Picking the Brains of Venture Capitalists

What do venture capitalists really look for in entrepreneurs? What are some big mistakes they see entrepreneurs making? We asked them these, and other, important questions.

By James Park

Opinions expressed by Entrepreneur contributors are their own.

Few business owners ever get to sit down one-on-one with aventure capitalist to have a chat. To help you understand what goeson in the minds behind all that funding money, we asked severalventure capitalists what they look for in entrepreneurs, bigmistakes they've seen made, and what trends they predict forthe future.

What common mistakes do entrepreneurs who are looking forfunding make?

"[Many entrepreneurs] plan for the best case as opposed topreparing for the worst."--Barbara Schilberg, managingdirector and CEO, BioAdvance

"A big mistake people make is hiring the wrong people. Ifyou're not teaming up with someone with a lot of integrity,that will come back to bite you."--Patrick Ennis, managingdirector, ARCH Venture Partnersv

"A pet peeve of mine: plans where the business model iscreated in a vacuum, with no recognition of either competition orsubstitutes."--Robert Chefitz, general partner, New JerseyTechnology Council

"People put too much focus on financials. How many businessplans do we get where you have 10 pages of problem, statement,solution, approach to market so forth and then 30 pages offinancials? I take the 30 pages of financials and I throw themaway. I don't even look at them."--Chad Waite Jr.,general partner, OVP Venture Partners

What is your advice for entrepreneurs who are seekingfunding?

"What [entrepreneurs] need to do is state a proposition andmake a case. What I tell them is, "You need to think like alawyer, because if nobody knows where you're going, usuallyby the time you get there, everyone else is lost."--SteveDomenik, general partner, Sevin Rosen Funds

"What makes for a great pitch is an entrepreneur who canstand up and speak intelligently, articulately and withpassion."--Eric Young, general partner, CanaanPartners

"You've got to look at fundraising as a process. Youdon't get the order on Day One. The first meeting ought to bea good, crisp, concise introduction. You want us to come back tofind out more."--Chad Waite Jr., general partner, OVPVenture Partners

"Make sure the venture firm you're pitching is theright fit for your business."--Andrea Kaufman, partner,Novak Biddle Venture Partners

What trends did you notice in 2005, and what do you expect tosee for the rest of 2006?

"I think it will be a very robust year for investments. Itwas robust in 2005, and I think you'll continue to see thatin 2006."--Nader Naini, general partner, Frazier Healthcareand Technology Ventures

"[There's going to be a] shift away on the IT side,from things driven by enterprises to things driven by the consumermarket. We'll [also] see an increase in focus across theventure community on alternative energy or clean techinvestments."--Bill Wiberg, general partner, AdvancedTechnology Ventures

"I think today we have seen much more of a movement towardthe quick hits in our industry, and those investors that are outthere investing in the five-year-plus kind of time horizons areactually fewer and further between."--Joseph Landy,co-president, Warburg Pincus

"The entrepreneurial revolution that has swept this countryin the past 15 years is here to stay."--Patrick Ennis,managing director ARCH Venture Partners

"VCs are going back and looking a little more closely atearly stage investing, so we're seeing a positive trend forearly stage companies."--Barbara Schilberg, managingdirector and CEO, BioAdvance

"Many of the emerging new business models are being drivenby a much wider-spread consumer adoption of the internet, which hasbeen picking up nicely for the past couple of years."--EricYoung, general partner, Canaan Partners

What do you look for in companies and entrepreneur you'refunding?

"We look for [entrepreneurs] who are creative, who[aren't] afraid of running into problems and can figure outhow to solve them."--Barbara Schilberg, managing directorand CEO, BioAdvance

"[We're] looking for someone who's looking forhelp, looking to expand their horizons and who recognizes thatyou've got to reach out for those things. You don'tbring them all to the table from Day One."--Joseph Landy,co-president, Warburg Pincus

"A great venture investment is three things: You have agreat team, a huge market and novel technology."--BillWiberg, general partner, Advanced Technology Ventures

"It's an old saw, but our business is about investingin people that can get it done. The idea is almostsecondary."--Steve Domenik, general partner, Sevin RosenFunds

"One of the things we look for in an entrepreneur orfounder is someone who has a very distinctive view of the industrythey're selling in to. That isn't what you can go outand read in analyst reports in everyday press and mediasources."--Scott Irwin, general partner, El DoradoVentures

"I think a lot of people overlook the fact that theinvestor- or board member-entrepreneur relationship is often afive-year horizon, so you want to find people that you think willwork well with you."--Scott Irwin

"Companies need innovation, and the truth is mostinnovation and most new products come from small entrepreneurialstartups."--Patrick Ennis, managing director, ARCH VenturePartners

What are some of the strangest pitches you'vereceived?

"[I] saw [a pitch] that was using high-altitude RussianCold War military aircraft to map the surface of the earth. Thatkind of info is very valuable, but it's mostly collected bysatellite or people driving with maps or using GPS-styleinformation, so I thought this was a pretty out-there idea to useSoviet-era aircraft and custom-developed radar tech to collect thisdata."--Scott Irwin, general partner, El DoradoVentures

"The quirkiest pitch I heard last year was a company thatwanted financing for a technology that could control people'sbrains-maybe right for another fund, but not forus."--Andrea Kaufman, partner, Novak Biddle VenturePartners

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