Think Strategically: Getting Money, Making Money
Venture Capital firms are doing deals, but no one seems to want to invest in early stage companies anymore. I recently heard a senior partner from a big firm in California. His point: don't come see us until you've built your team, your product, and your business. Then we might throw some money at the problem. Hey, how about trying a bank instead? If your business model is proven, you've got customers and making sales, why give up equity? Gimme a break…
The good news is that among VC firms, IT is still the number one sector and software gets top billing inside IT investments. The bad news is that most Silicon Valley companies continue to get the lion's share of deals. OK, it's not bad news if you're in Silicon Valley. Where's the money going? Of the five biggest deals in Q1 2004, three went to security plays. Hmmm…
These days early stage companies get their boost from angel investors. Another talk I sat through tossed out some numbers, and it was surprising how much investment is actually going on in the US from angels. This is the real engine that drives innovation in our economy.
For some reason companies continue to confound me. Instead of looking carefully for an unsolved problem, an un-met need, they build some cool technology and then try to figure out how to make a business out of it.
I keep telling people they have to articulate how their product addresses an urgent, compelling, and unsolvable problem their customers are facing. I gave two talks over the last few months to drive this home (once for the WSA and once for MITEF). Apparently I'm not the only one:
One of the newsletters I subscribe to, Soft-Letter, cites a recent study done by a research company who surveyed 138 senior IT executives how they evaluate and purchase enterprise software costing north of $50k. Guess what they learned? Cool technology doesn't sell anymore: people “now want products that solve real-world problems.” Apparently the number one reason to reject a vendor of enterprise software is failure to understand the customer's business and map their product to it.
Hello?
