How Venture Capital Software Can Handle Investors' Pet Peeves

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At the recent AlwaysOn Impact conference here in Philadelphia, we had the privilege of listening to a distinguished panel of venture capitalists talk about how they evaluate investments. They were asked what their greatest pet peeve was when evaluating potential companies. This might have been a light throw-away question meant to give the entrepreneurs in the room some practical advice about keeping presentations short or how to properly network. But what the investors talked about instead were the serious shortfalls they see in business plans, ones that often lead to rejection. This got us thinking: how might venture capital software help entrepreneurs avoid these missteps and help funders see past them?

We’ll address three of the pet peeves that members of this distinguished panel shared and a prescription for venture capital software to prevent or mitigate the damage.

Pet Peeve #1: Over-Optimism

Venture capitalists probably expect that entrepreneurs are going to be giving some rosy forecasts when they talk about their revenues or number of potential clients. But Andrew Garman of New Venture Partners said that about a third of the financial pro-forma his firm sees has never been achieved in the history of business. Over-optimism suggests that a CEO will be reluctant to acknowledge challenges to their business models and could possibly ignore them until it's too late. No software platform can necessarily cure someone who is optimistic to a fault. But a venture capital software program that facilitates information exchange can help funders and company executives share ideas and anticipate challenges coming down the line.  

Problem #2 Lack of Transparency

How can “green” companies prove they are green? How do funders committed to sustainability define clean technolgoy and ensure that a potential company will meet that standard? This lack of transparency was a pet peeve of Joyce Ferris, the founder and managing partner of Blue Hill Partners, an investor in green technology. More broadly, this can be a lack of corporate governance, and it is not just a concern among for all investors. Loh Peck Kuan, a broker and private equity partner in Asia, cited a lack of transparency as one of the most common reasons entrepreneurs do not receive funding decade ago. Venture capital software can provide greater detail about business practices and give funders a window into the day-to-day processes so they can see just how environmentally friendly they are.

Problem #3 Better Use of Funds

Another panelist said that his pet peeve was not in the business model itself, but what the company planned to do with its funding. Many that were already profitable thought it was a good idea to invest in marketing – which he did not think was always necessary. Here, venture capital software could offer entrepreneurs and venture-backed CFOs a clearer picture of their company’s financial performance. With this information, they can have a better discussion about how to make use of their funds. This is also where strong communication tools can come into play. When a funder likes a company’s business plan and potential, but finds their funding plans a little misguided, they can have a conversation about different priorities. This could lead to stronger returns.  

This discussion was one of many great exchanges that took place at the IMPACT conference back in November. We’ll be sharing more thoughts from the event on the blog soon. But we know that these three pet peeves are not the only ones out there. What are some other pet peeves that funders or entrepreneurs might have? Can technology cure them? Or are they human traits that will be a problem no matter what?