Woof and Why

[updated to correct link]

I was going to simply refer you to two excellent posts that I hope start a trend, that being more posts on why an investment was made.  These posts, in my opinion, are great because beyond the typical review which is I like or don't like, somebody coughed up some coin. 

The why behind the cash going out the door should be useful for a number of reasons, especially to the start ups looking for cash.

David Beisel, an excellent writer and experienced VC at Masthead Venture Partners wrote about why he likes his Tremor Investment.  He broke it down into the market, the team and the approach, giving you some insight into his thinking and the business. It is worth a read as is most of David's blog.

Michael Arrington also posted why he liked his investment in Dogster.  Mike did a good job of laying out some reasons:

"Dogster was started on table scraps from a few friends and family of founders Ted Rheingold, John Vars and Steven Reading. These guys kept operations extremely lean from the start, and brought the company to profitability about a year ago, just shy of their two year birthday.

Growth in terms of users, page views and revenue continues to increase aggresively [sic]. And while Dogster is still small, the company continues to run on a very tight budget. No money is wasted."

He also put in a plug for the team:

"But what I like even more than the business model and growth metrics is the team. The founders are all solid, street-smart entrepreneurs. They recently brought on Jeff Clavier and Scott Rafer as advisers, two people I have a great deal of respect for. And as part of the round Michael Parekh agreed to join the board of directors of the company as well. He’s one of the smartest people I’ve ever met, and that pretty much sealed the deal for me."

I was going to wrap up with we need more posts like this and start working on my own why do I like, when newsgator dropped this puppy (sorry, Mike) into my inbox. A posting from our resident skeptic came rolling in, also quoting the above snippet from Mike and then saying the following:

"I hate to say it, wait.  No, actually I don’t hate to say it at all.  This may be one of the poorest “reasons to invest” I’ve ever heard!  There’s plenty of smart people out there.  Tons of em in fact.  Guess what?  Lots of smart people fail.  In fact, seeing as how most startups actually fail, and there’s tons of smart people running startups, you could actually twist the logic slightly to say: odds are pretty good investing in smart people will result in failure."

First, my thanks, well done, Mike (and David) still stands. Dr. Dead 2.0 is not known to most of us. Basking (or hiding, depending on your perspective) like Mini-Microsoft and Sand Hill Slave in anonymity, it's difficult to tell whether this is tongue in cheek wise guy stuff or he(she?) really believes smart people makes a dumb reason to invest.

So to be sure, kind start up, smart people = good. Entertaining tho s/he may be, s/he is dead (get it?) wrong, it is a great reason and often time the thing that allows a so so plan to actually make it. While smart people fail, yes, not so smart people fail more often. I'm good with smart people or, failing that, not so smart people being smart enough to hire really smart people. Got all that? Good, you're smart.

And while Dead 2.0 piles on along with lots of others in taking shots at Dogster, let us pause and try to remember a few pesky details.

• Profits.
• Small Team.
• Growth.
• Tier One Advertisers who've stayed and increased purchases.
• Small investment for working capital.
• Did I mention profits?

If that company sells for 2m bucks, its a double and every angel in the world will do those deals all day/night. If it sells for a measly post bubble crash valuation of 10 million, everybody high fives to the bank.

So, if you are looking to be successful, a formula appears to be forming:

1. Tap into non-echo chamber stuff (hint hang out at a pet store and watch these people).
2. Take a little cash.
3. Be small.
4. Grow.
5. Make some profits.
6. Have many of Mike Arrington's readers, along with a healthy dose of the blogging community, call you lame. That should clinch it.

Nice, Michael. Good luck with the investment.

Comments

[Pat Phelan]

Also posted positively on it Rick
I think its a great play
http://blog.roam4free.ie/michael-arrington-goes-to-the-dogs

[Skeptic]

The answer is: "tongue-in-cheek". Of course you want to back smart people, my point was twofold:
1) You should ONLY invest in smart people. This is so obvious to me it's like saying you should only eat unspoiled meat or always put on shoes before walking on glass... which leads to
2) Trying to be a wee bit funny.

Actually if you really look at the post, I think you'll notice I don't take many shots at Dogster itself - it's more about the point of the *reason* to invest...

Personally, I think they probably will make some decent change, which is both funny and sad. When I walk by the pet bakery stores in the Bay Area and see all these rich folks buying donuts for their dogs, but not lift a finger to the poor or homeless people around the corner, it's almost depressing. But I'm digressing again, aren't I?

[Rick Segal]

Skeptic,

As I expected but it makes for good copy, eh? I'm typing this from a Starbucks in Irving, Tx where a lady is feeding her dog an Iced Latte, so not much of a digression, I hear you, I really do.

Thank you for stopping by, love the blog..

>R<

[Slava]

"So to be sure, kind start up, smart people = good. Entertaining tho s/he may be, s/he is dead (get it?) wrong, it is a great reason and often time the thing that allows a so so plan to actually make it. While smart people fail, yes, not so smart people fail more often. I'm good with smart people or, failing that, not so smart people being smart enough to hire really smart people. Got all that? Good, you're smart."

That paragraph was the single most confusing thing I've read in a while. And I'm actually reading David Foster Wallace right now.

[fred]

i think its a good practice to outline on the firm's blog why we make every investment

we've done that since we started our blog last year.

[Scott Rafer]

Rick, agreed. Per my response to another skeptic (the NYT in this case):

NYT: What does it say about the boom in social networking Web sites that the latest one to attract outside investors is devoted not to singles or indie bands but to dogs?

Response: Dogster’s had fifteen profitable months in a row and grew to nine employees purely out of internally generated cashflow. It says that the Internet Bust was an over-reaction just like the Internet Boom was. It says that the Internet is an efficient and profitable way to serve the needs of millions. It says cha-ching, baby.

http://rafer.wirelessink.com/?p=57