Let the Sparks Fly!

Back to Techies Land

Entering into Fall (it sure feels like Fall with close to freezing point temperatures in Montreal last night), back from vacation with the kids, I am attending Fall VON in Boston this week. It is very busy, as one could guess and filled with new ideas, new technologies and energetic people. A great place to be for a VC, trying to figure out the benefits of the new telecom puzzle.
 
Yesterday, one of our portfolio companies launched an amazing new product called Vox.  You can visit their website at www.voxlib.com and download it for free. It gives you the ability the make a Skype call from any cell phone. We are very proud and happy about this launch. Everybody has been working extremely hard to get it right and make it happen. This first product truly demonstrates how the economics of telecommunications, as we traditionally know it, are completely transformed. This is not a new topic obviously but Voxlib brings it to another level. Judging from the level of downloads yesterday, people were quick to figure out the value of Vox. Congratulation to the team! 

On another note, I just listened to a presentation from a large VoIP provider at VON and it felt like being teleported back to 2000. Charts and graphs were presented on losses, slicing it every possible way, as a % of sales by category, tracking it over time etc. While I do understand the purpose and need of it, I can’t help having this awkward feeling. It reminds me of a few Board meetings of technology companies in the late 90s where some Board members were harassing the CEO because “you are not losing enough money, your competitors are losing faster!” However new or differently the growth an industry may be going through, this will never feel right to me.

 

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.

The WOW Meeting

A few weeks ago, I walked out of a pitch meeting with an entrepreneur and the only thing I could think about was how to close this deal quickly and make sure that I scooped it from the competition. These meetings don’t come up that often but it is a great feeling when they do.

I then started thinking about what those WOW meetings are made of. It’s not easy to explain and I don’t think that there is a generic formula. It’s more about a combination of things, more an art than a science. 

• It usually is not a structured, Power Point, kind of pitch but an exciting and very dynamic discussion.
• The entrepreneur is completely passionate about his project and communicates that passion.
• He knows his sector inside out, well aware of competition or alternative solutions.
• He is very smart and confident but not overly pushy.
• Obviously, it is a clear and clever solution to a real market need.
• The entrepreneur shows a certain level of independence leading us to believe that he is not desperate and will succeed with or without us. 

In the middle of the meeting, I usually start thinking about how I can pitch Brightspark so that he accepts a term sheet as fast as possible. If the entrepreneur is really paying attention, he may even feel this change of mode, this sudden rise in interest. However, I have been a VC long enough to manage the poker face strategy! 

My two partners and I experienced a WOW meeting this fall. We ended the meeting in this very typical neutral tone: “We will look into it and come back to you within 2 weeks”. We then walked out completely excited about it. During the 15 minutes drive from this meeting to our office, we had already finalized our investment strategy, valuation, terms, negotiation tactics, etc. The entrepreneurs that had just pitched us had no clue that we were that excited about the deal. 

The greatest feeling is when the WOW effect lasts and turns into an investment. We see so many companies, ideas, and projects that although we may get excited about something, it may only last a day or two and then we move on to the next thing. The WOW meetings are the ones that truly maintain our interest and hopefully end up in our portfolio.

I can’t wait until the next WOW meeting!