Fun and Crazy and Frustrating and Hard and Rewarding

Venture Capitalists come in all shapes and sizes. I, for example, am short and fat. Ok, that's not really what I meant. What I meant to say is that not all VCs are alike when it comes to how and in what they invest. There are VCs who invest in early stage companies and others that invest in late stage companies. There are VCs who invest in particular sectors and others who invest broadly across all sectors. There are VCs who invest in only technology and others who invest in non-technical businesses. There are VCs who invest a few hundred thousand dollars in a business and others who invest a few hundred million.

Given the variety of venture investors, it is pretty important to do your homework about what precisely you are looking for in a VC before you decide to whom you are going to pitch your company. Pitching an early stage opportunity to a late stage VC is as big a waste of time as pitching a late stage opportunity to an early stage VC. So I am often asked to describe the things in which August Capital and I invest, which is a perfectly fair question. That said, the answer for August is a little broader than most. We will only invest in high tech businesses but we are pretty much stage and sector agnostic. In our last fund we invested in companies across a variety of sectors (consumer, chips, enterprise software, hardware, services, etc.) and across a variety of stages (two guys and an idea to millions of dollars in revenue). We invested as little as $500,000 in a company and as much as $130 million in another. We've invested in professors with a deep technical idea to domain experts with a deep insight into some process reengineering.

As I look at the companies in which I have invested, it would appear that I am pretty fond of very early stage opportunities. Only one of the companies in which I sit on the board had even developed a product at the time in which I invested. All the rest had prototypes or PowerPoint slides or a good idea, but nothing close to a product. In those instances it is a bet on a team and the beginning of an idea, which is what I find the most fun. There's a pile of risk in early stage opportunities but it is really exciting to help a company grow from an idea to a business. I recently got an email from an executive at one of my portfolio companies that I think does a great job of capturing both that risk and that excitement:

Things are wild ... as you know, it's a business with a million moving parts ... but the big question WILL get answered this Fall ... can we garner consumer interest/enthusiasm? I don't know the answer (largely because it involves the behavior of humans), but I do know that we're doing enough to get a real read ...

Bottom line: Fun and crazy and frustrating and hard and rewarding ... the entrepreneur's roller-coaster for sure ... We will have solid/interesting learnings ... and just maybe (please G-d) a great business!!!

The email really resonated with me. Early stage investors face similar challenges to early stage entrepreneurs. As I work with the companies in which I've invested it is unquestionably "fun and crazy and frustrating and hard and rewarding" and maybe, just maybe, they will turn into great businesses.