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May 22, 2006
The Three "Whys" of Venture Capital
There are lots of "why" questions around venture capital (like, why would anyone do this?), but in talks and the like I often refer to three specific questions for VC-seeking entrepreneurs. You should have ready answers to these three questions, and, like any good marketer (or politician), answer them even if they aren't asked:- Why this? Explain why this particular approach is the right one. After all, there are lots of ways to solve problems for people, so explaining why your approach is the best one is crucial -- and a constantly overlooked step.
- Why you? Perhaps the toughest, but you need to explain why it should be you that going to make this work. It's not enough that you have the idea -- ideas are cheap -- so you need to explain what it is innately abou you, your experience, your team, your contacts, your science, your approach, etc., that will make this happen.
- Why now? Finally, the one that everyone forgets. Lots of great ideas make all kinds of money for people many years after the first startups were created, financed, and died. Timing is everything in venture capital, so it isn't enough to be right: You have to time it correctly too. A deal done too early is 99% as bad as a deal done too late.
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Ideas aren't cheap. Look at how much money companies pay every year to come up with the next big idea in R&D.
you know what? i mean this, these are idiotic questions.
"why this?" because i want to.
"why you?" because i am the person doing it.
"why now?" because its too late to do it two weeks ago.
no matter how much chrome one might wrap on the answers, they ultimately reduce to my distilled versions anyway.
This is also often stated as the four Ps:
People: Do you have Senior Management in place?
Product: Is your product sellable, in beta a prototype or just slideware?
Plan: What evidence to you have that your bizmodel is repeatable
Profit: What customer traction do you have? A letter of intent, a beta tester, revenue?
These milestones are commonly used to determine stages of investment like Seed, Series A, B, C, etc.. Anyone interested in these milestones might want to check out a slide that I wrote on the common milestones associated with Seed & Series A