I had the opportunity to meet Howard Morgan a partner at First Round Capital, a venture capital firm specializing in early stage (seed) investments in technology firms. He was speaking at a networking/pitching event put on by Start Up Alpha in New York. For the low-low price of $10, there was some aggressive networking action (anxious entrepreneurs trying to figure out who the VCs were in the room), an insightful presentation by Howard Morgan, and a two-minute opportunity to give your elevator pitch on why your start-up is the next, best, latest, investment-worthy company.
Although Howard’s talk was short, it was packed with insights that every prospective start-up should know before they go out and seek venture capital. His firm has made 74 investments since their inception, looked at 1551 proposals in this calendar year, and added 13 new companies to their portfolio. He might know a thing or three about what VCs are looking for. Howard outlined his criteria for evaluating potential investments:
1. People – Do they have credibility? Historical success? Connections? Know-how? Leadership? Integrity? Ethics? Experience?
2. Products/Services – How viable is it? Is there a need/demand? What’s the market? What’s the category or is it a new category? How difficult will it be to produce, or reproduce?
3. Plans – Does the company have a proper business plan? Do they know how to execute? Do they have a sound financial plan? Do they have the operational infrastructure/resources in place? Do they have the market research to back it up?
4. Profits – Do they have a revenue model? When will they be cash flow positive? Profitable? (Howard generally does not like non-revenue generating business plans. He passed on Twitter.)
5. Passion – Are the leaders passionate? Are they willing to make sacrifices? Do they understand the Herculean efforts necessary for success and are they willing to make them? Does their passion motivate and inspire employees as well as customers?
6. Persistence – Are they in it for the long haul? Success does not come overnight. There will be trials and tribulations and in the end, some will pay off. Howard named quite a few that did for him.
I would add one more to his list – PR! Public relations, when the time is right, public relations can be a potent ingredient in getting early-stage, and later rounds, of funding. Awareness, positioning and branding are essential components of any valuation process in addition to helping drive customer and revenue growth. Public relations can get VCs to take notice of your firm, or take your firm more seriously, when it’s done right. But you have to know when is the right time to make that investment….. that’s for a later post.
For more of Howard’s insights, you can visit his blog Way Too Early.
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