The VC business is a funny one and, in my sixth year at it, I am amazed at how much I am still learning with time.  One of the fascinating things about the business is the way VCs process deals, known in the vernacular as “deal flow”.

On the one hand, a VC wants to see absolutely every start-up that is happening out there, particularly those led by high quality entrepreneurs.  Obviously, the more high quality deals you see, the more likely you will have the opportunity to select a high quality deal to do.  But there’s a more subtle benefit to high volume, high quality deal flow.  Looking at as many deals as possible makes you a better investor - you learn something from every deal you see and are able to detect patterns that can help you in deal selection.  A VC with good deal flow may get an opportunity to review as many as 300-500 deals per year.

On the other hand, a VC only has the bandwidth to do one or two deals per year (assuming they are an “active” VC that joins the board of the companies they invest in - “passive” VCs who don’t join the board have greater deal capacity, perhaps three or four per year).  As is the case with any sales process, there are many stages to a deal.  Typically, a deal flows from the first meeting to the follow-up meeting to the light diligence (in-person visit, a few diligence calls) to heavy diligence (extensive market, competitive and technical due diligence as well as personal references) to partnership buy-in to term sheet to close.  To beat the long odds of, say, 300:1, a deal must be compelling at every stage in the process to flow through — VCs are always looking for ways to say “no” more than they are looking to say “yes” (see related blog post:  “Dr. Seuss and the Land of No”).

As one wise old VC once told me, “the trick in this business is to spend very little time on alot of deals, and then alot of time on very few deals.”  In other words, see everything to be a better investor, but exert a very tough first filter so that you only spend time on very, very few deals.  In my experience, a typical VC has the bandwidth to actively “spend time” or actively work on only one to two deals at any given time and perhaps 10-20 in a year — as compared to those 300-500 they get exposed to.

What’s surprising to me is that entrepreneurs often don’t seem to know where they stand in the deal process.  Admittedly, VCs aren’t known necessarily as great communicators!  But as an entrepreneur, you should know whether you are clearly one of the one or two most important new deals the VC you’re talking to is working on.  If not, then you know your deal isn’t going to get done and stop wasting your time.  The odds are just too long that you’re stuck at the wrong end of the funnel.

Venture Debt For Startups

风险投资是股权，同时也可以是债权，尤其是当你向对方保证自己的未来的milestone时候，这也是一个可行的办法，当然，这个思路比较适合和天使投资人来谈。

I always thought it was crazy for early stage companies to take on venture debt. Here’s a company that just raised $5MM of venture capital, is burning $300K per month and they think it’s smart to raise debt?!? I admit that my view is colored by my one experience raising venture debt in 1999 which did not end well (for anyone). So recently, I decided to take a look at venture debt and talked to about a dozen lenders, quite a few startups and some other industry experts. To my surprise, I found that in some cases, it does make sense.

First, a bit about venture lenders. Various estimates put the number of firms that have serious venture lending businesses at 20-30 in the US. My take is that there are three categories of lenders: (1) banks, (2) dedicated funds with “stable capital” and (3) dedicated funds without “stable capital.” By stable capital, I mean a fund that raises capital from limited partners similar to a venture capital fund. The capital is committed for a specific period of time (like 5 or 7 years or more). Bank-backed venture lenders are regulated and tend to invest in less risky areas (like capital equipment or receivables financing). Dedicated funds tend to be more aggressive and invest in “growth capital” (more on this later). The permanency of capital is an important factor as this can have an impact on the borrowers stability of capital and the willingness of a lender to work with the borrower should the company hit a rough patch.

For startups, there are three main types of venture debt: (1) equipment financing, (2) receivables factoring and (3) growth capital. There are other types of borrowing (e.g. acquisition financing, but I’m focusing on these three categories for now). Equipment financing is borrowing tied to a specific capex purchase, e.g. building out a NOC. Receivables financing is useful for companies that have material A/R against which they can usually borrow as much as 80-85%. Growth capital (also referred to as “stretch equity”) has availability tied to venture metrics and is useful when the startup can use the extra capital to reach specific business benchmarks beyond those achievable with equity financing alone and that will provide a material step up in valuation (or insurance that they meet those already committed to).

Some key terms/rules-of-thumb for venture debt include:

* Availability: A/R factoring - up to 85% of receivables; equipment financing - up to 100% of specific capex; and growth capital - up to the cumulative amount of capital invested by the lead investor (minus any other debt).

* Repayment: 3 to 12 month interest only period followed by up to 36 month interest plus amortized principal period (i.e. up to 48 months).

* Rates: For working capital financing, a good rate would be prime +1% and for growth capital, a good rate would be prime +3%.

* Warrants: Expect 6-12% warrant coverage on growth capital. That means take 6-12% of the loan principal and convert that into an at-the-money warrant to purchase an amount of shares at the price of the last equity round.

* Covenants: With growth capital, you can avoid them (including a “MAC” clause), however, most working capital loans will have them.

