Mark Davis Archive

Since entering the venture capital field, I have observed how other VCs approach the business. Tactics and practices vary greatly and some are better than others.

I have tried to identify venture capital best practices. There is more to the business than picking winners; the nuances of interacting with and supporting entrepreneurs are potentially more important. While I have found that there are dozens of small processes that are exemplary, the principles that make a VC effective and poised for long-term success can be boiled down to a top ten list. Although exceptions always exist, these ten guidelines appear to be the guiding light for how the best VCs interact with entrepreneurs. I believe that these rules are worthwhile for entrepreneurs to be aware of, as it is my hope that they will set the bar for their expectations.

Top Ten Ways In Which The Best VCs Interact With Entrepreneurs

1. Be respectful of entrepreneurs and their efforts – remember that they are changing the world.
2. Handle sensitive information carefully.
3. Be forthcoming if you are evaluating competitive opportunities.
4. Be honest about your intentions.
5. Respond as promptly as possible.
6. Help entrepreneurs when possible regardless of whether or not you intend to invest.
7. Ensure that entrepreneurs share in the upside.
8. Be an active board member.
9. Pursue the exits that are best for everyone around the table.
10. Support the entrepreneurial community.

More broadly, these guidelines address three potential VC short-comings that are commonly cited by entrepreneurs: arrogance, inconsiderate behavior and selfishness. The best VCs avoid these behaviors like the plague, and they do it for good reason; in the long run, it makes them more successful.

The all-stars of VC understand that the entrepreneurs are the stars of the startup show. This perspective keeps actions that could be perceived as arrogant in check. With this mindset, these VCs know that egos are unjustified and, very often, destructive. Simply being respectful can make life for entrepreneurs easier and can enable a type of board room collaboration that yields the most productive outcome.

As I mention in my post, The Venture Police: Reputation, VCs needs to be considerate in order to develop the kind of reputation that attracts the best entrepreneurs. Being considerate means a few things. First, it means stating intentions up front. For example, VCs who are looking at multiple opportunities in an industry need to inform entrepreneurs of that fact. Second, responding to entrepreneur emails in a timely fashion is also important. Responsiveness is part of being a team player – fundraising is a stressful process that does not need to be complicated for no reason. Furthermore, responding to emails is the same courtesy afforded to nearly everyone in business – entrepreneurs deserve the same respect. I have found that a quick “no” is always appreciated – like everybody else, entrepreneurs want to know where they stand. While promptly responding isn’t always easy for VCs when their email inboxes are being bombarded, efforts to be responsive appear to be appreciated.

Lastly, even when VCs don’t plan to invest, trying to selflessly help entrepreneurs is a noble pursuit – this goodwill gesture not only helps a VC’s reputation, it is the right thing to do. Helping an entrepreneur can increase the odds that a new service makes it to market, that new jobs are created and one person gets a little bit closer to realizing a dream.

The best VCs appear to understand that being perceived as arrogant, inconsiderate and selfish can damage their reputation and future deal flow. As a result, they go to great lengths to avoid these perceptions. Ultimately this unique alignment is one of my favorite aspects of the VC role – it’s in a VC’s best interest to be a good guy.

This column was provided by Mark Davis. Mark is the author of Get Venture, a column designed to help entrepreneurs raise venture capital. In addition to his column, Mark is active in the venture community as an entrepreneur, advisor and venture capitalist. He currently works at DFJ Gotham Ventures, a leading early-stage IT venture capital fund based in NYC.

There’s always a lot of talk within the NY venture community about how well the region is doing as a place to found and grow technology businesses. Working with some of the folks at DFJ Gotham, I recently did some analysis that quantifies a few of the strengths of the NY Region – I’m going to share a few of those findings below. Looking at the data one can objectively state what all of us who live here know to be true: NY is a growing hub of high-tech activity.

Methodology

The AEA Cybercities report provides a great deal of data about the high-tech sectors in the top 60 US cities. However, the city view doesn’t accurately capture the regional tech communities – these ecosystems often span more than one city. As a result we rolled up the territories defined in the report into regions that parallel the actual technical communities. While the AEA has Silicon Valley as an isolated territory, we integrated San Francisco, Oakland, Menlo Park, etc. into what we called the Silicon Valley Region – a more realistic view of where Sand Hill VCs actually invest and where entrepreneurs out there consider their stomping grounds. Similarly, the SoCal Region includes San Diego, LA and a few other independently listed geographies. The NY Region includes East PA, East NJ, West CT, Westchester, etc.

