My name is Paul Holland. I'm a General Partner withFoundation Capital. I'm here today to talk to you about Venture funding 101.Often we get asked, "how can I get my start-up funded?" Well let mewalk you through the process of what it is we do and then try to take you outthe other end to see how it is it might fit within your desires to get yourstart-up funded.
One of the places that we tend to see many of our leads comefrom are our portfolio companies. Our existing companies that we've alreadyfunded, we already have a very strong belief in their tastes and preferences.They refer people over to us and then we take the time to meet with them andfind out what they've got. So we might see, well, let's say 250 companies ayear that might come to us through that source.
From there, other venture capital firms. We often syndicatemost of our projects, which means that we do half the project, they do half theproject, we each put in half the funding and split the equity and so forth. Andso we might see, let's call it 150 projects a year that will come as referralsfrom other venture firms and we refer other projects to them, too.
Job candidates-one of our major part of where we spend ourtime are recruiting executives for our portfolio companies. In the course ofdoing that, we might find a really compelling executive and sadly for us, theymight not choose to go to work for our company, and then we find out where theywent to work and we decide maybe that's a good company to fund, because a highquality person often makes really good choices there. So maybe a couple hundreda year that we'll see from that.
And then angel investors. That's a very important source forus of leads in terms of new projects that we'll fund, and we have a great poolof people that we've worked with in the past and they'll probably get us 150 orso leads.
And then finally, entrepreneur in residence, so EIR. Whatwe'll do here is we'll take a very talented entrepreneur, often someone we'veworked with in the past or maybe funded in the past. We'll bring them in andwe'll work in our offices for six months and incubate an idea. So thesefellows, between the people they know who are also entrepreneurs and the workthat they're doing, they might surface a couple hundred leads or so for us eachyear.
So roughly speaking that gets us to about a thousand ofthese raw leads coming in. And then that's when the funnel process begins tostart. So then we start to push these through here and then we'll go to work.And so for us, that means maybe out of that initial thousand, we'll take, say,600 meetings. So we'll do the first meeting, and then to go from say the firstmeeting to what we would call our screening process then that's going to cutout about half of that number.
So what happened here? Well, either we found out that theidea wasn't as compelling as we might have thought when we got the initialreferral, or the market size isn't big enough or the technology is notcompelling enough, it's an IT company. Or potentially the team isn't strongenough to get through our process.
So we'll go down into the screening process and then fromthere decide after doing a bit more work, we'll take second meetings with maybe150 of those thousand companies. And then from that second meeting point, if weget excited about the company, we'll push it into what we call the duediligence process.
So due diligence, as many of you know, is when we start tocall your customers or we introduce you to potential customers. We start doingreference checks. We start looking at your technology. We might bring in fiveor six of our VPs in engineering in our existing company and have them comespend some time with you so we can understand what your technology looks likewhen we really look under the hood.
From there now we're getting down to the meat of the matterhere, and now we're at the partner meeting level, which means that when all ofus are together in our process we have to be all together and each of us has tosee a company before we fund it. That's very common across the ventureindustry, and you know you're making real progress if you're in front of allthe partners in a firm.
From that we might do 40 or 50 of those a year, and thenwe'll invest in about ten of those companies. So that gives you a sense of kindof how the funnel works and how to walk through the process at a mechanicallevel.
Now let's take a look at what are the attributes that we'relooking for, sort of what's the right stuff here in terms of a start-up. So themajor element here we're looking for, the first thing that you've got tosatisfy is going to be the market size. And, there's a couple reasons for that.One, for us to get the kind of return we need and the kind of return we wantthat we want for you as an entrepreneur, you need to be going after a verylarge addressable market. And the other thing is that why this has to be thefirst thing in terms of going through the process is we can't do anything aboutthis. If you've chosen a market that turns out to be too small, we can't movemountains. So we can't do a whole lot to change that.
The second thing that we're looking for here is going to bethe technology, the strength of the technology. And as I mentioned before, wehave a lot of different ways that we can vet the technology and decide whetheror not we think you have something very unique. Do you have barriers to entry,whatever it might happen to be.
So taking a slight aside here, talk about an example, wefunded a company, gosh, now ten years ago called Atheros Communications.Atheros was literally a research project out of the labs at StanfordUniversity. We took the professor and her team and we put them in our officesand incubated that company. That company later went on to pioneer the area ofWi-Fi communications and many of the PCs that we have today have their chipsets inside of them. Very successful company later went on to go public.
And then finally the people, how strong are the people, howpassionate are they, have they had some success in the past, do they know whatthe movie looks like as it were. So market size, technology, people. Once youget through that, then come down the bottom, make it out, then you've got agreat chance of being funded.
