Fausto Boni @ 360°

Confidentiality: a non issue (in 99% of cases)

The level of the confidentiality concerns in the entrepreneurs community is in my view inversely correlated with the level of development of the Venture Capital “ecosystem” in a given country.

Here is a non exhaustive list of reasons why entrepreneurs shouldn’t be too concerned in disclosing their plans to Venture Capitalists:

1)      If you cannot or don’t want to you’ll not be funded. Nobody write checks for “good ideas” that cannot be disclosed (obviously). Also most VCs are willing to sign NDA only if and when they are really interested and realize there is some serious IP needing to be protected (first you need to get them interested).

2)      Venture Capitalists aren’t in the business of starting companies themselves (even if they wanted to I guess most won’t be able to)

3)      Most of the time ideas aren’t that important nor really “that” new and what matter is execution. Execution cannot be copied.

4)      Even if your supposed competitor were aware of what you are doing that wouldn’t matter as much as most entrepreneurs think.

What could happen is that Venture Capitalists might be after information to develop some kind of industry knowledge base. Is such case the risk is that knowledge acquired by looking at your BP or meeting with you, allow the VC to better assess other opportunities they are considering (either simultaneously or in the future). Its not a tragedy and in any case you cannot do much about it.

Most (at least those caring about reputation) will refrain from photocopying your data and give them out to others if they invest in them.

In any case my advise is that if as entrepreneur you have valid reasons to be very deeply concerned about confidentiality you should try to limit your contacts to a reasonably low number of investors and possibly pick those with a solid track record (in term of ethical behaviour).

How to relate with a VC ?

Asked yesterday at a panel in front of several entrepreneurs to elaborate on the “how shall entrepreneurs approach us” I had occasion to think about the subject and realized that this approach is what immediately set me off in looking at different proposals, in particular (sadly) in Italy.

I encouraged the audience to think about the entrepreneur-vc relationship as a journey to wedding (or in any case to a stable /long lasting relationship) with a companion. This is particularly true nowadays when average VC holding times are longer than they were in late nineties for example.

How would you react if somebody you have met on a dating site would email you out of the blue a msg like the following: “Hello, I am a very pretty lady and have many wedding proposals already. I am definitely a high maintenance girl and will only consider man available to guarantee me a budget over a million USD per year for 30% of my time. If you want to discuss in order for your application for the privilege of a meeting to be considered please provide copy of your last paycheque and sign the attached pre-nuptial agreement”. Sounds weird to you ? You wouldn’t imagine how many unsolicited approaches I have every month from people providing only a very minimal description of their business but with a fairly precise description of the terms of the deal they’re ready to accept nevertheless asking you to sign the attached NDA to receive more info.

How would you behave at the end of a first date with somebody you really like to know more ? Would you leave the car without a word and without letting somehow know that you’d be interested in some sort of next step ? Well this happens everyday here. People come, present 40-50 powerpoint slides, finish their presentation, close the book and leave the office almost without a word. Only the smarter ones suggest some kind on next step, outline a process, encourage some kind of due diligence, ask for a kind of feedback. Defining upfront a desired result and a path to it is the key to success in any kind of relationship both personally and professionally. Why should this be different in the Entrepreneurs-VC world ?

Too Ambitious or Too Cautious business plans ?

The level of ambition set in a business plan is the very first test on the level of entrepreneurship of any individual I meet with as a VC.

True entrepreneurs always set (for themselves and their ventures) high level of ambitions. Our job is to challenge them in order to assess their level of “mental sanity” while preserving their drive….particularly if we have already invested in them.

On the opposite wannabe entrepreneurs always fear they would be measured against some kind of budget or plan rather than on wealth creation and typically present you plans incorporating some kind of safety net. Those people sometimes even come to include in their models lines with “contingencies” and in general when challenged one can easily sense that even on topline projections they remained on the conservative side.

Please don’ misread me… I’m not advocating that entrepreneurs should come up with absurdly inflated projections to show their drive and commitment to investors. Particularly since large ambitions on topline are most likely to come with aggressive spending in marketing and overhead the sanity check on the business plan remains a must do well for any VC investor and the “contingency” shall be provided for in the investor’s internal estimates, particularly when one has to estimate a cash out date for a certain round and plan to prepare the next fundraising !