Panel on Funding Your Dream
(Moderator) Mohanjit Jolly - Garage Technology Ventures
Steve Baloff (Steve B herein)- Advanced Technology Ventures
Bill Green - VantagePoint Venture Partners
Martin Kuhn - Sony
Steve Jurvetson (Steve J herein)- Draper Fisher Jurvetson
Ian Sobieski - The Band of Angels
Q - What is the process to connect with your firm?
Steve B.- If you don’t know people within the community you should be able find a referral.
Bill - There is a huge amount of info that goes through the VCs, you need to be able to win the “30 second beauty contest”. Try to do something to differentiate yourself.
Martin - Many times their firm is the one initiating contact with a business. If you have something interesting within electronics, just mail him.
Steve J. - They look at as much as they can, they would like to see even more. They drag the net through the pool to see what they can find. Gives them a good meta-view, how many companies there are in certain areas. You need a concise and direct pitch to appeal to him, otherwise there just isn’t time to review it all.
Ian - They screen through unsolicited stuff, but normally it’s through a referral. The person who makes the referral often serves as an internal advocate.
Summary by Jolly - You have to compete for attention, tap your network.
Q - You need money to make your company interesting. How would a first timer start up and make themselves interesting?
Steve J - Software is something you can start without capital, but most everything else needs to be built out or bootstrapped in some way. You can build a great team to appeal to investors, if you can. Bootstrap is great if you can do it, but doesn’t fit all industries.
Steve B - Looks for the team, is this person able to put together a team willing to follow the vision?
Ian - There’s a lot to be said for building a career as an entrepreneur. You don’t have to knock it out of the park the first time. If you’re in the game, people are more likely to bet on you down the line.
Q - Is an idea good enough, or do you need a prototype?
Martin - depends on the business unit on Sony. Has helped very bare and unexperienced teams find people within Sony to get up and going.
Q - Being a large fund, how do you fund seed stage?
Bill - The partners have some freedom to deal with situations like that. They might be provided with small pools of money they can make seed investments with, but of course they’re going to invest in ideas that they can then invest a lot more in relatively soon.
Steve B - its more about the time than the money. If someone tells you they’re funding a lot of seed, they can’t be spending lots of time with each. If you need lots of attention, the person making lots of small deals might not be the person for you.
Q - How you you pick companies if the market they’re in isn’t formed yet?
Ian - That’s why it’s called venture. You just do the best you can, and maybe hope you’re lucky.
Steve J - The big danger for them today seems to be being too early. Lots of areas everyone knows will be big, but there’s no agreement over when it’ll be big.
Q - Whats a pet peev?
Martin - Be short and concise, what is the technology.
Steve B - entrepreneurs don’t follow through, qualify who your leads are,what are they looking for. You should be in a selling mode, you need to close the VC.
Bill - Figure out what is the preferred method and volume of communication. VCs have limited bandwidth.
Steve J - There needs to be a willingness to follow a nonlinear conversation. Unwillingness to diverge from the script send a signal of inflexibility and lack of confidence.
Ian - Issues writing the deal terms are annoying. Its hard to make money in an area where 9 out of 10 fail. You really have to make it up in the one that works, and investors need to make their money.
Q from audience - should you go to funds that funded competitors if you think you have the better technology?
Steve J - Go to someone else, most VCs don’t like to invest in companies that are too closely related (otherwise they might not know where to hand off contacts or resumes).
The Art of Bootstrapping - Bill Reichert - Garage Technology Ventures
Talking before the session, Bill said send him tips about starting up bootstrapping if you have them. His email address isreichert at garage dot com. They’re looking for resourceful entrepreneurs who can do more with less, who can stretch a dollar. Send in your ideas and Bill will share them with the community.
There are different models - garage, university, service to product (start out as consulting and develops a productized offering), core customer/partner (build a technology for a big partner and keep the rights).
Characteristics for success - low capital requirements, low cost of customer acquisition, rapid cash flow and cash up front, recurring revenue.
Alternate sources to financing - day job, credit cards and mortgage, 3F (friends, family, fools), founding angel, government grants, incubator, license rights (sell to someone servicing a market you’re willing to give away, ie the Japanese market if you’re in the US), core customer (develop on someone elses dime and keep the IP), version 1.0 (there is no better financing source than customers).
Bootstrap economics - its all about payback not ROI. 2 dollars today is better than 3 dollars in a year. Pick the minimal set of features, marketing and promotions is going to have to be at the right level, sales expenses have to be kept down, overhead minimal.
Product development, how do we minimize it? Keep your day job and work nights and weekends, use PhD students looking for dissertations, tap offshore resources, productize a consulting project/NRE (nonrecurring engineering), license a finished product (NOTE from author: or use open source!!), import a finished product. Get your product to market fast.
Bootstrap selling, frequently overlooked. Doesn’t fit into accounting well, there is no established business process to measure it. Rifle shot selling (make sure you know your first ten customers. This is hand to hand combat, be prepare to get bruised), community selling and viral marketing (find groups with strong word of mouth references, they will help you sell), channel sales, OEM partnerships/private label (people who would embed what you have in their existing offerings), Internet, consulting.
Bootstrap marketing - PR, events/seminars/webinars, directories, analysts, affiliate marketing programs, AdWords (some people are getting fantastic payback using this). Normally there is a company out there doing market development, explaining what a new segment is. Piggyback on that messaging.
Recruiting - networks of friends and advisers, university, pilfer from competitors, contract recruiters, NOT Monster, nurture “talent in waiting”.
Operations - do the core, outsource the rest. Leverage the skills in your ecosystem.