The process for raising venture debt is straight forward. The borrower will require some material (which you probably already have from raising your last equity round) including:

* Powerpoint pitch deck
* Financials since inception
* Current cap table
* Board approved forecast
* 1-hour meeting with the CEO to get the “pitch”

After reviewing the materials and the initial meeting above, a lender will issue / negotiate a term sheet. Once accepted, that will be followed by a half-day diligence meeting with the management team, legal documentation and closing. The whole process typically takes 4-6 weeks from term sheet to close.

So in terms of who to borrow from, my assessment is that banks will offer the best price but on the least favorable terms. The dedicated funds will offer the most flexibility, but will cost more. Consequently, I’d go to banks for equipment or receivables financing, but to the dedicated funds for growth capital. If you think you’ll need both (i.e. both equipment/receivables financing as well as growth capital), I’d go to the dedicated funds for growth capital first and then work w/ banks to get additional financing later.

　　我想说两件事情：一个是跟普林斯顿大学有关的，这个问题就是说我们如何看待世界金钱的流动，而且中国在整个世界的资本流动中扮演什么样的角色。第二个事情我想讲的是风投投资家在过去的十年当中，他们的好，他们的坏。为什么突然之间大家都对风投那么感兴趣了。有一个案例，赛富目前是管理着差不多22亿美金直接投资基金，80％是投资在中国，20%是在印度。80％投资事实上是来自美国，普林斯顿大学是我们最大的LP，15%的投资来自欧洲，只有25％来自于亚洲，在过去7年当中赛富获得了显著的回报，是远远超出了行业的平均水平。我们整个内部报酬率每年超过了百分之百。在过去12个月当中赛富有6个投资项目都上市了，其中四项都在美国上市的，可以说这是一个很了不起的成就。那么赛富在6个公司所做的投资总额达到了9500万美金。

　　目前6个公司的市场总值加总差不多达到了25亿美金。最高峰的时候其实这个市场总值要达到32亿美金，但是这里有一个数字不是5家公司应该是6 家公司。赛富当然是在投资中获得了相当丰厚的收益，当然我想最终的赢家或者最大的赢家应该是中国的企业家。我们从资本市场所获得的收益当然一部分是回到我们的LP手里，也就是美国的投资者手里。但是我想说，真正的最大赢家应该是我们中国的企业家。因为大部分我们在国际上所融到的资本最终还是回到了中国。可以说，我们这些投资是创造了双赢的循环周期。不仅仅是对我们的国际投资者，对我们中国企业家，对于中国经济来说都是一个赢家的局面。

　　大家都知道其实这个资金流动最终是形成了一个圆圈。美国的投资者投资到中国的企业上来，中国的企业又到美国去上市，这个资金又会流回到中国，然后又流回到美国，这是一个圈，后面我也会提到。我们感觉到中国其实是有很多钱，是有很多资本。这就形成了，可以说中国投资的局面矛盾性，看一下中国的人均 GDP，可以说世界上中国要排名的话还是比较靠后的。但是另外一方面中国已经超越了日本，成为了世界上储蓄率最高的国家，也就是40％的家庭收入都放到银行的储蓄帐户里面去了。这也就意味这中国可能是拥有世界上效率最低的金融市场之一。我们看一下去年统计数字，在商业银行中的储蓄额超过32万亿人民币。这个年度的回报率也就是在3%到3.5％左右。大家记得如果在去年中国的通胀率根据中国官方所公布的数字差不多是6.6%.真正的通胀率可能比这个还要高。大家可以想一想，那些放在银行里面的钱其实是负回报的。32万亿元可以占到中国整个市场中的现金量90％.但是相比之下比如说发达经济体，美国和日本，他们的商业银行储蓄只占到了整个金融市场现金总量的50%左右。大部分的美国市场钱都是分布在不同的资产类别中去了，比如说风投、私募、对冲基金、共同基金等等，那么这些资产类别的回报要远远高于商业银行储蓄的。

　　那么为什么中国如今成为了风投的天堂呢？因为如果说我想创造一家企业尤其是软件或者是高新技术企业公司的话，我在中国要想开创这家企业，要不然就要从我亲戚那里借钱，要不然就是靠我自己的储蓄，此外没有办法去融资，这就形成了风投进入中国一个巨大的机遇，一个契机。

　　中国风投的好与坏。大家知道中国的风投和私募在过去2到3年中出现了长足的增长，我在VC/PEs中国基础设施基金工作了18年，之后我才加入了赛富。之前的10到12年我们通常把自己的工作描述成穿越一个超长的隧道，这是一个黑暗的隧道看不见劲头看不见光亮。我记得在2001的时候我有一个好朋友Gray，他带我进入了风投产业，当时是互联网的泡沫刚刚破灭的时期，当时在美国整个硅谷投资的景象是十分惨淡的。所以，那个时候投资者就把目光投向东方，当时是10亿美金的资本量，Gary就开始把目光投向了中国，我们就谈到了中国的风投。当时可能中国都没有几个人了解风投是什么？那个时候中国人就把我们看成是皮包公司了，但是说到底这还是没有说错，觉得有很多资本手里有钱但是好像没有实体，连张支票都不给写的，所以就认为你是手上拎的皮包。所以中国人说的皮包公司是一个贬义词。指那些人手里并没有什么实业，只是拿着皮包到处忽悠人，这是一个贬义词。所以当时的风投企业给人们的印象是负面，一直以来人家都当我们是皮包公司。

