Hitviews Pro: Here's What VC's Should Consider - Walter Sabo - MediaBizBloggers

Aftr contacting Shelly he agreed with me that the real problem was that investor money does not want the hardware to be compatible. They want the hardware to be proprietary.

After months of raising money for the successful HITVIEWS.com, it became stunning that what VC's consider "safe" investments are not. As a result 95% of their investments fail because they use criteria that are, in fact, the opposite of safe.

First, they want to invest in products or services that are proprietary, that cannot be duplicated or easily stolen. Ahahahahhah. If no one wants to steal it, it's not a hot product. That means that if a company tries to fund a new product that is open and easily compatible with other products, they will have to fund it themselves.

There is no security in proprietary technology or software because by definition its marketplace is severely limited. If it only plugs in to compatible systems and the software only runs on specific hardware. That usually leaves out most of the other platforms. Investing in hardware also assumes people want that hardware but that is rarely tested. Instead when a VC sees a patent pending or a patent they sink into the illusion of comfort.

Second, they want management that is fungible. Now this is particularly wacky. After dumping founding management, the first thing most VC's will do is pay for an expensive search by a white-glove firm. The new person will be vetted and deemed perfect, unique for the position. Top search firms do not send in "anyone" for the job and the VC does not want anyone, they want a special one. In other words, someone who is not fungible at all.

Third, VC's look for five year out billion dollar valuations. This invites the big lie. Most founders know their company doesn't have a prayer in hell of being a billion dollar company in five years. But they want their money and figure everyone will forget the whole billion dollar thing by the fifth year. The result is over-leveraged, desperate companies that flirt with bankruptcy by the hour. Settle for free cash flow and good operating margins. Son of a gun, most companies don't hit a billion dollar valuation.

Here's what VC's should consider:

1. Is the management insanely passionate about the business? Scary thought, all that emotion. Emotion is what gets management through the hard times, the tough sales call, and the nasty legal issue. Passion builds every single successful business, not math.

2. Is there enough unique about the product or service that it stands out from similar products? Similar products validate rather than threaten the new product. That logic suggests that Apple should not have made computers because IBM was manufacturing Peanuts. If there is a person on the investment committee who is tech oriented, and any person can veto a new deal, then throw the tech person off the committee before close of business today.

3. Does it make sense to you? Would you use it?

Those three points are the success markers for a new business. I'm sorry that it isn't more complicated.

Walter Sabo is the Founder and Creator of the business concept. He is an experienced leader of new organizations and is currently CEO of Hitviews. Walter can be reached at walter@hitviews.com.