May 30, 2005

What Microsoft looks for in an potential acquiree

Will Price reports from Microsoft's VC Summit in Mountain View on what MSFT - according to its CEO Steve Ballmer - looks for when it considers acquiring a company:

* technical innovation with impact
* protected IP (patent portfolio)
* market understanding
* engineering excellence
* alignment with sales capacity (can you sell it?, do you know how to sell it?)
* timing and tenaciousness
* understanding of value chain and how to partner to win

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.

May 21, 2005

Don't ignore celebrating your accomplishments

Jeff Cornwall points out quite rightly that "in the rush of meeting orders and collecting enough cash for payroll, many entrepreneurs don't take enough time to celebrate accomplishments."

But why is celebrating important?
Celebrating on-going accomplishments is a way of building a positive, growth-oriented, and hopefully 'fun' culture within your business.


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.

May 14, 2005

Being prepared for getting acquired

Advice from a recent panel discussion organized by IBD Network on prepating your company for M&A:
* Don't...
o ... run your company without contemplation of a sale
o ... sell from weakness, not from strength
o ... be piggy: don't expect to double the initial bid
o ... tip your toes in the M&A pond: be in or be out

* Issues that make buyers walk away from a deal: the buyer's lack of comfort that may not stem from anything as dramatic as fraud or misrepresentation, but from a feeling that the seller's processes are not solid

* Valuation
o Sellers tend to use public market comparables or deal comparables: they are easily obtained and tend to increase the valuation
o Buyers prefer to use multi-year discounted cash flow (DCF) analyses

* Structuring deals
o Buyers do small deals for cash, not for shares; if they want IP or a team, they will structure the deal as an asset purchase
o If they are buying an ongoing entity with revenues and customers, they will do a stock purchase
o Unanimity that earnouts don't work and inevitably lead to bad blood and disagreements


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.

May 12, 2005

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.

May 07, 2005

Dealing with a customer who wants a kickback

Business Week has a nice article explaining how a sales person can refuse to pay the bribe - and still make the sale.

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.

Should start-ups bother with PR firms?

There's an interesting debate on this topic at the alarm:clock blog.

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.

May 02, 2005

Get to know your VC before taking their funds

VCs ask entrepreneurs a ton of questions - including proof - about their business before cutting a cheque. Jeff Bussgang provides entrepreneurs a list of things that they need to find out about a VC firm before taking money. Obviously, entrepreneurs who are about to miss payroll a couple of months down the line cannot afford this luxury. It pays to follow the rule: raise VC money only when you don't really need the money.
So, if you find yourself pitching a VC firm and wondering how they'll make their decision, there are a few important questions to get answers to while you're fundraising:

1) Who is the partner who would serve as the deal champion? Associates and Principals don't typically have carry, so they can't make investment decisions without a partner's support. Junior partners with small slivers of carry may need senior partners to closely oversee the diligence and decision-making process.

2) How long has that partner been with the VC firm? Are they on an equal footing in terms of carried interest (i.e., ownership) to the other partners? If not, they may not be able to "speak for the firm" when it's time to make tough decisions about follow-on rounds and M&A transactions. If so, they will still need to get to consensus, but it's a very different dynamic when your "deal champion" isn't a subordinate within the VC firm.

3) When is the last time that partner made an investment and what other deals are they working on? If a partner is out of capacity, conventional wisdow nowadays suggests sitting on 8-10 boards at any given time is the max, then they are far less likely to take on a new project than if they have recently sold off or shut down a bunch of their portfolio.

4) Where is the VC fund in their fundraising cycle? If they are at the tail end of a fund, they may be more selective in their investments...or more rash. If their current fund is strong, they may be more willing to roll the dice with the final few investments in terms of risk/reward profile. If their current fund is weak, they may need a few short-term, safer hits to make up for poor historical performance.


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.