author introduction: Bo Peabody is an entrepreneur, is also an investor, current or American vc institutions Greycroft Partners, a partner. He built a lot of companies in the process of entrepreneurship, including social networking fathers of Tripod Inc.,. At the same time, Bo and author of “the Lucky or Smart. The following is a Bo Peabody in an interview on the problems of information asymmetry in the vc industry analysis.
in the history of 20 years, I have become entrepreneurs and venture capital; And this 20 years, I have grasped the significance of the vc industry a key question: for the start-up investment, vc firms have messages more often and comprehensive; But, in turn, accept investment start-ups often know very little about the value of the vc firms as partners.
this asymmetric information gap is unfavorable for both parties.
realized it, I immediately with Greycroft partners has carried on the discussion, then the “establish Greycroft as an Open VC” this point agreed – as a venture capital firm, we should strive to understand our channels, for entrepreneurs to let them know how we work on related investment projects. In other words, we should actively recommends entrepreneurs to the cooperative venture company put forward the major concerns of them, so that they know the information of the situation and venture capital companies to achieve equivalence. Because, we believe that this will improve cooperation returns.
at present, the industry generally believe, understand a start-up, gradually from the inside out is the basic work of VCS. And this is very important, before investment takes place is even more important in investment trading after the dust settles. As a venture capital firm, we need to know the products of startup, the team and the market situation, sometimes even like entrepreneurs I knew all about these situations. However, few people would think a start-up for may also need the cooperation of the vc company in-depth understanding.
usually, entrepreneurs think that understanding the investors behind an investment deals is important; But it is not enough. Once the equity deal, entrepreneurs face a whole vc firms, and not only as investors need a person in the face of entrepreneurs.
we represent Greycroft and cooperation of each execution of a start-up team met, called in three to five members of the team, review each of them the employment agreement, stock options, the construction of the enterprise archives as well as the company has completed each signed contract. In detail.
and vc firm itself, take Greycroft and almost any well-run companies, not just investors, consortium team everyone should have a high level of professional knowledge, and know for each deal.
here are Greycroft standards about reviewing data:
customer reference data
management reference data
company has the financial status of
the company planning the financial model of
product use and current status of data
customer support and loss analysis
Capital composition table
the existing risk investment agreement and stock purchase agreement
sales funnel (also called sales pipeline, it is a kind of control of the sales process analysis tools)
all the actual contract
all about company build files
executive team all key personnel files
the complete team turnover data
vc firms need to master the information indeed. But, on the other hand, the entrepreneur and his team to cooperative venture company know very little about what they want. They may also put forward some general problems, such as investment ideas or decision-making structure, but VCS almost never produce any documents to the start-up company.
in fact, entrepreneurs must understand that: in the venture capital companies to invest in them at the same time, they are also to “invest” vc firms. The interests of both parties are equivalent (or you will feel bigger gains in entrepreneurs, after all the large investment), so the status in the field of information communication between the two sides also should be equal.
some people would say, even if the situation is really unfair, but this pattern also has a long history. I also know that this is not the existence of fair has its reason. Vc firm has leverage, because their disposal is the capital of almost all entrepreneurs are scrambling to desire.
in turn, entrepreneurs to one party if there is such a lever, can appear more vc compete against each other the same investment deal, and also can be like a startup venture firm review request to them, for all to share in the venture capital company of investment credentials. But, unfortunately, entrepreneurs there’s almost no similar leverage advantage (although there is a few case and looks really cool). In addition, there is a time problem: the founders and their teams don’t have enough time to review one by one to understand vc firm is willing to cooperate.
so is the case of asymmetric information, the reason is that the venture capitalists party natural has the advantage of leverage. This investment had said to the wind is really a good thing, so Greycroft to change the status quo of motivation and how to talk about?
in fact, our motivation is very simple, as from a mutual interests: on the basis of existing investment of time and capital to achieve higher returns.
in the open market, the transparency of this kind of situation will be much higher. When a private company choose listed before, it is able to pick out the most suitable with fairly high accuracy of stock options the company (or mutual funds, hedge funds, etc.), so as to decide who is the best partner for its next growth stage.
in this case, the private company will be able to clearly understand the potential partners hold what kind of stock, and each stock holdings, stock holding time and more technical details, etc., in the private company’s existing growth stage is very important. In this case, the investor undisclosed information is not much; This kind of information symmetry level also let the sale of shares and subscribe the two sides achieved a higher degree of matching.
there is no doubt that entrepreneurs need the money. And survey data show that by selling equity behind on behalf of the capital value, namely (1) the two sides of the mutual influence of the company’s future development direction and (2) the investors in the decision-making is given with the legal effect of the actual control rights – is immeasurable. Case of start-ups fail often, the reason is various; But there are too much because this entrepreneurial teams and the failure of the marriage between vc firms.
about this, Greycroft provides entrepreneurs with a honestly male way. Greycroft, we think, should be doing everything they can to improve our level with information symmetry between start-ups.
we want the entrepreneurs and his team can also like we know they know us. Only they know more about us and our business operation condition, can more harmonious cooperation relationship, at the same time, the rewards of cooperation will be higher.
with the belief, we believe that every entrepreneur before accepting any vc investment, should put forward the following 10 questions and get a definite answer.
WGreycroft calls for entrepreneurs to put forward these problems to us, and we will try to offer a clear answer. Please also entrepreneurs with these issues and other cooperation dialogue between vc firms. Good company not to make a negative response to these questions (if you have, it’s time to consider a company).
your startup with how much a fund? The fund is now’s stage of growth?
tip: if your face is a $1 billion fund, but gets only $1 million of that, then you should ask the reason. And whether you’re at the end of the fund a or the first investment object, you should understand that this situation will have what kind of effect on your company.
you face of vc firms adopt what kind of investment strategy? The size of its investment and what is the average stock holding rate? What reserve strategy?
note: as an entrepreneur, when faced with an investment is not reasonable in your opinion, should be positive to question, and try to find the most suitable model. If normally only accept $2 million in a trade company to give you a check for 5 million dollars, this is probably a good thing, may also be a strange thing. You need to ask: the company to the investment of the company’s shares are held by 5% or 25%? Why do you ask? Because some companies to higher levels of reserves on trading strategies, some will be lower. No matter the stand or fall of on any account, you should know each other in this position.
the decision structure of vc firms have? And your investors in this structure in a what kind of position?
note: different funds have different decision-making structure. No absolute worst structure, but you should know the structure of each other belong to that type, and know your investors on the location of the structure.
note: typically, with a large number of colleges and universities donations and funding foundation is higher than private capital have vitality. However, if these individual capital to be able to help you and your company, and it can provide you with the contact of these individual capital channel, then the individual funds may be best for you.
the vc company’s pay structure is what kind of? Your investors in this structure, in what position?
note: powerful funds generally has a more equitable distribution of structure, while the weaker funds tend to will score the ration of the senior members of the lower value creativity.
the vc firms how to take in the company management policy? How the management culture? They value seat on the board? If so, who is at every board meeting of them?
note: venture capital firms pay attention to the investment of the company’s board seats for reasons good and bad. To find out the answer to the question, is the best way to find the vc firm all the companies in the portfolio entrepreneurs, through their understanding.
for possible future income from the investment transactions, the venture capital firm hold what kind of point of view?
note: every vc according to different circumstance makes the corresponding analysis of liquidation, which purpose is to find out how startups will profit. Every transaction requires such an analysis, to find out the real returns. Greycroft, for one, we are happy to inform entrepreneurs to present the results of the analysis, so that both sides can clearly know how each other profitable cooperation.