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April 16, 2008

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I find some of these incredibly hard to believe...but I guess there are all types out there. I guess it says something about the sheltered lives some folks live...and maybe how they should research the person/firm they are talking to before showing up!

I think it's just making the wrong assumptions about how people with capital invest. Most individuals I find assume that if you have money than all you gotta do is ask. I am pretty sure that most people pitching to VC's do a crappier presentation than when they are pitching to their parents, friends, better-halves etc...

Mike,
I think this is exactly right which is one of the core reasons why I am wandering all over Canada trying to explain this voodoo.

Thanks for stopping by.

>R<

While windows does suck, everyone's money is good. :)

That said, I do know companies who's server side products only work on Linux... and I know companies who's server side products only work on windows - I also know companies that won't run windows servers and companies that won't run linux servers. Fun++

If, as an entrepreneur, you do that, then you might also:

1. answer the question "who is your competition" with, "we don't have any competition" (even if you don't).
2. answer the question "what differentiates your product" with "it's just better"
3. answer the question "what is your exit strategy". With "in year 5 we will be acquired by Google, Microsoft, or AOL."
4. answer the question "what is your business model" with "we'll determine that when we have users"

You have to know your market (consumer, competition, VC, acquirer).

I don't think there is inherently anything wrong with a company that refuses to sell a product that works on Windows (sorry Rick), IF they are selling a product that has a huge margin, a huge price and a large enough, paying audience to have sustained growth. But to not do it because there is a personal bias is a recipe for disaster before you even get off the ground.

Rick,

Voodoo. Totally sums it up in one word, doesn't it?

I'm curious though, do you find ego has anything to do with these types of questions/demands? I mean, it occurs to me that everyone thinks they have the next big thing, does that make these chaps feel a little more bold and perhaps clouding their judgment?

Braydon,
I'm cool, I own two Macs, a Tablet and a Linux box. :-)

Thanks for stopping by.

>R<

Ryan,
I think fully 40% of all these transaction has ego wrapped up in it. It takes a certain amount of ego/chutzpah just to start your own biz. In many ways, I admire it.

The "we have no competition" sometimes is just massive amounts of confidence and passion about the idea. I try to wade through it in order to find the real story and opportunity.

You have to have 'something' in order to make the leap.

Thanks for stopping by.

>R<

Hi,

well, this post of Rick's seems to have attracted a fair amount of attention so I might as well drop my 2.5 pennies in.

Personally I don't think much of platform-wars or what's even funnier sometimes language-wars (though my whole experience is entirely open-source based). The best solution is one which works on anything, anywhere and anytime. I think that the buzz word is (if it isn't already) "integration". Depending on what one integrates, chances are one will not want to integrate two or more Microsoft-based solutions using JAVA instead one will probably use .NET technologies; on the other hand when integrating two breeds (Microsoft and Linux apps) one could build a web service in .NET for the Microsoft solution and a JAVA web service for the Linux solution; in this case, one uses both technologies; not "the better" one or "the preferred one".

Just guide your technology choice with a view to a future promoting the ability to integrate and co-operate instead of fighting off "evil empires" :)

Cheers,

M.

Bravo Rick. When I wanted to get paid to write books I did a ton of research on how the publishing business works. And I sold the first book proposal I wrote to the first publisher that read it. And the next six went the same way. Yet writers constantly complain about the unfairness of the publishing industry.
Entrepreneurs complain about VCs yet most do absolutely zero research before they approach a venture firm. If I am asking someone to invest six to seven figures in me and my idea (and I am), then I should at least understand why and how they decide to make that investment.
The fact that they don't is a pretty good indicator of how they will run their business, IMHO.

That "Windows sucks so we won't target it" line reminds me of an interview question my boss likes to ask of programmer candidates. He usually prefaces it by, "So, what operating system do you run on your personal computer" (which, given that we're largely an open-source house, is predominately going to be Linux), and then asks, "So, tell me something that Windows does better than Linux...."

There are a couple of things he's looking for. First is simply, can you handle the idea that something you personally dislike has good points? Second is that there are three obvious answers: Usability, usability, and usability. Sure, Windows has some flaws there and Linux is improving et cetera, but there are plenty of places where Windows clearly wins so well even Eric Raymond agrees. (c.f., http://catb.org/~esr/writings/cups-horror.html, though I presume that particular example's been improved by now.) And usability is critical to actually delivering value to the customers.

So, personally, I'd be wary of that line for plenty of reasons other than the market-narrowing!

How woud you respond to "I'm looking for $1M, $5M, or $25M. With $1M, I'll do x. $5M lets me do y. And $25M lets me do z." x is a huge biz - $500M-$1B market cap. y builds on x but is clearly 10-20x bigger. (Yes, ignoring y now puts it a risk.) As to $25M, well .....

