CNBC’s Chris Morris suggest asking most VCs how they pick a winner and they'll say it all comes down to the people making the pitch. Ultimately, they're not investing so much in the product or idea (though that, of course, has to be exceptional)
"One thing we look for is a Pied Piper, someone who others will follow," says Jeff Bussgang, general partner at Flybridge Capital Partners. "So if I find myself thinking that this person is very compelling and I would go work for them, then I [can] imagine other talented people going to work for them and them sealing customers effectively. That's someone you know will be successful."
Unique charismatic qualities, in fact, are a common refrain among the VC community as they describe how they know they've got a potentially lucrative investment opportunity in front of them. It's a rare combination of passion, drive, confidence and humbleness that perks up their ears.
Too many entrepreneurs make the mistake of thinking they need to have all the answers when they speak with VCs. In truth, investors often toss out difficult questions they don't expect the applicant to be prepared for. When the business owner tap dances out an answer, it can be their undoing. The entrepreneur who admits they don't have that answer, but will find it, generally stands a better chance of obtaining financing.
Meanwhile, at the Foundry Group, entrepreneurs go through a series of interviews with each of the company's four partners — all of whom must agree before the company makes a venture offer. "We go very, very deep, assuming something fits, on two things: the people and the product," says co-founder Brad Feld. "We're not trying to evaluate the people against a well-defined set of criteria. We're trying to decide if we want to be partners with them for the long term. Its [also] not just doing a bunch of reference checks. It's actually doing stuff with them and getting to know them. … We want people on a mission."
R. Adam Smith is an experienced investor and advisor to small and middle market private companies, with approximately 20 years of experience in private equity and mergers & acquisitions at leading private investment and advisory institutions, including Caxton-Iseman Capital, Castle Harlan, Inc., Salomon Brothers and Lehman Brothers. Prior to forming Circle Peak, Mr. Smith served in principal capacities at two leading private equity firms based in New York City, Caxton-Iseman Capital LLC and Castle Harlan, Inc., each with over $2 billion in managed equity capital. At these firms, he worked directly with senior management teams and institutional limited partners, co-investors, and lenders in the acquisition and growth of $25 million to $1 billion companies in food, beverage, restaurant, distribution, industrial, and asset management sectors. Mr. Smith has been involved in control-stake private investments collectively representing approximately $1.5 billion in sales, $200 million in EBITDA, and $400 million in equity commitments.
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