Editor’s Note: Fundraising is tough. So more and more of you bootstrap as long as you can. But once you get close to $1 million in revenues, VCs will come calling. That’s right: they’ll come to you. Cash flow positive startups remain hard to come by. But you won’t want to talk to all of them, says Found|READ contributor, Larry Chiang. So he offers this list of VC archetypes you’ll definitely want to avoid, just as soon as you hit the $900,000-mark.
1) Mr. Armchair. He’s a Friday afternoon Chairman. He knows exactly what he’d do as board member of facebook, Google, MySpace.,YouTube. Too bad his portfolio company’s don’t get the same enthusiastic coverage.
2) Mr. One-Hit-Wonder. Yes he sold Postage.com for $200 million (and kept $15 million) so if you wanna hear war stories from the ’90s, take this GSB alum’s money.
3) Mr. Spray-n-Pray. He cites being founding CEO as his Operations experience. (Translation: He was a interim CEO for his last venture firm before company/portfolio implosion and subsequent fund implosion. His fund is a catch-all and he tries to participate in every Sequoia backed deal.
5) Mr A**!@#!-BFF all rolled up into one. He remembers to comp you tickets when your alma mater rolls into town for Stanford hoops. He’ll choke stock outta your co-founder just to up his percentage from 42.5% to 46.25%. On your board, he roasts you one quarter and sing accolades the next. He’s three times divorced and a heck of a good time to go to Vegas with.
6) Mr. Blue Blood. His IQ is double your 155. He’s 5th-generation money. He’s so far ahead of the curve that he married the trophy wife 1st (vs. other VCs whose Trophy is 2.0). His kids (age 2/4/7) can debug your DB using their PlaySchool Mac and will be smarter than you by June.
7) Mr. IRR. He’s old school and he’ll hit his rate of return goals even if he has to give birth in the first person. He goes into deals at a 45 degree entry angle. His bio doesn’t list his alma mater because the 30 companies he IPO’ed take his alloted two pages.
8) Mr. X-Product Manager. He says he’s seeking alpha, but has zero stomach for beta. Beta here, of course, meaning risk not software version. If team + market opportunity + cap table + due dilligence + angel syndicate are in perfect order, he’ll pull the trigger. Number of winners = 0, but he can pee on a parade seven ways to Sunday.
9) Mr. Regurgitator. At HBS, he did well by parroting and that talent has served him well. Once, he culled the wrong case study resulting in a buy rec on BioPay and wallah! Exit-a-mundo! He’s so lucky that in ’08 he’ll be reverse-justifying his funds success.
OK, I lied. There are 12 of them, but if I told you this, I didn’t think you’d keep reading…
10) Mr. Imitator. Read the GSB case study about a young vc getting 20% of a company for nothing (an urban myth) and has been trying to replicate it ever since.
11) Mr. Retired-on-the-Job. He’s rich but mentally checked out. Has ‘income on his cash’ is greater than ‘carry on his fund’ even if they “discover” all 3 of the next Googles. Has tracking software for houses, property, assets. One time he bought a car that he already owned. Uses duck9 sms alerts — not for credit card bills, but for which girlfriend in Austin, San Fran, New York needs ‘xoxoxox.’
And now, A Parlor Game: Match the statements below with VCs above. (Answers will be posted tomorrow!)
* He’s caught in ‘Never, Never Land’ between no real operations experience and no real finance experience.
* Extra dangerous cuz he’s never had a W2/1099 over $200,000.
* Woo him by buying his kids SAT test prep books.
* Thinks pretexting is a great way to do due diligence.
* Brings a checkbook to the Menlo Park Starbucks.
* Has his assistant print out email cuz he needs the 24 point font.
* Would interrogate your dad and calls registrar’s offices when reviewing VCs or … product demos.
* Knows the MIT of India, China, and Timbuktu.
* He’s not big on Sand Hill, but in europe he’s huge.
* Makes you work for the money by slicing his $2 million into 10 pieces with water marks you need to hit for another traunch.
* Knows all of your present and future mistakes.
* He will make a half dozen intros that are revenue opps. But he alredy knows you’ll drop the ball, and so has a CEO ready to replace you after the B-round
* He just called. He left a vm that he’ll swing by in a limo and pick you up in 15 minutes for a concert at Shoreline. You better find some non-open-toed form of footwear ASAP.
Serial founder Larry Chiang is a frequent contributor to Found|READ. His earlier posts include: How to Work The Room; and 8 Tips On How to Get Mentored .
Larry’s current company is duck9, which offers “deep underground credit knowledge,” educating student borrowers on how to establish and maintain good credit, and endeavors to graduate them with a FICO over 750. Read more about Larry and his first company, United College Marketing Services, in the Oct. 15 issue of Business Week.