Thursday, June 12, 2008

POTW: How to Pickup a VC

It has been a dozen or so weeks since our last post of the week. Thanks to The Great Kawasaki, we're back ... here is his chortle-filled take on how to pickup a fat head:

Many entrepreneurs ask me what is the best way to open a pitch to potential investors. I'll answer that question at the end of this posting, but first let me tell you the ten worst opening lines that you can use:

  1. You say: "I'm bright and ambitious." Investor thinks: "That's a relief because I usually invest in stupid and lazy people."

  2. You say: "I'm a blue sky thinker." Investor thinks: "You have no business model, and you don't know how to ship."

  3. You say: "I don't know much about your firm, but I thought I'd contact you anyway." Investor thinks: "You're a lazy idiot--why are you wasting my time?"

  4. You say: "I love to think of new ways to solve problems." Investor thinks: "Is this a high-school science fair?"

  5. You say: "I have lots of great ideas, but I have trouble figuring out which one to try. Let me tell you about a couple." Investor thinks: "I want to know which idea you're going to kill yourself trying to make successful, not which ideas have crossed your idle mind."

  6. You say: "I've always wanted to be an entrepreneur." Investor thinks: "I've always wanted to be a professional golfer. So what if you always wanted to be an entrepreneur?"

  7. You say: "I'm sure you are aware of the growing need for security. Web 2.0, Open Source, whatever." Investor thinks: "If you're sure I'm aware, why are you telling me you're sure I'm aware."

  8. You say: "If you sign an NDA, I'll tell you my idea." Investor thinks: "You are clueless. How can you not know that venture capitalists don't sign NDAs?"

  9. You say: "The last time I contacted you, I..." Investor thinks: "I'm going to fire my secretary for putting this clown on my calendar again."

  10. You say: "My goal is to build a world-class company." Investor thinks: "How about you ship and sell the first copy before we talk about world-class anything?"

Now you know what not to say. Here's what you should say:

    "This is what my company does..."

It's that simple. What you're trying to do is get potential investors to fantasize about how your product or service will make a boatload of money. They can't fantasize if they don't know what you do. And they don't want to be your friend, mother, or psychiatrist until they understand what you do, so cut the crap and explain what you do.

Step on the gas

In idle times this week, I have volleyed between surfing for a hybrid (to replace my hyper-consumption Landcruiser) and reading Natural Capitalism. It's a cerebral paradox; the latter read, in the form of environmental guilt, gas-at-$4.50-plus-a-gallon remorse, and plain common sense, feeds the former four-wheel reality.

Natural Capitalism engages readers to imagine an entrepreneurial conversation that took place at the end of the nineteenth century ... A group of powerful and farseeing businessmen announce that they want to create a giant new industry in the United States, one that will employ millions of people, sell a copy of its product every two seconds, and provide undreamed-of levels of personal mobility for those who use its products. However, this innovation will also have other consequences so that at the end of one hundred years, it will have done or be doing the following:

  • paved an area equal to all the arable land in the states of Ohio, Indiana, and Pennsylvania, requiring maintenance costing more than $200 million per day;
  • reshaped American communities and lives so as to restrict the mobility of most citizens who do not choose or are not able to own and operate the new product;
  • maimed or injured 250 million people, and killed more Americans than have died in all wars in the country's history;
  • be combusting 8 million barrels of oil every day (450 gallons per person annually);
  • made the United States increasingly dependent on foreign oil at a cost of $60 billion a year;
  • relied for an increasing percentage of that oil on an unstable and largely hostile region armed partly by American oil payments, requiring the United States to make large military expenditures there and maintain continual war-readiness;
  • be killing a million wild animals per week, from deer and elk to birds, frogs, and opossums, plus tens of thousands of domestic pets;
  • be creating a din of noise and a cloud of pollution in all metropolitan areas, affecting sleep, concentration, and intelligence, making the air in some cities so unbreathable that children and the elderly cannot venture outside on certain days;
  • caused spectacular increases in asthma, emphysema, heart disease, and bronchial infections;
  • be emitting one-fourth of U.S. greenhouse gases so as to threaten global climatic stability and agriculture; and,
  • be creating 7 billion pounds of unrecycled scrap and waste every year.
Now imagine they succeeded.

Karl Benz, Gottlieb Daimler, Ransom Olds, Henry Ford and a gaggle of comrades were the catalytic culprits. I presume their intentions were entrepreneurial (create a company to make money by building and selling great products that fill unmet needs), not harmful. They were prophets in a business sense, not an ecological nor societal damaging manner. The thrills and ills of their success -- in a sobering and enterprising way -- open a window to innovate the world's largest industry.

