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Pittsburgh Venture Capital Association
Panel Summary

Posted: September 21st, 2011 | Author: | Filed under: Ventures | No Comments »

3 Rivers Venture Fair, September 21-22, 2011
PNC Park, Pittsburgh

Panelists: David Becker, Meakem Becker Venture Capital, Jay Katarincic, Draper Triangle Ventures, Michael Kopelman, Edison Ventures, Nathanael V. Lentz, Osage Venture Partners, Paul McCreadie, Arboretum Ventures, John C. Mcilwraith, Allos Ventures, Jonathan P. Murray, Early Stage Partners, Ned Renzi, Birchmere Ventures

What is your opinion of the State of the Venture Industry
Nationally it is contracting – it has been a difficult couple of years. Fewer companies funding. Western PA and Ohio numbers are consistent, however.

For the past 5 years, 107 companies per year have been funded in this region and there is a healthy mix of types including: software, medical & biotech, clean tech, communications, entertainment.

According to the panel, there are more deals planned for this year than last year and more deals planned for next year than this year.

Why Pittsburgh?
Out of town view: Paul McCreadie of Arboretum Ventures (Heathcare) sees value in Human Capital, Intellectual Capital, Financial Capital. He also feels that the scarcity of investment capital in the region makes it an opportunistic market.

Expanding geographically because many markets fit our model.

In town view: Low-beta environment for VCs exists inPittsburgh currently but the investor mix is growing in Pittsburgh.

The costal VCs are coming to town based on relationships—not to scour the market. Silicon Vally is crowded and they are looking for alternatives but they also want to be sure they have the ability to manage at a distance. The key to West Coast VCs will be local VCs in the market that provides comfort that they can manage at a distance and bridging the gap.

Where do the deals come from?
Coinvestor network and executives bring deals. Universities are also big for collaboration with VCs. Innovation Works and current CEOs can also be a good source of deal flow.

From the venture perspective there are great professionals in the market that can aggregate and present deals but they are not proprietary and venture firms like a deals presented without competition.

The general view was that the greatest introduction is a direct introduction and increasingly in the market climate we are in, firms are looking at everything.

What is the best avenue to get to the VCs?
Someone who has worked with the firm in the past. Referenced channels are the big source of deal flow.

Is a business plan important?
Yes. Critically important. Private placement memo is useless in this economy. That said, some of the investors believe that 20 slides is better than a business plan per se. Too them, business planning happens the result in a ppt.

What do you look for in a business plan?

A team is critical. An idea with no clear path to execution is unfundable. The business plan must also clearly articulate the concept in a simplistic way. For some investors, they invest in categories where they have experience and others fund things that capture their interest. Customer decision process is also an important component of a proposal or plan (i.e. how solving today, how will they solve it with the solution)

What do you want to see in the entrepreneur?
The Panel universally a reed that they wanted entrepreneur to be able to explain the business without PPT as a crutch. they wanted a view of the market, the competition, and an honest discussion of risk. Honest discussion with the VC is best by all accounts. Trying to game them simply won’t work.

Many relationships with VC last longer than many marriages: how important is the ability to work together?

Critical. Rapport is super important to the relationship. Some do an entrepreneur assessment where they challenge assumptions and see whether the candidate will listen and respond or be defensive and combatant. they expect the entrepreneur to understand that they are (1.) a shareholder, (2.) a board member, & (3.) an employee. they need to understand that the board member is primarily focused on the best interest of the business including the persons own employment and that is job one. They tended to agree that the venture business is not all about finding the money, it is finding the right relationships.

No Nos

  • Convoluted Management structures
  • IP capture streams ahead of revenue
  • Actuals ignored even if they exists (be honest)
  • Want to see Good, bad & Ugly (Not everything is a hockey stick)
  • Overconfidence and lack of humility
  • It is important to listen to how the VC wants to structure a meeting
  • You are selling us as much as you are selling customers – must be tough – don’t hedge
  • If the blackberry’s are out, it is a bad sign

Valuation: What are the new terms this year?

  • Complicated structures are going away
  • Returning to rational valuations
  • Try to make a consistent financial product
  • New book “Venture deals”: Placed in laymen’s terms (good video as well)
  • 30-45 days from the first meaningful meeting to a term sheet and 30-45 days from terms to close.
  • The Entrepreneur should recognize that the timeline to close is the result of everything in the process (don’t underestimate the time in the process)
  • New focus on getting to know one another even when there is not a financial need.
  • Challenge of the entrepreneur: The slow maybe (or the rope-a-dope)’
  • If you do not get a next step, move on.
  • How often do you walk away from a term sheet (do you let yourself get locked down?)
  • On terms sheet, asks where you are in the diligence process. If there is a lot left to do, the terms may not have weight.
  • Hire rockstars
  • How do you look at optimism? Manage the expectations with the actuals.
  • Early Stage CEOs should be sponges – rethinking everything based on feedback
  • 50% where are we – 50% where do we need to be?
  • Expectations after investment (need to get alignment not the endgame)
  • Have management expectations set early so everyone knows where they sit
  • Unwritten rule in a term sheet is that if you have a high valuation, you have a very high goal.
  • Discuss the scale expectations of pressure that come along with money taking up front.

Current state of the economy?
Flooded acquisitions now stale and IPOs sizing now stalled as of 8 weeks ago. This did not have a huge impact on these ventures. In fact, they suggested it was playing well to their strategies. They agreed that large corporations are stalled so enterprise sales are impacted and that the companies that are in trouble are the ones that had a week balance sheet and were in the pipe to IPO. Those with a strong balance sheet should still do fine and be able to wait out for an IPO.

What excites you?
The ventures continue to be excited that they are working with people who are trying to change the world. They have a passion for the space and for this part of the country. Pittsburgh is one of the new parts of the country are starting to figure it out and is producing quality Entrepreneurs.

They see domain knowledge in this area around enterprise and recognize that there is not enough early stage money in this area. type recognize that they can’t time the market, and just need to keep replying capital year after year.