Good post by Rebecca Weeks. Also my friend, Jai, is quoted in this piece.
Similar to my post a couple months ago in response to Paul Graham's blog post, "Why Aren't There More Googles and Bold VCs?"
Showing posts with label VCs. Show all posts
Showing posts with label VCs. Show all posts
Thursday, June 26, 2008
Friday, May 23, 2008
"Why Startups Fail?"... Additional Thoughts
David Feinleib at Mohr Davidow Ventures has a good blog post, "Why Startup Fail?"
Signal & Noice, 37signals' blog, has a response, 'How "Why Startups Fail" Fails' with some good points but seems narrowly focused on software/web2.0 companies. The startup world is far bigger than software.
Here are some additional factors to consider and be aware of:
Breakdown in Team Chemistry. Since the first tech boom, I've seen or heard of many startup failures due to the breakdown of a founding team's chemistry. Ego wars, people not really knowing each other beforehand, greed, and other factors lead to a breakdown in chemistry which leads to a loss of time, resources, and execution ability.
Bad VCs. This happens, but you don't hear about it often since entrepreneurs don't want to burn bridges and venture capitalists hold the upper position. Well, not until The Funded was started and more stories were leaked. Yes, some of those stories are just bitter CEOs that were deservingly ousted or incapable founders that were thrown out, but there are some really useless VCs out there that hinder a startup's growth. Also I am not inferring that the end result always are founders or early employees getting pushed out. Bad VCs can simply lead a company to its death as everyone stays on board.
Don't raise enough capital or lack of capital at the early stage. Paul Graham wrote about this and I followed up on the funding gap that is in the market. After the initial seed capital, some startups really need an additional $300,000 to $2 million to take their company to a tangible level. Not everyone has money from before, a bunch of investment banker friends, or a rich uncle that can pump in a few hundred thousand or a few million to start off a company. I've seen all three of these scenarios happen to start off or save a company, and I run into many companies today that need one of these scenarios.
Also not all startups are software companies. Some are microchip companies, biofuel companies, and hardware component companies. Many of these types of startups take a fair amount of seed capital to just get a prototype created.
Last, some of your competitors have access to a lot of cash and close huge seed rounds (i.e. some startups get seed rounds of $5M+), which can put your company at a disadvantage.
There is no market. This is a reality that some entrepreneurs have to face. There is no market for your product. Just move on and do your next thing.
Signal & Noice, 37signals' blog, has a response, 'How "Why Startups Fail" Fails' with some good points but seems narrowly focused on software/web2.0 companies. The startup world is far bigger than software.
Here are some additional factors to consider and be aware of:
Breakdown in Team Chemistry. Since the first tech boom, I've seen or heard of many startup failures due to the breakdown of a founding team's chemistry. Ego wars, people not really knowing each other beforehand, greed, and other factors lead to a breakdown in chemistry which leads to a loss of time, resources, and execution ability.
Bad VCs. This happens, but you don't hear about it often since entrepreneurs don't want to burn bridges and venture capitalists hold the upper position. Well, not until The Funded was started and more stories were leaked. Yes, some of those stories are just bitter CEOs that were deservingly ousted or incapable founders that were thrown out, but there are some really useless VCs out there that hinder a startup's growth. Also I am not inferring that the end result always are founders or early employees getting pushed out. Bad VCs can simply lead a company to its death as everyone stays on board.
Don't raise enough capital or lack of capital at the early stage. Paul Graham wrote about this and I followed up on the funding gap that is in the market. After the initial seed capital, some startups really need an additional $300,000 to $2 million to take their company to a tangible level. Not everyone has money from before, a bunch of investment banker friends, or a rich uncle that can pump in a few hundred thousand or a few million to start off a company. I've seen all three of these scenarios happen to start off or save a company, and I run into many companies today that need one of these scenarios.
Also not all startups are software companies. Some are microchip companies, biofuel companies, and hardware component companies. Many of these types of startups take a fair amount of seed capital to just get a prototype created.
Last, some of your competitors have access to a lot of cash and close huge seed rounds (i.e. some startups get seed rounds of $5M+), which can put your company at a disadvantage.
There is no market. This is a reality that some entrepreneurs have to face. There is no market for your product. Just move on and do your next thing.
Friday, May 2, 2008
Why Are Some VC Associates Tools?
Recently I've had several discussions with my friends that are entrepreneurs and VCs about some of the amusing but stupid behavior or arrogance of associates at venture capital firms. For those of you that don't know, associates are the the mid-level professionals at VC firms, who are typically recent MBA graduates.
