When people asked me the question whether US and Canada are losing out the innovation game as industries becoming less competitive, my response was ‘no’, thanks to our capital system efficiencies (to some extent) and the venture capital communities, I think we are as competitive as ever. What you see in the picture up here is a new company that launched itself today (is in beta mode), it is called Vencorps. The idea is to being the idea of crowd sourcing together with YouTube and American Idol. People pitch that ideas on a YouTube type platform and everyone can register as an investor. Vencorps is a multi-million dollar venture capital fund that leverages the wisdom and participation of an elite crowd to build better startups. Their target audiences include angel Investor or people with good business ideas. I like the idea but not sure how much traction that can have. It is a great idea but a lot of executional elements have not been fully thought out.
These companies that the VCs are funding clearly are of the main engines driving innovation and entrepreneurship, especially in the US where the concept of venture capital was originated. The Venture Capital concept is one of the best things that ever happened to innovation. VCs realize that they make money by identifying promising innovations early, investing risk capital to develop the business, and supporting the entrepreneur with his or her business till a point when they need t exit.
Corporate venturing within a large organization has not been working. Transplanting the VC model into the corporate environment is not an easy undertaking. The conflict usually lies in the conflicts with the parent company and unavoidable disruption to the parent’s core business model. Changing these policies and organizational structures to accommodate the specialized nature of venture financing can be a pain.
I have been meeting with a dozen of VCs today and it has been a somewhat productive day. One thing came to my mind when I talked to these people is there’s a lot of myth out there about how difficult it is to negotiate with VCs but many are not necessarily true. Differing interest and divergent expectations often complicate these negotiations. These challenges can be turned into opportunities if we use these differences to drive deeper mutual understanding. Alignment between the VCs and the Entrepreneurs is a key. Often both parties have different views as well as tolerance of the risks involved; you need to be creative to shift the risks to the part that has a bigger appetite and also more risk seeking.
One useful advise for you is to always have a Plan B, it is your source of power for negotiation. Whether it is a different source of financing or another VC firm, make sure you have a Plan B otherwise you are not giving yourself any options. If you have one term sheet, you have zero leverage in your negotiation. Yes, you will spend 3x the amount of time on the process, but it’s well worth it (if you can afford it). That is only if you business is attractive enough to attract a few good VCs.
And remember you should always be prepared to pay up for high quality investors or incubators. There is a world of difference between good VCs and bad VCs (both the individual partners and the firms) that will ultimately have a lot to do with how successful your company can become.