Today we have a guest post from 2010 hackNY Fellow Anil Raj, who is interning with OKCupid:
On Tuesday, I, along with the other Fellows, got to visit Union Square Ventures and hear from one of their partners, Albert Wenger, about “all you ever wanted to know (but were afraid to ask) about venture capital firms.” In contrast to the previous tech-based chats, here we learned about the venture model, financing math, and insider tips on what one should keep in mind when pitching for venture capital to finance one’s startup/idea.
USV focuses solely on internet-based startup companies (e.g., their latest successes — foursquare,etsy and stackoverflow, to name a few) and strongly prefers “thesis-driven” startups over “theme-driven” startups. According to Albert, businesses premised merely on new features rarely succeed with a huge impact. Businesses that have been around long enough have an important advantage over startups that are built around the same theme — they have large volumes of data available to test new features, something a grassroots startup severely lacks.
Albert, drawing on his 10+ years of entrepreneurial and technological experience (yes, he’s a hacker-turned-entrepreneur), gave an excellent comparison between the current venture capital financing model and that of the mid-90’s. Today, initial stage overhead costs (cost of servers, storage, bandwidth etc) are orders of magnitude smaller compared to those a decade ago. This allowed for the rise of a new class of venture capitalists (angel investors) who distribute the risk by providing seed funding to several grassroots startups (as he put it: minimizing type I errors while allowing for type II errors).
When applying for financing, an important piece of advice from Albert was to focus on making the product work — a product that provably works and has a growing, engaged consumer base is far more attractive to investors and VCs than a killer team of developers with no product in hand.
Thanks much to Albert for taking the time to talk to the hackNY fellows!