For some reason, a small percentage of this group don't represent their firms well. One of my friends was telling us about one associate that was stating that he could tell whether a startup was worth investing in within 10 seconds of a presentation. Really? You can assess the technology, team and market of all startups within 10 seconds? He should be on Jeopardy, not a VC. The amusing part about this story was that he went on to found a company that was mediocre at best.
Another friend was telling me how during a pitch one associate had his head buried in his Blackberry typing away, so this seasoned entrepreneur stopped and loudly told him, "Excuse, you should stop being rude. Did you know that I'm childhood friends with your partner?"
The associate immediately stopped and paid attention. Tool.
One story had an associate chiming in with stupid questions, so the partner in the meeting politely asked him to get some coffee for those in the meeting. This happened twice. I assume he didn't last long at this firm.
For some reason, a small percentage of this group don't represent their firms well. One of my friends was telling us about one associate that was stating that he could tell whether a startup was worth investing in within 10 seconds of a presentation. Really? You can assess the technology, team and market of all startups within 10 seconds? He should be on Jeopardy, not a VC. The amusing part about this story was that he went on to found a company that was mediocre at best.
Another friend was telling me how during a pitch one associate had his head buried in his Blackberry typing away, so this seasoned entrepreneur stopped and loudly told him, "Excuse, you should stop being rude. Did you know that I'm childhood friends with your partner?"
The associate immediately stopped and paid attention. Tool.
One story had an associate chiming in with stupid questions, so the partner in the meeting politely asked him to get some coffee for those in the meeting. This happened twice. I assume he didn't last long at this firm.
Tuesday, April 29, 2008
"Should VCs Replace Founders in a Downturn?"
Yahoo! Finance's Sarah Lacy interviews Sharon Wienbar of Scale Venture Partners and Pascal Levensohn of Levensohn Venture Partners. Webpage and comment string here.
I met Pascal a couple times through the Aspen Institute, and you can read his blog here.
I met Pascal a couple times through the Aspen Institute, and you can read his blog here.
Wednesday, April 16, 2008
Why Aren't There More Googles and Bold VCs?
Paul Graham wrote a good post initially commenting on Umair Haque's question on why there aren't more Googles and then examining the today's VC climate, which generated some buzz. First, as Paul stated, Umair's premise was incorrect. Google almost sold to Excite for what I read was $1.3 million versus their offer about $900,000 back in 1999. John Battelle's book stated $1.6 million was the asking price versus $750,000. Either way, imagine if Excite.com actually bought Google back then? My wife's employer and a major innovation engine in Silicon Valley wouldn't exist at all today.
I agree with Paul's assessment of venture capitalists:
Whoever the next Google is, they're probably being told right now by VCs to come back when they have more "traction."
Why are VCs so conservative? It's probably a combination of factors. The large size of their investments makes them conservative. Plus they're investing other people's money, which makes them worry they'll get in trouble if they do something risky and it fails. Plus most of them are money guys rather than technical guys, so they don't understand what the startups they're investing in do.
Many of them that state they are seed-stage VCs really aren't. How many times have entrepreneurs heard, "Well, come back to us when you have 500,000 or 1 million users... come back when you are profitable..."?
I do understand on the flip-side that it is cheaper to build a company today versus the boom times, so it could be easier to wait for tangible evidence of an entrepreneur's vision but where is the "risk" in risk capital?
I agree with Paul that there is this gap in the current landscape of startups that need $300,000 to under $2 million, and that VCs should play in this market. Not all but the ones that position themselves as seed or early-stage firms should evolve to support this place in the market because it is needed. I run into so many entrepreneurs that are in this limbo stage which needs to be addressed, so it will be interesting to see how this gap is filled.
I agree with Paul's assessment of venture capitalists:
Whoever the next Google is, they're probably being told right now by VCs to come back when they have more "traction."
Why are VCs so conservative? It's probably a combination of factors. The large size of their investments makes them conservative. Plus they're investing other people's money, which makes them worry they'll get in trouble if they do something risky and it fails. Plus most of them are money guys rather than technical guys, so they don't understand what the startups they're investing in do.
Many of them that state they are seed-stage VCs really aren't. How many times have entrepreneurs heard, "Well, come back to us when you have 500,000 or 1 million users... come back when you are profitable..."?
I do understand on the flip-side that it is cheaper to build a company today versus the boom times, so it could be easier to wait for tangible evidence of an entrepreneur's vision but where is the "risk" in risk capital?
