Santiago Bilinkis l Risk and Reward - Trying to live a life out of the comfort zone

What impressed me the most in this trip was to find out how the Venture Capital funds in Silicon Valley work. The contrast with what we entrepreneurs in Latin America are used to is gigantic.

Let’s see the main aspects:

- Investment decisions are made in only three meetings: getting the first one is tough, but when you do you are already in the “quarterfinals”. The first meeting is with a partner of the fund. If you pass, the second one is with two partners and an industry expert. Then the last instance, known as the “Monday meeting” because almost all funds hold it that day of the week. There you present to all the partners and after that a decision is made.

- Answer is immediate: if after any of the instances the decision is they will not move forward, they let you know, in a very straightforward way, so you don’t lose time and neither do they.

- They don’t base their decisions on the rate of return or financial projections: Literal words by Tim Draper, one of the main VCs: “We don’t look at the IRR. That is for Private Equity (investment funds for mature businesses). In early stage investing any projection is a guess. We focus on checking if the idea makes sense and the team has what it takes to succeed.”.

- They ask for references and call them all: They call every reference you give them, then ask them as well for other references. They care most about these last ones.

- If they make an offer, the Term Sheet they use is standard: They avoid long negotiations of small print. They generally don’t use milestones (tying investment to the achievement of specific goals), Liquidation Preference (the right to get their money before you and other shareholders) nor any other terms that may complicate the deal or misalign interests between the parties. Getting a term sheet is almost always a done deal.

I came back from the trip very impressed by how different things are when you compare with the way things are done here. That will be the focus of my next post.

I close by saying that this trip also left very clear that Latin America is totally out of their radar screen. None of the funds we met would even consider investing in the region. If you move to Silicon Valley you have the same chance as anyone, but from our countries is almost impossible to raise money from them.

Photo: cmpalmer