The Relationship of VCs, SATs, Funding, and College Acceptance – Doesn’t Add Up
A few days ago I was fortunate enough to sit down with a VC (venture capitalist) to chat for a few minutes about my projects. Nothing formal or anything like that. Just a chat. I was introduced to this VC from a mutual friend that thought it would make sense for us to meet and get to know one another.
It was an interesting meeting. Of course he was interested in learning about Mind Petals and how it got started n’ such. I was glad to share the story of Mind Petals and how it got started, where we are going, and what’s happening with the community.
We both went into the meeting knowing that there would be no investment offer, but, nonetheless, he was still very interested in the “popularity” of the network.
One question that he continued to ask was “how do you measure your traction?” I figure that this is a typical question that VCs ask. He narrowed his questions further by asking for metrics such as: visitors, page impressions, unique visitors, etc… You know, the usual traffic questions.
As he asked these questions, I couldn’t help but think about the questions that he “wasn’t” asking. Such as… what’s the potential of the network, how does it help young entrepreneurs, what sort of influence do you have, what type of businesses are your members involved in, etc…
I think that these type of questions would have given him a better idea of the community and what we are really up to. But I guess VCs take the SAT approach to determine whether or not they are interested in your company or not.
What’s the SAT approach? Well it’s something that I just made up. This approach can best be explained when you think about what colleges look for when accepting students.
Think about it, the number one determinant of getting into a good college is your SAT scores. You can be brilliant, creative, and extremely intelligent and still have low SAT scores. SAT scores mean nothing in the larger scheme of things and they cannot measure innate intelligence.
Colleges accepting students into their schools based on their SAT scores is akin to VCs investing in companies based solely on their metrics (for websites) and revenues.
Just as colleges so easily dismiss students from entering their school because of a number, VCs blindly throw away opportunities because they can’t see the true potential; because they are blinded by not seeing a site with tons of traffic or millions in revenue.
Young entrepreneurs such as us are shaking up the entire industry. We are creating business models never before seen. These old metrics and checklists to see if we are capable of receiving funding or not simply just won’t work anymore.
We are playing on a new field and I guess it’s going to take time for VCs to have a better vision of what has potential or not. By that time, it’ll probably be too late and the tides will have turned as they begin to “chase us.” Then I guess we can dismiss them, eh? I predict that this will be the case for more and more young entrepreneurs as our ventures mature.
I’ll leave you with this saying: “People fear what they don’t understand.”
6 Comments
Adam
February 16th, 2007 at 9:46 pm
Well said Dave - couldn’t agree more. The important thing about MP is that it’s helping people and that it’s growing. Doesn’t matter what a VC says, if you are doing the right things then eventually the money will come. A business that grows slow and steady isn’t “sexy” enough for a VC (or at least my perception of a VC).
ePrep
February 17th, 2007 at 2:57 pm
David,
Great to discover Mind Petals! I love this blog. I partially agree with your comparison of SAT scores to VC “checklists”. In a busy world, be it site metrics or SAT scores, filters are a useful crutch to make sense of large data samples. Same goes with a resume…what it says on paper cannot possibly summarize the potential of a job candidate. However, with regards to college admissions, I do think times are changing and SAT scores are becoming less critical. The SAT (or ACT) are still important, but we’re seeing more schools go so far as making them optional and looking more at a student’s complete picture.
Eric
David Askaripour
February 17th, 2007 at 3:04 pm
Hey Adam,
Thanks dude. Yes, exactly: I’ve always taken a social entrepreneurship approach with MP from the beginning, trying to do good and well at the same time. At the end of the day, it’s really about helping entrepreneurs; helping young entrepreneurs to push forward with their businesses, get a start , and to motivate and educate. Thanks for the positive words
David Askaripour
February 17th, 2007 at 3:09 pm
Hey eprep,
Glad that you found and like MP — that’s great! Thanks for sharing your insight. Yeah, I truly hope that schools begin to alter their approaches when it comes to acceptance. But the bottom line is that in the world of entrepreneurship, school has little to do with success. Given that most millionaires had an avg age of a C and an avg SAT score of, I think, a 1050 (source: Millionaire Mind). But it does disturb me when I see brilliant students getting turned down from schools for all the wrong reason. Great to have you a part of Mind Petals, hope to see you around
Andrew
February 21st, 2007 at 4:43 pm
SATs are not the most important criteria for getting into the top schools by any means. Havard, MIT, etc could fill every entering class with only valedictorians that received 1600 on their SATS. They get THAT many people applying.
SATs are generally used by top-tier institutions as a conversation starter. If you can’t meet some arbitrary minimum SAT score, then it’s highly unlikely (though not impossible) that you have the academic skills necessary to handle the work. Once you qualify above some minimum arbitrary score, SATs are probably the LEAST important criteria for admission. The most important at pretty much every school is essays (or an interview, if offered).
—
Regarding the vc’s traction questions, it’s SO inexpensive to launch a web service these days: 2 kids with zero funds in a basement with a 12-pack of Dr. Pepper can launch a service of the quality and depth comparable to YouTube (with respect to code, not scalability) in a month or two. Due to the lack of defensibility in startup costs, vcs look for other forms of defensibility, such as network effects (often associated with a data asset). A vc asks about traction (page views, registrations, adoption, etc) because they are trying to determine if you are close to establishing a valuable data asset that will create network effects. Traction is a proxy for network effects.
That being said, if the venture capitalist was not asking other questions about the substancial quality of the service and the need it fills for its users (in the case of MP, entrepreneurs) then you are correct in saying that the vc is missing a huge piece of the conversation. I am surprised the vc you talked to left those questions unasked, and I wouldn’t trust his judgement of your service (positive or negative).
However, I disagree that you should be dismissive of this vc just because he was asking about traction. Regardless of how inventive your business model, you can’t make money without distribution.
David Askaripour
February 26th, 2007 at 12:33 pm
Thanks for the great feedback, Andrew. Though it’s true that SAT may not be the largest factor, it’s still one that carries too much weight is most schools around the country. About the VC, I didn’t dismiss him at all; it was actually a fruitful meeting. However, just thought that he didn’t ask the right questions. Thanks
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