The key investment ingredients: Team, Product, Proof
Mark Suster, a venture capitalist at GRP, has been (very) busy providing useful information and advice to entrepreneurs in his blog, Both Sides of the Table recently, and comments today on how to best gain the interest of an angel.
Among the many tidbits of advice he gives, is that a company needs to not only have a good idea and a plan, but they need a team, a product, and market validation (or what I think of as proof). Mark has hit the nail on the head with that advice.
One of the dynamics of the Southern California startup market is you run across quite a few wanna-be entrepreneurs who–I think–get bogged down in step one of the process, finding a good idea and writing a business plan–but never go on to the rest before looking for funding. This might also be true in other markets, but the case here is often that there is experience on the business development/sales side, but not on the technical side. The problem is, I have yet to meet an angel or VC that funds an idea without at least a prototype (with one notable exception, which is funding an entrepreneur who just sold their last company for a huge pricetag, and has already proven that they can build a successfull exit and products).
Regardless of what you’ve heard from your MBA class, the latest best selling entrepreneurship book, or late night infomercial, no one funds just an idea and a PowerPoint nowadays. Yes, you need a PowerPoint, but given the importance of funding not the “great idea” but the “team with a great idea” bringing some proof to the table is really the only way to go. There seems to be a false belief in the marketplace that a business plan and enthusiasm is the way to a VC’s heart. It’s just like that (often exploited on late-night TV) belief that if you develop the next big mousetrap/automotive widget/kitchen gadget/etc. the big corporation is going to give you a million dollars and make you rich. Neither is going to happen. In this business, execution is the key to success, with or without venture funding. Angels and VCs are not looking to provide you funding so you can go try out an idea; they’re going to give you funding so you can take that prototype/product, improve it and ultimately scale out your product/service/offering to hopefully conquer a market.
