司治理、财务规范、等等工作了。但有一种情况下会比较麻烦：先投资的VC不继续追加投资了。这种情况，后面的VC会担心是不是企业出现问题了，导致VC不愿意追加。为了拉新的VC进来垫背，先投资的VC会采取“舍不得孩子套不着狼”的策略，继续追加投资一点，忽悠更大的资金进来。只要投进来的，大家一笑泯恩仇，一起忽悠下一家。

即便企业最后上不了市、或者没有上市机会，VC也可以通过并购的方式处理。一般VC都会投资大批企业，找一家可以控制董事会的，收购那家没有退出机会的企业，这样就实现退出了。

8、捞取个人利益

早期项目融资很难，这些公司最需要的是天使投资人，可是对于创业者来说，天使投资人没有什么好的渠道可以找到。其实，他们不知道，很多VC会做天使投资。一个项目要想获得VC的投资，首先要说服某个VC合伙人。一旦他真的觉得不错，可能就先投点钱，拿走20%~30%的股份。然后拉身后的VC投进来或者买走他的股份。

还有一种更为无耻的做法，某个VC合伙人偷了创业者的创意，找几个人攒个公司，然后让自己身后的VC投进来，故意产生投资失败，最后VC基金的钱就直接进了这个合伙人的口袋。

更为常见的是VC想创业者要好处。VC公司投资后，企业除了出让股份给VC基金之外，有时候，VC合伙人还会要求个人无偿拿走1、2个百分点的股份。有的VC不要求部分的“返点”，他要现金。VC公司投资1000万，企业给VC个人“返点”100万。

还有一种利益可能没有直接表现在金钱上，表现在友情上。VC有大量的朋友，有些可能是老同学、“发小”什么的，交情很深。如果他们创业的时候需要资金支持，作为VC的朋友，有时候也是愿意“两肋插刀”的，钱反正也不多，又不是自己的（是LP的），就做个顺水人情，投了也够“仗义”。

9、投资协议陷阱

即便是最老练的创业者，在其创业生涯中，很难有超过10次的VC融资经验。相反，一个普通的VC，每年都会直接或间接做5-10个项目的投资。因此，创业者在跟VC进行投资协议谈判的时候，VC是有压倒性优势的。这种不平等的地位，最常见的结果就是VC会对一系列的投资条款精心设计。

对于创业者来说，绝大多数投资条款都很陌生，如果你自己不懂，VC不会跟你解释太多的，VC的口头禅就是：“这个条款是标准的，没什么好谈的。”真的是标准的吗？当然不是，否则，他还要花几万美金找大牌律师干嘛？其实VC所谓的“标准条款”都是他们多年的经验总结出来，对他们最有利的。当然这样可以保护自己，但创业者一不小心就会掉入陷阱。

举几个有风险的条款的例子：

一、比如前面提到“业绩对赌条款”，信心满满的创业者如果经营上没有达到预期，可能又要被VC搜刮走一部分股权，最狠的当然就是净身出户；

二、如果“优先清算权”是要求一定倍数的投资回报保底的话，创业者要小心了。比如VC投资1000万，要求优先拿走3倍回报。而最后公司以2000万被卖了，只好全部都给VC，创业人就两手空空了；

三、如果公司在4、5年之后还没有退出，VC通常会通过“回购权”，让创业者回购其手上的股份。回购价一般是VC投资价格的某个倍数，很少有创业者能够拿钱回购的，那就任人宰割吧；

四、VC如果想把自己的股权出让给第三方，通常会拉着创业者一起卖，因为VC的股份一般比较少，并购方是没有兴趣的，这个时候VC就会通过“强售权”捎上创业者。有些VC为了早点变现，可能会这样强迫创业者出售公司，也有VC会通过这个条款，将一个有前途的公司，低价卖给自己控制的另外一家公司；

五、VC通常会要求创业者签署“独家协议”才会正式对公司进行尽职调查和投资协议谈判，“独家期”通常要求1-3个月，这个期间创业者是不能跟其他VC沟通的。但独家期不约束VC，VC还可以继续看这家公司的竞争对手，如果VC发现竞争对手更好，就会抛弃这家公司。

还有很多条款，背后都有潜在的风险，创业者只有真正掉进陷阱才会发现，但为时已晚。

10、骗子VC

创业者融资时最大的一个问题其实是不知道去哪里找到合适的、真正的VC，因为有太多虚假的、号称是VC的投资公司了。据不完全估计，北京是骗子VC最为集中的地方，可能有超过500家，比正规VC多多了。