　　在很大程度上，关于我们在中国的投资，我们一开始是在盛大投资了，然后盛大就上市了。到2005年的时候人们慢慢意识到在中国风投也可以赚钱，在盛大之后我们又投了像分众传媒呀、百度呀、阿里巴巴这些非常好的项目。从这个时候才看到中国风投的蓬勃发展。这是很短很一段时间人们就已经忘了风投以前的样子，我记得后来有一次我去抽钱，我跟我的合作伙伴说肯定能融到钱，但是我心里其实蛮害怕的。别人劝我说，你别担心，肯定能够融到比你想像中还要多的钱。的确我同事说的非常对，他非常的聪明。

　　现在国外的风投对于中国市场的性质变得非常高，包括私募基金在中国已经开始了业务运营。有一些老的风投企业，他们原来业务半径也不过30英里左右，都集中在美国，但是现在已经开始认识到来中国。另外对于那些其实不在中国投资的人来讲，也要考虑到中国的因素。无论是作为一个外包的市场还是作为一个终端市场，这也是一个新的发展。

　　另外，现在出现了一个新的现象，就是机构LP开始对中国真正感兴趣。12个月之前，我们收到几乎所有大牌的LP包括中东的石油、大的养老基金、挪威政府投资部门是主权投资部门，他们都跟我们讲对中国投资感兴趣。还有现在国际市场对重要的IPO要付溢价的，我记得早前的时候所有上市企业在美国他们都是要折价10%到20%，那个时候叫做中国折价。后来我在中石油买了股票，这家公司非常棒，在纽交所上市，但是结果没有人想买中石油的股票，这完全就是一次失败的IPO。

　　但是现在可不一样的，去年在美国有几家中国的石油企业上市。我们现在开始付中国溢价，所以中国的股票是有着从折价到溢价的过程。而且这个溢价的增长速度是非常的快。为什么现在风投、私募在中国投资这么热，这些都是有原因的。首先，中国的经济增长确实是非常快的，有着巨大的国内消费市场，固定电话、有线电视、移动电话、个人电脑市场都是最大的。而且还有宽带，这也是最大的，今年中国已经超过美国，成为全球最大的宽待市场。还有成本上的优势是中国成为世界工厂，中国已经成为世界上最大的芯片外包地，私营部门在规模和数量上都达到了一定的程度。

　　我每次跟人家谈判我都特失望，因为我每次都是最老的那个，所以我特别愿意和Dake一起去开会，他比我年纪还大。几年前我去开会，总觉得我是最年轻的。然后还给我的美国同事当翻译，因为所有的美国同事虽然比我年纪小，但是他们都长大胡子，所以人家以为他年纪更大。不管怎么样，中国现在的企业家都很年轻。我记得以前大多数我的谈判对手都是国营企业的领导，都是银发的，现在倒过来的，现在99%的投资都是投资在私营企业，而创业者往往是第一代创业者，平均年龄不过30多岁，所以我总是最老的那个。十年前你很难找到一家私营企业，它的资金需求是超过1000万美元的，大多数公司它的资金需求都比较小，需要大资金的都是国企。在浙江你可以找到几千家私营企业，他的资金需求会超过100万美元，这没有什么奇怪，太正常了。另外政府也在不断推动国企进行私营化的改造，这对于风投和私募来讲都是机会。去年“十六大”政府推出了私有化的策略。

　　风投怎么赚钱呢？只有两种办法：第一就是创造价值，还有就是套利。在过去30年中，中国的经济改革取得了巨大的成功，大家可以想一想这是很了不起的一件事，在人类历史上是前所未有的。我觉得可能是最大的一次财富创造运动，在人类历史上从来没有发生过这么大的人类创造运动。应该说，在二战之后日本是经历了20年的飞速增长，日本是1960年到80年代中期，到后来就是“亚洲四小龙”，在80年代以后也经历了经济繁荣。但是中国这个规模大太多了，是世界人口1/5所在的国家，经济增长从来没有停过，在过去十几年当中始终保持两位数的增长，这实在太了不起了，是难以想象的。我们老是在抱怨中国政府，但是你不得不承认改革确实很成功。在这方面做的确实很棒，在推动中国经济发展做的确实很好。

