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VC Panel: With a Healthy Dose of Irrationality, Provide Value and Filter for Success

Stay focused on a specific sector, find and build a top team, and make sure you provide value. These were some of the lessons conveyed this morning at GMIC SV’s panel on VC funding strategies and startups. Moderated by Greg Tarr, Partner at CrossPacific Capital, the frank discussion gave a light and casual flair to what is often a rather tough subject: How do you make your startups great?

To start with, the panel agreed that it is most important to choose an investment focus and strictly filter for requirements. They all explained their respective demands for startups, some of them investing mostly in seed stage, and others in growth stage, yet all with some degree of specificity.

The panel made it clear that in this way, a fund is able to build its own value and brand. It is not simply a matter of VC’s engaging in a “flight to quality” when looking for startups, as Ajay Chopra of Trinity Ventures explains, in many cases it works in reverse. Smart entrepreneurs will look for the best VCs, whose value builds largely upon networks and experience. Tight CEO-investor relationships are also becoming more and more common, says Mr. Chopra.

On this point, Manu Kumar of K9 Ventures elaborates on his own measured approach. In his view, the investor-entrepreneur relationship is akin to a “PhD student to advisor” relationship. Eventually, the student will know more than the advisor. Therefore, Manu trusts more in the expertise of the entrepreneur in the long-run and is more flexible when investing in single founder companies. Even if a company makes a mistake, “you might get hurt and you might need a band-aid, but you’re not dead,” says Mr. Kumar.

Yet here it is also important to make sure that every startup has a hint of fanaticism. Perhaps the most radical statement on this came from Keval Desai of Interwest Partners. “Rational people are not entrepreneurs,” he says. When investing, you need to find someone who “cannot sleep at night” due to his/her passions and visions.

“Make sure you develop enough conviction,” adds Mr. Chopra. An entrepreneur should first “convince himself” of the passion for the next 5-7 years, otherwise he will never be able to convince the investor.

Steve Schlenker of DN Capital explained how this conviction should be held. “Choose something in your life that you have personally dealt with,” he says, and then ask, “how can I come up with a way to solve people’s pain?”

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