As Natural Capitalism opined nearly a decade ago, the contemporary automobile is embarrassingly inefficient:
Of the energy in the fuel it consumes, at least 80 percent is lost, mainly in the engine's heat and exhaust, so that at most only 20 percent is actually used to turn the wheels. Of the resulting force, 95 percent moves the car, while only 5 percent moves the driver, in proportion to their respective weights. Five percent of 20 percent is one percent -- not a gratifying result from American cars that burn their own weight in gasoline every year.
Ouch. My teeth grind and my frown protrudes as I gaze at my parked '88 Landcruiser, backed up to my wife's Volvo SUV. They're inefficient petro-pigs, a paradox of living in Davis (let alone on this planet).

Completely redesigning cars by reconfiguring three key design elements could save at least 70 to 80 percent of the fuel it currently uses, while making it safer, sportier, and more comfortable, Natural Capitalism's authors opine. These three changes (pyramids for entrepreneurs to ascend with their innovations) are:
  1. making the vehicle ultralight, with a weight two to three times less than that of steel cars;
  2. making it ultra-low-drag, so it can slip through the air and roll along the road several times more easily; and,
  3. after steps 1 and 2 have cut by one-half to two-thirds the power needed to move the vehicle, making its propulsion system "hybrid-electric."
It's the last day of third grade for my eight-year-old son; he awoke at 5:45 (5:06, he claims) as I scribed the above. With no knowledge of what I'm babbling about herein (no joke), he said: Mommy, why do you guys like big cars? They're bad because they get low gas mileage and they're going to break down.

Tuesday, June 10, 2008


Invariably a conversation begins with, So, whatcha been up to? It's a good, extemporaneous test to gauge what's important to you, or what is top of mind. MySpace and FaceBook exist for this reason ... communities of people instantaneously keep track of what they and their friends are up to. Though I'm a member of neither, I think I get it: You can engaged in real-time communication with multiple people, an open window into your life and the lives of your friends.

I've been up to investing a mass of energy into The New California 100, a first of its kind event. We are convening and honoring the top-100 established companies in the Great Central Valley, showcasing 40 cool growth companies to a gaggle of private equity investors, and honoring the inaugural class of New California Hall of Fame members, seven Valley business legends. As events go, it's quite entrepreneurial ... coalescing the audiences, naming the top-100, creating and honoring the Hall of Fame. Should be fun, and it all goes down Tuesday, June 17.

What you've been up to also speaks to what you care about. I wrote a few months ago about the necessity -- when you're building a company or chartering a cause -- of getting people to care (about what you've been up to!), of creating relevance and stoking resonance about what you're doing. An excerpt:

What is relevance? To me, it’s getting people to care by generating value and interest and demand and intrigue and inspiration. It’s about creating and stoking a bonfire, one with ever-growing visibility and a desirability to participate. It's encapsulated in one of The Cluetrain Manifesto's theses: Companies that do not belong to a community of discourse will die. It’s hands down the paramount challenge CEOs face.

Relevance matters only in the minds of your constituents; it’s their perception, period, that counts. And, all stakeholders count: Customers, prospects, partners, shareholders, employees, analysts, competitors … your entire ecosystem. It’s doing something – a lot of things – to edge people to the front of their chair, to raise an eyebrow, to engage a phone call, to elicit an, “I’ve gotta do something -- invest, buy, partner, work, lead, support – with this company," action.

Fostering relevance is an (check that: the) ante to success. The rest – the blocking and tackling of business – is easy and boring. If you’re not relevant – if you can’t get key constituencies to care – move on. Treading water in an empty pool is painful for all involved.
My thinking was shallow; I missed a key point. It's not enough to get people (and yourself) to care. You also need to connect such interest to a stake (or outcome). As your level of care/commitment (emotional, physical, and professional involvement) increases, so too must your potential reward. If the latter does not follow suit, you're primed to either be disappointed or abort your efforts entirely. This is not worth it.

Back to my inspiration for this post: BeenUp2. Check it out, poke around, have some fun. I was introduced to the company a few weeks ago -- my first social network! -- and I think I'm hooked. Snap a photo with your phone and email it to BeenUp2 with a description; yesterday it was my kids lounging before school, today a shot of the remodeled hole in our house at sunrise. Instantly, it's shared with the community. People can see, absorb and comment on what you're up to.

BeenUp2's founders are cool and they have built a fun, simple and effective tool (check that: community!). The community (members are mushrooming) cares and procures instant gratification, and the company's business model is tantalizingly, Web 2.0y tasty.

Friday, April 25, 2008


A few what's-up? shots have been thrown by way, jabbing at my apathetic blog behavior. I'm guilty; no excuses, and I'll commit to change my behavior.

Part of the what's up is a cool campaign I'm incubating with a comrade to raise money for Davis schools. The school system's a mess, the politics brutal, and naysayers abound. It's tough being a volunteer.

