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April 20, 2009 (5:21 PM) by Ainslie Simmonds
Venture capitalists and private equity managers are in the business of taking risks. The theory goes that they are qualified to spot hot ideas and set up their portfolio companies to take advantage of those ideas by giving them the capital they need and ensuring they have the talent to execute.
But any VC will tell you that spotting hot ideas is easier said than done. Good ideas can go unrecognized and bad ideas sometimes get funded.
So what is a VC or private equity manager to do? How do you improve the “hit rate”? How do you make sure that your capital is most productive? The answer is to buy some insurance. For a relatively small fee, be sure the idea is a good one. Ask the target market what THEY think before you make an investment. Do some market research.
But of course there is a difference between good research and bad research. Asking five of your friends = bad research. Asking a statistically significant sample if they would be willing to buy the product as it is being envisioned = good research. But even if you get great research, and you confirm the idea is excellent, remember that you can fail in execution. At MD we say that innovation is at the intersection of the need, the idea and the communication. If you confirm the marketplace need and are sure your idea is good, don’t forget to focus on the communication that ties it all together.
And of course, that is why we believe an agency that takes an idea from mind to market is the best fit for VC. An agency that can validate and optimize an idea AND communicate it with no handoffs ensures that you have the best chance at winning.
With so much capital at risk – a little insurance goes a long way.
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