Featured Network Partners: Microsoft BizSpark

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Featured Network Partner

Company: First Round Capital
Interviewee: Rob Hayes, Partner

Q: Tell us a little about First Round Capital?

First Round Capital was late 2004. We saw a need in the venture-funding marketplace for early stage, institutional venture capital. What differentiates our fund from a traditional Series A venture fund is that we put much smaller amounts of money into very capital-efficient companies at the earliest of stages. Our investments range more in the few hundred thousand to up to a million dollars and are designed to get a company from initial inception through product launch, acquiring customers and hopefully to first revenue.

Q: What are some key attributes you look for in companies you consider investing in?

There are three key things that we look for when we invest in a company. • The first is the team. We like repeat entrepreneurs. We don't only invest in repeat entrepreneurs, but as we say in the firm, investing in a first-time entrepreneur is equivalent to paying tuition. • The second thing that we look for is a large market. • And finally we look for a company where we can add value. We look for the intersection of these attributes and for the products that are being designed from the ground up to be sold into a market. We see a lot of companies that come in that are really a technology looking for a marketplace. You can’t build a product and add virality later. You have to build the marketing into the product.

Q: How do you see your role with a company?

We spend a lot of time with our companies. One of the first things I do whenever I fund a company is sit down with them and develop a set of key milestones. I literally draw a chart with 12 to 18 months of time slots. In each of those month time slots, we create a set of goals for marketing, product and business development and hiring. We set up these milestones to get us to a point where we feel comfortable that we'll be able to go out and raise our Series A funding.

Q: Do you have any advice for startups that are looking for investors?

There are a lot of resources out there. What any investor likes is to get is a referral of a company that has been vetted by someone that they trust. Something that comes to me from another investor I've worked with is going to be a lot more compelling than a cold email that says, “Dear Sir.” There's a tremendous amount of openness and approachability to venture investors that you didn't see 10 or 15 years ago. For someone who's starting a company and looking to raise money, they need to find the right investor for them and come prepared. I see too many people that show up looking to raise more money than we would normally invest. And that information is available on our website. Also entrepreneurs trying to raise money should do the same due diligence on their potential investors as their investors will do. The money that they're going to raise is looks the same. The differentiating factor is the investors that come with that money.

Q: How do you feel about the current market outlook?

I used to feel comfortable that if a company did a certain set of things and hit a set of milestones in a 12-month period, they would be able to raise follow-on funding. Now I'm not sure what the funding environment is going to be a year from now. I'm encouraging companies to raise more cash than they think they need, enough to even take them to a cash flow positive state, so that they can sustain themselves through any sort of economic conditions that we might see beyond 12 months.