A key tenet of our endow-the-schools program is to perpetuate programs that do not alter the behavior of beneficiaries: Raise money by getting consumers and businesses to do what they do, with an incentive to participate. Sounds great as I type, but in practice it's going to be an uphill bike ride through the mean streets of Davis.

Part of my inspiration -- aside from the obvious: I'm a product of Davis's public schools, and my kids are current beneficiaries -- stemmed from a Contrarian perspective. One of my idols, Tower Records' founder Russ Solomon, was interviewed a few weeks ago on NPR. (Here's a admiring piece I scribed about Russ last year.) Russ was a baron: He helped create the music business, selling 78s out of his trunk on the corner of 16th and Broadway in Sacramento. The music industry and its artists owe much to Mr. Solomon.

Back to the NPR interview. Russ was asked about the accelerating shift in consumer behavior, away from buying tangible products, crescendoing toward bits and bites (digital downloads). He opined a strong case for the virtues of CDs and vinyl: Sound quality, the ability (and desire) to collect, awesome artwork, etc. Okay, I buy it, though market metrics disagree. My mentor then slipped: He said what's needed is for consumers (kids) to "get it," to change their behavior. It's there responsibility, or so I heard, to visit record stores and "experience" buying music.

I disagree. Big time. It's the proprietor's (and the industry's) responsibility to create an environment and experience that's superior to buying tunes for 99 cents. Customer behavior dictates preferences ... a building bonfire of consumers prefer to buy music ala-carte, via their PC, in their boxers. When they want, where they want, how they want. Our needs are filled -- better, faster and cheaper -- electronically, versus making a trip to the record store.

Just as other tangible media -- newspapers, books and magazines -- will not perish, CDs and vinyl will not die. But, they're a few feet underground, descending deeper (dug by consumer preferences and needs) by the day.

Friday, April 18, 2008


Most lunch meetings are uneventful: Raw fish, small talk about kids, bemoans about fatheads, cut-to-the-chase business dealings, and cordial encapsulation and good-byes. Starched shirts, formal posture, firm handshakes. Necessary encounters, but not necessarily memorable. I killed a plate of sashimi with a new friend last week that flipped the coin.

We began with the normal (aforementioned) stuff, but quickly transitioned into an assault of corporate speak: The lack of meaning, the void of sincerity, the apathy of communicators in communicating their message. I tossed The Cluetrain Manesto's first assertion across my bowl of rice: Markets are conversations. She flipped; we bonded.

Most communication -- personal and broadcast/marketing -- is unauthentic. It's sterile and apathetic. People are lazy, and their communication shows. It reminds me of two sage thoughts:

Matthew Arnold: Have something to say and say it as clearly as you can. That is the only secret of style.

Strunk and White (The Elements of Style,
Rule 17. Omit needless words): Vigorous writing is concise. A sentence should contain no unnecessary words, a paragraph no unnecessary sentences, for the same reason that a drawing should have no unnecessary lines and a machine no unnecessary parts. This requires not that the writer make all his sentences short, or that he avoid all detail and treat his subjects only in outline, but that every word tell.
Back to my lunch. We dug deeper into the authenticity of people, their actions, their sincerity, and their communication. My new friend -- a fellow Sacramento Entrepreneurship Academy Board member -- created a presentation for the SEA Showcase introducing and elucidating the African philosophy of ubuntu, which focuses on people's relations and allegiances with each other, and the authenticity of their interaction. She quoted Demond Tutu:
A person with ubuntu is open and available to others ... affirming of others ... does not feel threatened that others are able and good ... for he or she has a proper self-assurance that comes from knowing that he or she belongs in a greater whole.
A greater whole. I had lunch this week with a CFO of a Fortune 500 company. His grand compliment of an entrepreneur he backed was his combination of persistence and his all-about-the-company allocentric attitude. Big pie, small slice. The entrepreneur played, played hard, and it was all about the greater good, not his self interest.

My new friend's SEA presentation continued, quoting my dad's many moons ago commencement talk to the Academy:
You will only find both satisfaction and success if you play at the process.
My heart strung, her presentation continued (quoting my dad):
I ask that you join a team of artists. I suggest that you and this team of artists play at the art of business. Please play.

This sucks; I've gotta have it

I've been awol for too many moons; big time remorse and no excuses. In a word, abandoning the blog sucks (though, of course, no one needs to have it). Which leads me to a cool story.

I enjoyed a thoughtful talk at UCD last week by Paul Hudnut, founder and director of Envirofit. Like most talks by accomplished, give-a-shit entrepreneurs, it was insightful and eye-opening. Among many sage observations, Paul opined that not every idea is a good idea, and not every opportunity is worth pursuing. Entrepreneurs who can distinguish an opportunity from a problem -- and, of course, act on it -- are, well, entrepreneurs. Good stuff.