I agree with Paul that there is this gap in the current landscape of startups that need $300,000 to under $2 million, and that VCs should play in this market. Not all but the ones that position themselves as seed or early-stage firms should evolve to support this place in the market because it is needed. I run into so many entrepreneurs that are in this limbo stage which needs to be addressed, so it will be interesting to see how this gap is filled.
Saturday, February 16, 2008
CrunchBase... Great Directory of the Startup World
It's been a few months since I last visited CrunchBase, but it's turning out to be a very comprehensive directory of tech startups and their investors. I don't know when they changed their homepage, but I like it and how they position themselves.
The only other attempt I've come across is StartupSearch, and it just doesn't measure up to TechCrunch's CrunchBase. If you go to the VCs pages, they have great overviews of their investments (i.e. total amount, participants). Check it out.
The only other attempt I've come across is StartupSearch, and it just doesn't measure up to TechCrunch's CrunchBase. If you go to the VCs pages, they have great overviews of their investments (i.e. total amount, participants). Check it out.
Monday, December 3, 2007
SHADINESS OF SILICON VALLEY... A WEST COAST THING?
It's been over three years since Christine and I moved to the Bay Area. We love it here. The wealth of outdoor activities, the weather, friends we've made, and the work that we do. We like how a fair amount of the people are unpretentious here. In NYC, the wealthy tend to flaunt their money. In Silicon Valley, you might never know a multi-millionaire by appearances.
Also the first question many people ask in NYC is, "What school did you go to?" Harvard? UPenn? This is to gauge your possible social status. In Hong Kong the first question is, "Where do you live?" Mid-levels? Discovery Bay? This is to gauge your wealth. Outside of conferences and tech seminars, I haven't experienced a common question that people ask to measure others by. But there is a shadiness in Silicon Valley that I have come to experience in my three short years here.
One interesting characteristic is how many people tend to overstate their relationships. This is a different experience from growing up in the Midwest where you generally state if someone is your friend or acquaintance. In Silicon Valley, everyone is good friends with everybody. So you might hear, "Mike Moritz? I'm friends with him. Great guy. Really great guy..." (met him once at a conference.)
"Ron Conway. Yeah, I got an email that his nephew is sick..." (random email forward about "a prominent angel investor's" nephew.)
"Larry and Sergey? I'm good friends with them. I knew Larry from Michigan..." (sat in an engineering course with Larry and 300 other students)
This characteristic also transfers into stated business relationships.
"Yeah, Cisco is our partner for an upcoming project. Huge deal for us..." (startup is a bronze sponsor of a trade show while Cisco is the platinum sponsor)
"Microsoft has just signed up to be our channel partner. Our sales team is very excited." (just signed up on Micrsoft's adCenter to advertise their startup's products)
I was speaking with one of my friends, who is a movie director, about some of these encounters I had.
He replied, "I bet it's nothing compared to the movie industry. You get this down in LA all the time. You don't know how many producers I've met who say they know this person or have an 'in' with this company... Then you find out that the person they 'knew so well' was only one email conversation.
As one of my mentors told me a while back, 'Hollywood is the one place where you mix Ivy Leaguers and the scum of the earth, but the music industry is where you get the scum of the earth and the scum of the earth.'"
I have wondered what drives people to tell such lies or exaggerations because the world is so small and you're bound to meet someone who is actually good friends with your "supposed" friends and knows that you are not. Or meeting a person who knows someone at the company and division you supposedly have a partnership with. I wonder if these people follow George Constanza's worldview where he tries to keep separate social circles but inevitably panics when his worlds collide!
Another common conversation I have encountered is this odd obsession with whether your startup is "venture-backed." It has gone beyond my ten toes and fingers the amount of times I've heard someone emphasize the words "venture-backed" to me.
"Yes, I was at so-and-so company, which was VENTURE-BACKED."
"I worked at this VENTURE-BACKED startup a few years ago..."
"So was your startup VENTURE-BACKED?"
Through my ten fingers and counting, I was bewildered by this obsession. It seemed to me that it was a bunch of peacocks showing their feathers to other peacocks. From my small world and experience, I assumed that if you're doing a startup that you would be backed by someone whether an angel or VC.
So in a typical conversation where I would explain my background, I would simply state, "Yeah, I was involved in a couple startups..."
A fair amount of times, this would be a calling for people to ask me, "Where these venture-backed?"
It was like the scene out of Austin Powers where Fred Savages's character's mole gave Austin an irresistible urge to say, "Mole. Bloody mole!..."
Try this some time. If you simply say "startup," I estimate that it would be a two in ten chance (if the person doesn't know you) that they will ask "VENTURE-BACKED?"
