Interview with Tim Chang, leading Silicon Valley venture capitalist.
By: Adeline Teoh
Seeking venture capital is not for the faint-hearted. Investors who trip over themselves to hand cheques to the next Facebook, Zynga or Groupon may be the same ones that won’t even give you a first meeting.
The challenging part is there’s a lot of money out there but some hot enterprises, such as in the consumer internet or consumer mobile space, don’t actually need a lot of money to go far. And if you don’t have that buzz, the right team, or critical mass, you’ll struggle to get any attention at all.
A lot of it is timing in the right sector. Two years ago, mobile check-in companies were really hot so if you were one of the top five in that area, like Foursquare or Gowalla, you received funding. They come in waves of about three or five and the waves can come down very quickly, says star venture capitalist Tim Chang.
So how can you stand out from the noise? Chang says it’s all about the three Ts, which he believes “are really good indicators for what generates buzz and momentum around a deal”.
“Team is absolutely critical, so if you have people who have built successful companies before and have a track record, I’ll just write you a cheque, I won’t even ask you what the idea is. If you were on the Facebook platform team, I’ll just write you a cheque.”
“If you don’t have world famous founders but you have organic traction—you might have launched your app and it just caught fire and has gone viral—that’s really exciting too.”
3. Top tier investor
“Having a top tier investor already in the deal has a lot of conferred credibility. Maybe you have a very famous industry luminary who is an angel investor—they probably have a very good filter so that says a lot.”
Once you get into the room with a venture capitalist, here are some questions you should ask, and questions they may ask of you.
Questions businesses need to ask VCs
1. What is your average life span over an investment? (i.e. “How patient are you?”)
2. When do you need to raise a new fund? “That changes a lot of behaviour. Let’s say you have an investor and they need to raise a new fund, so they’re just desperate to put points on the board. They may be more likely to try to push you out the window to get acquired quickly. Understanding those incentives is really important.”
3. How big is your fund and how much reserve capital do you have to follow the initial investment? “That’ll give a sense of how long they can go with you and some indication of how big is the minimum exit size that moves the needle for you. You want alignment in all those areas
Questions VCs need to ask businesses
1. Are you doing this because you want to be rich or famous? “If you want to be famous, control is probably one of your dominant motivations. You want to be the CEO forever, or you want to have the Forbes cover story about you. It’s more about your personal brand. We tend to prefer people who want to be rich because their motivation is seeing the business become really big some day.”
2. How much money do you have in the bank, personally? “If the entrepreneur has already made a couple of million bucks and has that stashed away in a bank, they have more risk tolerance than an entrepreneur who has never made any money before [who will be] itchy to just take the first good offer. So what we see is what you’ve already made and that you have the intestinal fortitude to go long.”
Tim Chang is a leading Silicon Valley investor, named on the 2011 Forbes Midas List of Top Venture Capitalists. He is a partner at Norwest Venture Partners, focusing on mobile, gaming, digital media and social media investments, and also leads Norwest’s China initiatives. He spoke at XMediaLab’s Global Media Ideas conference during VIVID Sydney.