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Lesson #3 Know The Game Part I

Guest post by: Christopher Golis

Article Overview: Lesson #3 of Chris Golis's talk 5000 Business plan, 50 deals, 25 write-offs lessons learned from 25 years as a venture capitalist. It is 1986. I had been a VC for two years in Sydney and was making my first visit to Silicon Valley. How I finally learned the game.

Lesson #3 Know The Game Part I

Lesson #3 Know The Game Part I.

If you go to my LinkedIn profile you will see I worked some 25 years as an entrepreneur and venture capitalist. Go to the bottom of the profile and you will see in the Slideshare section a presentation called 5000 Business Plans, 50 deals, 25 write-offs: Lessons Learnt from 25 years as a VC. In this presentation I describe five key lessons that I have learnt and over the next five months I am going to elaborate on these five lessons. Here begins the third lesson.

It was 1986 and I was making my first visit to Silicon Valley. The first day a VC looking to attract money into his own funds from our parent bank took me to three of his fund's investments. All three meetings were the same, even though the businesses were completely different. Instead of the usual tour of the factory, we were whisked into the offices of the CFO where we were given a 30 minute presentation. After the usual introductory slides of business definition, mission and vision the next slide was the funding history of the company. Typically the presentation went like this:

• The company was founded four years ago with seed capital of $100,000,
• We got a government grant of $500,000 nominally valuing the company at $600,000.
• Angels put in $500,000 three years ago for one-third of the company valuing it at $1.5 million.
• Our first VC put in a million for 25% of the company valuing it $4million two years ago.
• Last year another 3 VCs put in a million each for 20% of the company valuing it at $15 million.
• Next year the plan is to IPO the business raising $10 million for 20% valuing the company at $50 million.

Now coming from Sydney I had never heard a presentation like this. And suddenly I heard the same presentation three times in one day. I remember saying to myself that something different is going on here.

Over the next week I managed to secure appointments with five of the top ten VCs in the valley. My approach was simple: "I have flow 15 hours to get here, surely you can spare 30 minutes?" All the VCs were curious to speak with someone who had actually done a 15 hour flight. Anyway the key question that got them talking was "Tell me what has been your best deal?" This question is the equivalent of asking someone why you are so good. My experience has always been that this usually results in a long answer.

Again the answers were unusual.

• VC1: "I have 3% of Tandem." (Tandem was the non-stop, fault tolerant computer system at the heart of all the ATM networks being build and brilliantly successful)
• VC2: "I have 3% of Tandem"
• VC3: "I have 3% of Tandem"
• VC4: "I have 3% of Tandem"
• VC5: "I have 3% of Tandem"

Finally at VC5, I asked a follow-up question "Why does every VC in the valley have 3% of Tandem. I have never forgotten his reply.

"Son, how long have you been in VC?" "Two years," I replied.

"How many deals have you done?" "Five," I said rather proudly.

"Well son, you should leave the industry because it obvious you have not got a cotton-picking clue what VC is about. Only a fool would ask a question like that."

(To be continued)

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Article Tags: Chris Golis, Entrepreneurs, Silicon Valley, Venture Capital



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