I am constantly approached and emailed by people interested in venture capital and private equity. Some want to know how to break into the industry. Some want to know how to better form an enterprise. Some want to know whether they should get an MBA. Some just like to read what I write.
If there is something that I can impart on my readers it is that at every step of the game you must always be a student. You must always read, you must always soak up as much as you can. You must always ask questions and seek answers. The day you stop doing this is the day your brain starts to literally whither away.
One thing that I love to read are S-1 filings of new companies. For those of you who don't know, when a company files to go public on the U.S. stock exchanges, it must file a report with the Securities and Exchange Commission (SEC). This is all public information, available at the SEC's website. You can click on "Search for Company Filings" and then on "Companies & Other Filers". Enter the company name in and you will see a host of filings. Click on the S-1 and the prospectus will appear, also known as the "red herring". Now you don't want to be always searching everyday for companies to snoop on, but if you go to any handful of sites that monitor IPO filings (such as IPO Home), you can periodically see who has filed. If one interests you, I encourage you to read its filing. All of the document is electronic and html enabled so if you click on "Table of Contents" you can go directly to the section of your interest.
From the S-1 you can learn far more about a company than it probably wants you to know. It can be overwhelming but there are four key things I look for when I have little time and I am browsing an S-1. First, I go straight to the "Principal Shareholders" section. This lists who owns at least 5% of stock. I want to know who is making money on this IPO and who owns the company. Sometimes in the immediately preceding section called "Certain Transactions" it will even say who invested what amount and at what price. Second, I go back to the beginning of the filing and look at the story. I want to know the brief story of how the thing came about. It doesn't have to be in detail but I like to know when it started, who put the company together, and who has been running it.
The third thing I like to do is go to the bio section of the CEO and people who are running the company. What is their background? How much are they getting paid? Is it run by an old guy or a young guy? What particularly impresses me is when there is someone in their 30s who is high up on the leadership list. The last thing I look for is the financials. I do not read them too closely but I like to at least scan them. I already know that they are probably strong if they are filing, but I like to have a rough number of their revenue and profit to get an idea of what kind of multiple the IPO is valuing the company.
Sound easy enough? If you are really curious about the industry you are getting into or really want to know how the competition got its start, you really should read the S-1 of all of your competitors. I am confident that most people don't do this, but that is probably why the rate of startup failure is so high.
Any questions? Feel free to ping me or post a comment.