　　银行体系的国有化还缺乏信贷评估体系，使得中国成为全世界资本运用率最低效的国家，这个我刚才已经解释过了。中国的竞争力我想很快谈一下，中国是一个巨大的时间大家也非常清楚，是全球的制造中心。在这边我想提两点：第一，中国以前是产品质量低下。我记得80年代中期我当时到美国是一个学生，我看中国制造的产品，唯一看到就是亚特兰大的便宜货，然后一元店你到那里买东西所有东西都是一元钱，但是现在你看到美国所有商场各个角落都是中国的产品，以前中国的产品质量比较差，现在中国的产品是物美价廉，不能说是高端产品但是绝对是物美价廉。我在日本的时候读一个报道就是关于中国产品怎么进入国外市场，标题就是物美价廉中国货，我觉得这相当了不起。日本的人很挑剔的，不会说这个东西质量很好。

　　中国成本上的优势，尽管是非洲、印度还有越南你能够找到更低价，但是中国有一个特别强的优势就是有着大量的人才。中国每年有30万的理工科的毕业生(这边指研究生)，另外还有在美国相比而言理科绝大多数都是外国人读的。比如说，我的女儿也在普林斯顿大学读书，我就劝她说，你读一读理工科吧，计算呀什么的，你可以好找工作，到任何地方都可以。她跟我说，老爸我才不想读理科呢？所以这就是现在美国小孩的价值观，根本没有人要去读理工科的。我觉得这就是中国的竞争力在人力资源上的强势的地方。

　　中国也是新商业模式诞生热土，中国很多年以来一直都是抄人家的，美国有雅虎，中国有新浪，美国有亚马逊，中国有当当，所以所有东西都是抄，这个在中国目前来说还很管用的。三、四年之前我们看到一个有趣的现象，中国开始创造自己的新的商业模式，在世界其他地方我们都没有见过，是在中国诞生的。中国有很多这样的例子，比如说分众传媒、阿里巴巴，在世界其他地方这种商业模式不成功，在中国第一个地方这样的商业模式大获成功。在过去30年里资产类别美国的风投回报是最高的，这是因为在硅谷那边相对比较好的投资环境。其中还有一个原因就是美国的风投和高科技企业、新科技企业和新的商业模式联系紧密。比如说在雅虎投资，在google投资，在亚马逊投资，这个回报率是几千倍的，而且他们确实应该赚这个钱，因为这是人类历史上第一次出现新的商业模式，你能抓到的话你赚钱当然了。所以作为风投家来讲，创建新的商业模式对我们来讲是非常非常有意思的。

　　我说过中国的资本市场是最低效的，对我们这些人来讲反而是一个好事，一个好机会。刚才说的很多关于中国的好话，但是这边我还想稍微提一下中国市场上的一些问题，一些不太好的方面。现在中国还是没有法律框架来支持风投和直接投资，比如说现在的《证券法》还是不承认可转债然后优先股、优先股权等等，这些对于风险投资来讲非常重要。还有不承认LP和GP的结构，还有双重征税、三重征税这种事还没有解决。现在能够在A股上市了，非常好，我们有的投资项目企业已经开始这样做了，但是要三年封闭期，这样流动性就太成问题了。还有外汇还是管制的，不能自由兑换的。从《十号令》颁发以来，没有任何外资IPO得到批准，2006年10月份颁布的《十号令》，还有在很多领域外资是受到控制的，比如说媒体还有贸易，但最最糟糕的就是太多人可以跟你说，“不行”，很少有人有权利跟你说“可以”。

　　我们可以做什么样的预测呢？一个知名的学者他说在中国唯一确定的事情就是不确定性，所以你要预测中国发生什么事，这绝对是一个可不靠谱的事情。但是不管怎么样我们尝试一下吧。中国还会成为最复杂的投资地，对于外资的风投私募尤其是对于这些收购基金。在接下来的几年当中许多基金将会有很多好的投资，但是最关键的是可持续性，应该说小的风险基金也能够融到很多钱。还有就是很多公司会在波动的时候快进快出了。在我从业的这些年我已经看过两次，巨大的波动，尤其是美国的风投企业，他们就是有这样的风气，一旦市场很好大家一拥而上，一旦市场出现拐点大家一拥而出。

　　但是那些在本地有着决策力，却有可能成为最终的赢家的人，也就是说能够持续不断的，要结合本地的团队、有本地的知识，才能成为赢家，请大家一定要耐心，才会带来回报。

　　风投基本上什么方式都可以接受，关键是你的东西。风投里面有不同的风投，有些风投是专门做早期，你刚才讲的可能是种子期的投资人，这取决于各个基金的情况不一样。像我们基金属于比较大的，比如说几十亿基金很难做很小的，比如说50万美金、100万美金的投资。各个基金不一样，可能有一些做早期的基金，你找熟悉的人给你介绍一下，如果你找KIC可能人都不理你，就把你挡在门外了，你要找一个熟悉的人引荐一下。

