This week I had the pleasure of meeting and talking with Scott Lenet, co-founder and managing partner of DFJFrontier, an early-stage venture capital fund with offices in Los Angeles, Portland OR, Sacramento, and Santa Barbara. To be quite honest, until now I did not have a very favorable impression of venture capitalists–hence the term vulture capitalist, which is often applied to disparage them. Venture capital funds are professionally managed investment funds that typically invest in companies at the rapid growth stage or just prior to an IPO (initial public offering) or M&A (merger or acquisition). If you’ve ever been in a room with a bunch of venture capitalists, you know that the arrogance is palpable. And you’ve no doubt heard the horror stories of the nasty VCs who wanted to steal a company from its hard-working entrepreneur. In some cases, the stories are true…but not always.
Well, I’m happy to report that not all VCs are alike and there are some, like Scott Lenet, who are actually very pleasant to work with and who just want to see your company become successful so everyone wins. What a refreshing concept! Scott, who among other things was the founder and CEO of SmartFrog.com, which was acquired by Cybergold in 1999 (good timing), looks for passionate entrepreneurs who want to change the world. "We seek out entrepreneurs who have the energy, discipline, and courage to create something from nothing and the desire to work with investment partners who have the experience to help them get there." He is looking for emerging technologies, from software to information services, biotechnology, nanotechnology, and alternative energy.
Capital is only one thing DFJFrontier provides (the range is $100,000 to about $1 million); more importantly, they mentor the company, help with recruitment and interviewing of key employees, and identify and contact strategic partners. In all, the DFJ (Draper, Fisher, Jurvetson) network has 16 funds around the globe with more than $6 billion in investor capital. The advantage of having a global network of funds is that you gain access to more information and resources. For a fund like DFJFrontier to be interested in your start-up, you need to be looking at an initial domestic market of at least $100 million. And you’d better have your elevator pitch down pat. Scott says that you need to get your business across in the first sentence. For example, "we make and sell proprietary software that…" According to Scott, one of the great things about the VC business is that the most you can lose is 1X your money, but the most you can make is unlimited. And that goes for the entrepreneur as well, if he or she picks the right VC.
By the way, one of the founders of Draper, Fisher, Jurvetson (DFJ) in Silicon Valley is Tim Draper who is famous for a song he wrote called "The Risk Master." Click this link and watch this very famous VC look like a candidate for American Idol. I wonder what Simon Cowell thought about this!