I was spoilt. Two companies ago I was introduced to Bill Draper III – a legend in Silicon Valley and reputedly the West Coasts king of early stage venture capital. He invested in the company I ran at the time and sat on its board. He was a legend for a good reason – he was one of the very few venture capital guys I have worked with (and I have worked with many) who truly understands early stage venture investing. First and foremost he is an entrepreneur. And you know what they say about ‘it takes one to know one’. Bill was sent out to the West coast, by his father, in his early twenties to work as the assistant in a financial boutique. It was not long before he became one of the worlds first Silicon Valley tech investors building tech fund and venture firm after tech fund and venture firm. Bill is a venture capital serial entrepreneur. And when we worked together he passed onto me a number of early stage investment secrets. Mostly he argued that early stage venture capital is ALL about backing the right entrepreneurs. Bill forever referred to the entrepreneurs he invested in as his ‘stable’ of race horses. Bill backs people first and foremost because he can. He understands what it takes to be a successful entrepreneur and so he has a canny knack for discovering and developing them. And its Bill’s style and shadow that successful early stage tech venture guys try and emulate in California. Not so, sadly in Europe. Most European venture investors sit in London, Paris or Brussels – most have financial backgrounds as bankers, fund managers or accountants. Almost none of them are entrepreneurs. The vast majority major in financial engineering. They are suited to private equity but not to venture capital. For entrepreneurs and their early stage ventures are not asset classes to be traded in like stocks on the Nasdaq. They are people and businesses that need to be understood and nurtured. ‘It takes one to know one…’ Most of Europe’s venture capital companies represent lenders of last resort to the entrepreneurs they so wish to back. And smart entrepreneurs are today raising start-up rounds from friends and family, seed rounds from Angel investors (that often are ex-entrepreneurs) and only do a Series A with a venture capital company if they absolutely have to. Thanks to lower cost hardware, software, bandwidth, free or next to free viral digital marketing and flexible office solutions – entrepreneurs increasingly do not need a Series A round of financing and so can avoid the venture capital gooks. So, where does that leave Europe’s venture capital companies – well, largely out in the cold. The future lies with networks of angels better organized through hives on the Web linking up with clusters of like minded entrepreneurs together disintermediating the venture guys. Clouds and crowds of angel investors interacting with crowds of relevant entrepreneurs – discovered by TechCrunch or at relevant Meetups. Conversing at Facebook or Twitter not in venture offices in Piccadilly or Saint Germain. And I am left with the striking words from Bill Draper – “and remember Phil that a venture capital guy only ever has to do ONE thing for you entrepreneurs – no matter what other crap they offer you – WRITE A CHEQUE!” Let me add to Bill’s wisdom by suggesting that you beware of venture capital investors as they can often be controlling, high maintenance and come with strange strings attached. Go to them as a last resort. Do it the right way – bootstrap the business until you have revenues and/or a proven model then head to the Angels. You will be free – free to be an entrepreneur and run your business your way. And freedom is what real entrepreneurs need more than anything else. That’s what Bill never forgot.
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