Playing Your Hand With Your Cards Turned Up
I do not believe we’ve made an investment in our fund without me talking about it, using it, and thinking out loud about it on this blog. If we have, it’s been the exception that proves the rule.
And that’s certainly been noticed by others. Just this week Andrew got an email from another VC asking about a company that I’ve been blogging about recently. And over the weekend, I got a reply from another VC to an email I sent asking him to look at a deal with us. He said, "I saw it on your blog".
So people are watching and that’s fine with us, in fact it’s what we want. It used to be that you wanted to keep your deal flow "proprietary" meaning it was yours and nobody else’s. That way you could negotiate the best price with the entrepreneur. Nobody could see your cards.
Some VCs still do it that way. But many are recognizing that there isn’t a truly proprietary deal unless it’s being formed inside your offices with a team you put together. And when you wake up to the fact that others are looking at the very same deals you are looking at, then it’s time to turn the cards up and play with an open hand.
Why do I say that?
Well for one, the entrepreneur appreciates it. Assuming that the entrepreneur’s product or service is launched (and that’s the time where we generally want to invest), you’ll be giving them much needed attention. And they also appreciate that you are taking the time to use their product, understand it, talk about it, and solicit other people’s opinions of it. Blogging is one of the cheapest and most viral forms of product/service distribution that there is.
Another reason we do it is that we generally like to have other VCs partner up with us on deals. We could call around to everyone we know in the business and ask them if they want to invest with us. And sometimes we still do that. But frankly it’s a lot easier to simply talk about the companies you are interested in and the calls will come in to us.
It also helps source other competitors during our due diligence process. Entrepreneurs working on a similar problem will often contact us or leave comments on the blog talking about their companies. We can contact them, talk to them, use their products and services, and get even more educated about the market we are thinking about getting involved in.
But I don’t blog about a company by saying "we are considering an investment in xyz company". I’ll just blog about it, why I like it, why I am using it. I blog about enough products and services that we don’t invest in that it’s never entirely clear what deals we are looking at. So a mention on this blog doesn’t explicity mean that a company is raising money and that they’ve been in our office recently.
Blogging about things we are looking at is all part of the transparent firm that we are trying to create. We want people to know what we are up to. There are private aspects of our business. Particularly the internal agreements between the firm and the people who work there. And we don’t talk much about our investors and how much money we manage for each of them and how much money we’ve made them. There are some limitations imposed on us by securities regulation. And if and when one of our companies becomes a public company, the limitations go way up.
But we try to be very open about what we are looking for, what we are looking at, and when we invest we like to be open about the reasons we did so. We formed our firm four years ago, raised our first fund three years ago, and in that short time we have been able to establish a significant presence in our sector. We’d never have been able to do that if we had been playing with our cards turned upside down.
Fred, I need $420k to move the the next level and take out some of my competition – what is your first suggestion to me?
Angels are usually are the best source of that level of financingfred
thanks Fred – that’s what I thought too. I’d ask for 2.420 million, but I already know how to do what I need to do, so I’ll sleep better at night not wasting the other $2 million. 😉
i wish more entrepreneurs would think like you michael. you should only raise the money you need.
Thanks Fred – I appreciated reading that. I’m going to keep on kissing frogs I guess – I don’t seem to have much choice.
Fred, love your post as always. We’ve gotta get you using our products one of these days so you can write about us!Actually commenting because of an interesting fact I was reminded of when reading your first paragraph. I have always said ‘the exception that proves the rule’ along with most people I know, but was told years ago that that is an interesting relic of mis-translation. Apparently the expression is ‘the exception that probes the rule’ and proves vs. probes is a mis-translation from a long time ago. You can read a lot about the debate if you google ‘the exception that probes the rule’. The expression makes a lot more sense as ‘probes’ so I assume it is correct. One piece of the debate as at http://isteve.blogspot.com/….
Ahh but according to the paragraph where you talk about blogging many services you don’t invest in as well, then really you aren’t playing with your hand turned up. Maybe you are flashing your cards every now and then rather than playing with them face up the whole time.Of course that could also be why you and your firm are successful.
i have actually noticed this with your blog and I picked up on two investments: twitter and wesabe. Anyways, regarding this comment system, I am not sure I like the comment box above comments because I think I like reading comments before I post.
Thanks for the input, andrew. We received a lot of opinions about this, and for the most part it swayed toward having it on top (to make it clear that one was adding a comment vs replying to an existing one). But everyone has a preference and it will soon be a publisher option.
Fred, I appreciate how your blog reflects the thoughts of both an uber-geek and a profiteer. The more cards you turn up the more data points I get, complete with the color and context of one of the more influential blog communities. Keep it coming.
Fred, your “cards up” statement is interesting, but your comment about “sourc[ing] other competitors” raises one question – when you’re talking to an entrepreneur as a potential competitor to another company you’re really looking to fund, do you disclose that?
i think it’s best to be open and honest about the conversations we are having with other companies in a given market.
Interesting and useful read.One question…How to you find out about the new products, are you approached by the companies or is it more general word of mouth and other blogs?DanCEOClearMyMail- The worlds only guaranteed spam blocker…
DanIts both but I try as hard as I can to learn about them via word of mouth and blogs.Fred