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December 05, 2006
What Value Do VC's Add? One UK Startup's Answer
VCs always talk about their "value-add", but when you ask what they do in practical terms, it tends to get kind of fuzzy and vague. So we pounced on an article, found in the the Insitute of Engineering Technology's Engineering Management magazine, that describes in rare detail what one early stage VC did to get a semiconductor software startup off to a roaring start -- with the right buisness model and the right customers.
The VC in the spotlight is Pond Ventures and its portfolio company Transitive Corp. The article was a jointly authored investee-VC piece.
This kind of magzine article is very rare and there is really no excuse for that. It is true that based on our experience working freelance for financial and tech publications, there is not a lot of interest from our editors to write about European VC in action, but that is not a major hurdle. VCs have their own websites and can publish there whatever they want and there are pubs, like the one where we found this article, that will publish copy written by people in industry if it's written in an informative way. Check out the quotes we found most illuminating below the jump.
In case you haven't heard of Transitive, it's software is pretty disruptive for the chip market: it enabled Apple’s switch to Intel processors for certain products and it will also enable IBM to sell servers into the LInux/x86 market, while Intel can offer its Xeon and Itanium platforms to users that have been relying on Sun's SPARC products.
There are some good insights into Pond's modus operandi and the paragraphs that describe how it got Transitive it's first deal converts the value-add buzzword into a term we understand -- cashflow -- for the venture:
Irving and his colleagues at Pond had a completely different attitude towards an investment proposition... The other early stage UK venture capitalists said that, while the technology was interesting, he [Transitive's founder] should work to turn it into a fundable proposition, with a business plan, plus the target market and a management team. Then they would think about investing. Rawsthorne [Transitive's founder] had no idea how to do those things and had no idea which market sector would be the right first fit for the technology.
The quote shows what Pond did during due diligence, that is, before it had made a commitment to fund the company - which is certainly one way to help the startup tick another box to get "traction", another pet criteria that VCs typically require:
During the process of due diligence Pond set up a series of meetings with senior executives from all the major players in the microprocessor space and helped Rawsthorne put his pitch together, ensuring it was appropriate for the audience. It was during this process that Pond helped Transitive to secure its first customer with whom it arranged to do a proof of concept demonstrator deal with a significant price tag.
Read - Pick the right VC for you (iee management)
Read - Customer case study Apple (transitive)
Posted on December 5, 2006 07:03 AM | Posted to Early stage | Permalink
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