Power Pal

This is a continuation of my post about The VC Due Diligence Process and builds on The 3 Laws of Venture Capital . Both are commentaries of David Silver's book Venture Capital: The Complete Guide for Investors . Continuing with the audits that VC's should perform when reviewing investments, the second of the five audits is the review of the entrepreneurial team. The two team members that VC's should focus on are the entrepreneur and the manager partner . Entrepreneurs are responsible for the launch of the company while the manager is responsible for building the company into something that has value. Think of entrpreneurs as the technologist or visionaries and the manager partners as the "gray hairs" they bring on to make their dream a reality. Entrepreneurs generally don't select managers well and have trouble delegating. This is because entrepreneurs believe others can't do things as well as they can (and this is, in fact, usually true). A great

This is a continuation on my post about David Silver's The VC Due Diligence Process and builds on The 3 Laws of Venture Capital . Both are commentaries of A. David Silver's book Venture Capital: The Complete Guide for Investors . The first of five audits that VC's should do when reviewing investment opportunities is the audit of the problem and solution. Estimating the Problem Size The first step in evaluating the problem is to estimate the total size of the problem and then the expected market share once the market has been saturated with competitors. According to Silver, the maximum plausible market share is on the order of 10 - 15%. If the goal is to have $100M+ revenues after 5 to 10 years once the market has developed, the total market size must be at least $1B. There are many methods of estimating market size, so I'll defer on the best method. But an important step in this process is to actually talk to potential customers to gauge whether they perceive the

As has become my yearly tradition on July 4th, I read through the Declaration of Independence today just to remind myself of the significance of the occasion. Here's the text of the document off Wikisource for those interested. It's amazing that Thomas Jefferson was only 33 when he wrote this in 1776. He wrote the first draft in a day or two in parallel to several other projects he was working on; quite astonishing, but he was apparently a gifted writer of public documents so they put the task in the right hands. I learned today, though, that much of the text of the document was in fact borrowed. Many of the famous lines were Jefferson's own creation, including the concluding line "we mutually pledge to each other our Lives, our Fortunes, and our sacred Honor." But much of it was adapted from state level declarations of independence, most notably the Virginia Declaration of Rights . For instance, the pre-amble which included the famous "all men are cr

Continuing on my post about The VC Due Diligence Process , I wanted to expand on David Silver's "3 Laws of Venture Capital" here. Again, the three laws are: Accept no more than two risks per investment V = P x S x E , where V = valuation, P = problem size, S = solution elegance, and E = entrepreneurial team quality Invest in big P companies , because the public market will accord to them unreasonably high V's, irrespective of S and E. In more detail, here's each one: 1. Accept no more than two risks per investment Silver outlines the five typical risks that start-ups or early stage companies face: The Development Risk: Can we develop the product? The Manufacturing Risk: If we can develop it, can we produce it? The Marketing Risk: If we can make it, can we sell it? The Management Risk: If we can sell it, can we sell it at a profit? The Growth Risk: If we can manage the company, can we grow it? The first two risks, Development and Manufacturing, need to be bo

In my continued trend of reading out-of-print books about venture capital checked out from the Ford Library at Fuqua, I'm in the process of reading a book titled Venture Capital: The Complete Guide for Investors by A. David Silver printed in 1985. David Silver is a venture capitalist and investment banker with Santa Fe Capital in Santa Fe, New Mexico. As I discovered recently, Silver's success as a venture capitalist is debatable. Nonetheless, I'm finding the book to be succinct yet extremely insightful and it's not surprising why Silver has written over 30 books on entrepreneurship and finance. The book is divided into six sections: 1) Formation of a Venture Capital Fund, 2) Generating a Deal Flow, 3) The Due Diligence Process, 4) Valuation, Terms, and Conditions, 5) Monitoring and Adding Value, and 6) Selling, Liquidifying, and Portfolio Management. The vast majority of the book is spent on section 3) The Due Diligence Process and I'm going to be summariz