Findings

Here’s the scoop. Based on the AEA data, of the major regions the NY Region is:

• 1^st in total high tech jobs
• 1^st in the number of new high tech jobs annually
• 4^th in high tech salaries, behind both Boston and Silicon Valley

Making Sense of This Information

Given the sheer number of people in the densely populated NY region, it’s not surprising that there are a lot of high tech workers. However, the fact that there are more techies here than anywhere else in the US might surprise some. My gut tells me that this viewpoint may be a result of the reality that the NY tech scene is sometimes overshadowed by the other prominent industries in the region (finance, advertising, pharma). However, living in a land of giants doesn’t make you small.

It’s worth noting that based on this the implied percentage of the technical talent in the NY Region is currently working in startups in smaller than that of the Valley, leaving a deep bench of talent to join companies or start the next big thing.  We’re poised to continue to grow.

On another note, it’s common to hear those who don’t know NYC well state that it’s an expensive place to be a startup. I often hear the local entrepreneurs argue otherwise. The data point about NY tech talent being less expensive than it is in Boston or out West supports the argument that NY is an affordable place to start a company, at least with respect to the biggest cost for most start-ups: people.

It’s nice to see some data that supports what all of us on the ground here already knew: New York is hot.

This column was provided by Mark Davis. Mark is the author of Get Venture, a column designed to help entrepreneurs raise venture capital. In addition to his column, Mark is active in the venture community as an entrepreneur, advisor and venture capitalist. He currently works at DFJ Gotham Ventures, a leading early-stage IT venture capital fund based in NYC.

A good friend of mine asked me for some tips on how to use LinkedIn.  I sent him a long email and figure that I should share my thoughts on this with all of you.  I’m not an investor in LinkedIn, but think it’s a great service.  Here’s the scoop.

Editor’s note: After you read Mark’s guide below, check out all of our LinkedIn coverage and join our LinkedIn networking group.

Why you should use LinkedIn:

1. The service allows you to see who your contacts know – something that is virtually impossible to do sufficiently through normal social interactions.  LinkedIn takes the coincidence out of networking.
2. It enables you to passively keep up to date contact information for all of your contacts.
3. It facilitates introductions through your broader network.
4. It enables people to find you based upon your background and who you know.
5. It is a professional network that excludes unnecessary personal information.

Why You Should Expand Your LinkedIn Network

I find that a lot of people define ‘using’ LinkedIn as having a profile, but not a lot of connections. As a result, I think it’s worth pointing out that the more you expand your network the more valuable the service will be for you.

As you add more contacts:

1. You will have a larger database of people to search through when you are looking for a contact.  When you search for a person or a background you can only see contacts in your three degrees or contacts – more contacts means more people in your searchable pool.
2. More people will be able to find you when they search for someone with your background.

LinkedIn Best Practices

Here’s my short list of LinkedIn best practices (and how you do them):

1. Customize your LinkedIn profile page URL name.  Go to ‘edit my profile’ in your LinkedIn account and click on ‘edit’ next to ‘Public Profile’ a little way down the page.
2. Add your LinkedIn profile page to your email signature.  For gmail click on ‘settings’ in the upper right hand corner and in the text box half way down the page labeled ‘signature’ enter a custom signature including your new Public Profile URL.
3. Connect with your existing contacts.  Click on ‘add connections’ on the left side of the screen and follow the process of letting LinkedIn scan your gmail, outlook or other contact lists.  By doing so you will be able to invite your contacts to connect using the very easy process provided on the site.  Note that you will not automatically invite everyone in your gmail or outlook contact list.
4. Use the Browser Toolbar.  The most important feature of the browser toolbar is that it adds a LinkedIn icon next to email addresses in your gmail.  This icon enables you to see a LinkedIn summary (job title, position in your network, number of contacts, etc) of any person who emails you.  It also enables you to invite people to LinkedIn from your gmail account – making it easier to connect with people.
5. Use the Outlook Toolbar.  This application integrates into your outlook as is useful in a few ways.  First, it adds a LinkedIn icon that is similar to the one described in the browser toolbar.  Second, it enables you to update your outlook contacts based upon changes that people make to their LinkedIn profiles – keeping your contacts up to date.
6. Add a picture.  It’s always helpful for other people to be able to associate your face with your background, making it easier for people to introduce themselves at social events.

