The Voices of Venture Capital
Monday, June 21, 2010; 12:00 AM

If your business plan is to start fast, grow big and sell or go public, then venture capital might be the way to fund that plan. In addition to an infusion of capital, you usually get access to the brain trust and contacts at the VC firm, providing experience and leverage for your fledgling enterprise.

The National Venture Capital Association says that 2010 got off to a rocky start, but VC investment was still up more than $1.3 billion over the first quarter of 2009. Still, that's an 18 percent drop from the fourth quarter of 2009--which, overall, was a dismal year.

To help you navigate these ups and downs, we asked four early-stage VCs in various sectors to discuss what you need to know to get a leg up in the competitive VC marketplace.

Bo Peabody(Village Ventures, Williamstown, Mass.) specializes in early-stage consumer media, retail and financial services.

Jason Mendelson(The Foundry Group, Boulder, Colo.) specializes in early entrepreneurial ventures in many sectors.

Nina Sabieri(Castile Ventures, Waltham, Mass.) specializes in early-stage tech companies, especially in mobility, communications, software, security and digital media.

Bryan Stolle(Mohr Davidow Ventures, Menlo Park, Calif.) specializes in early-stage personalized medicine, digital and cleantech companies.

How should entrepreneurs interpret fluctuations in the VC market?Sabieri: In a way, 2009 didn't have a chance to become its own year. The meltdown happened just a few months earlier. Everybody was trying to sort out all the problems of Wall Street and other areas and how that was going to affect us. When we came into the second half of 2009, some of those questions were answered. I'm not saying necessarily answers that we liked, but at least it was less of an unknown. We saw an increase in revenue, booking and volume in our businesses in the second half of 2009. We are optimistic for the rest of 2010.

Stolle: I would say that less money out there is good news for good entrepreneurs. There was too much money in venture capital, and that had negative consequences for everybody. When there's too much money, you end up with 12 companies funded in a sector where there's really only room for two or three. You don't want a bunch of marginal companies funded because then there's so little oxygen that nobody survives.

Peabody: I didn't really see a change. There just aren't that many venture capitalists interested in content-driven media. They don't like how labor intensive it is to create it, so they gravitate more toward media technology instead of the type of companies I invest in.

Mendelson: From a historical standpoint, VCs have achieved tremendous returns investing in early-stage companies. There are a number of funds that have started up just for that purpose. You have the rise of the super-angel--individuals who are making 40, 50 or more investments out of a several-million-dollar pool of capital.

How does your firm find companies and make decisions about investing?Stolle: It's rare that an unsolicited business plan shows up on the doorstep and becomes funded. We have large networks of trusted colleagues and advisors, and we have more brought to us through those networks than we can handle or deal with. Even then, the ratio of what we fund is probably one in 20.

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