　　其实社保基金包括国家开发行找过我们好几次了，从我们来讲，我们是做事比较谨慎的。因为我们同时又外币基金也有人民币基金，那么你怎么安排使得所有投资人的利益不会有冲突。因为人民币基金外资投不进来，这帮人精力到底放在外币基金上还是人民币基金上，这是非常重要的问题。大概很快我们也会做这样的基金，我觉得这是一个好事，长期来讲对于本土的VC发展是一个很好的事情。

A lot of our best friends are just friends because they were there–just pure dumb luck. They were “there” the night you broke up with your college significant other and they stopped you as you were crying in the campus quad or some such story and they stuck. Such interactions were easier back in college as you lived out the most important times of your lives in close proximity to other people your age.
There are also the people who aren’t necessarily your best friends, but who you just seem to spend a lot of time with: Co-workers, teammates, people you volunteer with. Again, it’s all about the randomness of just being there.
Blogging and the web bring with it an interesting dimension, because the life that only a select few used to be privy to is now, more and more, being consumed by all–indiscriminately. You can’t really treat any of your blog readers as special because they’re all getting the same content. Sure, maybe you could direct message a Twitter friend, but building a really strong friendship 140 characters at a time isn’t ideal either.
I recently shared something pretty sensitive with a slightly more professional friend that I don’t get to see all the time and at first she was kind of taken aback. She didn’t know what to do, because people don’t usually just come out and share the information that I showed her. The fact of the matter was that it was one of the few important pieces of content I have that the rest of you don’t get to see. Contrived, perhaps, but I showed her because I wanted to say, “Hey, listen, you’re the kind of person I want to have in my life and life’s just not naturally bringing us together in a friendship the way I want it to.” That happens a lot and sometimes you just have to nudge things a little.
Building up relationships and trust is easier than you think because of online tools, but building that small set of just a handful of people you can really reach out to and depend on is almost harder because of online tools. How do you demarcate the special folks when everyone else in the world gets to see most of what they do anyway? It’s like creating a VIP section in a theater that only goes 5 rows deep and is completely in the round.
So, at least for a moment, I found a way and formed a new bond based on exclusivity… so just keep in mind that as much as you all think you know about what goes on in the other side of the blog, someone got to see something different that I don’t think I want to share here. My world isn’t totally flat… yet.

Why Startups Fail

An entrepreneur recently asked me

why startups fail. Startups fail because they run out of money. You’re probably thinking, “Tell me something I don’t already know!” Read on and you’ll see that statement is deceptive in its simplicity.

They spend too much on sales and marketing before they’re ready. Many venture companies move to a high burn rate too quickly and it’s hard to go back. Sometimes even a frugal entrepreneur winds up spending too much either because he doesn’t manage the money or is tempted by having money in the bank. This often happens when a startup raises too much money too early.

Other times, this occurs with entrepreneurs who are accustomed to having lots of resources. They ramp up sales before the product is ready. Of course, there’s a lot of work required to get sales early on. But a product with a truly great value proposition that delivers in a measurable way will practically sell itself. Companies that ramp sales and marketing too soon waste a lot of money.

Sometimes even when the product is great, the sales process itself isn’t understood to a point where it can be scaled: who are you selling to, how much will they really spend, and what profile of sales person does the company need to hire who will succeed at selling that particular product. All of this has to be understood before sales can efficiently scale.

Spending on the sales and marketing operations means there is no return if customers don’t bite. When you spend money on the product that work can be leveraged in future versions. (In fact, the key to effective product delivery is to try a lot of things and see what sticks.) For every venture dollar invested, I estimate that more than two-thirds go into sales costs and only a third into product development. Once you up the burn rate, there’s no easy way back.

The market outpaces the startup’s ability to execute. When you’re in a race, the only thing that matters is winning. To win a race, you have to be the fastest.

In the case of the startup in a hot sector that means how fast do you make critical decisions, hire key personnel, and manage limited resources. If, on average, you’re slower or less efficient than your competitors, you’re very likely burning more cash than they are as well. The chief executive sets the pace. If the CEO dithers on important decisions – let’s say making key hires – it slows the whole operation.

Take Company X (a composite). Entrepreneur X caught a case of what I call “analysis paralysis.” He took 14 months to hire for a key position. At Stanford, my professors would ask: “Would you choose X or Y, or do you need more data?” Students often wanted more data. The professors would chuckle and call them on it: “There is no more data.” A simple, but valuable lesson: In the real world, you rarely have a complete picture. You have to work your hunches, draw on past experience and the available information. Unlike solving engineering problems, there is no perfect answer when it comes to hiring – you need to get all the data you can through references, interactions, and simulated projects, but ultimately it’s very subjective.

There is no Entrepreneur. I know what you’re thinking, “Every startup has an entrepreneur.” What I mean is an entrepreneur with a capital “E.” Let me explain: A lot people have good ideas and some are even able to execute on them. But rare is the man or woman who can take an idea and transform it into a sharply defined product and then sell it to top-level prospective hires, investors and customers. An Entrepreneur as opposed to his lower-case counterpart is a product picker and a market visionary.

