Dour VCs lack enthusiasm for anything-- quick takes from Under the Radar conference

By Tom Foremski - November 22, 2004

by Tom Foremski for SiliconValleyWatcher.com

IBD Network recently put together another one of its popular Under the Radar events, which features hand-picked startups performing in front of a panels of VCs. It was interesting, but not for the reasons you might expect.

The startups are allowed a six-minute pitch and the judging panels are separated into categories, such as security, the digital home, etc. At the end of the day, the VCs give their feedback and highlight which companies they liked. This is part of the pre-cocktail panel called VC Outlook, which featured Neeraj Bharadwaj from Apax Partners, Lara Druyan from Allegis Capital, Robert Simon from Alta Partners, and Chad Waite from OVP Venture Partners.


The panel moderator was Rafe Needleman, a senior editor at Cnet. The poor guy had to work hard to get anything out of the VCs. They were stumped by questions such as, “Which of the startup companies you saw today really impressed you?” And they were rendered speechless when Rafe asked, “What have you seen lately that excites you?”

The VCs were happy to talk about what they didn’t like. They didn’t like the startups that pitched their technology rather than their solution. And there were too many startups offering technologies that were more akin to “features” rather than point products —- echoing Larry Ellison’s great line about Oracle’s dotcom competitors: “Those aren’t companies, they are features.”

They didn’t like security technology companies because there are too many of them. And they hated startups with consumer business models because of the large amount of money it takes to build a consumer brand.

It seemed that the VCs on the panel knew the enterprise IT market reasonably well, but they lamented that startups in that sector now have to compete against very large enterprise companies. Not to mention the downside of continued declines in corporate IT budgets.

I’m not sure what benefits the startup companies gained from the event. The VCs I spoke with said they would not invest in any of them because they look for exclusivity in deals.

But I did meet a guy, John, at the evening reception, who blew me away with his description of his startup venture. It is simple, brilliant, and innovative. And it is self-funding-- no VCs required. I promised not to say anything about John’s venture just yet, but it illustrates the fact that good innovation is happening -- it just doesn’t get in front of VCs.

Could the deal flow be slow, offering slim pickings because the deals are being snapped up before they get to the VCs by angel investors? I believe so -- angel investing is larger than ever and will continue to grow in importance.

These days it’s the angel investor networks that are better connected to new technology trends and innovation —- not the VCs. That’s because the angels are the ones providing nearly all of the seed money for startups. Many VC firms have shifted to investing in less risky late-stage financing rounds, where the companies are 3-5 years old, long past their “innovative” phase and now well into their monetization phase.

cd1841

Links:
http://www.ibdnetwork.com/

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By Tom Foremski - November 22, 2004 | Permalink | Category: VC Watch
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Comments (1)

Jeff Clavier [TypeKey Profile Page]:

I had exactly the same discussion with some entrepreneurs after the session. Either you get VC101 or you're told that everything you can think about doing is wrong.

But to be fair to the VCs on the panel, it is always very challenging to answer this type of generic question: either they are onto something and don't want to mention it (one of the reasons for stealth companies mentioned in the interview), or they just have not seen anything worth sharing. Some of the insights offered during Q&A sessions were actually not bad.

Posted: November 22, 2004 11:34 PM