Questions to determine if your company should be bootstrapped:
is the model bootstrapable
do you have the discipline
access to leveragable resources
if raising venture is just too painful
When do you stop bootstrapping?:
VCs start to call
your product becomes hot
you can validate revenue projections
you can validate payback
you can operate indefinitely at break even
you are profitable
never!! If things line up right
When you no longer need money, the desperation is out of your eyes, they’re more likely to give you money.
Panel Been There, Done That
Panel of experienced entrepreneurs
(Moderator) Guy Kawasaki - Garage Technology Ventures
Julie Hanna Farris - Scalix
Richard Mandeberg - Mirra
Michael O’Donnell - BitPass
Steve Poizner - Candidate for CA State Assembly
Peter Thiel - Clarium Capital Management
Q - explain your current opinion of the startup environment
Peter - think about landing your company, not just launching it. During the bubble it was easy to get funding, but there was more competition. Back then you needed money to overcome that competition. Today you can’t get much money, but perhaps you don’t need it.
Steve - In this area geographically (the San Francisco Bay Area that is) there are a few factors that need to be overcome. Some VCs think that California is a hostile business environment, so they send money elsewhere. That needs to be fixed.
Mike - Its difficult to break into the closed environment of VC. You need to find someone to help you make connections (Garage or someone else). VCs have returned to some discipline (metrics didn’t exist during the bubble, they’re back).
Richard - Its all about doing more with less capital. One thing you do get in the Valley is a community that is sympathetic to the challenges and brings a pool of experience.
Julie - We might be in a minibubble. There might be lots of people out there irrationally thinking they can pull off another bubble. Asked if its hard to get funding as a woman, says that there is a VC protocol that most women don’t have work experience that has prepared them for. So it could be hard, but not “cause they’re a woman”, its cause they don’t often have the right background.
Q - What is the one major factor for success?
Steve - make sure it works, all the issues all the corner cases.
Mike - Money, “cash is more important than your mother”.
Richard - theres a difference in understanding what the one thing for you is, and then the one thing for the company. For the company, he thinks the company needs to stay focused, and never deviate.
Julie - Knowing what the one thing is that you do better than everyone on the planet, know your domain.
Peter - People are the most important. Although he agrees with the other comments, he thinks there are too many unknowns to try for anything else.
Guy says make your founders vest, so you don’t lose them if the team hits trouble.
Q - What is one of the dumbest thing you’ve done as a CEO?
Mike - overpromising and underdelivering. You work really hard and just miss your goals, you feel like crap, the VCs are pissed off. Try to set reasonable targets. The CEO should not do the forecasting, they need to be too optimistic.
Richard - bringing an investor into a company because he was intrigued with their worldview, someone who wanted to take the company in another direction.
Julie - Learned it always costs more and takes longer, learned because of not tempering optimism. If you don’t hit your milestones you feel bad even if you did great work. Deal with problems early and often. Set your goals some place where you have a high confidence level of being able to hit it (says set the goal at a place where you have 100 confidence).
Mike added forecast initially at the 100 percent confidence level and manage your cash to that, but also make an upside prediction taking into account the unknowns.
Peter - don’t hire consultants for core functions.
Steve - Getting the right people at the right time. They engaged in a test of Marines vs Snaptrack in terms of tracking technology, and they ended up with an out of shape engineer vs a young marine, and just looked weird. Says they also didn’t pay enough attention to intellectual property issues.
The Art of Rain Making - Bill Joos - Garage Technology Ventures
Guy made a funny comment between sessions. Guys law: to calculate valuation of a prefunding company, for each full time engineer add one million, for each MBA you subtract 250 thousand. :-)
Let a hundred flowers blossom. Where are things growing? They might not be the places you expect, and be receptive to that. Get version 1 out and pay attention.
Find your fulcrums, its all about leverage. Get taken in (who does your customer already have a relationship with? who should be your new best friends?), get referred in (current customers, board of directors/advisers), endorsements (who is your “American Dental Association”), who besides you has a vested interest in your success?, always be on the lookout for out-of-the-box fulcrums. Fulcrums outside the expected areas.
Go after agnostics, not atheists. You want an agnostic who knows they have a problem. An additive sale is a magnitude easier than a displacement sale. Bill Joos law: it’s not enough to build a better mousetrap, you have to find people passionate about killing mice.
Who are the influencers? Stop, look, and listen.
Make the first steps easy. Test drive or free trial (“take the puppy dog home, and if you don’t want it bring it back” - everyone keeps the dog), don’t underestimate switching costs, get a small piece before the whole pie, if the roles were reversed what would you want?
Use the right lead generation techniques. Small scale seminars (create a gathering at your podium, of attend someone elses), get published (find a publication or write a whitepaper), proactive networking (the exact opposite of cold calling, give and take,whats in it for your network), participate in industry events (both yours and your customers)
Question everything. Hearing is not listening. Become an active and intelligent listener. Listen with a pen. Develop a healthy curiosity. Listen to what is not said. They’ll tell you what it takes to close the deal if you ask the right questions.
There are huge benefits to benefits. Features suck, benefits rock. When you make statements make sure you provide a framework for understanding that statement. Make sure that your customer isn’t saying “so what”. When talking about features make sure you explain the benefit. (Feature, benefit, reaction)
Objections. Learn to love objections. Objections are the path to solving pain. Usually the wrong objection answered, peel the objection onion. The real objection is normally 2 or 3 layers down. Verify and clarify. Take objections and make them objectives. Use references (“feel, felt, found”).
Selling is a process, not an event. It is an attitude, all sales all the time.