Company Y (a composite) was a startup with near-flawless execution but no clear vision. CEO Y tried his last company’s strategy and when it failed found himself at a loss for what to do. The company ran out of money and was forced to sell out for a pittance. Meanwhile, CEO Y’s main competitor was more nimble. He reacted quickly to market changes with a viable contingency plan and as a result sold his startup for many times that sum.

Without strong product and market vision, a startup will burn through cash as its team collectively struggles to define its position.

The market takes too long to develop. Often, entrepreneurs are ahead of their time. Customers are not ready to spend money on or change habits for unproven benefits. The company runs out of money waiting for the market to develop or it tries to start over, but it’s too late.

Company Z (a composite) had a compelling concept, but customers weren’t ready to buy in. CEO Z proposed a restart: Rather than sell to the market segment he was in, he would target a different market segment. As a result, he would significantly reduce Company’s Z’s sales and marketing expenses. Company Z was mildly successful with its new plan, but burned through lots of cash before it re-configured. My guess is that it will be bought for little more than the amount that’s been invested.

Risky Business
VC’s play a high-risk game. We have to identify opportunity and risk and then accept that a certain amount of that risk will result in failure. Venture capitalists lump failures into one of two categories.

A failure like Company Z’s: A startup that struggles for reasons beyond the entrepreneur’s control. Things look good, but ultimately mainstream customers or a large volume of users were unwilling to take a chance on a new concept. Skilled execution and a reasonable backup plan won’t compensate for a market that fails to develop as quickly as originally anticipated. Some entrepreneurs are able to switch markets completely early on – if they haven’t raised and spent too much cash. But in this scenario, all companies in the given market flounder or fail. It isn’t a desired outcome but it’s not for lack of trying.

The painful failures – those that keep me and other VCs I know up at night - are the investments that fail due to self-inflicted wounds. A competitor winds up owning what turns out to be a very large market. The other company simply moved faster and out-executed.

It’s not just how fast you run the race that matters. It’s how fast the race is run. When it comes to startups, speed wins. But if you’re still early, don’t increase your burn and overspend on sales and marketing before you’re ready. Sometimes you have to slow down to speed up.

In this article I will talk about investor management. This is probably the area of most complaint that investor’s have of a company. Basically the scenario typically goes something like this:

The company is pitching for funding. Throughout the pitch & due diligence process it is the number one priority of management & management takes the time to work through the funding process with prospective investors.

Upon closing, the company gets the funds & management goes about applying them to help grow the company by ramping up development, executing marketing campaigns, etc. As there are never enough hours in a day for people involved in a startup, this takes up management’s total focus in time. Investors do not hear anything.

As with any startup, things do not go exactly according to plan. Development takes longer, sales cycles take longer, etc. The original financial plan goes out the window and more money is required. Management then goes back to its investors looking for more money. Investors are lukewarm given they have been in the dark and wonder it its worth investing more of their money.

What separates the good companies from the rest are ones that appropriate manage investor relations. This boils down to 2 aspects. First, know your investors and second, establish a consistent communication channel & frequency.

As I discussed in a previous article, angels have a variety of backgrounds and motivations for funding companies. Some want to play a hands-on role in helping to grow a company, others are more passive. For the investors who are not directly involved in the company (i.e. not on the board), get to know them. In your first round of funding, you will probably have a small number of investors. Get to know their backgrounds and discuss how closely they want to be involved in helping the company. For those that do want to be involved, tap into their expertise/network when you are looking to find a supplier, get an introduction to a client, etc. As most angels are well established in their professional careers they have an enormous wealth of knowledge and expertise that can be tapped to help. If they are actively looking to be involved, it’s in everybody’s best interest to take advantage of this.

For the overall group of investor’s in the company, you should establish a regular communication mechanism and stick to it religiously. This could be something along the lines of a monthly or quarterly investor newsletter. In it, topics such as the following can be covered:

• Sales successes
• Sales pipeline
• Product development updates
• Issues & challenges
• Up-coming events or conferences

This would be in addition to financial statements or other required deliverables as specified in the term sheet. The main thing is to establish consistency so the investors know when they can expect to receive a communication. This will help align investors to the company as it grows. Their investment makes them important stakeholders in the company and offers a pool of expertise that can be leveraged to help the company grow.

As always, if you have any questions, comments, or suggestions for future articles feel free to contact me: craig at mapleleafangels.com

