Sign up FAST! Login

The 11 risks VCs evaluate | ex post facto


Stashed in: Founders, 106 Miles, Venture Capital!, Best PandaWhale Posts, Risk!, Awesome, Startups

To save this post, select a stash from drop-down menu or type in a new one:

Great checklist for assessing startup risks from a VC perspective...

11 is too many. There are three main risks:

1. The market isn't big.

2. The product-market fit never happens.

3. The team can't execute.

And actually, of those 3, #3 is most important.

Very true! Yup, if the team can't execute, you're done.

Thing is I see plenty of companies getting at least seed rounds for inherently tiny things all the time. I'm frequently flabbergasted by it.

Maybe they only look tiny, like an iceberg.

Perhaps underneath they have a plan for getting much bigger.

Let's crowdsource an article: five reasons team can't execute.

1. Apple Polishing: They keep saying, but if it is just a little better, then we'll launch!

2.

3.

4.

5.

Okay, I'll play - Thanks, Christina:)

Let's crowdsource an article: five reasons team can't execute.

1. Apple Polishing: They keep saying, but if it is just a little better, then we'll launch!

2. Irreconcilable differences: Co-founders or team can't seem to get past their disagreements; can't put aside their egos to focus on execution

3.

4.

5.

(I'm in)

Let's crowdsource an article: five reasons team can't execute.

1. Apple Polishing: They keep saying, but if it is just a little better, then we'll launch!

2. Irreconcilable differences: Co-founders or team can't seem to get past their disagreements; can't put aside their egos to focus on execution

3. Making a product that nobody needs or wants (ie, failing to understand customers).

4.

5.

Janice, I'd reword slightly to match the challenge "why team can't execute" to "team does not involve users into product decisions" or "team does not have enough external customer decisions to make decisions"

You see what I'm trying to get at?

@janice... I can't leave this alone, because you are so right. If you can nail the language, it'd be epic. There is so much richness in this flaw alone

* team is building for an idea of the customer, not their reality

* team is building for what they want, but not what they'll pay for\

* team does not hold a collective vision of customer

* team has shiny object syndrome; i.e. will build features for any customer that will give them money....

+1 for Shiny Object Syndrome ... been there a few times.

this is a dataset i've been looking for!! thank you, Lisa!

Adam:

Classically, different VCs prioritize the holy trinity (Product-Market-Team) differently. For example, you'd better have a big market in mind before you go to see Sequoia.

The equation is different for a founder. You *are* the team, and you should be confident of your ability to build a great product. That makes market your primary emphasis.

My findings agree: most VC's are primarily concerned with market size first and foremost.

The reason: A good product in a great market usually does better than a great product in a small market in terms of amount iof revenues and customers it can attract.

Having said that, I think great people pick great markets, and great people can decide to move to a different market (or product!).

So I've seen a few VC's choose based on great people, rather than market or product.

The VC's concerned with market first have no problem replacing the people if the team can't execute.

"The VC's concerned with market first have no problem replacing the people if the team can't execute."

As I said, Sequoia has always been a market-first VC!

From what I've seen, priority varies by stage: seed-stage investors look first at the people, later-stage investors look for large market and strong adoption.

Actually, having spent a good amount of time on AngelList this week, I have discovered there's a lot of seed-stage investors who value traction (product-market fit) more than team.

That just might be a function of 2012 and/or AngelList, since there are SO many companies.

So

1. Market size

2. Market/product fit

3. Team with past success?

I have seen too many gorgeous start ups go down because team can't execute. past success means nothing if the mix ain't right. or the fit ain't right. or the timing ain't right.

Actually a question for @adam et al... I have never seen VC's replace a founder. I had understood it wasn't done, except maybe pre-IPO.

I know a startup that will hit it out of the ballpark except for one of the founders, and the VC knows it. Can they really swap a c-level at early stage?

Let me guess, dumb question? 30 examples? But surely not at early stage.... then you just clone?

Anyone in a company can be replaced.

I have seen every configuration you can imagine, including:

1. VC funds company, and fires founder(s) immediately.

2. VC funds company and makes founder(s) miserable enough to quit.

3. VC funds company contingent on founder(s) stepping into non operational role(s).

4. VC funds company contingent on company hiring new CEO.

5. VC funds company contingent on founder(s) never working on similar idea with any company but the funded one.

And my personal favorite:

6. VC asks a founder to leave the Board of Directors.

Number 6 happens all the time, and it's where a lot of later abuse can happen as a result.

there is no santa clause?

I assume some firms have a higher tendency toward this behavior than others.

That's true.

Sequoia is the least sentimental.

They also seem to have the best returns, so maybe they're right in doing so from an ROI perspective.

It's not personal. It's just business.

Even if I stated out sentimental, watching this wonderful company be

led toward the toilet by one of the founders would cure me.

It's not business, it's survival.

I guess a hard question for a VC is when to step in.

You May Also Like: