At Venture Summit, 3 Takeaways For Entrepreneurs From VC Phil Black
No one would argue that San Diego is overflowing with venture capitalists in the way, say, the San Francisco Bay Area is. In fact, the region’s relative dearth of investors is often bemoaned by local entrepreneurs. But, at least once yearly, that changes, and the community gets to hear insights from prominent outside VCs firsthand.
Venture Summit—an annual gathering of local founders seeking financing and venture investors, primarily from outside San Diego, on the hunt for companies to back—was first organized by the San Diego Venture Group (SDVG) 17 years ago. The idea was to get more local startups an audience with potential backers, most of whom are based in more mature tech regions, in order to increase those early-stage companies’ chances of getting funding—and therefore, incentivizing them to build their companies in town, rather than relocating in an effort to more easily raise capital.
In recent years, the event has grown, and it now draws dozens of out-of-town investors. It begins with private events, to which only investors and a selection of local companies seeking venture investment—primarily those named to the SDVG’s annual list of VC money-ready “Cool Companies”—are invited.
Some of the connections made during these events in past years have led to exactly the type of deals SDVG is hoping to foster. For example, PetDesk raised $12 million this year from PeakSpan Capital, a firm with offices in New York and Silicon Valley, to expand its online tools for veterinarians. A founder of PetDesk and a partner with PeakSpan met at a Venture Summit event in 2018.
(The event is now run by Connect w/ San Diego Venture Group, the name for the combined organization that emerged this year following SDVG’s merger with Connect, the region’s oldest startup advocacy organization.)
Venture Summit culminates in a half day of talks by out-of-town investors with some connection to San Diego. A keynote by a VC closes the event. Phil Black, a longtime venture capitalist who, with Jon Callaghan, co-founded San Francisco Bay Area firm True Ventures in 2005, gave this year’s featured address.
He responded to questions posed by Adam Harris, CEO and co-founder of CloudBeds, a rapidly growing San Diego startup that makes property management software for the hospitality industry.
Black, in keynoting the event, follows Dafina Toncheva, partner at US Venture Partners, who gave its headlining talk last year. In 2017, Venture Summit featured Bill Maris, a San Diego county resident who launched a new venture fund, Section 32, after leaving Alphabet’s Google (NASDAQ: GOOGL).
True Ventures, which makes seed-stage and Series A investments, has counted among its 250-plus investment portfolio a number of high-profile startups, including Fitbit (NYSE: FIT), which went public in 2015; Blue Bottle Coffee, which was acquired by Nestlé in 2017; and Ring, which was acquired by Amazon (NASDAQ: AMZN) in 2018.
Last year the firm was dubbed Venture Firm of the Year by the National Venture Capital Association, an industry group.
Here are three takeaways for entrepreneurs from Black’s talk on Thursday:
—Do your homework. Know whether the firm you’re pitching writes checks that match up with the amount of money for which you’re asking.
“Make sure that you are selling what the person you are talking to is buying. A seed round of $750,000 [comes from] a very different set of people than a $10 million [Series] B round, where they want revenue and customers they can talk to. The problem is, everyone in the venture industry says, ‘I’m an early-stage venture capitalist’ … and then they talk about revenues and profits … Yes, that’s early stage in the sense of it’s not [a] public [company] … So as entrepreneurs, you have to kind of peel back that layer of the onion one or two times. The down-the-middle-of-the-fairway investment size, is it $3 million to $5 million, is it $10 million to $15 million? … Then you just have to talk to as many people as you can who actually are buying what you’re selling, and then, hopefully, good things will happen.”
—Fix any founding team issues. VCs want to feel confident in the people who are making the pitch.
“I care tremendously about the why. Why are you founding this business, why did you start it? And, equally important, why are you and your co-founders in the same room? There was this one company … I said, ‘so, how do you all know each other?’, again, ‘why are you in the same room?’ [The founder said], ‘I was looking for someone to do the engineering part, and we connected on LinkedIn, and here we are.’ And I was like, ‘OK, when did that happen?’ [He said] ‘three weeks ago.’ And I was like, ‘Oh, my God, I’m out of here.’
Then there was another company where I liked the story, there were some good things, and then we got to the part about the founders who had had a falling out, but the one who had fallen out owned 60 percent of the business, or the vast majority of the equity. … I always like to say, to ourselves, when we have a difficult financing, or when we’ve got some issues on our own side: Do not go out on a fundraise and expect that person to fix your problem. Fix your own problem, and then go out and fundraise.”
—Make it easy for VCs to, in turn, pitch your startup. Even if they are interested, it’s unlikely they’re the sole decision maker.
“You are going to leave that meeting, and the person you’ve just spoken to, if they like it—what do you want that person to tell their partners? How can you help that person get your deal done? You have to realize, to the extent you’re talking with anyone other than the person whose name is on the door, there’s a process, there’s talking about it, and people have dramatically short memories … What is it that makes it exciting to you? Can that person tell that [story] … such that other people can kind of have that social buy-in, of, ‘oh yeah, that sounds good, do some more work there, that sounds great’?”