Dos and Donts with VCs - What you need to know

Everything stems from this. VCs are basically fund managers. Angels are typically experienced entrepreneurs or sometimes very successful corporate CXOs, who have made their money and now want to invest in companies that created value like their companies did for them.

Either way - the math is simple. Here is a Investor mind: Banks give me 10% return on investments. Market linked investments give me 20% per year. Real-estate gives me ~%. I continue to look for better investment opportunities. On an average, any safe investment route will double my money in 5 years.

If I invest 1 Million dollars each in 10 companies, and only statistically 2 succeed: that's 8 Million down the tube, and all bets hanging on the 2 Million giving me disproportionate growth over 5 years.

To recover my cost of capital over 5 years (i.e. 10 x 2 = 20 Million in any safe route) - I need to make 20 Million from the 2 Million investment that is going to give me returns. i.e. 10x returns over 5 years.

So, investing is only good for me, if all Startups GUARANTEE me over 20x - 50x returns over 5 years in return for my money and advise and contacts.

Hear that Entrepreneurs? Does your financial plan convincingly say this? Can you indeed promise this kind of return over 5 years? Is your business that special, risk-free? Is your business a better investment proposal to the angel/VC than investing it into a Bank or Share Market?


Dos and Donts:
Think from this angle. Figure out your Dos and Dont's.

Do:
-Be ambitious, and optimistic
-Be Informed
-Be Sharp
-Be humble, and ask for connections, contacts, advise
-Be a miser and spend money carefully
-Be looking for returns, fast sales, road to market.
-Show areas were you lack experience, and need help

Do Not:
-Show a convincing and guaranteed expense report without a clue of returns
-Pretend to know anything you don't.
-Think they owe u money, you are asking for support, and they are considering it.
-Be arrogant, unless they have no choice but to talk to you.
-Take too much of their time.
-Let go of the Relationship, things go in circles and you will meet again in another opportunity.