有不少创业者，融资时接触了几十家投资机构，各种名目的费用花了几十万，但是最终因各种原因被一一拒绝。那些一见面就让交什么商业计划书制作费、评估费、律师费、等各种名目的费用的公司，那99%的可能是一家骗子VC。他们行骗的方式很简单：要来实地考察，费用要你付；去他指定的评估公司做评估，评估费你付；要帮你做包装，费用让你付；去他指定的律师事务所做意见书和尽职调查报告，费用由你付，等等。我曾经听说最离谱的一件事是，在一次投融资大会之后，某家公司收到13家所谓VC发过来的投资意向书，当然，最后没有一家真的投钱进来，但公司却实实在在花了很多钱。

上面这种骗子VC的手法很卑鄙，但被骗的创业者还很难掌握证据去告他，或者没有时间和精力去跟他打官司。但最近闹得沸沸扬扬的红鼎创投和汇乐投资非法集资的主角，就要受到法律的制裁了。他们违背了VC募资的根本原则，违反国家规定，以承诺高额回报的方式，向大量不明真相、没有VC投资经验和风险承受能力的出资人募集资金，涉嫌构成“非法集资罪”。红鼎创投最后落得资金链断裂，导致出资人的上亿资金可能会打水漂。

还有一种按项目募集资金的骗子VC也不少，这些骗子拿着五花八门的“项目”，描绘出眼花缭乱的财务回报前景，然后就开始民间融资，从那些有钱但没有投资经验的民营老板、煤矿主等手里骗取资金，如果操作得漂亮，他们甚至可以把银行贷款、政府担保和无偿资助都能搞到手。

VC投资这个行业，是一个高度需要商业信誉的行业，又是一个新兴和快速发展的行业。红鼎创投和汇乐投资事件，给中国本土人民币VC的声誉带来了难以估量的负面影响，让很多民间资本短期内对VC望而却步。

I met with an investor, what happens next?

by Mark Suster

This is part of my ongoing series, "Pitching a VC."  Getting a meeting with a prominent angel or VC is difficult enough.  Some advice on how to do that was covered in this link – Getting Access to a VC.  This post covers the day after.  I spoke about the topic on Fox Business News yesterday in a great session with TechCrunch50 winner RedBeacon and will post it along with my other VC Videos when Fox puts it on their website.

The Day After (the waiting game begins)

So you just had an investor meeting.  It sounded like they really liked you.  The promised to follow up with: calls, using your product, talking to customers or "noodle on things."  Will they?

OK, if I'm going to be honest with you then you need to promise not to shoot the messenger.  Despite best intentions they probably won't follow up on their actions. And unless you just won the TechCrunch50 (e.g. you're hot) it probably won't go very quickly (unless we return to the boom days of VC, which I suspect won't happen again soon).

Remember that most fund raising takes time.  It's about building long-term relationships and showing traction over time.  If you haven't read how to build VC relationships and demonstrate traction make sure to read it.

Why don't VC's follow up? Because VC's (not unlike yourself) are tremendously busy.  The partner you saw is probably sitting on 5-6 boards which means he or she will be busy helping existing portfolio companies.  They probably have 3-4 deals that are further along in their pipeline of deals they are considering (e.g. ahead of thinking about you).  They have probably seen 4-5 new companies this week minimum.  And they have responsibilities for helping to manage their fund.  Plus, now they need to Tweet, use Facebook, attend conferences and keep a blog!   Not to mention what happens in years where they also need to raise a new fund.

Let's be honest.  This is not unlike a major biz dev deal you're trying to sign or a big sales campaign into the VP of a major company.  I like to tell entrepreneurs to treat it like a sales campaign.  EXACTLY like a sales campaign.  You would never go see an important executive at a customer and then sit around and wait for them to realize how great you are.

As a result, the ball is actually in your court.  Maybe it shouldn't be?  But the reality is that it is.  So don't expect an unprompted email or phone call next week.  Don't be surprised if your logs don't show that the partner has been using your product.  If any of this happens it's a bonus (but still doesn't mean that they'll follow up. They just had some time and found your product interesting).

I am really surprised how many entrepreneurs pitch me and then I never hear from them again.  I guess they assume that since I didn't email or call I must not be interested.  This isn't always the case.

