Skip to main content

Want VC? Go get some peacock feathers

Wonder why VCs place more emphasis "on the secondary stuff" - like what you and your other team members have done before - rather than your actual product or service? Kevin Laws has an interesting explanation and analogy - to the mating behavior of peackocks!:
Are you really worth $2 million more the day your first two customers write $10,000 checks? No, you’re worth $20,000 more. However, both a bad company and a good company can claim that they will sign up two paying customers in the next month. Only the good company can actually show you the checks a month later. Before you had the check, you were facing the “uncertainty discount” – you might be a bad company (or more likely, a well intended but overconfident company).

That’s why VCs pattern match on credibility factors when deciding to spend more time with a company rather than diving directly into the details. When having such a wide selection of available mates, sorting out the good from the bad can be a matter of looking for a nice tail. Feathers in this tail include a high quality board of advisors, a good law firm, a good bank, management with a past track record, or the first paying customer. While all of these things can be very valuable to a startup company, their value to a venture investor can appear out of proportion to the value they bring through their work. As a result, sometimes it may appear that management is sacrificing the long term goals of the company to establish the feathers necessary to get funded. In that case, they really can be peacock feathers - things that may slow down long term success, but that only good companies can take on. In certain models where significant funding can make the difference between success and failure, those actions may be required to succeed at all.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

Popular posts from this blog

Startup Funding: The Luck Factor – By Sanjay Anandaram

We hear all the time about the amount of money that's available to fund startups. For example, that private equity funds invested over $ 3.3 billion in just the first 3 calendar months of the current year. That VCs are always looking out for good deals as most of the plans they see merit little or no attention. That they invest in about 5-10 a year out of the 500-1000 business plans they get. And so on…But the truth is that a majority of deals that get funded are those that come through a referral or because the VC knows (of) the entrepreneurs; its natural because VCs don’t have the time to look at all the plans that they get to pick out the Rediff, Naukri, or Tejas Networks. Deals that come through some trusted source or through a trusted filtering process are therefore valued higher and rise to the top of the pile of business plans. It is therefore easy to see how many plans don’t get funded. And also how competitive the race to secure funding really is. Given this situation, wh

How I Raised Funding - Priyanka Agarwal, Wishberry

You have to be confident and shameless while crowdfunding. Priyanka Agarwal, Wishberry shares on how to succeed in crowd funding with Venture Intelligence in this  interview. Priyanka also candidly shares how the team built Wishberry, raised funding from top angel investors like Rajan Anandan, on pivoting, and difficulties in raising capital for entrepreneurs operating in niche spaces not chased by VCs. Q: What does Wishberry do? Priyanka Agarwal : In its latest avatar, Wishberry has pivoted into crowd financing of low budget films (INR 1-5 Cr). We are essentially trying to create an internet platform for investment opportunities for HNIs in films including Marathi, Tamil, Kannada, or films targeting the global diaspora. L-R: Co-founders Anshulika Dubey & Priyanka Agarwal, Wishberry Given that you are building a marketplace, how did Wishberry solve the Chicken and Egg problem? Beyond the “all or nothing” model what did Wishberry do to pull in more artistes and inves

Profile of Career Forum founder

The Starship Enterprise column in The Economic Times (not available online), featured Sujata Khanna of entrance exam training institute, Career Forum. The company, which started with just seven students in Pune, now covers over 39 cities reaching over 15,000 students. ...The most important milestone I think was in 1995 when we decided to incorporate Career Forum into a Company. This brought in a lot of professionalism and we also went for expansion. ...Strong technical network is our unique selling proposition. We have a strong ERP system running across all centres in all areas of business from distribution to logistics... Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the Private Equity and Venture Capital ecosystem in India. View sample issues of Venture Intelligence India newsletters and reports.