Other meaningful morsels:

  • Make money by making meaning (quoting The Great Kawasaki)
  • Ask yourself: Are my goods good and do my services serve?
  • Create a company that, no matter how much it grows, it will be a good thing.
  • The average age of the founders of Google, Microsoft and Yahoo! was 23. Cool.
Paul believes great entrepreneurs are driven by two observations:
  1. This sucks.
  2. What are we going to do about it?
The former sans the latter means little -- it's easy to bemoan what "sucks" without doing anyting. As Paul emphasized, the combinatorial magic is to identify what sucks, and then create a team to act upon it. I agree, but I think a more lucrative combination is the ID of what sucks in concert with an understanding of people -- not artificial, bschool-esque segments -- who convey the magic words: I've gotta have it. When you hear this, bottle it and run. Fast.

Identifying what sucks is the ante to starting a company. Unfortunately, most entrepreneurs either do not act or apathetically sell to a want; many wants are perceived to be needs. The combinatorial trifecta is to figure out what sucks, identify gotta have needs, and then marshal a team to figure out the problem, fill the needs, and monetize the opportunity.

If you balk on one of the three, you're doomed for mediocrity (or a vocational exercise).

Monday, April 7, 2008

Who cares?

I created a seminar this weekend for delivery tomorrow to Venture Island entrepreneurs, 90 minutes of blah-blah about creating a kick-ass sales and marketing strategy. I dusted off a few old presentations, reshuffled slides, customized the content for the audience, and wrapped it in a bow. Should be fun.

One of my slides erroneously opined a CEO’s primary job is sales: Customers, partners, employees, investors, etc. Makes sense, but I was off mark. The paramount responsibility and challenge for an entrepreneur (or anyone who’s trying to lead a cause) is to get people to care.

Everyone is solicited, every day. Buy this, go here, invest there, attend this, support that. Requests for our time, interest and participation. I received such an email from the Sacramento Entrepreneurship Academy this weekend, engaging board members to spread the word about the Academy's annual Showcase. Because I care about the organization -- I'm personally, emotionally, historically and benevolently committed -- it was a no-brainer; I acted.

Back in August we touched on the imperative of getting people to care in a post, Be relevant. A snapshot:

What is relevance? To me, it’s getting people to care by generating value and interest and demand and intrigue and inspiration. It’s about creating and stoking a bonfire, one with ever-growing visibility and a desirability to participate. It's encapsulated in one of The Cluetrain Manifesto's theses: Companies that do not belong to a community of discourse will die. It’s hands down the paramount challenge CEOs face.

Relevance matters only in the minds of your constituents; it’s their perception, period, that counts. And, all stakeholders count: Customers, prospects, partners, shareholders, employees, analysts, competitors … your entire ecosystem. It’s doing something – a lot of things – to edge people to the front of their chair, to raise an eyebrow, to engage a phone call, to elicit an, “I’ve gotta do something -- invest, buy, partner, work, lead, support – with this company," action.

Fostering relevance is an (check that: the) ante to success. The rest – the blocking and tackling of business – is easy and boring. If you’re not relevant – if you can’t get key constituencies to care – move on. Treading water in an empty pool is painful for all involved.
In another post, Ode to Arco, we shared a post-script from an interview Marc Andreessen did with one of his entrepreneurial heroes, Stephen Wolfram. Here's a taste:
People have different motivations, of course. A lot of people think the big thing with companies is money.

Yes, if you luck out, you can make a lot of money. But it's really rare that money carries people as a motivation.

You have to actually care about what you're doing.

For some people, like me, it's the actual creative content that they care most about. For other people, it's the act of building the company. For others, it's making deals. Or winning against competition.

But there has to be something you really care about.

Back to the Be relevant post. It was sparked by an over-a-beer conversation with a comrade about a local publicly traded software company. Here's a recap:
What’s up with them? Earnings are lagging. Stock price’s flat. Growth has stagnated. The CEO’s fried. A recent acquisition fell apart. The CTO bolted. They’re running out of cash. They’re too small to be public. The board’s unhappy. Analysts don’t care. It was a standard, morbid diagnosis of a limp-along company.
At the time, the stock languished in the low twos. Today, it's trading at $6.60. The company is relevant; people care. In this case (of a public company), results = relevance. If only I cared enough to buy the stock.

Friday, April 4, 2008


I do not remember the first time I rode a bike, nor my first coast on a skateboard. My memory of my first downhill ski experience – outside the wedge of my dad -- is vivid. Squaw Valley on a Saturday, tips pointed (snow-plowed) downhill, the exhilaration of mass*velocity, tears streaming and wind howling. It was cool.

