It’s Not About Paychecks. Its about Equity!

DFN: Witty, irreverent, informative, I’ve subscribed to his blog as an RSS feed.

Nov 5, 2009
It’s Not About Paychecks. It’s About Equity!
from Babbling VC by Paul Jozefak
http://babblingvc.typepad.com/pjozefak/2009/11/its-not-about-paychecks-its-about-equity.html

I’ve often made the dating reference when it comes to VC’s and entrepreneurs. Well, there’s one further point which I want to make clear, although to many it’s obvious. After we invest, we want to eventually sell our stake. Be it via an IPO or a trade sale, we eventually want out. This means that our premise for investing is taking the money we initially invest and increasing it tenfold or better. You’re scratching your head asking yourself why is Paul writing this? It’s obvious! Well, not to everyone. We are not looking for businesses which get to break even and then flatline on their growth. We want the hockey stick. We want companies "swinging for the fences". We NEED companies looking to be market leaders. Otherwise, we simply can’t generate the returns necessary to make our investors happy.

Too many pitches I hear (most often in Germany) are too conservative in their thinking. Don’t get me wrong. I am not saying go out and make wild claims to make me happy. What I am saying is that you need to have a business case which makes me want to get in on it no matter what. I am not happy investing my money so you can test the market to see which of three or four models gets you to a nice paycheck. It’s not about paychecks. It’s about equity.

Equity is where it’s at when it comes to venture. You want a piece of a big pie. I want a piece of a big pie. It’s not about earning dividends for me. It’s not about earning money for you (at least not short-term). What we together have to do is grow a business which sells itself. The buyer chases you and not vice verse. When this happens, we all generate the type of returns necessary for venture capital backed businesses. Everything else is otherwise just a series of bad dates.


Doug

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