So how to proceed?  Read the following as a guide

ENTREPRENEUR NEXT STEPS

1. Stay on the radar – You need to find a very polite way to persistently be on the top of the radar screen of your VC.  Start with a very short thank you email the day after your pitch.  If any actions were agreed this should be in the email.  If they said they'd use the product it should have the password.  If they wanted to talk to people this should have the contact details.  If any junior people attended send them separate emails and help them get up to speed on the product.  It is much easier to follow up by calling the junior staff (again, just as you would in a sales campaign).

2. Show a sense of momentum – After a week or two has passed and you haven't heard back it's time for step 2.  A polite follow up email saying, "just wanted to follow up with a quick summary of some exciting news."  Yes, I know only 2 weeks has passed.  That's why in your original meeting you should hold back some news that you have so you can bring it up later.  Sinister?  Not really – just a good sales tactic.  You're just trying to stay on the radar screen.  I suggest in your email you say, "I know you're really busy so I'll make sure to check back in a week or so."

3.  Find a way to help the investor – Not everybody has the capacity to do this but if you can you should try.  Did anything come up in the meeting where you think the investor could use your help?  Did you mention an executive contact that they'd like to meet?  Do you know a "hot" company that you think would like an intro (if so, make sure it's one that's not currently fund raising ) Do you have access to an event that's coming up and you want to invite the investor?  Whatever.  Doing a "not over the top" favor is a good way to build rapport.

4. A reason to reengage – By now if you're in a normal VC or angel process 4-6 weeks might have passed.  If you know that the best VC processes can take 4-6 months you won't feel the time pressure.  If you left funding to the last minute you'll need to be more aggressive, which is a shame.  But your next step is to find a reason that the VC needs to see you again.  This could be a major new release of the product that you'd "love to show the VC because he'll find it interesting" and you promise to only stay 20-30 minutes.  Or maybe you had a major customer win that you'd like to walk them through.  Or a major shift in strategy.  Whatever.  You need to push the next meeting.

5. Multiple endorsements / touch points – The same strategy that works to get intro's to people works to get momentum from people.  They need to hear about you from multiple touch points.  It needs to be masterfully orchestrated by you but very subtle.  You need to find out who influences the partner.  Who knows them well or at least somebody that they see on a regular basis.  It needs to be somebody you know and trust.

In a perfect world you say, "I met a few weeks ago with Joe Partner at Big VC Co.  He seemed to be interested.  If you happen to see him I'd really be grateful if you would mention how much you like our product / believe in our company / that you knew me well when we worked at Yahoo! (or whatever is appropriate).  I want to be subtle about it so if you talk with the VC please don’t over play it."  The more people who mention you the better.

6. A sense of urgency - This is the critical bit.  I call it the "prom conundrum."  Let's face it – everything we do now is some derivative of what we did in high school.  Four guys are thinking of asking you to the prom.  They don't because they're also thinking of asking Susie.  But if they here that somebody else is seriously thinking of asking you to the prom – BOOM – you get asked.  I wish it weren't so.  It is.  That's human nature.  (reminder: don't shoot the messenger – I'm just telling you how it is).

So how do you create urgency?  First, you do need to create multiple interested parties.  You can't fake it.  Then see point 5 above.  You need to find a way to get a whisper campaign going that somebody else is thinking about asking you to the prom.  If all else fails you give the VC a call with a very subtle and polite message, "Just wanted to keep you updated on our situation.  We're getting some strong interest from a couple of firms.  We don't have a term sheet yet but seem close.  We really liked your firm and just wanted to get a sense on what else you need from me to help your process."

7. Extra Credit Tip - I'm going to get pounded for saying this so I'm making it optional (but it is a very smart strategy).  Do the VC's work for them.  What, what?  Yes, I said it correctly.  They're having a tough time understand how big you can be?  Do the market sizing analysis for them and send it.  They're worried about competitors? Do a 5-page PowerPoint competitive assessment.  They said they'd call references but haven't?  Ask your senior customer client to proactively call them.  They aren't sure about your business model?  Come in and walk the associate through the details.  VC's (like you) are busy.  The more you make their life easier the quicker you get to yes.

Guidelines for following up

1. Be subtle – All this said, there is such a delicate balance between polite persistence and being a pest.  You need to sail very closely to the line of acceptability without ever crossing it.  You need to show chutzpah without being annoying.  Smile when you're asking for more meetings and say, "I'm really sorry to push you but I guess you'd want to invest in somebody who pushes customers  bit, too?"  It is not something I can ever teach somebody – it's like art – you know it when you see it.  People cross the line often.  It's not pretty.