Though I have not been skiing for a few years, I rekindled my first two-board experience yesterday during a meeting with an over-excited entrepreneur. The meeting/entrepreneur was not great, but not too bad. The not-too-bad: Zealous research, hyperactive intensity, ferociously competitive spirit. The not great: Unrealistic expectations, defensive attitude, incredible lack of focus (Emerson: Concentration is the secret of strength), loathe of VCs, his ferocious (to a fault) spirit, and a failure to commit. The analysis was superb, the paralysis paralyzing.

Today I met with a retired biotech exec who flipped the coin. He was so committed to his last company – in biotech, the more time you spend in the office, the less you get done – that he quit. Quality of life trumped weeks of biz dev on the road. He got out there, into the field, and made it happen, taking his company public and enriching its market cap.

The reddest of cardinal entrepreneur flags is commitment. Not in an emotional sense – most all entrepreneurs are passionate, curiously crazy and on-the-surface committed – but in a get out there and do it manner. Ilka Chase: The only people who fail are those who never try.

To be an entrepreneur, you must take risks; writing a plan, theorizing a model, raising money, and moonlighting a venture are stall tactics to doing it. You don’t know what you don’t know, and you’ll only find out once you get in the game. Your model will change, your strategy will shift, and your assumptions will waver.

Whether riding a bike, skating a skateboard, skiing downhill, or running a business, it’s much easier to change directions when you’re moving. Until you move, you’re practicing mental masturbation to the benefit of no others.

Wednesday, March 26, 2008

POTW: The Psychology of Entrepreneurial Misjudgment

The Great Andreessen is at it again, tendering our post of the week: The Psychology of Entrepreneurial Misjudgment. Therein he adapts, for entrepreneurs, 25 biases identified by Charlie Munger, Warren Buffett's long-time partner and Vice-Chairman at Berkshire Hathaway. They're (we're) singing our (their) song. It's a worthy and meaty read ... take 10 minutes to dig in. In the interim, here's a digest of the biases posted by Venture Hacks:

1. Reward and Punishment Super-Response

Once you realize how much incentives influence human behavior, you need to assume their influence is even bigger than you think. Never think about something else when you should be thinking about incentives. Benjamin Franklin: “If you would persuade, appeal to interest and not to reason.”

2. Liking and Loving
Liking and loving something conditions you to (1) ignore faults of and comply with wishes of the loved, (2) favor people, products, and actions associated with the loved, and (3) distort other facts to facilitate love. Wanting to be liked by your teammates impedes you from firing people and making unpopular but good decisions.

3. Disliking and Hating

Disliking or hating something conditions you to (1) ignore virtues in the disliked, (2) dislike people, products, and actions associated with the disliked, and (3) distort other facts to facilitate hatred. Startups should focus on their customers, not their competition—whom they may dislike.

4. Doubt Avoidance

Execution is often better than further contemplation. George Patton: “A good plan, violently executed now, is better than a perfect plan next week.” Believing that something will happen, and convincing others that it will be so, makes it more likely to happen.

5. Inconsistency Avoidance

Have strong opinions, weakly held. New and correct ideas may not be accepted simply because they are inconsistent with existing ideas. Your existing ideas may be unknown to you. They may be hidden assumptions. We often make hidden assumptions about unknown unknowns. If existing customers in the market aren’t ready for a product that is inconsistent with their behavior, go after customers who aren’t in the market because they can’t afford the existing product or don’t have access to it.

6. Curiosity
Insufficient curiousity prevents you from learning. Hire curious people and discover your customer’s true needs—not what you think they need.

The clash of Kermit and Kleiner

I met with a friend yesterday who is navigating the formative financing steps of a promising green-tech company. The venture is buoyed (big time) by an affinity angel, and they’re at a critical how-to-grow juncture. Our conversation harkened a terrific special section in Monday’s WSJ, ECO:nomics, Creating Environmental Capital (click here to peruse the Journal's new Environmental Capital blog). The 18-page pullout is loaded with thoughtful interviews, including one with Kleiner Perkins Partner John Doerr. A brain-buzzing excerpt:

So what’s very attractive about the green technologies is the markets are enormous. The Internet market, $100 billion or so; the energy market, $6 trillion. This is the mother of all markets.
Kermit the Frog, ever the contrarian (or lovable curmudgeon), chimes in (in my brain, not the article), amplifying the challenge environmentalists and ecopreneurs face:
It's not that easy being green
Having to spend each day the color of the leaves
When I think it could be nicer being red, or yellow or gold
Or something much more colorful like that

It's not easy being green
It seems you blend in with so many other ordinary things
And people tend to pass you over 'cause you're
Not standing out like flashy sparkles in the water
Or stars in the sky
Wait, Kermit, what gives with the outcast, Eyeore-like tone? Being green is contemporaneously cool and prospectively lucrative, a chance to do good and make money, en la madre de mercados grandes. Kermit’s melancholy rings of social alienation and the challenge of individuality.

