Charlie O’Donnell is a partner at First Round Capital and he has some awesome posts up on his blog. He also did a startup called Path 101, which is in a similar place to what we want to do with Identifii. I was reading through his blog post, The three types of deals that VCs invest in and I thought to share it with everyone. This is specially for all those who are looking to get backed by professional money early on in their ventures.
Excerpts from his blog
“VCs put money into something that’s innovative, they tend to do it in an innovative sector. So, it’s not just about the idea, but they want that idea to live in an ecosystem that is in flux or generating new and interesting approaches.
So, if you’re doing something innovative in cleantech, mobile apps, hyperlocal, or some kind of social media monetization tool, an innovative vision can get funded. VCs are willing to make bets on visions of how certain markets will develop, even if they don’t know all the details of how the business works out.
If you are not in an area that VCs are excited about, you basically have two options.
The first, and probably best choice, is to go make some money. VCs, specially those in the second half of their funds, will invest in baked in ROI. Once you prove your ability to make money, then it becomes a simple matter of an associate spreadsheet. How much do you make now and, what valuation can we get it at? What will you make with some product improvements and a new head of sales, maybe some international expansion and, what can we sell it at, when? Dollars in, dollars out, pure and simple.
The next choice, which isn’t really a choice, is to have done it before. This is betting on the jockey, not the horse.“