Reviewing Competitive Deals

Each year a typical venture capital firm reviews thousands of business plans and meets with hundreds of companies.  Inevitably this leads to situations where we see teams with competitive strategies, including some with a vision that may overlap with the strategy of existing portfolio companies.

I have been in this position even more frequently as of late given the increasing volume of startup activity.  Below is a protocol I learned from others that helps avoid conflict in this situation:

• If a company I am introduced to is clearly competitive with an existing portfolio company or one that we are expecting to invest in, I decline meeting and explain why.
• If I don’t have extensive details on a company and discover a conflict as they start to pitch, I interrupt the presentation, disclose the potential conflict and ask if they wish to stop.
• If the team is open to continue, which is often the case, I still make them aware that before moving forward we would need to make sure our existing portfolio company is comfortable with us doing so, no matter how compelling the opportunity.

As many investors have blogged about in the past, it is not practically possible to operate as a VC and sign NDAs.  However, I think maintaining the protocol above helps abate the concerns of entrepreneurs who are understandably concerned about sharing their vision broadly.

Summer in VC with SoftBank Capital

We are looking to hire one MBA and one undergrad to join SoftBank Capital for eight weeks this summer as paid interns in our office in Newton, MA.

Our fund is focused on entrepreneurs building socially-driven apps, services and content that are accessible across platforms and devices.  We have been making early stage investments since 1995 in companies such as Yahoo!, E*Trade, GSI Commerce, The Huffington Post, Buddy Media, BuzzFeed, and MocoSpace.  We are affiliated with SoftBank Corp., the exclusive distributor of the iPhone and iPad in Japan, and an investor in later stage US companies such as Zynga.  To learn more, visit www.softbank.com.

Interns will actively participate in the review of the industry landscape, identifying and assessing potential investments, and helping support existing portfolio companies.  They will be required to spend a portion of their days downloading new apps, hanging out on Twitter, and playing games.  To accept this challenge, you must first have a passionate interest in startups and digital media.  We’re looking for students who have the base knowledge and initiative to contribute to the team over a relatively short time frame.

To apply, please email contactus@softbank.com with a succinct summary of your:

• Online Presence - Blog, Twitter, LinkedIn, etc.
• Digital Portfolio - Describe your favorite sites, apps and devices, including your mobile phone and/or tablet
• Digital Outlook - Tell us what are the most popular, emerging digital services amongst your peers, and which ones you think have mainstream, commercial potential

We have a preference for MBAs completing their first year and undergrads completing their junior year. The deadline for applications is February 28.

Passing with Entrepreneurs

I had a great conversation last night with Rob Go from NextView Ventures and successful serial entrepreneur Wayne Chang, a welcome addition to the Boston angel scene.  We were talking about investing strategy and the topic of passing on investments came up.

The biggest downside of being an investor, which is an otherwise amazing role, is turning down entrepreneurs. We pass on 99% of the opportunities we review, some of which are run or advised by our close friends and contacts who are passionate about their companies. 

It’s not easy to tell someone that you’re just not that into their idea, but it can be very rewarding if done right.  Mark Suster touched on this in a recent post, noting that investors should provide constructive feedback, with the caveat that we are only one data point that should be mixed with others. 

When passing with entrepreneurs who have taken the time to present their business, I aim to i) be transparent with my reasons for passing, ii) cite specific examples when possible to back up those reasons, iii) share my two cents on how their strategy could be improved, and iv), in some cases, provide introductions to contacts who express an interest in connecting with the company in potential advisory or investment roles.  I have reviewed many quality deals that do not fall within the scope of SoftBank Capital but fit well with other investors.

This approach takes time but in my experience has been beneficial for everyone involved.  Some of my best referrals have come from entrepreneurs that I turned down.