By Jack Leeney, Telefonica Ventures
Legendary opinion leaders from all over the world participate in Silicon Valley’s Global Technology Symposium each year, making it a premier investment conference for entrepreneurship, venture capital, and technology. I was invited to participate in the Reverse Pitch Panel, which took place for the first time at this year’s tenth anniversary Symposium.
The annual Symposium brings together opinion leaders in finance, technology, business, and policy to share compelling insights.
Entrepreneurship and technology took center stage with venture capital as its sponsor. Sitting with me on the Reverse Pitch Panel were venture capitalists with specializations ranging from early-stage or seed funds, to funding from former founders, to corporate or later-stage focused venture capital funds.
As something a little different than what VCs usually do, I enjoyed pitching to the founders of Scribd, Ark and Ephox. All the panelists introduced themselves and their VC business purposes, and then the founders started to dig in. Here are some of the questions and answers we discussed through the panel’s forum:
Q: How will you help me attract talent? A: Most of the venture capitalists on the panel responded that they used their network and portfolio companies to find the talent company founders need. I answered that an investment by Telefónica Ventures would globalize their company by the nature of our commercial dialogue, provide validation for the company’s service, and guide the best of local European and Latin American talent to support their companies’ international footprint.
Q: What do you look for in companies and specifically in founders? A: I jumped right in with my preferred answer: Revenue; recurring, continual, probability weighted, sales (as the audience laughed and clapped in agreement), along with a proven successful track records of founders and market-share leadership in new markets. We look in the early stages for compelling technology that has huge potential.
Other VCs responded that they look for founders who are hungry, ambitious, have a predictable business model and a history of moving mountains in or outside of their business settings. At the seed stage, other VCs look for big and exciting markets with potential network effects.
Q: How do you grow a first-time entrepreneur? A: Panel VCs agree that growth happens by assisting in decisions about structure, recruitment, and overall term sheet advice. As a board member, a VC adds value by being an advisor for company issues that may be uncomfortable and by having a network effect of other portfolio companies. VCs can plug into these networks for the best interests of the first-time founder.
I also added that when a company is signed on with Telefónica Ventures, it has our full attention. We are going to be the company’s entry point in working with the dynamic of a publically traded multinational company. Telefónica Ventures can be a catalyst to help ink commercial agreements and navigate what can be a very long sales cycle as compared to a regular startup speed.
Q: What are your best and worst investments? A: After a moment of panel silence, I answered that one of Telefónica Ventures’ best investments had been in Joyent, where we saw a market need for a cloud infrastructure product and from an R&D perspective could not fill the demand. Through our investment, we were able to expedite R&D and movement into the market with a white-labeled version of the product in a fraction of expected time, while simultaneously globalizing the product.
I wouldn’t say we’ve had a ‘worst,’ as Telefónica Ventures seeks to work with and co-invest alongside the best investors with proven track records and histories of success that include portfolio support. We shy away from the hairy term sheet or potential co-investors looking for onerous terms.
The platform was then given to an audience member who had the following question:
Q: Would you invest in a crowdfunded company and what are your thoughts on this disrupting traditional VC? A: My answer was that Telefónica Ventures would be wary of investing in a crowdfunded company for these reasons: it represents a one-time capital from unsophisticated investors at the riskiest time in its investment lifecycle, and there is no validation of the product or the company.
Ten years ago initial public offerings (IPOs) were five to six times more apparent than today, with a bulk of the offerings being micro-cap and small IPOs mostly allocated to individual investors. While smaller than today’s public companies, these companies had meaningful financial performance and were more suitable for involvement from individuals versus at the crowd funding allowing individuals access to companies at the earliest possible stage now.
The panel also answered that there is no shortage of reputable angel capital and the startups with strong teams or big opportunities are usually choosing multiple angels to take money from. The panel agreed that another problem with crowdfunded startups is that you get no network as compared to Y Combinator or TechStars companies.