2. Be concise – Unlike this post you need to be very brief in all communications and meetings.  No VC reads long emails – no time.  If you ask for (or they offer) a favor – ask for 1 and only 1 for now.  I sometimes get requests for 4 things at once.  In this case I'm like a deer in the headlights – I don't know where to start – so I usually don't.  When I get one request – I do my best to help.  If you ask for a follow-on phone call or meeting promise to be brief and deliver on that promise.

3. Be persistent – Can't emphasize this enough.  Don't be offended that they didn't respond via email.  Senior people get busy, bogged down and behind.  Send a few times.  I covered the topic on the post I emailed a VC but never heard back.

4. Use multiple channels - My email is always overloaded.  If I don't respond I promise you that I'm not ignoring you.  If I'm not interested I'll tell you.  I am just overwhelmed.  If we're connected on LinkedIn or Facebook – try a short ping there.  If the VC uses Twitter regularly then this is a perfect place to connect.  I love it because it's restricted to 140 characters so you have to be concise!  But avoid anything confidential unless it's a DM.

5. Let time pass – If you email me on Tuesday and remind me on Thursday (which happens) you've crossed the line.  If you're feeling pressured because you're nearly out of cash – then you started the process too late.  That's not my fault.  Desperation never sells well.

6. Be gracious – Be extra courteous in all communications.  A little good graces goes a long, long way.  Be apologetic of taking up time.  Be thankful for work put in.  I know it's their job, but it makes a difference so being nice never hurts.

7. Accept "no" for an answer – I can't emphasize this enough, if you do get a "no" then politely move on.  It's OK to ask if they know a VC that might be a better fit and ask for a VC intro.

If you think they're telling you "no" but don't know for sure I would recommend the following email, "Dear VC, I get the sense that you guys are not interested in investing in my company at this stage.  I appreciate all of the time you put in and hope to convince you next time around.  We are talking to other parties – it would be very helpful if you could confirm that you're no longer interested just to help me better manage my time."

Voila.  Make it easy for them to say "no."  Better that you at least know.  Otherwise they're not likely to tell you.

The pros and cons of founder lock-in

There's been a debate going around recently about how important it is for the founder of a startup to be locked into a company, and how much they should be living "hand to mouth" versus being paid well when running their startup. In particular, there are a fair number of investors, and startups themselves, who believe that founders should be paid well below market, basically enough to cover their basic living expenses, as an incentive to work as hard as possible to make their companies a success. The theory is that someone whose entire livelihood and future is dependent on the success of their business will be that much more committed to making a company work (ie, because you have to make the company a success in order to survive, you'll make it a success).

Although there are merits to the approach (highly paid founders are not a formula for keeping your burn rate down, for one), the problem in recent years has been that the time that founders–and for that matter, employees–are locked into a company has dramatically gotten longer in recent years, with lack of exit opportunities.

Mark Suster makes the argument recently that founders should be allowed some way to take money off the table even if a company has yet to hit an exit opportunity. It's a theme I've been hearing a lot lately, from such efforts as Startup Exchange–which allows founders to trade shares into a common pool and reduce their risk– and SharesPost, which allows founders to sell their stock on an online marketplace. Sometimes, for more mature companies, it's cash-out during a financing round. In any case, the debate highlights a bigger issue not just for founders, but for employees.

Long time employees of startups, are usually given some percentage of the company when they start, and usually in exchange take a lower salary. The problem is the formula isn't working like it used to, and cash out of a deal now is rarely "life changing," except in the rare, really big exits. The vast majority of startup employees, unless they are paid market wages, aren't going to see an equivalent return from their options. I've talked to numerous financial advisors specializing in startups, and they all tell me that–unless someone is a founder at the company, and it has not taken significant venture capital dilution–employees are not getting meaningful amounts from acquisitions today.

Perhaps it's all just another symptom of the changing venture capital industry, where there's just not enough big, IPO-sized exits, but it seems like this is one area where startups and investors are going to have to figure out a new business model, where both founders and employees feel like they have a reasonable chance of either an exit, or at least some minor reward and diminished risk, in order to commit the 5, 7, or 10 years of their lives it might take to build a successful company.

