People like to think before spending US$ 10 millions: News at eleven!
Could you please post a link to your previous article about the VC's "no"? I am a regular reader of OnStartups but I don't remember seeing this particular article...
And isn't small amounts (well, at least smaller than millionary VC's money) called angel investiments? Someone that gives you 50K is an angel, isn't?
The SBA has a program called the "low-doc" loan: the loan amount is capped, but the amount of paperwork and turnaround time required to get the loan is also reduced. You seem to be suggesting that VCs do something similar. It's an interesting idea.
But what's in it for the VC? What benefit do they see from this process change?
These are great observations on the state of the VC process today. How about this:
1. A VC makes available a form on their website, allowing the entrepreneur to provide a short executive summary.
2. An associate or even a managing partner reviews it and gives a "no" within 24 hours if it does not fit their current investment criteria.
3. If the opportunity intrigues the VC they ask the entrepreneur to provide more documentation, a business plan or maybe a live demo. If that does not go well they give the entrepreneur a "no" right away.
4. Only then do they get into their extended think time.
I have always appreciated getting a "no" from a VC it saves everybody time and money.
One aspect that I think VC's miss out on is that the clock is ticking. If you wait six months that is six months of hiring, revenue, and development time that you will NEVER get back.
A lot of investors use that waiting time to see if the entrepreneur can make good on their timelines for customer acquisition and product development. While that reduces the risk they are exposed to it also increases the valuation, thus reducing the return to the investor.
What are you missing? You're missing the real role of the entrepreneur.
The entrepreneur is *not* the VC's customer. The VC's customer is the investor. The entrepreneur is the VC's "commodity" that needs "processing" by the "investment factory" the VC is running.
Loryn said it first, the VC customer is the investor. A big part of "processing" is trust. Developing trust is not something you can rush or shorten. This is part of the human condition.
I believe the "bake" time, as you call it, is extremely important for anyone who is about to devote a significant amount of energy and resources into an idea, project, etc. As someone once pointed out to me, "Never make a decision today that can reasonably be put off to tomorrow." Unfortunately for entrepreneurs, I do not think this mentality will change. However, I do favor this mentality overall, as I believe time allows for an idea to be honed and fine-tuned, and overall, will lead to a greater success.
VCs take a long time. That is true.
To explain this by fuzzy psychological factors (getting comfortable with the team, etc etc) is to deceive onself.
They take a long time for two reasons.
(1) the longer they stall, the better deal they can get. Once when some VCs I worked with found out I wrote a personal check to a startup that was "just about to get funding" so we could make payroll, they moved really fast. They were hoping I would come to them begging for a bridge loan so they could get warrants or some such.
(2) they like the deals papered extensively. And they like this done by their downtown lawyers, who typically take 5%, and who you, the entrepreneur, will pay. You'll also need to use some of your proceeds to pay the VC's lawyers. If you ask them whether it's 5% they'll deny it, but figure on that amount anyway. The more complex the lawyers make the deal, the more money they make. I believe the lawyers make questionable changes to your articles of incorporation and other documents so they can run up the tab arguing with each other. I have to be careful here, because if I accuse this of doing this intentionally, I accuse them of the common-law crime called "maintenance."
So, term-sheet to money-in-bank = 45 days minimum. Anyone who tells you a shorter time is very likely incorrect. And any error in this time estimate will come out of the entrepreneurs's hide.
One other thing. When you sign up with your lawyer, make sure to write them a letter saying you want all bills presented no later than sixty days after the work is performed, and you want everything itemized, or you will not pay the bill. I have had downtown lawyers wait until money was running short and a second round was needed before billing. Guess what I had to do? beg for a bridge loan from the investors. Ugly.
The good news is the VCs need the entrepreneurs ... they need to invest their limited partners' money in startups.
I would hazard that any VC that has been approached with some new idea wants to research the market independent of the analysis offered by the client. If it is a not so new but 'up and comer' idea than the VC would want to take the time to assess the competitors vis a vis the upstart trying to muscle in.
The short title -- Risk Analysis. And 3 months to get that done is probably a reasonable average.
Any VC worth his (they're just about all men) salt will require the entrepreneur to do this research. And, as an enttrepreneur you have every incentive to do this research carefully, even ruthlessly. After all, you're about to give up your personal life for several years in pursuit of the business. More then anybody, you want it to be successful.
Sometimes a VC will offer a seed round of financing for this purpose, if the research is going to be costly and the basic idea is OK.
Make friends with somebody who has access to Forrester or Gartner type reports, and borrow them. They are a good source of independent data.
As an ex-Gartner analyst I can attest to the fact that many VC's are customers of research firms and make use of direct calls to the analysts during their due diligence.
NEED VENTURE CAPITAL FUNDING FOR A START-UP
MEDICAL DEVICE PROJECT
Bake time and Risk analysis = 45 days is a good period for entrepreneur and the VC.