LinkedIn Etiquette

Standard for connecting.  When I first started using LinkedIn I viewed a connection as an endorsement.  I no longer see it that way, because I realized that my connections do not have direct access to each other – I have to approve introductions.  At this point, I am willing to connect with anyone with which I would normally exchange contact information (e.g., a business card).

Appropriate use of the name field.  Some folks insert additional information into the name field on their profile.  The most often additions are a title or an email address.  I understand that they do this because in some forms of search on the site the name field is the only thing that shows up.  However, I don’t like it.  Not only does it seem aggressive in general, but also it screws up their contact information for everyone that uses the outlook toolbar. 

It’s OK not to forward an intro:  People can request that you introduce them to someone else in your network.  While it’s a bit awkward to say ‘no’, I think that it’s appropriate to do so if it makes you uncomfortable.

This column was provided by Mark Davis, the author of Get Venture, a column designed to help entrepreneurs raise venture capital. In addition to his column, Mark is active in the venture community as an entrepreneur, advisor and venture capitalist. He currently works at DFJ Gotham Ventures, a leading early-stage IT venture capital fund based in NYC. Mark has also setup a variety of regional venture communities on LinkedIn.

Editor’s note: NYC Venture Capitalist Mark Davis is authoring a four-part series on how a VC is funded. Davis notes the four methods are: diverse limited partners, family office, government or public markets. Today, Davis looks at the public markets.

In my post, How A VC Is Funded, I listed four ways that VCs obtain capital to invest in startups. Each of these four sources of capital has slightly different implications for entrepreneurs. In this post, I will discuss the implications of a public funded VC.

Capital Constraints
Similar to family office funded VCs public funded VCs raised a relatively fixed pool of capital from the public markets, which they continue to recycle from exits to new investments. Entrepreneurs should be sure to ask any fund that relies on recycled capital for future investments about their reserves to ensure that capital will be available in the future. While in theory the fund can always tap the public markets, that may not be the reality.

The Public Eye
Public companies have to make public disclosures. As a result, more about your company and its operations may be easily accessible to third-parties if you have a public investor. If your company requires substantial privacy because your strategy relies on being the first mover or otherwise then you should ask these VCs about the disclosures that they will make.

Bureaucracy
Too many entrepreneurs bureaucracy is the anti-Christ. If this is the case beware of the additional administrative burdens that might be required if you accept money from a public fund.

These funds are regulated by the SEC and have substantial reporting requirements. Be prepared to answer questions and provide lots of data as necessary.

This column was provided by Mark Davis, the author of Get Venture, a column designed to help entrepreneurs raise venture capital. In addition to his column, Mark is active in the venture community as an entrepreneur, advisor and venture capitalist. He currently works at DFJ Gotham Ventures, a leading early-stage IT venture capital fund based in NYC. Mark is pursuing his MBA at Columbia Business School.

Editor’s note: NYC Venture Capitalist Mark Davis is authoring a four-part series on how a VC is funded. Davis notes the four methods are: diverse limited partners, family office, government or public capital. Today, Davis looks at the government.

In my post, How A VC Is Funded, I listed four way in which VCs obtain capital to invest in startups. Each of these four sources of capital has slightly different implications for entrepreneurs. In this post, I will discuss the implications of a government funded VC.

Both the federal and local governments have created venture funds that seek to harness the free markets to achieve a social objective. The federal government has one fund that seeks to identify and incorporate new technologies into the military. Many state and city governments use these entities to stimulate local economies.

Capital Constraints
Similar to both the family office and public funded funds these funds recycle capital from one investment to the next. As a result, capital constraints can be an issue if they don’t have robust capital reserves are timely exits from other portfolio companies.

Furthermore, these funds are subject to the whims of legislators. It’s possible that your capital reserves could be re-appropriated to another state agency with a change of administration or policy.

Double Bottom Line
As aforementioned, these funds typically invest both to increase the size of their capital pool and achieve a social objective (e.g., supporting new technologies, creating tax revenue or decreasing unemployment). As a result, you should be thoughtful about the motivations of these VCs. A pre-requisite for their investment may require moving the company to a new location or taking the time to license the product to the government.

This column was provided by Mark Davis, the author of Get Venture, a column designed to help entrepreneurs raise venture capital. In addition to his column, Mark is active in the venture community as an entrepreneur, advisor and venture capitalist. He currently works at DFJ Gotham Ventures, a leading early-stage IT venture capital fund based in NYC. Mark is pursuing his MBA at Columbia Business School.

