The truth about VC money…it’s not for you!

I am starting off this blog with the most important lesson I have learned in my 18 months as an entrepreneur: Venture capitalist funds are not for you, they are for the friends of the brothers and sisters of those who control those firms. You are probably wondering what I mean by that, so I will make it a bit more unequivocal. You see , in this start up industry it is not so much about what you know or how brilliant your idea is, it matters little to those who call the shots in those glass house VCs in silicon valley, It is all about who you know.

You have come up with this awesome idea, and it is bound to change the world as we know it, you are so confident about this concept that you decide to write a plan and shoot a CC to 30 VCs and wait for them to shower praises on your idea and throw money your way…well that’s exactly how I envisioned things for myself too. Truth is, “VCs don’t invest in ideas, they invest in people” . So if you are a new entrepreneur (a fresher) with a vision, it’s best you start making some connections quick or you pull out your phone book and start calling all those “trust fund babies” you went to school with, because in reality those are the people that hold the key to unlocking the door and making your dreams come true! and NOT VCs.

While most VCs will agree your idea is brilliant and you’ve got a lot to offer, they will tell you one of two things as well:

· We are sorry, but this is not the direction we want to go in at the moment

· We are sorry, your company is still in a stage too early for us to take part in. But feel free to update us as you grow.

But those who actually have a small bit of interest will ask you for a reference or/and portfolio, so for someone who knows absolutely no one in palo alto and has never really been involved in any startup in the past, it’s inevitable…the wrath of NO!

Before you call me anti-VC, I have to say that actually I agree with them. The way life works is such that “the broom with the most sticks bound to it looks more capable of sweeping the floor clean than that which has only a few”. They have a point. These people are also in business to make money, so why would they throw all these money at untested talent. I have to say, I have seen some absolutely worthless startups in the last year or two but they got funded anyway, why? Because these people seeking the funds know people and people know them. So if you are an aspiring entrepreneur, the most important thing I have learned is that you need and must know people to gain a good headway in this industry.

Sometime back I was completely shattered and beleaguered, wondering why no one would invest in my “totally awesome” idea. I had a chat with this CEO who also happens to be a notable investor and I am repeating his exact words to you verbatim:

I think you have been reading too many of the “urban legend” stories about young entrepreneurs getting money thrown at them on the basis of a coffee shop discussion.

In reality, it’s almost impossible for an entrepreneur of any age, who has never run a company, to get a positive response with even the best business plan.The answer for anyone in that position is to find a partner who has been there for that first startup, if you need outside investors.

Another alternative is to find friends and family funding till your startup has traction, customers, and revenue.

Another alternative is to bootstrap the first one.

See Marc Andreessen (student) – Jim Clark (old pro) Netscape story for a classic case.

After Netscape, Marc could write his own ticket, but he could get nowhere without Jim Clark on the first try.

Remember, investors invest in people, not ideas. Would you invest in someone you didn’t know, who had no track record?

Investors are people too.

This answer hit home for me and I am sure it does the same for you. I had actually read the story about Marc Andreessen and Jim clark, I also read about Mark Zuckerberg and his mentor before I spoke to this guy, so I guess I should have known. It’s a people’s game in this industry, wake up and smell the coffee.

This is not to say it’s beyond the realms of possibility for a fresher to secure a term sheet, it has happened and it won’t stop happening. All I am saying is it’s easier for camel to walk through a needle’s eye than for a fresher to earn VC coin.