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4 ways to evaluate a VC investor February 5, 2007

Posted by ravimhatre in Entrepreneur, Internet, start-up, VC, Venture Capital.
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Deciding to take outside investment from a VC firm and bring in a new co-owner for your business is a critical decision. Entrepreneurs often want to know how exactly a VC will help once they’ve invested and what could change about the way the company’s board operates and interacts with company management.

VCs can add an important dimension to the collective experience and depth of a “start-up team”. They can also deliver connections and open key doors which accelerate a company’s ability to enter the market and achieve a leadership position. However, its important to know how to assess a specific VCs ability to help and deliver on these key benefits before making a decision. Here are 4 areas to research as part of the process for determing the fit and effectiveness of a potential VC partner in helping to build your business.

1. Ask VCs to explain how they think about your business and be convinced that they have a solid understanding the model and important strategic issues — opportunities as well as risks. Not understanding the details of your business could lead to unrealistic expectations for how things are likely develop and might lead to surprise or disappointment if unanticipated “bumps” occur.

2. Ask VCs for details about their business model for working with companies. Get comfortable that your potential VC partner isn’t over-committed with existing board seats and has the ability to be actively engaged with your company. A robust set of VC network connections isn’t usefull if the partner is too busy to leverage it on your company’s behalf.

3. Ask for references from entrepreneurs and CEOs that a VC is currently working with and has worked with in the past. While these poeple are likely to be generally positive given they were referred by a VC, they will usually be straightforward in speaking about their experiences and describing how a VC reacted during challenging situations faced by the company and will also point to key contributions they feel the VC made in assisting the company.

4. Understand aVC firms culture and make sure it fits. Internal cultures and philosophies at VC firms can vary significantly. Organizationally some are more hierarchical and some are flatter. Some firms are team oriented with multiple partners assisting a company at various times while others can be more individualistic in their approach. Some VCs look to be actively involved while others assist but in a more passive role. Some VCs make fewer investments and focus on each company while some VCs make a larger number of investments per fund and take more of a portfollio approach. VCs can also have different areas of focus or emphasis for adding value to help portfollio companies. Its important discuss these issues with a prospective VC partner to fully understand their approach and motivations.

While each situation is different, researching the above topics will help to identify a VC partner who can be a good match and a supportive partner. Given the multi-year length of a typical investment commitment, its worthwile to go this diligence exercise upfront , just as VCs do for a prospective investment, to be sure there is a strong mutual fit.

We’re excited to invest in Flixster! February 1, 2007

Posted by jeremyliew in Consumer internet, social networks, startups, user generated content, Venture Capital, viral, viral marketing, web 2.0, widgets.
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Well we were hoping not to announce our investment in Flixster until they got a PR firm engaged, but Mike Arrington at Techcrunch has his sources and broke the news tonight.

We’re very excited to partner with Joe and Saran (the two founders) and the rest of the team. They have built an amazing user generated content site around movies, including ratings, reviews, actor pages, trivia quizes, movie compatability tests and tons of other stuff. Traffic growth has been truly viral and the site has grown from nothing a year ago to very meaningful pageviews per month from users all over the world. They’ve done a great job of applying social networking and viral best practices to engineer this growth.

As we’ve posted in the past, we’re big believers that this year social networking becomes a feature, a mechanism used to incent users to create content that will be of broad interest to many other users. We think that this is most interesting around verticals with endemic advertising opportunities. Web based advertisers still pay a premium for content related to their product (vs buying demographics or broad reach). As movie studios follow their audiences online they will be marketing more on the web, and movie related content will continue to draw premium CPMs, just as it does for Moviefone, Yahoo Movies, etc. Flixster fits right into this model.