Term sheets that you don't want

by Mark MacLeod

There's been some good discussion around ideal term sheets for startups these days, with several organizations releasing model templates in the hopes of making it easier for startups to raise seed capital.

While we'd all love to see one set of uniform, clean term sheets (and more importantly, clean deal docs, since term sheets are just the beginning of a long, expensive closing process), the fact is term sheets come in all shapes and sizes. Here are a few that you don't want. I have had the pleasure of seeing all of them over the years.

The complex term sheet

The complexity of a deal is tied to the valuation. The lower the valuation the cleaner the terms. When you see fancy or expensive terms it usually means there is a gap in valuation expectations between management and the investors. The gap is bridged by optically giving management the value they want but punishing them with other terms such as:

Participating Prefs: Also known as "double dip". On exit, investors holding participating prefs can get their investment back (or a multiple of it if they are multiple participating prefs - more on this below) and then still get their portion of whatever is left. So, if you sell for $ 25M after having raised $ 10M and your investors own 60% of the company, they get to take their $10M in cash back and then get 60% of $ the remaining $ 15M. This really comes in to play in smaller exits. Beyond a certain exercise price, investors will just convert to common.

Multiple liquidation prefs: On exit, investors can either take their portion of the exit price or some multiple of the amount of cash they put in, whichever is greater.

Cumulative dividends: A dividend that is declared each year and is payable in more stock giving your investors free shares. So, they can for example increase their ownership by 8% every year. Very expensive.

The premature term sheet

Term sheets mean different things to different funds. For most, it means they have made the decision to invest and unless something major comes up in legal due diligence, they will invest. However, some funds bang out term sheets early in the process. These term sheets are basically just a confirmation that the fund is about to get serious, but should not be interpreted as deals. However, when you sign the premature term sheet and stop discussions with other funds, you are creating a real risk that you'll be left with no deal since premature term sheets have a low probability of closing.

The incomplete term sheet

Most investors like to syndicate (i.e. bring other investors into the round). The thinking is that you get more smarts and deeper pocket books around the table. So, its usually the case that when you get a term sheet its only for a portion of the round. This is all good, except when you have no one to fill the balance. If the investor is leaving you to find the remaining $ and is not actively introducing you to other investors and not selling them on the deal, you have a real risk that the deal will go cold. The investor who has given you a term sheet will start to think they were crazy to do so since no one is jumping on board the deal.

The babysitter term sheet

Its normal for both the board and the shareholders to have certain approval rights. These normally cover significant things like financings, debt, executive hires, changing your business, etc. However, if investors are asking to approve things that are just part of the normal running of the business, its a sign that they don't trust you.

I am sure there are many more flavours of undesirable term sheets. But these are the main culprits...

作者：ReachVC 桂曙光

(本文已刊登在《商讯-公司金融》09年8月刊）

十年前，活跃中国的VC大多是国外机构的中国办事处，这些“海派”或“海归”的VC都会遵守很多VC行业的基本法则。但随着更多海外VC的涌入、大量“土鳖”VC的崛起，加上在中国市场环境的耳熏目染后，这个群体中有些个体（注意：是个体，不是整体）已经开始出现变质和病态。有道是：卑鄙是卑鄙者的通行证，高尚是高尚者的墓志铭。

1、剽窃商业机密

很多创业者在寻找VC融资时，最担心的是自己的商业机密泄露出去，所以，他们会在商业计划书的首页上罗列出保密条款，更懂行一些创业者会要求VC签保密协议（Non-Disclosure Agreement, 即NDA）。VC通常是不会签的，除非是这家VC觉得这个项目真的很好，需要深入了解，才会跟创业者签一份VC拟订的NDA，这种情况不会超过5%。

VC不愿意签NDA是有原因的，他们每天会看大量的项目，很多项目都是雷同的。创业者可能觉得自己的创意是独一无二的、自己的商业模式是独创的，但VC很可能在听到你这么说之后，又见了5家跟你做同样事情的竞争对手。所以，如果跟每家创业企业签DNA，VC就会面临巨大法律风险，没有秘密可言的东西，VC怎么给你保密啊！

VC通常会标榜自己会守信用、不会泄露你的任何秘密，如果你相信的话，那你就是一个天大的傻瓜。VC可能很喜欢你的创意，但却想资助别的人去做。在VC公司里通常有一种合伙人，叫做创业合伙人（Entrepreneur in Residence, EIR），他们以前就是创业者，现在窝在VC公司参与评估项目、发掘投资机会，一旦看到某个创业企业不错，可能就会游说VC投资，之后就加入这家创业企业重新创业；或者，看到好的创意或商业模式，挽起袖子照搬来自己做；还有，他们也可以先投资一家公司，然后把几家竞争对手的商业模式及计划全部复制过来。