Doerr counters:
But the wonderful thing about working in green technologies is you can do work that’s successful and also significant. You can help engineers and scientists build great companies that will innovate fuels or batteries or storage, or even more immediately, that can enable all of us to conserve, to be more efficient.
By now Kermit is catching on, swayed by the power and influence and green of Doerr the capitalist. He continues:
But green's the color of Spring
And green can be cool and friendly-like
And green can be big like an ocean, or important
Like a mountain, or tall like a tree

When green is all there is to be
It could make you wonder why, but why wonder why
Wonder, I am green and it'll do fine, it's beautiful
And I think it's what I want to be

Friday, March 21, 2008


We are in the formative phase of launching an early-stage investment fund, as scooped by The Business Journal today. Like most everything in private equity, it’s far from benevolent: The purpose is to maximize investment returns for our limited partners, who invest because – primarily – the see the fund as a superior vehicle, vis-à-vis other investment alternatives, to make money.

Our fund, though, is a bit different. It is not a pure venture capital fund, nor a social capital variety. Instead, we’re seeking to organize and institutionalize the latency of individual investors and promising companies in overlooked markets.

Investors first: Individuals in our investment chapters (e.g., the greater Chico, Davis, Sacramento, North Bay and Monterey/Santa Cruz regions) have had few, if any, opportunities to invest in a diversified private equity fund, particularly one that focuses on their community. Companies in such communities have limited access to growth capital and resources. We bridge the market inefficiency by organizing and connecting growth capital with promising companies.

If we are successful in raising the fund and executing our investment thesis, a few cool things occur. First, wealth – that oftentimes is reinvested – will be created, both for our limited partners and the companies we back. Second, entrepreneurs will replicate. It’s trite to say, but success sires success and communities prosper. Dollars, entrepreneurs, investors and ideas will recycle. Trust too.

The formalized grassroots approach we’re deploying in overlooked markets is a bit old fashioned. In pre-Arthur Rock (one of the first VCs) days, companies raised private equity through relationships, via a handshake, and based both on the potential investment returns and the investor’s affinity for the entrepreneur’s endeavor. You have an idea and a commitment to work hard, I have money. Hand-scribbled terms on napkins, versus treatise-length term sheets, sufficed.

Which brings me to credere, the Latin phrase meaning, to believe or trust. As the WSJ shared a few weeks ago in an opinion piece, to have “credit” in a community meant that you could be trusted to pay back your debts.

Too often venture investing – viewed from both sides of the table – turns in to an us against them, adversarial relationship. VC firms have a responsibility to their LPs to maximize the return on their investment. Companies are committed to growing their enterprise. Sometimes (lots of times), dissonance over the direction of the company trumps trust. The same holds true for most any relationship, business or personal: opinions differ, communication dissipates, and trust erodes.

Back to our prospective fund. We will be as diligent and formal (legally) as any investor; ‘tis the proper thing to do, and we have a responsibility to our investors. Aside from playing the traditional game, I believe we have a sound opportunity to strengthen trust – and potential returns for all – between investors and entrepreneurs. This begins, of course, by aligning interests and motivations, and ensuring communication is clear, candid and consistent.

More importantly, the commitment theory will play a role in our alignment and connection of local investors with local companies. Trust is easier to breed and more difficult to break if and when it’s galvanized in your community. Bob the entrepreneur coaches Joe the investor’s son’s Little League team. They mingle Fridays at Rotary luncheons, bump in to each other at the local farmer’s market, and may work out at the same gym. The entrepreneur and investor are aligned professionally and personally.

The aforementioned WSJ piece profiled Muhammad Yunus’s microfinance venture, Grameen Bank. Though his is a different business than venture capital, there are parallels:

“I use to say this in my speeches: Look at the world, how funny it is. They took the word credit which means trust, and built a whole edifice of credit institutions, refined, very sophisticated, entirely based on distrust. [At Grameen] we went back to the original meaning of credit.”

Thursday, March 20, 2008

Money on the table

If doing statistics is like eating paste, pricing is analogous to chomping on Crayons. A bit tastier, but still sticky-mouth dry. While it’s easy to chomp on a few Crayons – my five-year-old son’s class is evidence – doing pricing (and doing it well) is hard. Very hard. My soiree through several dozen bplan presentations last week was evidentiary.

When companies build financial models they block and tackle through a great majority of their model building. It’s like math: Apply logic, assumptions and comparables into a template, with equations, and you’re set.

Pricing is different, and it’s confusing. Warren Buffett had a great line: Price is what you pay, value is what you get. Paradoxically, Buffett highlights the root of most company’s pricing strategy misfortunes.