Andy,
That's a good question, thanks. I believe the answer is based on the focus of the company. If you are going after the 'huge biz' then you raise the capital, in stages, that gets you there. A range of 1mm to 25mm indicates, at least to me, there isn't a plan for the 'huge biz' that takes into consideration these stages of capital requirements. You can say:

"We are, today, looking to raise 5mm but future rounds call for X and Y in order to do Z which is a huge biz."

Thank for stopping by.

I was unclear.

When I wrote that y builds on x, I wasn't trying to say that y was a follow-on/extension of x. x is a huge biz and $1m makes it happen. y is significantly larger but different biz, albeit one that depends on x. $5m makes them both happen.

While the analogy isn't perfect, you can think the first pcs as x and microsoft as y. (The combination is the old IBM, hardware and software.) If you just do x, someone else will do y. x is big, but the big money is in y.

Andy,
One of the reasons we do "no harm/no foul" type meetings is to have an open dialog about these types of things before a formal pitch. While I now understand better, I'd still want to have an informal chat about the opportunity, your thinking, etc. That way the feedback would be more specific to your circumstances.

>R<

I had to laugh at the comment about sending all that info and then ask to sign an NDA. Sorry boys, the cat is out of the bag.

Rick, I have to laugh at your comment about refusing to sell software to people running Microsoft products because you "believe Windows sucks" -- I'm doing a startup which will, in fact, start out providing software for *BSD, Linux, and OS X, but not Windows. (To be fair, Windows support is likely to happen eventually -- it's just not going to exist at launch time.) Of course, in my case, I have good reasons: I can target everything-but-Windows more cheaply due to my BSD background and domain-specific complications of working with Windows; there are far more competitors in the Windows market; Windows users are generally less clueful and given a choice between user support and writing the next version of the software, I'd rather be writing code; and for the particular domain I'm working within, the Windows market is smaller than normal. At the moment I'm not planning on looking for VC, but if I ever do I hope you'll stop and listen to my reasons before laughing me out of the room for not supporting Windows. :-)

Hi Colin,
Clearly (I hope) you got my point about being a bigot at the expense of the market. Your points/targets would be fine and I won't laugh, I promise!

Thanks for stopping by.

>R<

Funny. On the other hand, we often have a laugh looking back at those VCs that first rejected entrepreneurs that eventually went on to build very lucrative businesses, or the guys that turned down the Beatles or JK Rowlings.

Perhaps Sergey and Larry started their first fundraising meeting with "We're in stealth mode... but we think we can make a good 200 million out of this business we can't tell you anything about except that we need 5 to 35 million." to be met with a "What? Go away!"

Maybe their 2nd pitch started with "Windows sucks, we'll write our own OS. Can we have money now?" - I'd certainly like to know what the winning pitch sounded like.

Maybe it's a good idea for entrepreneurs to get rejected by a few VCs they don't really want to do business with, before pitching to those that are really interesting. Unless there is an easier cure for foot-in-mouth disease?

One thing is for sure. Idea, Software and Money people certainly all speak very different dialects of the same language.

Its funny how some people have this attitude that VCs owe them something and are required to give them money or their time.

I don't do iPods, java, apple, linux, ......

Get with it people!

Keith, I suppose some have that attitude, but I'm also convinced that most entrepreneur, especially geeks (not exactly reputated for soft/people skills), don't really know how to go about starting up, hence the VC roundtables.
From what I gathered there, VCs and entrepreneurs have work to do before they can clearly understand each other, and JLA is clearly taking a different approach than the bulk of VCs out there, as they said, by adapting from their experiences.
Doing the same thing over and again and expecting a different outcome is insanity. So, entrepreneurs with the attitude you describe better adapt as they get doors shut in their face, either due to their idea or their attitude, or simply a mismatch in future goals. I remember rick saying, fantastic ideas with the wrong people just won't work. Well I believe most people can change as they learn, but not many will have the genius to think up the next Google.

Alex,

You're exactly right. As an entrepreneur myself, I watch the startup industry obsessively. Venture capital, seed financing, angel investing - all these things are something I invest emotionally in, because the very concept of being handed a giant wad of money is translated (in my head) to "hey, your idea is cool, and so are you - let's see what you can do."

I know what I know from watching other startups, and being involved in the 'geek' industry; after that, I'm clueless. I only recently (a year or two ago) realized that VC folk such as Rick are bloggers as well (huh, who knew) and it is by reading things like Rick's "Inside the process" post that my initial questions are answered, only to bring about hundreds more.

I'll be at the Calgary VC Roundtable. No attitude, no thinking that I've got the next Google, just a willingness to learn. Hopefully that's a step in the right direction.

Alex, Ryan,

Wise words. Although, in my humble opinion the mere fact that the both of you are here reading Rick's blog puts you a head of the class so wisdom is to be expected.

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