在中国目前的商业环境下，就算你去起诉这家VC并且最后赢了官司，又能获得什么微不足道的补偿和精神胜利？你的公司可能已经死翘翘了，而剽窃你创意的那家创业公司可能做大上市了，给VC赚了很多钱。更糟糕的情况可能是，企业者根本就没有时间和足够的证据去起诉VC，只能眼睁睁看着人家拿自己的东西去赚钱。

VC对于任何关注的领域，都会看一大批公司，这些公司彼此之间可能在市场是直接竞争对手。VC还都是学习能力很强的人，他们是以投资回报为目标的，所以，创业者在跟他们沟通交流的时候，一定要多个心眼。

2、制造泡沫，扼杀行业

本来大家能赚钱的行业，只要被VC看上，肯定要乱套。比如Web2.0的代表——视频网站，在商业模式还处于摸索的阶段，几大视频巨头就打得不亦乐呼。但他们之间的战争，本质上就是几大VC之间的血拼，少的能搞到几百万美金，多的几千万美金，大家能够做的无非是烧钱买服务器带宽、拉高网站的Alexa排名、积累资源量……拼死拼活的，烧了上亿美金，除了让盗版更为猖獗之外，还真没有为这个行业的发展探索出一条路。

再比如新媒体，分众传媒的成功海外上市，让十多家VC赚翻了。于是，有更多的VC和创业者在这个领域继续挖金矿，几十家新媒体公司拿到VC的超过10亿美元的投资。现在只要有人的公共场所，统统都被挂上广告牌了：机场、车站、广场、商场、餐厅、酒店、楼顶、墙面、公路沿线、飞机、火车、地铁、公共汽车、出租车、厕所，等等，甚至连手机都不放过。这些媒体的竞争，导致了租金的水涨船高，媒体公司成本大幅提高。但作为商家的广告主，在新媒体上投入并不会增加太多。这样，泡沫自然就出现了。目前，包括老大哥分众传媒在内的很多新媒体公司，已经出现了运营危机。

其他诸如太阳能等清洁能源、餐饮、连锁、电子商务、等等，都已经、或正在经历被VC吹泡沫的危险。

VC不仅以拔苗助长的方式扼杀某些行业，创业者也被他们惯坏了。没有VC，创业者会勤俭持家、量入为出，一旦VC的大把真金白银进来，这些勒紧裤腰带的创业者马上就把那些最纯洁的商业品质抛到九霄云外了，先找个高档的办公室，再给员工大幅加薪，然后再招一堆闲人，反正有钱买单了，烧钱似乎是一件很光荣的事，烧得越多，反而越牛B，拿到VC的投资、上市圈钱也成了很多创业者的成功的标志。

3、不择手段抢项目

通常90%的融资项目没有VC感兴趣，1%最好的项目VC蜂拥而至，“抢单”在VC圈是非常常见和普遍的事情，试问天下VC谁人不抢单？！。这一方面是因为VC的数量这几年确实是比较多，据说仅仅江浙一带的人民币投资公司都有几百家；另外，大部分VC没有专业的团队，对投资领域缺少深入的了解，导致没有自己发掘项目的能力；还有，创业者通常不会在一棵树上吊死，他们融资的时候，恨不得一口气跟能联系到的所有VC见面。

能者多劳，有项目挖掘能力的VC就满世界找项目，没能力的VC就蹲在别的VC门口，创业者一出来，就拉过来聊聊。VC跟创业者见面的时候，会问很多业务上的问题，但有一个问题基本上是所有VC都会问的：“还有哪些VC在跟你谈？”如过你告诉他“我们跟红杉、IDG、赛富、鼎晖这几家初步接触了一下”，那这家VC会密切关注红杉他们的动向，不时跟你打探消息，如果红杉要给Term Sheet了，这家VC可能会给一个相对更“友好”的Term Sheet，因为很多VC对红杉的眼光还是信赖的。如果这几家VC跟你初步接触之后，没有下文了，你也不要指望这家VC会感兴趣。所以，好的项目，创业者手里可以拿着5、6份Term Sheet对比是很正常的。