Anyway, by the time this repeated conversation reached my toes, I realized that not all startups have funding from venture capitalists. Similar to the Hollywood scene where so many people have a movie script or "working on a cool TV project," there are people with a business plan or product without smart money backing them or even zero money. So my bewilderment died and I had to taper my amusement, but I still wondered about this drive for people to overstate relationships and trying to separate themselves from the "chaff."
From these encounters and the comparisons with Hollywood, I began to wonder if these characteristics were industry related or a general West Coast thing? Of course I am not stating that this is reflected by a majority of the people, but enough to recognize that these traits are more prevalent in Silicon Valley and Hollywood than in other regions.
Also the first question many people ask in NYC is, "What school did you go to?" Harvard? UPenn? This is to gauge your possible social status. In Hong Kong the first question is, "Where do you live?" Mid-levels? Discovery Bay? This is to gauge your wealth. Outside of conferences and tech seminars, I haven't experienced a common question that people ask to measure others by. But there is a shadiness in Silicon Valley that I have come to experience in my three short years here.
One interesting characteristic is how many people tend to overstate their relationships. This is a different experience from growing up in the Midwest where you generally state if someone is your friend or acquaintance. In Silicon Valley, everyone is good friends with everybody. So you might hear, "Mike Moritz? I'm friends with him. Great guy. Really great guy..." (met him once at a conference.)
"Ron Conway. Yeah, I got an email that his nephew is sick..." (random email forward about "a prominent angel investor's" nephew.)
"Larry and Sergey? I'm good friends with them. I knew Larry from Michigan..." (sat in an engineering course with Larry and 300 other students)
This characteristic also transfers into stated business relationships.
"Yeah, Cisco is our partner for an upcoming project. Huge deal for us..." (startup is a bronze sponsor of a trade show while Cisco is the platinum sponsor)
"Microsoft has just signed up to be our channel partner. Our sales team is very excited." (just signed up on Micrsoft's adCenter to advertise their startup's products)
I was speaking with one of my friends, who is a movie director, about some of these encounters I had.
He replied, "I bet it's nothing compared to the movie industry. You get this down in LA all the time. You don't know how many producers I've met who say they know this person or have an 'in' with this company... Then you find out that the person they 'knew so well' was only one email conversation.
As one of my mentors told me a while back, 'Hollywood is the one place where you mix Ivy Leaguers and the scum of the earth, but the music industry is where you get the scum of the earth and the scum of the earth.'"
I have wondered what drives people to tell such lies or exaggerations because the world is so small and you're bound to meet someone who is actually good friends with your "supposed" friends and knows that you are not. Or meeting a person who knows someone at the company and division you supposedly have a partnership with. I wonder if these people follow George Constanza's worldview where he tries to keep separate social circles but inevitably panics when his worlds collide!
Another common conversation I have encountered is this odd obsession with whether your startup is "venture-backed." It has gone beyond my ten toes and fingers the amount of times I've heard someone emphasize the words "venture-backed" to me.
"Yes, I was at so-and-so company, which was VENTURE-BACKED."
"I worked at this VENTURE-BACKED startup a few years ago..."
"So was your startup VENTURE-BACKED?"
Through my ten fingers and counting, I was bewildered by this obsession. It seemed to me that it was a bunch of peacocks showing their feathers to other peacocks. From my small world and experience, I assumed that if you're doing a startup that you would be backed by someone whether an angel or VC.
So in a typical conversation where I would explain my background, I would simply state, "Yeah, I was involved in a couple startups..."
A fair amount of times, this would be a calling for people to ask me, "Where these venture-backed?"
It was like the scene out of Austin Powers where Fred Savages's character's mole gave Austin an irresistible urge to say, "Mole. Bloody mole!..."
Try this some time. If you simply say "startup," I estimate that it would be a two in ten chance (if the person doesn't know you) that they will ask "VENTURE-BACKED?"
Anyway, by the time this repeated conversation reached my toes, I realized that not all startups have funding from venture capitalists. Similar to the Hollywood scene where so many people have a movie script or "working on a cool TV project," there are people with a business plan or product without smart money backing them or even zero money. So my bewilderment died and I had to taper my amusement, but I still wondered about this drive for people to overstate relationships and trying to separate themselves from the "chaff."
From these encounters and the comparisons with Hollywood, I began to wonder if these characteristics were industry related or a general West Coast thing? Of course I am not stating that this is reflected by a majority of the people, but enough to recognize that these traits are more prevalent in Silicon Valley and Hollywood than in other regions.
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