The three types of deals that VCs invest in

I was talking with one of my investors the other day about the job search and recruiting space--and how I was surprised that there wasn't more innovation here, given how monetizable the space was.  After all, what's the value of the right hire to a company--and what's the value of the right job to a candidate?

Then I realized that innovative ideas alone don't really spark VC interest.  They need to be in areas that a venture capital firm has already decided that they want to be in.  So, if you're doing something innovative in cleantech, mobile apps, hyperlocal, or some kind of social media monetization tool, an innovative vision can get funded.  VCs are willing to make bets on visions of how certain markets will develop, even if they don't know all the details of how the business works out. 

If you're not in an area that VCs are excited about, you basically have two options.

The first, and probably best choice, is to go make some money.  VCs, especially towards the second half of their funds, will invest in baked in ROI.  Once you prove out your ability to make money, then it becomes the simple matter of an associate's spreadsheet.  How much do you make now and what valuation can we get it at?  What will you make with some product improvements and a new head of sales, maybe some international expansion and what can we sell it at and when?  Dollars in, dollars out, pure and simple.

The next choice, which isn't really a choice, is to have done it before.  This is betting on the jockey, not the horse.  Dave Morgan recently got $4 million for the Simulmedia powerpoint presentation.  Actually, that's a guess.  I'm not even sure there was a presentation.  Basically, if Dave Morgan does something in the ad space, given his track record, you back it.  That's it.  No questions asked. 

So, you better be in a hot space, be making money or have an exit under your belt, because if you don't have at least one of the above, it's an uphill climb.