Hi, I’m Shaun Farrugia and I’m a system architect whose hands are practiced in code and status, but not so much at taking notes.   These are the VERY TERRIBLE NOTES that I took at the “Get Funded as a Technical Founder” talk that was given by Charlie O’Donnell (@ceonyc) at the (very good) Django NYC Meetup Group.

Since this was a Django Meetup , that means the audience was mostly engineers here.    Most of them knew what a VC was but they didn’t really know much about Venture Capital or how to ask about it or even what the effects of taking VC would be on the company they ran.

DISCLAIMER ON NOTES:   I took okay notes but I’m not really capturing the spirit of how Charlie talks here; he’s actually a very engaging speaker.  So hopefully you, the fun reader, is going to get something out of these.

With that said – here are the notes!

What’s a VC?

We trade on illiquid stuff which is equity in a company.  VC’s look at all markets not just tech.  However, there is not a lot of open access to these markets as it’s not like a public stock market or anything.  Yes, there are things like Angelist and Crunchable, but the best deals aren’t usually out there.  They are kept quiet usually and in the know. (SCF> I have “so it doesn’t get crickets” in my notes but I can’t tell if that’s just sloppy writing or if that was what was said!)

There is a difference between Angel Investors and Venture Capitalist as the term Angel Investor usually means someone using personal savings and a Venture Capitalist tends to be managing a fund for an institution.

Different VC’s do different size deals.  Charlie usually does deals around 250k and he has about 8 million to “play with”.  Other companies like USV (Union Square Ventures) are dealing with a pot of 500 million.  They do different types of deals.

A VC usually wants 20% in equity. So if you manage 500 million you need a lot of exits because higher investment.  Charlie manages around 8 million so doesn’t need a ton of exists on 20% to make a huge return and a big impact for his group.
Sometimes the funds that a VC will manage will grow (2mil -> 8mil -> 200mil).  So people who would have talked to you 3-4 years ago won’t talk to you if you aren’t large.

What is my job as a VC?

Basically my job is to meet a lot of people.  Some of these new people turn into new opportunities.  Sometimes the people he meets get placed at some of the investments that his fund has made.
Sometimes he would like people to run an idea by him first.  Shark Tank is bad because people feel like they have one shot and if they don’t get it then the idea is bad or they won’t get an investment.  One time he gave good feedback to a pitch that had a poor use case, they took the feedback and improved the use case but then didn’t come back.  Charlie wants people to come back.

If he doesn’t think people will pay for your service/product, then it’s your job to show that people will pay.  Example: Classpass pivoted from their initial service and then started to charge, based on some feedback, so they were able to adjust the initial approach and repair the use case so that it became something that people would pay for.

What does Charlie look for as a VC?

He’s keeping an eye for what will be a stumble.
(SCF: My notes here are terrible so I’m not really being accurate with the numbers of the pitches per week and the time period he sees 2k emails/demos in.  Blame my childhood and the lack of exposure to shorthand.) He will get 3-4 pitches some weeks and more other weeks but between emails and demos he sees about 2k a month(?)

If you pitch something that I like, then it’s yours to lose.

1. Make sure you measure your ADDRESSABLE market.  Do not come to him saying “Tourism is a 9 trillion dollar market” and saying you’re going after that.  That’s not your addressable market.

2. Consider Enterprise Software; but be aware that unless you have the VP, Enterprise Sales for Blackboard, you might not make that huge dent in the education market.  Why do you want the “VP”?  He can tell you A) what customers want and b) what Blackboard was not chasing and why they aren’t chasing them.

If you’re going after certain segments, you need a large sales force and keep in mind that in the “Blackboard” market, you really need to make sure the IT administrator who is stuck installing this software for 6000 users can be happy or else you’re not going to make headway.

3. Consider the MATH PLEASE.   Sponsorships are not a huge thing.  You get one or two but those dry up when you’re not the hot thing anymore.   Consider if people are buying 1-2 things a year vs 1-2 things a month.

 

Why seek a VC or what is  VC looking for?

Well if you’re making 90k a year of your side project; then keep it; no need to open that up for a VC… Why not?
1. If you take a deal, then one day assume it won’t be yours.   This is because once your company grows, you might not be the best person to run the company or it might be too big for you.

2. If you take a deal you really need to imaginenot being a part of the company.

3. You have to go cash flow negative to grow.  VC will want you to grow not profit.  So you’ll need to hire a CEO and a bunch of engineers in order to sell into X market.   This is what your job starts to become.

How do I talk or reach out to a VC or Angel?

Really – use email  – Charlie and some other VC’s don’t care if you cold intro!  They have the reparative plugin and know who you know so they can get a sense of you and the network.
Some VC’s are picky about having a warm intro but hey if you’re selling 100k a month then those same VC’s aren’t going to be picky.

Questions to Charlie from the Group

Q) What is your Due Diligence?

A) Not much!  I’ll keep an eye on your online footprints to get some insight on your ideas. If the idea is compelling and your online life is matching up then it’s OK.  Then he gets a sense if he can work with you.   An example he brought up is he was giving advice to a younger guy at one time and the guy was nodding and saying yes, but Charlie could tell he was not really listening; that’s a red flag.

Q) Do you prefer B2B or Consumer?

A) Too many VC’s are too worried about that! Charlie is interested in knowing about things but isn’t shutting himself out of huge swaths of the market.

Q) How does he feel about a company if it was crowd funded?

A) Charlie doesn’t really care until you have about 750k of Angel investment.  At that point it’s a little too funded for someone of his size to get involved.
He feels like hardware is a good place for crowdfunding because manufacturing can be expensive.  Sometimes he will send someone to get crowdfunded instead of investing because that will work better for them.

Q) What does a Developer go to you with? Should we always have an MVP?

A) That all depends.. (Charlie shared a few anecdotes at this point …)

-Sometimes sees a guy on Twitter and asks him questions

-Sometimes he gives homework to people based on a pitch (AKA why is this different than the 4 that failed)
Charlie says never to do stuff for VC’s that is extraneous if you think it’s fundable.

Q) Who are the people that invest in your fund?

A) People are committing 250k over 4 years.  That’s a minimum.   He has a handful of Angels, VC’s and 3 small institutions that are the makeup of his fund.

His portfolio needs to have more than 20 companies in it, otherwise it’s too much risk.
The only way (individual investors) get better at venturing is venturing.  Just have money and you can do it.
Charlie gives access to the deal if you’re in his fund.  So that way if you want, you can double down on it.
(There was a side conversation about accredited investors at this point but I did not take those notes – SORRY!)

Q) What news sources do you check?

A) Usually just by talking to people + Twitter .  Likes Jordan Crook.

Q) What homework can we do before a pitch?

A) Get your product management process down!  Understand features, do user testing, have clickable wireframes. Hire UX!

Questions – Email Charlie @ Brooklyn Bridge Ventures.