Summation: Auren Hoffman: Thinking of seeking capital?

with Auren Hoffman
October 27, 1997

Thinking of seeking capital?
Think of things from an investor point of View
by Auren Hoffman
Before investing in a start-up business, a venture capitalist must first look at the people running the company. These people must possess certain traits, background, and intelligence.
Traits:
Women and men running small companies must be very flexible and willing to change. Good entrepreneurs cannot be afraid to take "no" for an answer. Start-up company officers must be persistent, ambitious, and organized. Of course, the most important trait is the ability to listen, seek advice, and accept change. Though all these traits can be learned, no venture capitalist would invest in someone until s/he has fully developed these characteristics.
Background:
Good ideas, innovation, and bold vision are not enough for long term survival of a company. You need people who have experience building similar applications, running similar entities, and working with similar customers.
Intelligence/Knowledge:
Entrepreneurs have to know their industry cold because small companies require even the CEO to perform a multitude of tasks. However, knowledge can only get one so far. Raymond Smith, CEO and Chairman of Bell Atlantic, likes to point out that "it is extremely important to know how much you don't know." Start-up companies have to fully understand their limitations.
Besides investing in people, a venture capitalist also invests in a product. The most important aspect of a product is not its technical ingenuity but its ability to generate revenue and make a profit. In this fast moving hyper-marketplace, these types of products generally rely on proprietary objects owned by the start-up company. Unfortunately, great ideas can be copied by rivals with deeper pockets and stronger connections.
Generally, a company that has developed proprietary technology has already been in business for some time and has experienced managers setting the direction. Once the product is developed, these managers must map out a strategic business plan detailing the potential revenue and costs. A venture capitalist must decide if the numbers in the business plan are realistic based on the product, technology, and the people.

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