Cost-plus pricing is the most common strategy. It costs me a quarter to make a bagel, I’d like to make 35 cents per bagel, and thus I charge 60 cents. Most companies do this, with a dash of comp-based pricing tossed in for good measure: If our competition is charging 60 cents, we’ll charge the same (or a few cents less). During last week’s myriad presentations, company after company took this approach.

Which is logical, but it’s an apathetic way to march forth. Smart companies employ a value-based pricing strategy. They understand value by focusing on what people are trying to do, not what they say they wish they were doing. They aim to master the current problems or critical priorities of their most viable (and underserved) customer segments. Textbook stuff, but it takes a lot of work.

Simply stated, your solution is worth what a customer is willing to pay. In B2B environments, it can be determined via a simple equation:

Worth (what a customer will pay)
Economic Gain
Strategic Value

[Perceived Risk]

Nail this algorithm and you will not only remove the Crayon crust from your mouth, but also ensure you do not leave money on the table.

Wednesday, March 19, 2008

POTW: An hour and a half with Barack Obama

My friend Matt likes to raise a flag -- particularly in or on his way to a state of inebriation -- when any or all of the three P's (political, personal, philosophical) are tendered. In this humble forum, I've been a bit too personal, a tad philosophical, but rarely political; if our discourse surrounds creativity, entrepreneurship, and innovation, it's tough to bridge politics.

As of yesterday, I stand corrected thanks to Barack Obama's speech on race in America and a Post of the Week (of the year?) from The Great Marc Andreessen. Obama, to me, is an entrepreneurial, creative and innovative candidate. Here's a taste of Andreessen's An hour and a half with Barack Obama:

I've tried very hard to keep politics out of this blog -- despite nearly overpowering impulses to the contrary -- for two reasons: one, there's no reason to alienate people who don't share my political views, as wrong-headed as those people may clearly be; two, there's no reason to expect my opinion on political issues should be any more valid than any other reader of what, these days, passes for the New York Times.

That said, in light of the extraordinary events playing out around us right now in the runup to the presidential election, I would like to share with you a personal experience that I was lucky enough to have early last year.

Early in 2007, a friend of mine who is active in both high-tech and politics called me up and said, let's go see this first-term Senator, Barack Obama, who's ramping up to run for President.

And so we did -- my friend, my wife Laura, and me -- and we were able to meet privately with Senator Obama for an hour and a half.

Andreessen then details his meeting with Obama, encapsulated through four lasting impressions:

First, this is a normal guy.

Second, this is a smart guy.

Third, this is not a radical.

Fourth, this is the first credible post-Baby Boomer presidential candidate.

He then ties the tales together (read the entire post ... it's terrific):

Smart, normal, curious, not radical, and post-Boomer. If you were asking me to write a capsule description of what I would look for in the next President of the United States, that would be it.

Having met him and then having watched him for the last 12 months run one of the best-executed and cleanest major presidential campaigns in recent memory, I have no doubt that Senator Obama has the judgment, bearing, intellect, and high ethical standards to be an outstanding president -- completely aside from the movement that has formed around him, and in complete contradition to the silly assertions by both the Clinton and McCain campaigns that he's somehow not ready.

Post-script (19 Mar 08): I apathetically did not share a sampling of Obama's oratory excellence ... here's how his speech commenced:

"We the people, in order to form a more perfect union."

Two hundred and twenty one years ago, in a hall that still stands across the street, a group of men gathered and, with these simple words, launched America's improbable experiment in democracy. Farmers and scholars; statesmen and patriots who had traveled across an ocean to escape tyranny and persecution finally made real their declaration of independence at a Philadelphia convention that lasted through the spring of 1787.

The document they produced was eventually signed but ultimately unfinished. It was stained by this nation's original sin of slavery, a question that divided the colonies and brought the convention to a stalemate until the founders chose to allow the slave trade to continue for at least twenty more years, and to leave any final resolution to future generations.

Of course, the answer to the slavery question was already embedded within our Constitution - a Constitution that had at its very core the ideal of equal citizenship under the law; a Constitution that promised its people liberty, and justice, and a union that could be and should be perfected over time.

And yet words on a parchment would not be enough to deliver slaves from bondage, or provide men and women of every color and creed their full rights and obligations as citizens of the United States. What would be needed were Americans in successive generations who were willing to do their part - through protests and struggle, on the streets and in the courts, through a civil war and civil disobedience and always at great risk - to narrow that gap between the promise of our ideals and the reality of their time.

This was one of the tasks we set forth at the beginning of this campaign - to continue the long march of those who came before us, a march for a more just, more equal, more free, more caring and more prosperous America. I chose to run for the presidency at this moment in history because I believe deeply that we cannot solve the challenges of our time unless we solve them together - unless we perfect our union by understanding that we may have different stories, but we hold common hopes; that we may not look the same and we may not have come from the same place, but we all want to move in the same direction - towards a better future for our children and our grandchildren.

