VC, entrepreneurs, investing

Top 10 Startup Financing Takeaways from Investors Michelle Goldberg and Andy Sack

Gregory T. Huang 3/6/09

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you can get, but make sure your investor really understands what progress you will make.”

7. With exit markets closed, VCs are opportunistic. “VCs are in triage mode,” says Goldberg. “Spending more time with your companies means less bandwidth for new opportunities and new companies. People are in less of a hurry, they’ll take more time to see how products are resonating and whether companies are making progress or not. But it is a time to look for great investments too.”

6. More than ever, it’s who you know. “People are investing in people they know, and who they’ve known for a while,” Sack says. Goldberg echoes that, saying, “Every single deal we’ve done is with people we know, and know well. We’re not going cold with entrepreneurs who walk in and have a great idea.”

5. Get money from customers, not investors. “It’s easier than raising money today,” says Sack. “If you can get money from customers, you should.” Especially for first-time entrepreneurs, he says.

4. Think about exit potential. “Is the market moving in such a way that you’ll be a strategic pickup?” Sack asks. Also, be prepared to be patient, he says. “The time to get to some kind of happy-place end game is longer. It’s doubled or more.”

3. What’s hot. Sack points to health care (”cleaning up that chaos and solving some pain points is pretty interesting”), banking and real estate (e.g., helping consumers with foreclosures), mobile (”great growth space, hard to make a lot of money”), and entertainment. Goldberg cites “software that helps people save money without a lot of upfront costs.” For example, she says, “We’re bullish in looking at investments in cloud computing and virtualization.”

2. What’s not. Software innovation in most big companies, says Goldberg—”they’re not spending the money.” And according to Sack, “Consumer plays are out now. Consumers don’t have any money.” As for Web 2.0, he says, “There’s going to be a great washout of Web 2.0 investments. There’ll be a lot of carnage. There’s a home for sure for Twitter, but how that thing makes money, I don’t know. There’ll be a lot of movement in that space as companies go for Series B or C.” Goldberg adds, “If I knew how to make Facebook profitable, I wouldn’t be standing here. It’s a tough business model…If Facebook can’t do it, how is a startup supposed to do it?”

1. Seattle will survive. “A lot of VC funds raised money in the last year or two,” Goldberg says. “In general, there are pots of angel money, and strong angel communities in Seattle that have raised their own funds. Companies like Microsoft and Amazon are well funded, they’re going to make it through this, and they attract talent and wealth to the community. We’re a smaller community than Silicon Valley, so we are dependent on the pillars we have here to keep innovating. Amazon is innovating. Microsoft will innovate in the next couple years. Things will be built, and things will happen here. But I don’t have a crystal ball.”

Gregory T. Huang is the Editor of Xconomy Seattle. You can e-mail him at gthuang@xconomy.com or call 206-624-2249.