　近日，《第一财经日报》得到消息，现任中华创业投资协会（CVCA）主席熊晓鸽，将于2008年任期届满。现任中信资本首席执行官的张懿宸已被CVCA理事会一致推举为下届协会主席，并将在2008年10月正式就任。此外，凯鹏华盈创业投资基金执行合伙人汝林琪将替代周志雄担任CVCA理事一职。
　　就本次换届消息，中华创业投资协会相关人士告诉记者：这只是一次正常的换届，以前的熊晓鸽更熟悉媒体和新能源，而未来的主席张懿宸是政协委员，上任以后将会促进整个行业与政府之间的对话和沟通。
　　中华创业投资协会是一家创业投资和私募股权投资基金的行业协会组织，成立于2002年中，目前已有逾100家会员及联席会员公司，其中大部分是以大中华地区为重点投资市场的创业投资和私募股权投资基金管理公司，其累积管理的资金规模超过1000亿美元。
　　此前，熊晓鸽刚刚发起过协会内数家会员对四川汶川大地震的捐款。中华创业投资协会相关人士透露：会员公司共募捐善款人民币3235294元，而且还在不断增加中。熊晓鸽在任期间的主要任务就是增进人们对创业投资和私募股权投资的了解；为会员搭建经验分享、联谊和沟通的平台。
　　除去熊晓鸽在中华创业投资协会的职位以外，其IDGVC创始合伙人的身份更为大家所熟知。被业内称为“中国引入高科技产业风险基金的第一人”的熊晓鸽，不仅仅是因为他在中国十几年的风险投资职业生涯而扬名。担任中华创业投资协会主席期间他促成了百度、金融界、空中网、盛大、前程无忧、聚众传媒、阿里巴巴、携程、易趣网、网易等众多优秀投资行业的经典案例。
　　而未来即将上任的张懿宸，很多熟知他的人都对他予以“开明、幽默、善于沟通”的评语。张懿宸曾工作于美国格林威治资本市场公司、日本东京银行美国证券公司、香港兴汇金融顾问公司及于美林证券（亚太区）担任董事总经理。
　　张懿宸2000年加入中信泰富集团，在中信资本成立之前任常务董事。两年后又被中信集团董事长王军点将，在香港成立首只专注于内地市场的直接投资基金“中信资本中国投资基金”，并表示要将其打造成“中国的黑石基金”。
　　同时，张懿宸是第十一届全国政协委员，兼中国股权投资基金协会发起人及副会长，并筹建在港海归会。业内人士都表示：“他知名度非常高，有很强的人脉关系。”
　　对于本次接任中华创业投资协会主席一事，中信资本中国投资基金副总胡庭华对本报表示：“这也是刚刚才知道的消息，张懿宸恐怕也还没时间考虑上任后的举措。”上海创业投资管理公司总裁陈爱国也表示：“作为行业协会，更重要的是凝聚资源，提供平台，把创业者和创投公司更好地联系在一起，张先生继任以后，希望能够继续发挥公共性机构的优势，更好地发挥投资行业在整个经济发展中的作用。”

While no two VC firms make decisions the same way, there are a few models which have developed based upon several constraining factors.

In an ideal world every partner at a VC fund would spend considerable time evaluating each startup that they invest in. This would enable the fund to benefit from the diverse perspectives and experiences that the various members of the partnership bring to bear, ultimately enabling the partnership to make better investment decisions.

However, evaluating a business takes a lot of time and is an accretive process. As a partner learns more about a company they are more likely to uncover investment risks. As a result, it is critical for there to be continuity in the due diligence process – VCs want the same person digging deeper and deeper. If every partner was trying to become a specialist on the same company, the firm wouldn’t be able to evaluate many companies.

Given all of this, in a world where the only goal is to make the absolute best investment decisions every time, it would be optimal for every partner of a VC fund to focus all of their time on the same deal until they are ready to invest. Unfortunately, that’s not realistic because each venture fund needs to deploy a target amount of capital in a given time period in order to meet their investor’s expectations. In order to meet these expectations, partnerships collectively need to evaluate numerous businesses at any given time. As a result, in order to make enough high quality investments in a given time period firms “divide and conquer”.

This dynamic has led to the creation of a few different decision making models which I have described below.  It is worth noting that not every fund’s decision making model will fit cleanly into one of these categories, however, this framework should give entrepreneurs a way to think about how a fund’s decisions are made (see Disclaimer):

• The Union: In small firms (typically no more than 5 partners) one partner will lead the due diligence effort, but provide frequent updates about their finding to help all of the partners remain relatively knowledgeable about the deal as the lead partner learns more. When the due diligence phase is complete the partnership requires a unanimous (or close to unanimous) vote to approve investment.
  Pros: This model enables the partnership to leverage the diverse experience of the partners to make better decisions.
  Cons: This requires a significant amount of time from the partners who are not leading the due diligence effort.
• The Federacy: Firms that are too large to use the consensus model, because it is too time consuming to keep all of the partners up to speed, may opt to give individual partners decision making power. While the partners inevitably leverage the advice of each other, they have more autonomy in making their own decisions.
  Pros: This enables larger partnerships to operate dynamically, making decisions more quickly with fewer man-hours.
  Cons: The value of the diverse experiences of the partnership is not fully leveraged, as few of the partners have spent a significant amount of time evaluating each investment.
• The Democracy: Some larger firms try to maintain a consensus model, whereby a voting mechanism is used to make decisions. However, unlike the Union model in small firms, partners who are not leading the due diligence effort typically know less about the business opportunity in larger partnerships. Rather than being tangentially involved in the due diligence process, non-lead partners rely on a presentation from the lead-partner to determine whether or not they want to make an investment.
  Pros: This enables the wisdom of the group to be tapped when it’s time to vote.
  Cons: The firm’s investment strategy tends to become less risky, which can lead to missing some of the more cutting edge opportunities. It typically takes longer to fully understand the value proposition and business model underlying some of the more cutting edge companies. As a result, a relatively short presentation of the company may not be sufficient to sell partners who have not been thinking about the business for several weeks.

