Monday, July 13, 2009

Top 10 Attributes of Successful Southern California VC Investments

Contrary to the common belief that Southern California "should be an easy place to raise money" with all of its' entertainment and real estate wealth, it is a very difficult place to raise Venture Capital for technology start-ups. The bulk of all professional Venture Capital is managed out of offices based in Silicon Valley and most of these fund managers like to invest close to home (except MHS Capital). To make matters even more difficult almost 90% of VCs based in SoCal in 1999 are now gone while our beachhead entertainment companies have a terrible track record at making early stage investments and now typically wait to invest in later rounds.

So how does an entrepreneur based in SoCal get the attention of VC funds today? Over the last ten years I have seen hundreds of entrepreneurs raise VC funding and I have compiled a top ten list of attributes for companies raising Venture Capital in Southern California.

1) The team is articulate, polished and focused in their delivery of their value proposition
2) Frugality reigns supreme and founders have bootstrapped the product development
3) Founders are thought leaders with relevant engineering and marketing domain expertise
4) Founders have chemistry and have established culture with their investors and employees
5) Company has paying customer references with high gross margins
6) Word of mouth marketing and industry references are working
7) The market is still somewhat undefined and growing rapidly
8) Pain relief creates incremental revenue or cost saving opportunities for customers
9) Founding team is raising money through their own personal networks or referrals
10) Company has a clean capital structure and the founders have personally invested

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