Audio: Venture capitalists and entrepreneurs talk about funding realities in mid-2015

(iStockphoto)
(iStockphoto)

Sharing some audio and highlights from a panel I moderated back in June, featuring a mix of Boston founders and venture capitalists…

The investor panelists were Rob Go of NextView, Jeff Bussgang of Flybridge, and Rudina Seseri of Fairhaven. Representing the entrepreneurial perspective were Anna Palmer of Fashion Project, a clothing resale marketplace, and Nick Rellas of Drizly, the liquor-delivery app. The session took place at BostInno’s State of Innovation event.

Some bullet points of what we discussed:

 How do you connect with VCs?

      Palmer’s advice: “Get intros from other entrepreneurs, stalk them at conferences.”

Bussgang: “I think social media is a really bad way to get introduced to a VC … the best way is to get someone who knows you, trusts you, and will vouch for you to make an introduction, if they have street cred and the respect of the investor. Some people will say they are well-respected by the investor, and they may not be.” The ideal, Bussgang said, is someone who the investor has invested in before, who has made money for their fund, has advised their companies, or has co-invested with them as an angel.

Rob Go: It’s a ground game. You’ve got to get to know everyone in Boston connected to your space. Go cited GrabCAD founder Hardi Meybaum is an example; Meybaum moved to Boston from Estonia to participate in the Techstars accelerator. “He’d invested the time to be known by anyone in the community that mattered in his industry,” Go said.

• How much time do founders spend fundraising?

Rellas: “It’s 30-50 percent of the day when you’re fundraising,” he said, “but the company has to move forward” at the same time you’re meeting with prospective investors. “That’s one of the hardest parts — not letting it consume you, but being able to move both things forward. But that’s your job as the CEO.”

 Are we in a bubble?

Seseri: “Oh, I think valuations are pretty high. Other people have called it a bubble. I don’t know how long it will last, but I think we have sub twelve months, in my view.”

• Minorities and women in entrepreneurship

Seseri said strives for a balanced portfolio — 50 percent of companies run by women, 50 percent by men. “We as VCs are leaving money on the table, on our returns, if we’re only looking at a certain percentage of the population and not incorporating the rest.”

• The “slow no,” the “infinite spreadsheet,” and what VCs want

Bussgang: “When I was an entrepreneur, it would absolutely drive me crazy when VCs would waste my time and string me along … as opposed to being crisp with feedback — yes, no, why, here are the things you need to do.”

Seseri: “The no should be immediate, as soon as you know.” She added that when that happens, she tries to make introductions or raise questions that may help the entrepreneur.

Go: It’s easier to say no when it can be directly correlated to an attribute the entrepreneur doesn’t have. An example: “If you’re starting a consumer social application, and the person who is starting the business can’t code and has no design sensibilities, that is a problem.”

Rellas: “The only thing worse for me than the slow no is the literal non-commit. ‘Let me stand right in the middle and wait. I think this is gonna be a thing. I’m just going to wait a little bit.'”

Palmer talked about being asked by investors to tweak “the infinite spreadsheet,” adding or adjusting projections about the business. “You’re kind of making it up anyway. What’s going to happen in 2018? It takes so much time and effort, and both of you know that it doesn’t really matter.”

Go: “Fundraising is about finding true believers, not convincing skeptics. That does not mean you shy away from a productive conversation around your business model or the levers that matter.” It can be wise to move on if you feel like “you’re on this endless treadmill,” he said.

Seseri: “VCs are looking for one word: execution … execution in product development, in building the company, in scaling.”

• How Boston can improve

Bussgang: Of the “unicorn companies” valued at $1 billion or more, just three are from Boston. “Money follows the opportunity.” He added, “Our pipeline is excellent, in terms of pre-IPO companies and growth stage companies. The entrepreneurial ecosystem feels very vibrant. But there’s still this cognitive dissonance when investors look at all the big valuations being created on the West Coast, a few in New York, and even fewer in Boston. It’s concerning.”

Seseri said we have “a lackluster record in Boston about backing younger founders,” a problem with social media and other emerging sectors that young people understand better than their parents. “Boston invests in professors and the West Coast invests in students. We need to change that, or else we will miss out.”

Palmer said he is concerned that while startups building consumer apps or products in Boston can raise initial funding, there are “not that many firms in Boston” available to make later-stage investments. Finding employees with experience marketing and growing consumer businesses can also be tough.

Rellas: The dearth of consumer startups in Boston is “self-fulfilling if we continue to talk about it. Just build something people want to invest in. It’s that simple.”

• Just one slide

Here’s one of the “survey slides” that we showed during the session … the VCs and the founders had sharply different takes on this topic.

surveyslide

Scott Kirsner writes the Innovation Economy column every Sunday in the Boston Globe, in which he tracks entrepreneurship, investment, and big company activities around New England.
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