Straight talk is the best type of talk, which is exactly what Kyle Lui, a partner with the venture capitalist firm of DCM delivered to an audience of interested entrepreneurs at the recent virtual Collision Conference.
It was a quick, but informative session aimed at those associated with budding or existing start-ups entitled “12 Common Start-up Myths” from Lui who joined the early-stage venture capital company seven years ago after launching a successful software firm that ended up being bought by Salesforce.
A graduate of the Harvard Business School, he has learned a lot in a relatively short time and at Collision he passed on some of that knowledge by debunking a dozen VC theories that currently exist in the market.
The 12 are as follows:
Myth number 1:
If I pitch an investor, they may steal my idea.
“This is what I thought as well when I first started a company,” he said. “What I found on the other side is that ideas really aren’t that original and ultimately execution trumps ideas. I am probably not telling you anything If you do not necessarily already know, but I think the right question to ask is why now?
“That’s something that you should be asking yourself and having a really good idea and sort of conviction around the why now and that’s something that you need to convey to an investor.”
Myth Number 2:
If I can get a top VC, I will be a Unicorn in no time.
The reality, said Lui, is that it is about finding the right investor, not about finding the right firm. Three points to consider are:
- Does the investor deeply understand my space?
- Can this investor, particularly at the early stages help me build the company and assist in hiring initiatives and business development?
- Do they have relevant experience or relevant investments that can really help?
Myth Number 3:
An investor says I should focus on XYZ. If I do that, I will get funded.
“The reality is that nobody understands your business and the circumstances around what you’re trying to build better than yourself,” said Lui. “It’s an important skill for any founder to synthesize information” and then based on what they hear and learn, make their own decision.”
Myth Number 4:
Move fast and break things!
What a start-up should do instead, he said, is move fast in the right direction: “That’s really Important. One of the frameworks I have is how are you going to move in a way where you can catch up and then surpass competitors. By definition, if you are an early-stage startup, you are not the leader in the established market that you’re in.”
Myth Number 5:
Listening to how a particular unicorn grew, things seem just Up and to the Right for them.
“The reality is that every startup, no matter how successful has its ups and downs and the ups don’t last forever and neither did the downs. It is truly about how you react to these ups and downs that really drive the difference. A well-known investor that I know well, once told me the difference between winning and losing in startup land is very thin.
“That’s just a reminder that nobody, no matter how great it seems from the outside, has this Up and to the Right with no issues.”
Myth Number 6:
Toxic culture is something that happens to other startups.
The reality is that shaping your culture is one of the most challenging and fulfilling things that a CEO can do,” Lui said. “And if you do not shape it actively, it is going to shape itself, and you’re probably not going to like what you see.
“The point here is having a focus on culture while it may seem trivial at the very early stages, because you’re just five people and you’re trying to focus on product market fit, is actually really important even in the early days.”
Myth Number 7:
To scale, all I need is more capital.
“I cannot disagree with this more. The reality is that understanding your leverage deeply is way more important as is understanding when capital can accelerate growth and when too much capital can be a bad thing?”
Lui added that the downside of an early-stage startup raising too much capital could end up “masking a lot of the operational problems it might have. The principals might not be as focused on trying to solve the company’s core issues in order to get to the next level and instead, end up just burning cash in an undisciplined way.”
Myth Number 8:
I will talk to investors when I am ready to fundraise.
This is something that is common, particularly with early-stage founders who just do not have time to cultivate relationships with investors and figure that once they are ready, they will reach out at that point. The reality, said Lui, is that “99% of founders don’t have an investor on speed dial, so it’s about balancing building relationships while focusing on your business and product.
“And one other thing to remember is that the easiest time to fundraise is when you don’t need the money.”
Myth number 9:
As a CEO, I need to be decent at everything.
“The reality is that you’re never going to be great at everything and so you have to play to your strengths, understand what your strengths are, understand your weaknesses and then partner with folks that compliment you on your weaknesses rather than trying to be a jack of all trades.”
Myth number 10:
I need to be technical to start a tech company.
“The reality is that if you’re starting a tech company, you should understand at least some tech. I had a semi technical background but was never an engineer, but many successful founders are not engineers.”
Myth number 11.
If I am starting a company, I need to raise venture capital funding.
The reality is that most companies probably do not need venture funding, so you need to think about why venture? Also, understand the economics for you and for the VC.
Myth number 12:
In order to rase a Series A, I need to be generating revenue.
This is true for some startups, but the key, said Lui is to focus on your North Star Metrics (NSM), which will be different depending on the industry a company founder is involved in.
Wikipedia defines NSM as a “metric that a company uses as a focus for their growth. This number best reflects the amount of value that your company brings to your customers. In addition, it gives direction to your company’s long-term growth versus short-term growth.”