In an interview with Carlyle Group co-founder and CEO David Rubenstein, venture capitalist John Doerr discusses how his firm decides which entrepreneurs to partner with.
Key Details
- Doerr says his firm, Kleiner Perkins, will receive and read around 3,000 proposals from entrepreneurs every year. “We read every one,” he says.
- The Kleiner Perkins team will meet with around 300—10%—of these entrepreneurs and eventually invest in 40 to 50 new businesses.
- With so many entrepreneurs vying for attention, Doerr explains that entrepreneurs can make themselves stand out from the crowd in five key ways.
Why it’s news
Receiving venture capital funding is necessary for many startups to get their business off the ground. However, in a sea of business proposals, an entrepreneur needs more than just a clever idea to stand out to potential investors.
More than a good idea, business proposals need to prove to investors that the entrepreneur can successfully lead the business into profitability.
“The average Kleiner investment, by the way, returns its investment 45% of the time,” Doerr says. “So a majority of the time, they don’t. They fail. But one of the deviling things about venture capital is you can make many, many, many, times your money on a very successful investment.”
Doerr says his firm did a survey, looking back at the years of successful Kleiner investments to evaluate what qualities set these investments apart from the failures. They determined that these five qualities made proposals stand out:
- Technical excellence
- Strategic focus on a large, existing, or new market
- Outstanding management
- Reasonable financing
- A sense of urgency
While all factors play an essential role in the success of a new business, Doerr explains that no startup has all five—at least at the beginning. These entrepreneurs must also be willing to work with their investors to grow in their areas of weakness.
“Telling your story about how your technology is excellent and you’re going to transform this market and being open to help in filling out some of these other needs is what will get us over the finish line,” Doerr says.