While conversing with a VC analyst, she claimed that she had a team of 21 Ph.D.s to evaluate the merits of a technology. She seemed impressed but critical of their evaluations since they were extremely conservative. I thought that a heavy reliance on their opinion should not be the right strategy to evaluate a startup’s business plan. For starters, there are so many technologies within many industries that even 21 doctorates could not possibly cover every underlying technology. That would be my first concern.
I did remark that technology is one component in evaluating a startup’s business plan. In my simplified format, I describe 5 “T”s, with technology being one T of the evaluation or 20% of the total picture. The other Ts –Ten-fold, Team, Traction, and Terms – should be incorporated with equal weight. (Note that I discuss these terms in earlier blogs.) One can allocate points to each criterium and then used a minimum scale to establish a screening process. In other words, those startups that score over 75 points would be screened further.
I, of course, apply a more rigorous analysis that includes the multiple bullet points in defining “strategy” when closer introspection is demanded. When one views the details, then one can finally make some intelligent decision. The “technology” is a factor but not the final determining factor in assessing the value of the startup.
Going back to my introduction, one can then realize that a heavy reliance on 21 Ph.D.s might sound impressive at first. But when compared to the other factors, it plays a smaller role. Let’s play some scenarios.
In Silicon Valley, I once interviewed a Ph.D. holding over 50 patents. His problem? As an academic, he had never managed a business. The words, marketing, and finance have not been part of his lexicon. His technology might be interesting, but to market, technology is another skill set. I remind many people that the best Silicon Valley company, Apple, had been run by a college dropout, Steve Jobs, who had a keen sense of marketing. Wozniak offered the technology but, without marketing and Jobs, there never would have been “Apple”. In fact, I observed the terrible obsession with patents throughout Silicon Valley. One such SV company, Theranos, raised over $800 mill. on such IP claims. What that fiasco – the founders were indicted for fraud — proves is that patents do not mean that the actual patents do work. Patents alone do no create companies. Other factors do.