对于钱多的VC，价格不是问题，他们可以用更高的估值、更多的投资额，从其他VC的手里抢项目，而对于钱不太多的本土VC，抢项目也有自己的“土方法”。通过政府关系施压就是一种手段，有家本土VC号称可以从高盛手中抢到一个PE项目，因为这家VC有项目方当地的政府关系，创业者不敢不让他投资。还有，有些VC会一方面通过跟创业者一起吃吃喝喝、洗桑拿、找小姐等方式搞好关系，另一方面，把其他VC的一些或有或无的不良记录给抖露出来，吓退创业者。

不仅是二流的VC会抢项目，连最知名的一流VC也会这么干。在美国最牛气的VC之一，其中国团队曾对一个小家电企业，在没有做尽职调查的情况下，投资了上千万美金，因为如果花时间做尽职调查的话，项目就被其他VC抢走了。另外一家也是美国最牛气的VC之一，为抢项目被其他VC起诉，索赔上亿美元，一时满城风雨。

竞争是残酷的，所以VC们聊天，通常不会聊自己手头的项目，最常见的是说些诸如“大环境不好啊”、“人民币基金是方向”、“电子商务还不错”、“我们专注TMT、医疗类的项目”、之类的废话。

4、投资公害项目

如果说VC之间抢项目，只不过是“鹬蚌相争、创业者得利”的话，那这一条就是VC和创业者一起合伙坑害社会了。

有家医药中间体的企业，产品可以作为普通药品的原料，也可以是毒品的原料。企业对于客户是做什么用途，根本不关心，只要愿意钱采购，来者不拒。管他黑社会、走私犯，还是制药厂，签合同开发票，还是一手交钱一手交货，都无所谓，企业挣到钱就行。这家企业年收入能够做到近一个亿，利润也有几千万，很多VC抢着往里砸钱。

还有某人胎素生产企业，从死婴的脊髓里抽取原材料，加工成去皱美肤功能的针剂。死胎是几十块一个，从乡镇小医院和街边私人黑诊所里收购，制成针剂后，一针就是上万块。这种见不得人的生意，创业者和VC还试图包装成高科技生物医药，上市圈钱。

医药研发外包在中国现在很受VC追捧，这些公司是承接外国医药公司的医药化学成分合成和临床测试。其实这里面有巨大的问题，化学物合成会产生大量的有毒气体和有害废物，外包企业通常直接排放，严重污染环境。而临床药物试验更是触目惊心，只要这些公司愿意花很小的代价，就能找到大量的中国老百姓给他们做临床药物试验，最后即便药物对人体造成损害，也不会有什么大不了的赔偿。

互联网上VC支持的公害项目就更多了：视频网站做成了盗版基地、交友网站做成了“一夜情”联盟、网络游戏做成了诱惑青少年沉迷的毒药、私人的电脑被流氓软件绑架成赚钱的工具、……

惟利是图是商人的本质，而VC更是商人背后的商人。去年底的金融危机来临时，美国红杉资本的老板曾对其所投资的公司说：“现在，现金流比你妈妈还重要！”我想，对某些VC来说，任何时候，钱都比他妈妈还重要。

5、拖死创业者

很多创业者在融资的时候，最痛苦的是很难从VC那里得到一个痛痛快快的说法：我的项目是好还是不好？你有兴趣还是没兴趣？对于公认的好项目，VC当然就是一个字：“抢”。但如果他对你不怎么感兴趣，或者是还拿不定主意，那你就不会得到明确答复。VC很狡诈，他们不会明确对你说“不”，那样的话，你就去找别的VC了，他们最希望的就是你一直在吊在他这棵树上。VC有时还抱着“等着瞧”的态度，因为就像时尚会经常改变一样，技术人员也会不断地完善自己的产品，或许过一段时间你的产品或商业模式会更好一些。此外，VC还想从你那里得到更多的启示，“剽窃”你的创新的思想，移植到他们已经投资的其他创业公司中去。

如果VC知道你还有其他选择，他们往往会有很多托词勾住你，比如：“我很想投资你，但我需要一些时间你去找到跟我一起投资的VC。”“我还需要花点时间咨询专家的意见。”“我们非常希望对你投资，但现在我们正在募集一个新的基金，等忙完这一阵子再说。”“过几天我给你打电话吧。”

