Confessions of a VC 1: Bungee jumping in "Death Valley"

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Most entrepreneurs are not necessarily clear, where did VC get so much silver in the mess? A considerable number of entrepreneurs think, looking for VC like to fly to the city of Las Vegas weekend, and VC in the gambling table stacked stack of money, play it a few black Jack too enjoyable. If think this is to find VC melt money-wrong!

In fact, VC is almost the same as you entrepreneurs, have to go from time to time to the larger funds to melt money, such as "Retirement fund", "Education Fund", "Social Security Fund" ... To tell stories and to beg for money, so that you can get a huge fund from a big, MAC-style parent fund. ("Parent fund" is also called "Fund to Fund", is "fund fund", or "rice vomit rice"-it sounds really like a full support. )

If you successfully melt several VC funds, look back at a business or a project financing, it is like a piece of cake. Fund "Change" and the entrepreneur "change" like, but it is not like begging on the road, as long as the thick skin to reach out, there is always to the time. "Change" is not a profound, but also not simple knowledge. Especially for entrepreneurs, understanding how to "change" is tantamount to learning a lifetime of useful crafts.

Each VC fund almost has its own clear investment direction (telecommunications, biomedical, Internet, solar), investment stage (early, expansion, late), investment scale, investment project amount. VC fund upstream investors (such as the parent fund), most of the larger and more stringent and more professional investment institutions, they have each VC fund partner background, performance, investment returns and so have strict requirements and supervision.

When you understand the VC "change" is not easy, will not believe that VC can be disorderly to burn money, where they have the guts?! If a VC return is not good, the annual return of less than 30%, this VC I am afraid the next year can only go home to grow sweet potatoes ... Alas, if this is the case, our entrepreneur brothers will also be less than one of the funding of the route. Brothers, or mutual understanding some of it, VC to the entrepreneurs pick up thin pick fat, suspicion that it ... You know, VC fund investors to the VC management team like picking up thin and fat, tube that, like in the eggs to pick bones ... Every VC, including me, have to be like you naked pants in front of investors to ensure that investors to carry back a box of bricks ... Entrepreneurs have the following VC staring, VC behind also have fund investors stare, is mantis, Oriole, VC is not easy.

Where are the founders? is also various, each has each purpose, among them weeding is also a few. Some people start a business is to change the fate of creating wealth, some people start to realize their own when the boss of the like, some people for the human civilization and progress, some people in order to cheat some VC money to die of addiction. But the purpose of VC is only one: Make money, make money greatly.

VC is not a charitable organization, not government subsidies, not unemployment benefits ... VC is downright capitalist, making money is the sole purpose of their supremacy. Therefore, in order to achieve the goal of making a big profit, VC will find a rapid explosion of new areas of growth and excellent no longer excellent team, give them enough food and ammunition, let them eat full of waist round bladder thick, so that they can at the speed of light in the competition has not had time to respond to, run to the end, Hold back big silver piece.

In this game to rob the silver piece of the Olympic Games, VC like the athlete's coach Miro, Junren or Guoliang, their style, method of large hall diameter, each has its own routines, but only one measure: how many gold medals back, earn back how much money.

We all know that to cultivate the Olympic champion, to start from a young age. When you are 25 years old and then go to the Olympic training, you may not even appear in the preliminaries are very small. But how much foresight does it take to select you at the age of 5 or 6 to develop the Olympics? How much time, money, and energy are venture capitalists? Venture capital is the same, to have high returns, must invest in early companies. Apple's first angel investors return 1700 times times, Google Angel investment to achieve 3,000 times times!

But the natural risk of early-stage startups is also high, with almost half of startups dying within two years:

1 The team does not have enough survival experience (including team moral hazard)

2) idea cannot be cashed

3 Cannot find the customer

4 No follow-up investors found

5 Cash flow interruption

In fact, the core of these five risk factors is team risk, that is, "human risk." How can a team venture without experience or preparation? Idea didn't think well, did not think through the hands of the work can not encounter failure? Can't find a customer is your product or your sales ability? Can't find the investor is you do not have the investor's resources, the financing knowledge, or the company will be Jiebukaiguo tomorrow, but you still call the price in the sky tonight? Cash flow interruption is not a comprehensive management capacity of the problem, in short, all are "people" out of the question.