Friday, March 14, 2008

The book

I had a challenging meeting the other day with a team of 16 comrades seated in a semi-circle. We had a simple agenda, few rules, and one objective: Author, illustrate and publish a 32-page book. And, do it in Spanish. Eyes sparkled, hands rose, and questions were posed. Tasked with minimal direction – you can write about and illustrate anything you want -- the team scurried to their workstations and commenced work.

And work they did with nary a whine. Forty minutes later, we had the foundation of our product: Sixteen takes for the story’s introductory page, accompanied by a like number of brilliant illustrations. It was an amazingly productive and creative experience.

The coolest aspect was the lack of fear, particularly given the embryonic (to all) journey. The team put pencil and pen to paper and produced. In a few months through 15 similar sessions, a book will be produced. We will publish it and a team of 16 first-time authors will have a tangible product for the collaborative work. Not bad for a gaggle of eight- and nine-year-olds (my son’s third grade Spanish immersion class).

It was a wonderful yes, and …, non-conformist experience, and I chortle to think about a gaggle of adults embarking on a similar journey. Exception-ridden thinking would rule. I can hear Eyeore: We’re never going to get there. We’ve never created a book; we’re not authors, let alone illustrators. How are we going to orchestrate a story with 16 different authors? Where do we start? What are the rules? What if I can’t think of anything?

The kids were the opposite. Can I write about a purple dragon and a princess? What if I come up with two pages, not just one? How many characters can I have? My tribe of children had not been normalized to moan about how and why they could not do it; they just did it.

Post-script (17 March 08): The book begins, thanks to eight-year-old Kyle's contribution (please excuse the lack of accents) ...

Habia una vez un niño. Este niño estaba en las oscuridad completa. Estaba soñando en su dormitorio. Era completamente negro. De repente, el suelo debajo de su cama comenzo a temblar. Las paredes comenzaron a romperse y a caerse. Muy pronto formo un hoyo alrededor de la cama del niño. El niño se desperto en panico. Se rompio por fin el suelo directamente debajo de su cama, y el niño se cayo tambien.

Wednesday, March 12, 2008

Now presenting

I am drowning in business plan bake-offs and investor presentations this week. BigBang! (UC Davis' business plan competition) executive summary review Monday, Golden Capital Network's West Coast VC Conference (44 cool companies; participated in two investor panels) Tuesday, UCD's Center for Entrepreneurship/Graduate School of Management's Business Development Clinic (seven presenting companies) tonight, a two-hour session with 17 Venture Island Chico contestants tomorrow eve, and Saturday morning with the Sacramento Entrepreneurship Academy (six teams pitching their companies to the board). Cool stuff.

With visions of PowerPoints dancing in my head, a few observations from the Golden Capital conference:

  • Lens: The venture-capital-or-bust mindset of many companies (and most all investors) is not healthy. If there's a there there (a business), the question should not be, Can I raise venture capital?, but instead, What's the most effective way to raise money to grow my business? Build the business and the money will come.
  • Fatheads: When you play golf or hoop with someone who's good, their game does the talking. IBID for investors; I had the pleasure of sitting on panels with private equity pros from Blumberg Capital, Khosla Ventures, and The Band of Angels, among others. Good, genuine folk sans an air of self importance. The reverse is true for fatheads: VCs who hoist their nose in the air and speak in non-deserving, demeaning, if you only knew what I know because I'm a VC and you're not tone. As my friend Anthony observed (of one such FH): He's proud of something.
  • Presentations: Too much info, too little time, too few stories. It's predictable. A few echoes:
    • I don't know if you can see the chart ... (if the audience can't see/read/absorb it, do not use it).
    • This slide is a bit confusing ... (abort the slide if it's apt to confuse).
    • Our projections are conservative ... (if so, what are your true assumptions?).
    • I won't even try to go through this ... (they why even try/show the slide?).
The most effective (and memorable) presentations were (are!) those that commenced with a handful of key points (say, three-to-five), transitioned into a story (ideally employing analogies, metaphors, parables, visual aides ... anything that helped the audience relate and remember), and then wrapped with the three-to-five key points. Such companies talked about the hole they are drilling, not the drill they're creating, and how and why it's a gotta have for customers.

A few of my favorites/companies to watch: Insera Therapeutics (a medical device to cure strokes), HauteSpot Networks (wireless broadband for secure video delivery), Zero Motorcycles (quiet, light, cool dirt bikes), Vitalea (micro-dosing in humans for clinical trials), Pediatric BioScience (diagnostics for autism in children), BazuMedia (mobile messaging for races and events; awesome), and Gydget (a cool social marketing platform; we voted it "best of show").