Musings on Entrepreneurship and Innovation
Thursday, March 24, 2005Saying No to Entrepreneurs and Inventors
Bill Burnham, a venture capitalist, has shared his thoughts regarding the VC's dilemma:
The issue with saying "no" in the venture business is that there really isn't any upside...
After all, who wants to alienate an entrepreneur today when she might launch the next Google a few years down the road? It's a dilemma that my Evergreen Innovation Partners colleagues wrestle with daily.
We are Product Capitalists (TM). That is, we exist to invest human, social, and financial capital to transform, validate, and license or sell patented concepts for consumer products developed by inventors to BigCos. At least 9 times out of 10, we're likely to say "no" to an initial or follow-on investment. In our case, the VC's dilemma is compounded. After all, serial entrepreneurs are really quite rare, but serial inventors are more common. Our mishandling of a "no" can come back to haunt us time and time again.
In general, we're going to decline opportunities for a couple of reasons. First of all, no matter how clever and elegant an invention might be, it's not likely to be a commercially viable innovation unless the value proposition to the targeted user is powerful. In the incredibly competitive world of consumer products, the value proposition of most inventions is insufficient. Secondly, for some inventions and inventors, we simply can't add enough value to warrant our receiving our targeted return on investment.
So how do we try to resolve the real need to say "no" with our desire to avoid (a) false negatives and (b) alienating inventors? We've found no easy answers. Nevertheless, we strive to behave according to the following principles:
- Base our decisions upon facts. We identify and develop decision-making tools that make our assumptions visible and incorporate real world data when available.
- Be transparent. We don't have a monopoly on knowledge or insight. We believe that if we make our objectives, strategies, and rationale transparent to our collaborators, particularly inventors and BigCos, we're likely to collectively reach the right decision faster and with less effort. Ultimately, we make money by saying "yes."
- Be respectful of others' objectives and their time.
Time and the market will tell.
More: Top 10 VC Lies, Fixing Venture Capital, Innovation is What People Adopt
