Are you a good entrepreneur? Build your Rolodex first!

According to Steve Bengston, who runs the Emerging Company Services group at PricewaterhouseCoopers, and who I met at an SDForum event about the role of corporate venture capital in the tech ecosystem, China will catch up the US in VC investments in just 6 years. "VC investment in China was about $2B last year [about 70% of that is in the technology sector]. And grew about 50%. And if it keeps growing 50% and we stay flat, as we've been for the past 5 years, VC investments in China will be same as the US in about 6 years".

That explains why all the major VC firms are setting up a beach head in China to look for early stage companies to invest in.

Entrepreneurs of the world, build a strong Rolodex!
Bengston, who also presents the quaterly MoneyTree Report, a study of venture capital investment activity in the United States, had an advice for entrepreneurs: "The great test of whether you are a good entrepreneur is whether or not you have a good Rolodex. If you don't have a good rolodex, you got other problems!"



Why are large private equity firms investing in technology companies? "It's a natural evolution. Private equity firms have generally existed in traditional industries that are more mature. And now that technology is getting more mature, it's a natural transition for these firms to use the same financial analysis, the same metrics to go after technology companies as they used to go after traditional ones. I think that was a predictable trend, but there's still not much intersection between private equity and venture capital."


What advice would you give to an entrepreneur looking to raise money? "I suspect that the majority of the seed and early stage deals done by venture capital firms, are with entrepreneurs they have already done a transaction with in the past. So there's less due diligence, more confidence and little supervision required. I think it's much harder for someone coming out of school or coming out of a company that doesn't have a start-up success under their belt to approach a venture world for a seed investment of an unproven concept. My advice then would be to get the Web site up, get some traction and go back to them. But remember that most successful firms often need very little money, when you see at the history of microsoft, oracle, sap... who were so successful that customers were actually funding them."


A last word on valuations? "Valuations for later stage firms appear high relative to current exit value. You are starting to have late stage valuation $70-80 million "pre" when the average merger and acquisition is also $70-80 million "pre"!"

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