How To Score Investments In Your Enterprise Startup

Enterprise startups captured 40% more venture dollars per round in 2012 ($9.85 million) than they did in 2011. How can your company get in on the action?

"Investors want you to hire a rock star CEO to make [your startup] magically successful. There is no magic, it is just a lot of hard work."

That’s Paula Long, current founder of DataGravity, an early-stage enterprise data management company, on one of the basic lessons she learned about startups during her career. A veteran entrepreneur who started and sold EqualLogic to Dell in 2008 for $1.4 billion, Long adds, "If you are passionate about the company and the product, you can learn the rest if you have a good team around you."

In a nutshell, that’s also what it takes to attract investors to startups in the enterprise space, an oh-so-crucial component to grow an idea into a viable business. Even in a so-called "golden age" of funding in which enterprise startups captured 40% more venture dollars per round in 2012 ($9.85 million) than they did in 2011, getting the big check is still tough, especially for women. The glass ceiling for women-led businesses is only partially cracked when it comes to funding, even though the U.S. Small Business Administration found that VCs who invest in women-led businesses see an improvement in their firm’s performance.

As the enterprise space becomes increasingly crowded with the likes of players like Dropbox and YouSendIt muscling in, Fast Company talked to Long (who recently raised a $30 million Series B round led by Andreessen Horowitz) as well as another female veteran of the enterprise space, CEO and founder of HotLink Lynn LeBlanc, to get their best advice on how to build a winning founding team that can scale a enterprise startup and snag funding.

Nuts and Bolts
As it is in any other industry, an entrepreneur looking to build an enterprise business needs to put their ear to the ground to hear a customer problem and listen to their solution, says Long. "It may not be the one you think is the solution, but you need to hear the pain point," she says. And forget about the "happy path" consumer businesses often deploy to solve problems.

Even with something simple such as building a network switch, Long posits, in the enterprise space there’s just as much worry about how robust it is in case of failure as how cool it looks in the face of success. "You can’t just refresh your browser or reboot and everything is okay," she observes, "In enterprise, hundreds of thousands of people are depending on you. A blip could take a business." So make sure you can live with the decidedly unsexy necessity of mega amounts of error testing.

Experience Definitely Required
Although more and more bright young things fast-track their careers on the startup path, Lynn LeBlanc maintains experience is definitely a plus in the enterprise space.

After interning at IBM in the 1980s, LeBlanc did time at both Fortune 500 companies and Silicon Valley startups before establishing HotLink-founded FastScale Technology, which was acquired by VMware in 2009.

"These are not quick-hit businesses," she contends, "If you don’t have experience working for a large firm with big solutions how can you sell million-dollar deals to a Fortune 500 company?" The space requires founders to have a lot of credibility because it’s very competitive," she points out. "If you don’t have 80% of the experience you need [before you strike out on your own] it is hard to be an expert."

Mentoring can help, but even they can’t teach you what might take years on the job. "I have advised some entrepreneurs to bring in a CEO who has more experience." Egos aside, says LeBlanc, "there’s a difference between having a good idea and being a skilled leader."

Are You the Best Leader?
Long says it’s critical for entrepreneurs to figure out why they are taking the path to helm a company. This is a trouble spot for women especially, she says, who often get pressed into moving up the chain because someone tells them they are capable or thinks they should take on new challenges.

"Figure out your risk profile," Long advises, "don’t be flattered into doing something you are not comfortable with. Only you should decide when and how to get out of your comfort zone."

Find the Right Partner
Like many entrepreneurs, Long studs her sentences with the word "passion." But even she understands there has to be a balance between passion and practicality. "I’m working on it because one my hobbies is building products and getting excited about customers loving them," she confesses. That’s when she relies on DataGravity cofounder John Joseph. "You need someone to kick you and say you are going to die here if you don’t take a break," she says. Whether that person shares the table with you or is halfway across the world, building a business is a marathon, not a sprint, she says. "Find a cofounder to pace with you, share the load, and make sure you don’t die in the attempt."

Play the CIO Card to Win
"This is one of the most valuable lessons I learned accidentally," says LeBlanc. Back when LeBlanc was working on FastScale she put together "a pretty sizable" advisory board comprised of CIOs and found it helped with everything from fundraising and early customer acquisition to analyst reviews and media interviews. Quite simply, she says, its because the CIOs came with a lot of industry cred.

"CIOs become the best spokespeople on the technology [you are trying to build]," she explains, "When they start working with you early, they often become your earliest customer." Helping shape the technology as the business evolves means they will perceive it as a much lower risk and will be more likely to recommend it to their network, she says.

Likeability Doesn't Equal $$
Far from having a "disease to please" like many female executives, LeBlanc says she doesn’t care if anyone likes her. "In business, ultimately, it is about getting to the goal in the most efficient way as fast as possible. You can’t do that with everyone liking you."

She’s quick to note that it's important for staff to feel supported, but she says, "People get confidence from winning." Raising money is the same, she argues, "If VCs feel like you want everyone to be on the same page, it’s not going to happen. They want a leader."

[Image: Flickr user Sheila Sund]

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1 Comments

  • Tim Woods

    So... basically you are saying if you don't have a track record, you don't hire the best people who have experience and the like you have no chance in succeeding? Hell, I could have wrote that article - so could anyone else for that matter.

    How about some useful advice for entrepreneurs who want to build their business who don't have a top tier rolodex, can't afford to hire the best and brightest (since they obviously won't work with you if you are an unknown OR because you aren't in their network) and the like?

    Please give me my 5 minutes back - you wasted my time.