Best I've seen about what early stage information technology VCs want to see:

(1) Product/service in and/or exploiting information technology with traction significant and growing rapidly. Traction can be number of paying customers, traffic to Web site (e.g., Comscore numbers) or, better, revenue, or best, earnings.

(2) The market large enough to permit a company worth $1+ billion in five years, no longer than 10 years.

(3) Something serious in a Buffett moat, that is, a way to beat, i.e., block, competitors. E.g., network effects, high switching costs, cases of lock in, technological advantage, e.g., secret sauce, a platform company that has advantages because others build on, depend on, the work of the company, etc.

(4) Team of at least two that does well covering both business and technology.

(5) Nothing obviously wrong, e.g., not depending on only one or just a few customers, no on-going co-founder disputes, no signs of being sloppy, no signs of criminality, no signs of drug or alcohol problems, no big problems with communications, no bad prior investor situations, etc.

My guess from reading VC Web sites was that they would make a "seed" investment, say, $150,000, with (A) a highly qualified team, (B) some excellent, powerful, valuable secret sauce, work difficult to duplicate or equal, for (C) a service likely of interest to nearly everyone on the Internet, with (D) so far nothing comparable on the Internet, where (E) if successful, worth $0.5-1+ T. Nope. Instead, I conclude (A)-(E) flops and (1)-(5) is about it.

Okay. Wish I'd known that.

Indeed, in the last year or so there was a post by USV's Fred Wilson on his blog AVC.com of a company his firm had their eye on and off and on over some months pursued the company and finally talked them into taking the company's first equity investment. Lesson: If you really have what they want, then they will notice you and call you.

Indeed, likely the best "warm introduction" is that the VCs have already discovered the product/service and really, in the word of Paul Graham, "love" it.

A big surprise to me was the reaction of the information technology community to secret sauce technology: In my career, I've been used to seeing new technology carefully evaluated. I saw this in the beginning of my career in applied math and computing for mostly US national security around DC. E.g., I worked in the group that did the navigation satellites for the US Navy (GPS by the USAF was the second version; the Navy did the first version) and heard the stories of how the work was approved from just the basic physics, essentially back of the envelope. A long list of projects for US national security was funded just from proposals on paper that were carefully reviewed, e.g., the SR-71. My Ph.D. dissertation was carefully reviewed. My published papers were carefully reviewed.

For US information technology VCs, I had to conclude that under no circumstances would they take seriously anything technical about the technology or any technical reviews of the technology and, indeed, quite solidly would absolutely refuse any reviewing of the technology at all. Period. No exceptions. Feet locked 5' deep in reinforced concrete, they simply will not, Not, NOT, NOT consider a technical review of technology. NSF, NIH, ONR, etc. will review technology, insist on it, but information technology VCs will, in a word, NOT.

My understanding is that bio-medical VCs will review and take seriously reviews of the claimed new, powerful, valuable bio-medical technology.

The information technology VCs commonly claim on their Web sites that they want leading edge technology; they neglect to say that they will never consider any such technology in funding decisions and, indeed, will NEVER review it or consider any reviews of it. It was a surprise to me!

Okay by me; I just wish I'd known. The VC information technology Web sites were highly misleading. Okay -- gotta beware of that in business!!!! Being a determined entrepreneur ready to keep going after a few dozen "No" responses, the misleading VC Web sites cost me a LOT of important time, money, and effort. I was ripped off.

But, this is cast in concrete, wrapped in cast iron, and protected with a layer of uranium -- never but NEVER will an information technology VC pay any attention at all to a theorem and proof in measure theory!!!! Not in this solar system!!! Sure, uh, the flip side of that situation is an opportunity!!!!

Finally I reminded myself that in the US, coast to coast, from barns behind farm houses on 50 acres to cross road villages to ... the largest cities, entrepreneurs start and grow successful businesses without equity funding. How? Do well running 10 fast food restaurants -- pizza carryout, McDonald's, ... Chinese -- and can do well. Also, run a successful, local independent insurance agency that knows nearly everyone in town and, thus, has a fantastically good "loss ratio". Run the local, dominating electrical supply house, plumbing supply house, building materials house, or any of many cases of "big truck, little truck" businesses, that is, where buy with a big truck and sell with several little trucks. Commercial real estate. On and on. Can see a lot of examples on Main Street.

I used to go to yacht clubs; saw some big boats and some well off people; never saw anyone who took equity funding.

A guess: For nearly all the students at Ivy League colleges whose parents pay the tuition, the money was from running a successful family owned business without equity funding.

For starting a business, information technology should be a big advantage: E.g., last I checked, the price, quantity one, retail, of the AMD FX-8350 processor, 64 bit addressing, 8 cores, 4.0 GHz standard clock speed, goes for less than $100 (commonly was $300+ -- the one I have looks terrific). For less than $2000, can put together a Web server that is, in the history of computing back 20 years, just astoundingly powerful. If can build a Web site that is popular enough to keep that server half busy 24 x 7 and run ads at the rates suggested in the Meeker KPCB reports, then should be able to get revenue $100,000+ a month.

So, we're talking capex ballpark $2000. So, compare that with the capex for, say, just a grass mowing service -- riding mower, $10,000+, trailer for the mower, ~$5000, truck to pull the trailer, $30,000, etc. Or compare with the capex for a pizza carryout, an auto repair shop, and auto body shop.

With revenue of $100,000 a month, why bother with a dinky seed round of $1.7 million with the term sheet, vesting schedule, loss of control, too many lawyers, BoD, C-corp, etc.?

With revenue of $100,000 and the rest of (1)-(5), let the VCs call you while you have a dozen nice ways to tell them "No".

Don't be cruel to them: They are only finance guys who likely have never written much code and got an MBA instead of a Master of Science! They are unable to review any very technical secret sauce. And likely what they can fund is highly constrained by agreements with their limited partners who supplied nearly all the money.