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March 15, 2005

When a VC says "No"

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Posted by Dominic Basulto

New York-based VC Ed Sim, who was recently recognized by Fast Company for his Beyond VC blog, explains why the ability to say "No" to a possible deal is sometimes more important than knowing how to say "Yes." Sim explains: "Having done enough deals, I am of the opinion that if it is extremely one-sided and never makes economic sense, it is a recipe for disaster." One of the problems, says Sim, is that over-heated market segments lead to decisions made by the heart and not by the head. Instead of focusing on bottom-line profitability and ROI, companies start thinking in terms of customers acquired (even if they are money-losing) or market share (or, even worse, "mind-share"):

"From my perspective, one of the huge problems is that there is tons of VC money out there and lots of me-too deals... A space gets hot, lots of venture money pours in, and only a few companies survive while the rest vaporize. We do live in a competitive world and taking market share and killing your competition is part and parcel with being in a startup in a large market. That being said, what killed many companies during the bubble was pursuing market share at all costs..."

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