May 13rd, 2014 How ripe are you for a Seed A investment - and other VC insights

What makes a startup ripe for Seed A investment? There’s the most obvious answer. “You have demonstrable revenue growth.” There’s the hopeful response:  “You’re selling more metrics and data than just sizzle.” And the standard throwaway response: “If you’ve become a revenue-focused brand.” You’ll do better with the first reaction; keep your hopes up for the second; plan long for the third.”

Last May 13, Rubicon Venture Capital’s Joshua Siegel hosted a night of VC talk and startup demonstrations at Orrick at CBS building. For the first part of the night, Siegel brought in the venture capitalists to answer his prepared questions like the one above. The VCs were Marc Michel of Metamorphic Ventures; Will Peng of Red Swan Ventures; Brad Svrluga of High Peaks Venture Partners; Nikhil Kalghatgi of Vast Ventures and Matt Gorin of Contour Venture Partners.

Elaborating on their responses regarding Seed A investment, the VCs put importance to having customer acquisition metrics and a repeatable sales process. “If you’re past the idea of product/market fit thinking, then you’re ready,” Michel said.

Still, at least two VCs said it has become harder to pinpoint what Seed A means nowadays. “The nomenclature has changed. What was an A can now be B.”

Peng said there should be a strong engagement with a group of people. “Early stage is, ‘Do people want it’ (your startup)? Series A is, ‘Do a lot of people want it’?”

What areas or sectors are ripe for Series A funding? VCs may not always give you a straight answer, because even without them saying it, the tech space is always evolving, if not converging with some other service or technology. Michel considered marketplaces, the shared economy. “Uber to me is a marketplace,” he said, before saying with caution, “Every firm will have its own idiosyncrasies.”

Really now, why can’t they say more? Peng doesn’t want to influence mindsets, “We don’t want you to change your business model based on trends, because we look for companies that come from a genuine place. If you are building something you are passionate about and you have the conviction to make it work, then we’ll take a look at it.” For a few seconds, he buckled and said food, but stopped short of elaborating. If he is talking about Soylent, look into it if you haven’t heard about it.

Asked if they work with other investors, Michel said, “We syndicate everything we do. We look for good partners and share financial risk, because most companies take time to develop.”

VCs have the resources to add value to you startup where angel investors can only provide expertise. Kalghatgi, however, is not one to share a startup with another investor if it means he’ll be hampered by what his firm can offer.  

It’s interesting how nobody talks about the difference between East Coast and West Coast investors in public, but Siegel was open to discussing it because of its presence in both coasts.  Without going into detail, he said, “We hear a lot of crazy stuff in San Francisco, (how) it’s easy to get money.”

Svrluga said, “It’s 10 times bigger (there). There are also better entrepreneurs out there.”

In New York, it seems any good VCs see through the hype—and fakery. They ask about hitting milestones that attract investors. They want the right team, the right technology, the right differentiation.”

Peng doesn’t like you buying traffic, because it’s fake growth. It makes sense because if you stop buying traffic, you don’t have anything. “Don’t go this road of lies.”

To get noticed by VCs, Svrluga swears by the power of Linkedin. “It’s the greatest referral tool. If you can’t figure out Linkedin, then you won’t be able to get the audience.”

He added how naiveté is magnified in this industry. He likes you come to him with a warm lead. For Gorin, you need a strong reference.  For Kalghatgi, have a person who knows you really well give you an accurate portrayal. Michel laid out his schedule on the table: I have 30-meeting slots dedicated to meeting new companies. But he is also quick to say how it’s physically impossible to meet everyone. Mondays are a no-no. It’s all a day of meetings.”

The presenters were Jeremy Kagan of Pricing Engine, Michael Ibrahim of Whisk, co-founders Merritt Baer and Brian Fenty of TodayTix, Peter Stebe of nextSociety and Doug Chambers of Field Lens.

Every startup tells his or her story behind the startup idea. For those starting out in New York, Stebe tells us how networking with the right people proved crucial in his life away from his home, Germany. Now he’s monetizing it with nextSociety, an iOS networking app using a relevance scoring mechanism.

In thinking about startups, determining a problem and how you can solve it is crucial to your success and VC funding. Chambers’ Field Lens answers the problem about communication breakdowns in construction work. He has a solid team, another important ingredient in a startup.