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February 09, 2006

Comments from Earlier VC Post

After my first post in VC 101 for Entrepreneurs I got some good comments both on and offline.

I suggested that you ask VCs for a copy of their PPM – the document they give potential investors about the fund they are raising (and which you want to get money from).  The idea is that you’ll know more about how your VCs are going to be compensated and thus can predict better how they’ll act.

Several VC friends said that it would be rude and unhelpful to ask for this document “on the first date”  - perhaps even the equivalent of suggesting an immediate trip back to your pad after the first cocktail.  Although I think it is more equivalent to asking “how did your mom make her money?”, the truth is I didn’t think much about what is the appropriate time to ask for a peek at the PPM.  It’s not at the first meeting – waste of everybody’s time then although you may want to show your sophistication by saying that, of course, should things go further, the PPM is one of the things you’ll want to look at.  At some point, if things go well, you’ll have proposals called term sheets from several firms.  Before you select among them, assuming you have a choice to make, you want to look at the PPMs.

James Chen posts some more in depth information here including advice that you know specifically how the VC partner who is dealing with your company as an investment is compensated.

Rob Shurtleff, an old friend who is now a VC, has lots of advice that I’ll take advantage of in future posts; but one piece of advice is too good to delay:  when checking VC references, be sure to check not only with the CEOs of successful past investments made by the partner you’re dealing with but also try to talk to at last one CEO of a failed investment. Good idea!

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