Larry's VC View is the bi-weekly blog by photonics entrepreneur and budding venture capitalist Dr. Larry Marshall who shares his thoughts and reflections on the VC scene, as he makes the transition from serial entrepreneur and engineer, to Venture capitalist. He hopes to share his experiences, lessons and mistakes with fellow entrepreneurs seeking venture funding.

He recently completed the first IPO of a Silicon Valley company on the Australian exchange, and is now a Partner at the first Australian financed Venture fund to operate in Silicon Valley, leveraging his entrepreneurial experience to help budding companies find their niche in Silicon Valley.

He has lived in the USA for the past 18 years, and founded 6 successful companies in biotechnology, photonics, and semiconductors, two of which achieved successful IPOs, and the remainder resulted in high-return trade sales. He holds 18 patents and has over 100 publications and presentations. Larry was born in Sydney Australia, and received his BS Honors from Macquarie University (Sydney), and PhD from the Commonwealth Centre of Excellence.

I am loath to expand on the paranoia of many entrepreneurs in their fear that VCs want to steal their ideas--this is simply not so (see Blog on NDAs). However, you had better do your homework before approaching any VC to ensure they don’t already have a potential competing investment in their portfolio. Now all the VCs I know will very quickly stop you if you start pitching something that is competitive with an existing investment, and they will recuse themselves from further discussion.



I have always believed that the value is in the execution, not the idea, so erred on the side of “giving away” a lot of information on the technology because ideas are cheap. Perhaps I’m wrong on that, but nothing puts me off more than trying to understand a pitch when the entrepreneur wont tell me what he’s actually doing. VCs are not in the business of stealing entrepreneurs’ ideas; they wouldn’t stay in business long if they were.



However, many VCs invite EIRs (entrepreneurs in residence) to work at their firms for 6-12 months--these are usually successful portfolio company CEOs who have exited the previous business and the VCs are tying to incubate the next business. The EIR will be a specialist in a particular field and often be invited into the meeting to hear your pitch. If you are a technical founder this can be great, because a seasoned, successful CEO may fall in love with your idea and bring the management expertise to the table and champion the deal to funding.



Conversely, you may just give the EIR the idea they were looking for to go start their own next business. EIRs are no less honorable people than VCs but they are not in the business of investing in your idea, they are looking for their next idea, and may inadvertently borrow pieces from a dozen pitches to create their next great opportunity. They also want to learn about the competition, potentially you.


Most VCs will explain that the other guy is an EIR, and ask if its OK for him to sit in. Don’t feel bad about saying No, I am not comfortable yet to do that. At a minimum, find out who this EIR is, what he’s looking for and ensure there is not potential for conflict. Also, don’t be afraid to ask the VC if they have any portfolio companies like yours--is there potential for conflict?



All too often, people assume without asking; again, most people will answer a direct question honestly, but may not feel obligated to speak up if you don’t ask. Don’t be paranoid, but don’t be reckless either.


Now a good EIR can be a real asset to your deal because they will give comfort to the VC and credibility to you if the idea resonates with them. Its worth arranging a follow-up meeting with the EIR to find out more about what their goal is, and if nothing else to augment your network. VCs don’t have a lot of time in pitches, but likely you can spend worthwhile time with the EIR to talk about the overall market, and get some good advice on where your deal needs to be fixed. The EIR is often in a position to share things with you that the VC may not be able to ...