    在中国，伴随着越来越多的“快速成长公司”的成功，国内VC市场上也出现了“快VC”群——无论从基金的募集时间、间歇期(几期基金之间的间隔时间)、基金的生命期以及基金规模来看，都打破了过去美国欧洲VC的旧有规律，以更快、更短、规模更大而群起。
　　过去一年间，有几只新的“超级基金”募集成功，新募集时间距离他们的上一期基金都还没超过两年时间。鼎辉投资(CDH PE)完成其第三期PE基金募集，规模从II期3.1亿美元跳升到16亿美元，而鼎辉的另一只风险投资基金(CDH Ventures)也从I期2亿美元规模扩增至II期5亿美元；软银赛富(SAIF)第三期基金规模达到11亿美元，此时据其6.43亿美元的二期基金也不到两年时间；KPCB的首只海外基金——凯鹏华盈中国基金，规模达到3.6亿美元，而TDF的前一笔基金才1.2亿美元；Sequoia China的规模也从2亿美元急速扩增到二期的7.5亿美元；蓝山中国基金I也从3亿美元增长到基金II 的14.5亿美元；2008年初寰慧投资(GGVC)也由二期的2.3亿美元跳升到6亿美元……
　　这种现象的出现在西方是不可想象的，因为美国的VC都经历了十几或二十年才走完这个过程。
　　风险投资行业是一个需要眼光、耐心和毅力的行业。一只创投基金的存续期通常在十年左右时间，投资期则集中在前三年，很难在短期之内评判一只基金的成功与否。多数的美国创业投资基金都是从较小规模做起，逐渐累积成功经验，再逐步做大基金规模。例如，创建于1972年的KPCB，其曾投资过Google、AOL、亚马逊等著名公司，直到1999年，才募集了其历史上最大规模的“9号基金”，总额为5.5亿美元。其后直到2006年，其“12号基金”才再突破总额为6亿美元。
　　相对于美国市场，中国创投公司基金规模，在短短几年内就达到甚至超过美国的水准。并且这些基金都得到国际著名机构投资者的垂青，创造了又一个新的“中国奇迹”。
　　具有中国特色的改革开放环境和高速发展中的中国经济是“快基金”的诞生的土壤。在这个大的经济背景下，以寻求高增长企业为目标的VC行业，才可能在短时间内取得骄人的成绩和回报；同时，在这个以人为本的行业，具有国、内外双重经历和背景的GP们打造出一个又一个“快公司”的完美成绩也吸引着国外投资者，决定大规模投资。像创业投资循环一样，成功的企业家和风险投资家都会被相信，他们能不断地复制成功。
　　基金规模增大可以在投资中体现出竞争优势，但同时由于扩张太快，其发展过程中也出现了很多挑战。
　　首先是管理团队快速磨合的挑战。创投基金团队一般都是精英化组合，一个优秀的基金团队涉及包括人员组建、企业文化、合作智慧、领导者精神在内的各方面要素的融合。当资金规模迅速扩大后，基金面临确定何种管理模式，组建团队以及解决成员间的磨合等问题。人与人之间的共事与合作，尤其是强人、能人之间的合作能否实现“1+1>2”，是对本土VC团队的最严峻考验。
　　其次，“快基金”在投资管理上也存在挑战。由于从前一期的基金到新基金呈倍数成长，有赶快出手的压力，会在较短期间内积极投资。尽管创投基金的供应成倍增长，但值得投资的新创项目的数量却不可能同比例快速增加。供需不平衡，引发项目的估值提高，也有可能压缩到未来获利的空间。
　　第三，对企业增值管理上存在挑战。创业投资中最重要的一环是为所投企业提供增值服务，包括战略、财务、人力资源、商业模式、合作等各方面的辅导与支持，帮助企业解决成长中的困难。“快基金”因其规模巨大，投资项目众多，可能管理太多企业，因此，在分配和平衡时间及投入这一点上面临挑战。
　　在“中国奇迹”的特殊土壤下，“快公司(Fast Company)”与“快基金(Fast VC)”相继应运而生，但“快速”并不是终点，企业在快速发展、上市后，应该继续打造其在全球市场上更为成熟的竞争力，实现由“快速”到“卓越”的转变。而对于极速扩增的创投基金来说，如何保持其成功的投资纪录，相应地调整人才管理模式，清晰战略，才能更好地在中国大地上不断地“复制成功”，演绎新的创富神话。(作者系智基创投总经理、合伙人)