投资之前如此，投资之后也不例外。有些被VC投资的公司，过了好几年，VC仍然看不到退出（出售、IPO）的机会，这一方面可能是因为当初VC的估值太高，找不到冤大头买家接盘VC的股份，另外公司自身发展也不太理想。这种情况下，VC也不能一直陪着创业者耗下去，VC基金到期是要清算，那这种公司通常只有一条路：关门大吉。即便公司有机会低价被收购、或者跟其他公司合并，但VC也不会给创业者这种机会。VC宁愿选择让公司彻底死掉，是因为失败案例是允许的，可以说是市场环境不好等原因，VC的投资决策并没有错。但如果VC抽身之后，项目反而做好了，那就是VC的责任，要么是VC当初的估值太高，要么是创始人的素质不行，这些都可以说是VC投错了，这些对VC名声都很不好，他以后还怎么混？所以，VC宁可把你做掉，也不会给你翻身的机会。

（未完待续）

Be Prepared for Your Pitch

by Paul Jozefak

One thing to remember when pitching to a VC is that you have to be prepared. When I say prepared, I mean in regards to questions which are going to be thrown at you. Further, when I refer to questions, I mean the questions VC's are going to ask. Specifically, you will hear most of the following questions if you are very early stage and are trying to get me excited about your idea (obviously this is not an exhaustive list):

Customers:
1.  Who is your target customer?
2.  Why will this customer buy from you?
3.  Have you done market testing?
4.  How many potential customers were you able to test your product on?
5.  Will these customers be willing to pay for your product?
6.  Will they only pay once or continue paying?
7.  Do you already have paying customers and if so, how many?
8.  Are you talking to your customers regularly?
9.  Has customer feedback gone into tweaking the product?

Product:
1.  Who developed the product? In-house or contract developer?
2.  Is the product done and if not, what remains to be completed?
3.  What is the underlying technology?
4.  How easily could someone copy your product?
5.  Is there a competitive product in the market already?
6.  How long did it take to create/complete your product?
7.  Are you using the product yourself?
8.  What did development cost?
9.  How will you tweak the product in the future?

Market:
1.  How big is your market?
2.  Is your market Germany, EU, World?
3.  How much of this market do you want to win?
4.  How will you address your market?
5.  What is it going to cost?
6.  How well do you know your market, i.e. have you worked in the target market?

Employees:
1.  How many do you have.....full-time, part-time?
2.  Do they have options?
3.  What kind of salaries are you paying (going to be paying)?
4.  How long have they been on board?
5.  Has there already been churn and if so, why?
6.  Who are your future hires?
7.  Do you have specific people in mind when it comes to future hires or will you need a headhunter?

Management:
1.  How many of the managers are founders?
2.  How much of their own capital have founders/management invested?
3.  What are current and future (post-financing) salaries of management?
4.  What additional management hires are necessary?
5.  What are the weaknesses of current management?
6.  Do you have company cars (yes, I will ask this!)
7.  Is the complete management team in one location or separate offices?  
8.  How often does management meet as a group?
9.  How long has the management team worked together?
10. Has management had previous exit experience?
11. Has management been part of venture-backed companies previously?
12. Has management previously worked in start-ups?

Financing:
1.  How much are you raising and why?
2.  What will you initially spend the money on and how are you prioritizing this?
3.  How much time did you plan to complete fundraising?
4.  Are you looking for one or multiple investors?
5.  Do you have a valuation in mind? (Of course you do but is it negotiable?)
6.  Are you current investors participating in the round....pro-rata or more than that?
7.  If the current investors aren't participating, why is this the case?
8.  Are future rounds planned?
9.  Will an ESOP be part of the current round?
10. How long have you already been out fundraising?

Miscellaneous:
1.  Why are you talking to us? (Seems like a no-brainer but you'd be surprised how often people stumble on this one!)
2.  What do you expect from me outside of cash?
3.  Have you done any reference calls on us?
4.  Would you like me on your board?
5.  How much time do you expect me to invest as an investor?
6.  Have you ready my blog? (Yeah, I do ask this every now and again but only when I sense that some is prepared!)

Again, this is not an exhaustive list. I thought I'd just do a brain-dump of things that come to mind. I hope in some way this gives you a sense of the types of things we throw out when hearing a pitch. Maybe it's helpful when meeting with other VC's as we do tend to ask similar questions. Nevertheless, don't presume we've read all of this beforehand in your business plan and know it already if it's in there. We want to have a discussion with you and get your answer in person when you are pitching to us. The more questions I ask, the more interested I tend to be.