I’ve been observing the tech angel/venture capitalists and entrepreneurs for a while now.  The biggest surprise I’ve found is what I’ll call an ‘impedance mismatch’ between VCs (I’ll use this broader term for this post) and entrepreneurs.

Entrepreneur teams should provide interesting technology and operational capabilities.  They should have innovative idea(s) at some level, technical competence and the ability and will to execute.  It’s also important to be able to ‘pivot’ when necessary for the good of the business. Since they are small teams a breadth of ability is also key.

The VC should provide funding and be a sounding board for direction (and the entrepreneur must be able to engage in this discussion).  The VC brings their connections and experience to the table and round out the capabilities of the combined team (VC + entrepreneurs).

Obviously this isn’t a complete list of the who-does-what, but I wanted to provide some introductory words to frame this post.  Now on to the “impedance matching”…

#1 : Equity
The first disappointment for the Entrepreneur is learning that the VC wants a huge % of the company for what seems to be a small investment.  When the VC is asked why this must be, they say that 90% of the ventures fail.  YOU have to give me a 10x return on my money to make up for everyone else that fails.  To the entrepreneur who is sure they are going to succeed this hardly seems fair.  Or perhaps it gives them a crutch – it’s now OK to fail since most do anyway …
The flip side of this is when the entrepreneur shows the hockey-stick to the VC and comes up with a $1M valuation for their not-really-working-yet prototype.  Why is it $1M? This is their Big Thing and they want to get rich too, and they won’t get rich by giving the company away.
Strive to impedance match the values from each side.  This may require a ‘device’ of some sort to match what are otherwise mismatched entities (which is a good topic for a future post).

#2 : Finding the Innovation
It’s true that you need a good management team that can execute.  Just having a good idea is essentially worthless.  But both are critical to generate value.  Perhaps your management team has the operational chops, but innovation is also an absolute requirement.  And it’s up to the VC to recognize this.  That’s why many VCs only invest in serial entrepreneurs – they can’t or don’t want to bother to evaluate the contenders for both managerial/operational excellence as well as ability to innovate.
An impedance match here can happen when a VC isn’t merely bringing money – he’s also bringing an inherent knowledge of the technology and what it’ll take to execute on the business that exploits or markets that technology.  But the entrepreneur needs to have both the ability to innovate and to execute.

#3 : The Complete Network
Each side brings with them their own network.  The technical side may be experts in the field, etc.  The VC side may be business or operational connections.  Each side is an ‘interface point’ for the network behind them, since these small teams can’t do it all on their own.
An impedance match here is one that couples each side to form the complete network required to execute on the business.

That’s all for now.  I’m sure I’ll think of more later…