Startup investment experts shared gems of wisdom to a group of two dozen student entrepreneurs at an event hosted by the Buerk Center for Entrepreneurship. The venture capital walk in Seattle opened the door for MBAs and undergrads from the University of Washington to visit Madrona Venture Group, Vulcan Capital and Maveron.
A lot of the information was central to each operation and off-the-record. They didn’t pull any punches when it came to the realities of their work and the advice they had to give. One student called it “one of the most exciting days of his life” and said the experience was “memorable and informative.”
Among the top takeaways:
- The most successful companies over the past 30 years were created by first-time entrepreneurs.
- Early-stage venture capitalists only expect 2 of 15 investments to drive the return of their entire fund.
- Startups should “go as far as they can without having to raise money” because it makes it easier to raise money later, they keep more of their company, and it proves the viability of the idea.
- Companies that seek funding should raise only the minimum amount needed to get through a series of milestones.
- Startups should have a problem to solve that is so big, it does more than just disrupt the market.
- Startup teams should have deep knowledge about business models and understand how their product works before pitching.
- Investment groups often invest as much in the people that make up the team as they do the idea itself.
“It’s also important to understand how to handle failure,” said Jason Stoffer at Maveron. “That is what we tell young entrepreneurs that they should be proactive and embrace the risk.”
VENTURE CAPITAL FIRMS SET THE BAR FOR STARTUP INVESTMENT
Madrona began as a collective of angel investors and hit it big on many early investments, including co-founder Tom Alberg’s bet on Amazon back when the internet giant was barely whispered about outside of the Northwest. As Geekwire noted in a profile last year, Madrona and its investments are “critical to Seattle.” Madrona sticks to its mantra of focusing on early stage, Pacific Northwest-based technology startups like Apptio and Redfin.
Vulcan Capital is the investment arm of Paul Allen’s vast and growing portfolio. The Microsoft co-founder and owner of the Seattle Seahawks and Portland Trailblazers makes for a unique kind of limited partner. Allen’s final approval has helped his small team hit the ground running with companies like Juno Therapeutics and Sun Basket. The team takes pride in finding investments across multiple sectors, while also seeking out startups aiming to make a difference in the world.
Starbucks founder Howard Schultz is one of the big names behind Maveron. The venture capital firm specifically looks for consumer-based technology startups. Early investments range from companies like Zulily and Yelp, to Cranium and Potbelly sandwiches. Zulily’s CFO Marc Stolzman credited Maveron for its collaborative style, reinforcement, and support.
“It used to be that outside firms would ride the Seattle market when it was hot,” said Tim Porter at Madrona. “Now Seattle has become a thing and the ecosystem is big and dynamic.”
CONNECTIONS WILL GET YOU IN THE DOOR
Many students were curious how to get a pitch meeting. Vulcan Capital managing director Steve Hall echoed a sentiment we heard from all three firms, saying “building relationships is incredibly valuable.” All three firms suggested reaching out to other startups to make connections and build a reputation.
They believe e-mail or social media is the best channel, especially if it comes in the form of a referral from a trusted source. Direct phone calls were universally advised against. Madrona and Maveron list staff e-mail contacts on their websites and Vulcan Capital also has a general inquiry e-mail. However, they might only take a couple of meetings a week and it is likely the meeting would be with an associate, not a partner.
“We want to know if you have fleshed-out your idea, what kind of product you’ll have, and what the market is,” said Porter. “You have to have the right mix of conviction, passion, and customer focus to sell us on your pitch.”
DEDICATION TO YOUNG ENTREPRENEURS
All three firms have individuals who place a high importance on the next wave of young entrepreneurs. Tim Porter at Madrona is on the board of the Washington Technology Industry Alliance. Troy Cichos of Madrona is on the Buerk Center for Entrepreneurship Advisory Board and Steve Hall of Vulcan Capital is a former board member. Jason Stoffer at Maveron has also served as a judge for the UW Business Plan Competition.
“The Buerk Center wants to thank Madrona Venture Group, Vulcan Capital, and Maveron for taking part in this venture capital walk and sharing a rare peak inside their operation,” said Buerk Center assistant director Lauren Brohawn. “This provided an opportunity for students to see the investment side of being an entrepreneur. Now they have unique insights into starting a successful company someday.”