June 9, 2004

News & Opinion: Kawasaki on Fundability

By: 800-CEO-READ @ 2:17 PM – Filed under: Management & Workplace Culture

Q:I've watched you shoot down nearly all who ask your advice for gaining venture capital. Unless the life of your article authorship is hinging on it, can you just cut to the chase and give out a short list of straightforward criteria that, in your opinion, are required before reaching out for VC?
I'm glad that the message is getting through: The vast majority of companies are not venture-capital fundable. I'll explain what is venture-capital fundable in two steps: the Big Picture and the Little Picture.
The Big Picture:
  • Without taking illegal drugs or drinking a case of beer, do you have a company that you can see doing $200 million in revenue ten years from now?
  • In the history of man, has a company in your field ever gone public?

The Little Picture:
Assuming you pass the Big Picture test, then answer these questions:
  • Do you have the credibility so that your idea or prototype is now worth at least $2 million to people who aren't related to you? Credibility means that you either have, or are working on, (a) a Ph.D. in some engineering or scientific realm; or (b) you were a star at a company in a field that is closely related to the one your company will be in. Why? Because the minimum a venture capitalist will want to invest in a company is about $500,000 (and most VCs won't even go this low), and the $500,000 should buy about 20%-30% of the company.
  • Are you willing to put aside every other clever idea that you've come up with and solely dedicate yourself to this one as well as forsake a well-rounded life for the next ten years?
  • In addition to the One Clever Idea, do you have a credible means to implement this idea? For example, if your idea is to create an 802.11 killer that has 100-mile range and can penetrate any building, but you're working at a pet food store, you'll have a hard time. Ideas are easy. Implementation is hard. And don't get me wrong: I have a dog, and I like the people at our pet food store very much.
  • Can you stomach dealing with people who know less about your business than you do telling you how to run it?

If you pass all these tests, then send me your executive summary.
[from Guy Kawasaki's Art of the Start column in the November 11, 2003 issue of Forbes]