Venture Capital - A Success Story

Yesterday, Keith Smith of Big Door Media posted a great blog entry about their experience with Brad Feld of the Foundry Group, a Colorado-based venture capital firm.  The investment process went very well for them, and I wish I could say I have seen more deals go that smoothly.  While the internet is full of stories about people successfully raising VC money, all too often those stories are more about cheerleading than telling a helpful story about how the process went. 

Of course the cynic in me wants to warn people against thinking this is how their investment process will go.  Raising capital is difficult and there are many different personalities in the venture capital community - many of which will not mesh as well with your businesses culture as Foundry and Big Door did. 

There are two key things I think this story highlights for entrepreneurs.  First, the importance of how an investor will get along with you.  Too often, entrepreneurs ignore the personality of the investor because they are so focused on raising capital.  Your investors are an integral part of your company, especially when you are a small firm and they, likely, own a substantial portion of your equity.  If your goals and theirs are not aligned, or if your culture and theirs do not mix well, you can easily wind up at loggerheads with them - a situation that usually ends badly for both of you.

Second, Big Door substantially changed direction during their development process.  "We quickly concluded that we needed to kill everything we had just spent six months building and go back to the drawing board."  Change is a critical idea to building a successful venture.  Very rarely is the business plan you start with the one that you end up being successful with.  Too often entrepreneurs are afraid of change - sticking to their initial idea until that idea has dragged the business down.  The concept is an old one that was well articulated by famed venture capitalist Arthur Rock when he said, “I invest in people, not ideas.  If you can find good people, if they’re wrong about the product, they’ll make a switch...."  More recently, Steve Blank has coined the term "pivoting" to describe this process.  While I find myself incapable of using the cute terminology he does, the idea is sound and Steve's articles on the matter worth reading.

You can read the full blog entry from big door here:

http://www.bigdoor.com/blog/venture-capital-a-love-story/

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