Let the Sparks Fly!

The News is NowPublic

Today, Brightspark is pleased to announce an investment in NowPublic (www.nowpublic.com).  My partners and I have been watching the rise of “Web 2.0” companies with cautious optimism.  While I certainly am excited to see the Internet being used as a true platform for user generated content creation and sharing, the challenge for any VC is to identify the real businesses from simple feature companies.  Which companies will truly leverage this platform to create unique value in its industry?  Can this value be defended with the development of strong intellectual property?  Given our investments in the mobile and VoIP space, I have been watching with great fascination how users have so quickly adopted technologies such as blogging, podcasting, and picture messaging.  The intriguing challenge is to understand how these technologies will affect industries outside of mainstream content sharing.  This visioning process brought us to NowPublic.  NowPublic is revolutionizing the news collection and reporting industry by empowering citizen journalists to engage the news conversation.  I am very excited about the progress this company has made in such little time by building a great relationship with its user base and by making smart technology decisions.  This company is truly focused on an innovative business model which will give it much staying power in this “Web 2.0” world.

Read more about this news at NowPublic

Going to the CVCA

I am on a plane to Vancouver heading for the CVCA annual conference. (No wireless access to e-mails with Air Canada so got lots of time on my hands). For those of you not familiar with the Canadian venture capital industry, CVCA stands for Canadian Venture Capital Association. Tomorrow starts their annual conference where VCs and LPs from Canada (and a few from elsewhere) get together to network and dialogue on their industry. It is always interesting to experience the exchanges and atmosphere of the event. It does change significantly depending on market conditions. This year should be pretty bubbly (not to be mistaken with bubblish) and upbeat.

VCs can be very strange and interesting beasts. They usually compete for fundraising but not always, they can collaborate if they happen to be in different niches or geographies. They usually partner for deals but not necessarily if the market is heating up and deals become rare gems or if their Fund is too big. They usually share due diligence information and market intelligence but not always if it happens to be very proprietary and part of a “hopefully” unique investment theme.

What happens when you fill a room full of venture capitalists? I know that there are lots of jokes about this; it is like filling up a room with lawyers I guess, but this is not the purpose of this note. I think it can actually be nicely compared to a typical “woman wants a man” scenario…

First, they want to show that everything is going well; they are independent, having lots of fun and completely in control. If they talk about their portfolio companies, they are getting tremendous traction, have significant interest from partners and potential investors and can’t respond quickly enough. This is the part where you want to hook the guy. This is the part where you want the other VC to be a little destabilized (the compete part) and get the desire to investigate into those portfolio companies and also spread the good news (the partner part).

Second, they want to show that they are somewhat vulnerable to spark the “save the girl” syndrome in a man. Remember King Kong??? They touch a little on their challenges; complain about fundraising and reporting and all. This is the part where you bond and get sympathy. This is the part where you create an ally for the future. This is also the part where you gather information from your partner/competitor. What is he investing in, is he doing well? Does he have a competing play to one of your portfolio companies?

Thirdly, the woman completely hooks the man in proving how sexy she is by walking off with the other guy. VCs continuously wave at numerous other parties, usually other VCs, and they sometimes throw a little intriguing note like: “are you still coming by next week, we need to talk about this opportunity we touched on last week…” or worst, walk slightly to the side and whisper something about a potential deal. This usually is enough to completely hook the previous bait even if the whispering is only about the next round of golf you are planning to play. 

I know it seems a little simplistic and it is much more complicated than that in real life but is it really? In any case, flirting as a VC can be a lot of fun and in the current bull market, it is actually quite pleasant since at least 80% of what we say about our portfolio companies and our Funds is true or at least we believe it when we say it. You will probably find similar dynamics in any industry that strives to find the right balance between competing and partnering, succeeding as an industry versus succeeding as a company. Looking forward to it!

Interview with a 7 year old

Last weekend, my daughter, 7 years old, had to prepare an interview with one of her parents about their job.  She chose me, lucky her - I am a venture capitalist. Explaining what a venture capitalist does to most people is not an easy task to start with...imagine what it's like for a 7 years old. 

It would have been much easier with my husband who is in the retail business. You buy things and you sell them and make money in between. So for the first time, I really tried to explain in simple terms what we do. Here is what her transcript looked like: 

"My mother is a venture capitalist. She meets people that have ideas for software, like Word and games and Barbie.com. She then chooses the one she thinks are good and gives them money (I don’t like the give part, but invest seems to be a very strange concept for her). Then those people work on their idea, mostly writing on the computer. When they sell their idea and receive money, they give it to my mother. That’s it." 

Sounds very simple, doesn’t it? Of course, we did not get into details like ownership, Limited Partnerships, value creation, liquidity constraints and patents etc. But she got the basis of it. It is all about great ideas and great people.

When to Say No

We want to see lots of deals, but the challenge is to meet expectations. Given the volume of deals that we see on a weekly basis, we consistently need to be selective in determining which deals we will pursue and which deals we will pass on.  When I look back at our process, the “No” response often falls into 3 categories:

 

1. No because this does not fit our investment criteria

 

These deals are the easiest to say no to.  These are usually opportunities where we don’t see a domain expert, strong intellectual property or a large addressable market. We are disciplined about these three criteria. (At the same time, as early/seed investors we initially place far less attention to stuff that traditional VCs look at like financial projections, sales forecasts, etc).

 

2. No because we can’t add value

 

These deals are tougher to say no to because while the entrepreneur may convincingly make the case for their business, the opportunity is usually so specialized that we struggle to understand how we can add value in the process because it is so outside of our focus area.  As investors, our goal is to actively work with the team to capitalize on an identified market.  If we’re merely going to get in the way, or can’t leverage our past experience to help in the business-building process, then we are better off to stay out of the way of the entrepreneur.  We regularly meet entrepreneurs in this category that we like, but we know our own limits.

 

3. No because this isn’t a VC business

 

These deals are also tough to say no to because we regularly meet impressive entrepreneurs who have built strong businesses.  They have often started with little and have built a good cash-flow positive business.  While we’re greatly impressed by this accomplishment, we struggle to see the opportunity as being a high growth business or having strong intellectual property.  This certainly doesn’t mean that it’s a bad company or doesn’t deserve outside investment, it just means that it’s not a VC-type investment opportunity.  A VC-type investment opportunity means that we can share a vision in a great exit within a reasonable period of time. These deals are tough to say no to because often the entrepreneur has built their business in the face of much criticism and doubt.  This process builds great character and it’s always nice to see these types of people succeed.  While we can’t invest, we’ll try our best to help in other ways, as best we can.

 

Having been in this industry for some time, I’ve learned that it’s best to be direct and quick with our decision.  The last thing I want is to waste the entrepreneur’s valuable time with a passive aggressive approach.  This certainly helps no one.   A quick "No" is much better for everyone than a long "Maybe" leading to a "No".  (And "No" doesn’t always mean no forever. We have been known to revisit opportunities when conditions change and then make an investment).

 

Evaluating deals is at the core of our business so I always encourage entrepreneurs to submit their opportunities. This allows us to start a dialogue, explore partnership opportunities and maybe say "Yes" to many great ideas.