Editor’s note: NYC Venture Capitalist Mark Davis is authoring a four-part series on how a VC is funded. Davis notes the four methods are: diverse limited partners, family office, government or public capital. Today, Davis looks at the family office. The other three methods will follow throughout the week. Grab the feed to be immediately notified.

In my post, How A VC Is Funded, I listed four way in which VCs obtain capital to invest in startups. Each of these four sources of capital has slightly different implications for entrepreneurs. In this post, I will discuss the implications of a family office funded VC.

By family office I am referring to one family’s private capital. In this scenario the VC firm is essentially working for a very wealthy family to enhance the family’s personal endowment.

Capital Constraints
Some of these VC funds can have a relatively limited amount of capital under management. Since they typically don’t raise capital from third parties, they can only invest what the family allocated to them. Furthermore, once that’s invested they have to wait for a company to be sold in order to have access to more capital.

One risk in this situation is that if the fund has invested a large proportion of their assets under management they may not have the resources to continue to support your company in future rounds. The takeaway is that you should take a look at their balance sheets before accepting an investment.

At The Mercy Of The Family
There is some risk that families may be able to pull their capital out of the fund if they have a sudden need for liquidity. The impact of this would again be an inability of the fund to support you in future rounds.

This is a question worth asking the VCs – they may or may not have protective provisions in their contract with the family that prevent sudden withdrawals.

Even-Keeled Investing Strategy
The psychology and objectives of a VC at a fund with fragmented LPs typically changes through the stages of their investment cycle; they are willing to take more risks at different points in the fund. While this is may be a pro and a con for the entrepreneur, it differs from the styles of family office VCs.

Family office VCs with pools of capital that far exceed their investment capacity are more likely to have a consistent risk tolerance, making for more predictable investment decision making. However, funds with more limited AUM may become more risk adverse as capital pools continue to become increasingly constrained.

Board Accessibility
VCs that have a fragmented LP base become very busy every 3 to 5 years as they go out to raise capital from their LPs. This can make them less accessible to their portfolio companies. However, the best ones make sure that they are still available.

Family office VCs don’t have to spend lots of time raising money, meaning that should be slightly more consistently available to their entrepreneurs.

This column was provided by Mark Davis, the author of Get Venture, a column designed to help entrepreneurs raise venture capital. In addition to his column, Mark is active in the venture community as an entrepreneur, advisor and venture capitalist. He currently works at DFJ Gotham Ventures, a leading early-stage IT venture capital fund based in NYC. Mark is pursuing his MBA at Columbia Business School.

Editor’s note: NYC Venture Capitalist Mark Davis is authoring a four-part series on how a VC is funded. Davis notes the four methods are: diverse limited partners, family office, government or public capital. Today, Davis looks at diverse limited partners. The other three methods will follow throughout the week.

In my post, How A VC Is Funded, I listed four way in which VCs obtain capital to invest in startups. Each of these four sources of capital has slightly different implications for entrepreneurs.

Fundraising Cycles

Investments made in a VC fund by a diverse group of limited partners are integrated in closed end funds. As a result, VCs who raise money from a diverse group of LPs have to go and raise capital from limited partners every 3-5 years. Money is raised, the fund is closed, the capital is invested and then another fund is raised.

As a result, entrepreneurs can be affected by where the current fund is in its lifecycle. If you receive an investment from a VC when they are raising another fund, the VC will likely be slightly busier than they would otherwise be. Fundraising is a very time consuming process for VCs, making them very busy. This doesn’t mean that they won’t have time for you, it just means that their schedules will be more complex and they will be slightly harder to reach.

However, this does not mean that they will not be able to make follow-on investments in your company. Good VCs keep capital reserves to support their portfolio companies even after they raise their next fund. Be sure to ask them about their reserve policy to ensure that they will be able to continue to support you.

Limited Partner Network

Another consideration created by this funding structure is that these VCs often have a deeper network of people vested in your company’s success. High net worth individuals who invested in the fund will care about the success of your company. If a VC has an investor (limited partner) that could help your company they will typically contact them.

Risk Of Exiting The Business

If you raise money for a poorly performing VC fund, it is possible that they may not be able to raise a subsequent fund. As a result, in extreme circumstances they may be forced to find new jobs before you have sold your company.

This column was provided by Mark Davis, the author of Get Venture, a column designed to help entrepreneurs raise venture capital. In addition to his column, Mark is active in the venture community as an entrepreneur, advisor and venture capitalist. He currently works at DFJ Gotham Ventures, a leading early-stage IT venture capital fund based in NYC. Mark is pursuing his MBA at Columbia Business School.