Therefore, we call the early stage of entrepreneurship as the "Death Valley", investment in early companies, equal to the "Death Valley" in bungee jumping. To make a huge profit and blindly jump down, very likely to fall to pieces. Investing in early venture capitalists is tantamount to people who deal with demons and death.

Explain this picture.

Longitudinal axis: Increase in income

Horizontal axis: The time extension of entrepreneurial march

"Starting point" began to fall and then gradually climbed up to the "IPO" curve: The growth trajectory of start-up companies

Red, marked A, B, C, D, E of the ladder: Start-up companies before the IPO to go through the financing stage, a round, B, C, D, e round ... Some enterprises after two or three rounds of financing on the market, and some four or five rounds of money in the future is still for survival and the future of worry and struggle. Entrepreneurs, be careful not to be misled: ABCDE Five rounds of financing does not equal 1 million + 3 million + 8 million + 20 million + 40 million =IPO!!! Each round of financing has its corresponding enterprise value! Just money does not represent corporate value, a company registered capital of 200 million, but without any product, income, profit and cash flow, this company can IPO?

"Death Valley": starting from the start to the income generation stage. Look, how important income is to a start-up!

Early/seed period: (Angel/VC)

This is an enterprise's prehistoric period, no matter how great ambition and vision, are groundless, God knows can not become a reality? Some people pay to support your business, whether it is a few cents, a few dollars, or 1.001 billion, its realm and go to Guizhou, to Qinghai Support Hope Primary School as noble, otherwise how would they call them "angel"? Without entrepreneurs, no one to support entrepreneurship, the country will not be strong, the country has no hope.

Into the long term: (VC/PE)

Startups generate revenue, the company's model is proven to be market value, just as a child begins to enter the development stage, to buy more delicious, so that they can eat more, grow fast.

Expansion period: (PE)

Excellent start-up enterprise, just like this child looks like Yao Ming, 14, 15 years old stature already 1.98-meter, bounce 2 meters, that body's cleverness also did not say, the cap son! The boy is definitely in the Rockets to put the IPO material, need a lot of money to exert, such as buying and merging competitors, let this enterprise quickly become the industry leader!

IPO: This does not need to explain, the street's aunt Big ye all understand.

Brethren, as a transformation from the entrepreneur to the VC, today I tell you the truth. I like the challenge of nature, once in the crossfire of the venture ... I swore to the investing people to help them make big money and put all their life's credibility, plus all the time, energy, and future into it, and raise a start-up fund to support you ... I dare to mess up the money, dare let you get addicted to die?!

Early venture capital was bungee jumping in Death Valley.

What is needed here is experience, courage, wisdom, focus, resources ... More than money? Entrepreneurs, a kind of, think well, think through the stand out, let me accompany you in the "Death Valley" play bungee jumping bar. Weeding, no guts, don't come here and take a rest. Real entrepreneurs are rare animals, they are likely to fall to death, only a few successful.

Do not fool me, do not throw me also fall ...

Borrow "Titanic" to the end: the painter to prepare to jump into the sea Rose said: "I see you dare not dance, look at the cold and cold water ... You have no idea how cold it is, it will instantly turn you into Ice man ... I see you dare not jump, you jump, I jump! " (You jump and I jump!)

Entrepreneurs, do not fool me, I fear the most is that we agreed to jump, the result I jumped down you did not jump!

Note 1: "Rice spit rice" is from the RAN there transgenic.

NOTE 2: The "Death Valley" topology is borrowed from Chen's Godfather's Fund structure map remix

Note 3: Financing should be stripped of the pants story, see blog "Financing = Death March"