[Posted on February 28, 2008 - 1:06 PM]
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Venture capital has evolved so much through the boom, bust and current resurgence that it's easy to forget what 95% of the investors were like before the late 1990s. They worked according to a strict formula and did deals completely on their terms, not the entrepreneurs. So, it was a surprise to see at the VC Taskforce's VC Connect event in Palo Alto last night that that attitude lives on in John Dean, managing general partner at Startup Capital Ventures.I didn't speak with Dean before or after the panel, so it's possible that his comments in front of the audience of about 75 entrepreneurs are not reflective of his true thinking. But, he sure seemed comfortable up there.
He began by explaining the strict set of conditions that have to exist for his $25 million fund to invest in a startup. The startups must be seeking between $500,000 and $2 million at a valuation of about $3 million.
The startups must NOT be targeting a huge market. "If we think the market is huge and top venture capital funds will pour a bunch of money into it, we're probably not interested." He cited WhiteHat Security, a web site security services company, as an example of a company targeting a niche market that "probably won't IPO." I respect Dean's candor about the true prospects of that portfolio company, but panel moderator Bill Reichert, whose firm, Garage Technology Ventures is a co-investor in WhiteHat, was less willing to downgrade WhiteHat's chances. He simply said, "We'll see."
In response to a question about the pain points within his own assessment of new ventures, Dean looked at the audience and said, "You are." He continued, "Your team is a pain point we have to get through." Again, I respect his candor, but isn't the whole point of venture capital to support --not tolerate-- entrepreneurs? Dean cited an example of a husband and wife team that came to pitch Startup Capital Ventures where the husband snapped at the wife during the presentation. Based on the chemistry between those two, Dean said he wanted to refer the wife to a lawyer more than invest in here company.
While this may be industry standard, entrepreneurs shouldn't expect any favors from Dean when sending in cold a business plan or executive summary. "For us, getting stuff thrown over the transom just doesn't work." He said he doesn't think it's that difficult for entrepreneurs to figure out which venture capitalist is best suited to their particular startup. He added that he dinged an entrepreneur pitching his firm because one of the entrepreneur's slides said the company was trying to raise $5 million, when Startup Capital Ventures invests a maximum of $2 million.
Dean, the former chairman and CEO of Silicon Valley Bank, closed with a description of where he would be willing to invest in a startup. The three other panelists answered the question by saying the Western United States, the Continental United States and English-speaking North America. Dean offered with a grin a more limited geographic region. He cited Northern California, Hawaii, Texas and Oklahoma. The audience looked baffled so Reichert explained, "That's where John has homes or property." - Joshua Jaffe
Joshua Jaffe is general manager of TechConfidential.com.
Comments
From: akahn,
The guy sounds like a dinosaur.
A VC has two roles: Invest in good companies and (in turn) make money for their investors. How do you do either if you hate the people you're investing in? All but the super-desperate Entrepreneurs are likely to skip him, resulting in a cycle where fewer limited partners invest.
It's sad to see people like this.
Posted on:
March 6, 2008 7:46 PM
He sounds like someone who is effectively retired on the job. This is a similar attitude that 20-year veterans of the venture capital industry have and can afford to have given the vast network of entrepreneurs and close working relationships with them that they've developed over a successful career (for virtually nobody remains in VC for 20 years if they aren't successful).
If he is serious about being successful in his "Act 2" after SVB, he is probably going to have to work harder and cast a broader net -- because the people he's competing with for deals are (Hawaii? Oklahoma?).
Are his attitude on the panel and approach to VC working? That's left as an exercise to the reader after visiting : http://www.startupcv.com/news/index.html