VCs are currently looking at the consumer landscape and the segment is hot again! Many in the industry are wondering what the driver is this for the renewed VC interest. “Right now consumer companies are getting the biggest exits” offered Howard Hartenbaum, from August Capital. He further speculated “The value of Facebook is behind the trend. Every VC wants to have a stake in the game. If they don’t, they afraid they will miss the big payoff.” A different view was offered by Rebecca Lynn, from Morgenthaler. “There were many good ideas in the early 2000s that were great; it was just that the market was not ready for them. Those same ideas are working now.” But what should entrepreneur do? Should they look for angel funding or chase a VC for a more substantial investment?
If you are, or are considering becoming, involved in a start-up consumer company, you may have missed a lively discussion at the SDForum quarterly investment forum on Tuesday, July 13th. Sylvia Burks, (Pillsbury Winthrop), moderated Tuesday’s (July 13, 2010) SDForum Quarterly Venture Breakfast on the Consumer Internet. The panel included Howard Hartenbaum (August Capital), Rebecca Lynn (Morgenthaler), and Danny Wallace (PricewaterhouseCoopers). Here is some advice from the panel.
Things to do:
- Determine whether you want a 2 - 3 or a 7 to 8 year exit.
o For a 2-3 year exit, take no more than $1.5M from angels.
A realistic goal is acquisition for no more than $30M.
o If you plan to stay the course for 7 to 8 years,
take VC money
Have a plan that supporst a 10X return on the on VC money. - Articulate value proposition in an easy to understand sentence.
o Good Examples
Share your thoughts with everyone who is interested.
Easily connect with your friends.
Share your photos.
o Bad Examples
If you had this problem, then you need our solution.
If you “are in a complicated situation and need to”
then you would “use our product.”
Simply have a solution. - Be interesting to a VC (or to a potential acquisition)
o Creation of a network effect?
(The more customers Twitter acquired – the faster they grew.)
o Likelihood other people will use it for a platform
(Creation of new companies using Twitter APIs spurred growth.)
o Clearly articulate customer acquisition and retention
o Simple, simple, simple explanation of the value proposition
o Easy, easy, easy to use
o Delights the customer
o Be close to something consumers already do
o Review the ease of use carefully –
No one cares about better technology with steep learning curve.
o Measure if the market is ready
Be sure the prerequisites are prevalent in the market place
What makes a VC run for their lives?
- "I don’t need the customer input – I just know what they want.”
Instead:
o Go to market quickly.
o Be willing to iterate quickly.
o Enable customers to tell you what they like and dislike.
o Measure the effectiveness of changes. - Promoting your product on “better technology”
Instead:
o Describe the benefit of the new technology
o Test the reception of the benefit, not the technology
o Measure whether consumers care about the benefit


