Most of the responses were justifications from VCs, but two provided a refreshing dose of reality.
Not surprising that neither are VCs.
The reason they want warm intros is because they are too lazy to research things themselves and many of them don’t know anything about starting a company or building one. The smart experienced guys at the top who have actually done something are too busy so they have the dime-a–dozen MBAs they hire do grunt work. Since the d-a-d has never actually built anything, and doesn’t really know what you do, they want a “warm” intro. Warm means someone else they can blame if they screw up yet again. —David Feldman, CEO, ZF Micro Solutions, Inc.
Classism. No further to look than that. Let’s not make it complicated by trying to avoid the unpleasant. —Michael O. Church
A Friday series exploring Startups and the people who make them go. Read allIf the Shoe Fits posts here
Whether your goal is to be a horse or a unicorn, raising round after round of funding for a higher and higher valuation may do nothing more than give you a false sense of success and security.
Y Combinator’s Sam Altman summed it up in an article focused on the $1M-plus burn rate that is getting more and more common.
…it’s never good to be at the mercy of investors.
If you’re a founder, you shouldn’t want that,” he says. “If a company is profitable, the founder is in control. If it’s not, investors are in control.”
One tip he often offers Y Combinator founders: Treat every round of financing like it’s your last.
There’s a reason that popular wisdom, the kind that comes from experience claims that companies that start in moderate-to-cool and even bust economies fare better in the long-term. As do hundreds of startups that aren’t on the receiving end of current largesse because their founders aren’t connected.
Bootstrapping or working with minimal funding forces founders, especially young ones to
be savvy money managers;
put financial controls in place;
focus on productivity (not perks);
monitor and constantly reduce customer acquisition cost (CAC); and
become profitable or, at the least, breakeven as quickly as possible.
The founders who will be best positioned when the startup eco-system cools, as it always does, and funding is restricted are those who master the first four points and whose companies have embraced the fifth.
“That correlates more with any other success factor that I’ve seen in the world’s greatest entrepreneurs. If you look at [Amazon founder Jeff] Bezos, or [Netscape founder Marc] Andreessen, [Yahoo co-founder] David Filo, the founders of Google, they all seem to be white, male, nerds who’ve dropped out of Harvard or Stanford and they absolutely have no social life.”
If you dissect it, is an ignorant, short-sighted statement, especially from such a prominent star in the tech firmament.
Let’s take the words separately in their reverse order to see why.
In the tech world, nerds are typically consumed by the bleeding edge of technology, socially challenged and will doggedly pursue their ideas come Hell or high water. Of course there are more male nerds. Starting in elementary school, girls are discouraged from STEM, whether it’s Barbie saying, “Math is tough!” to the unconscious bias that permeates our classrooms and companies.
As to white, nerds actually come in many shapes, sizes, genders, colors, faiths and from across the socio-economic spectrum. but anyone who follows the current state of tech culture shouldn’t be surprised.
The real reason that that white, male nerds are successful is that they get funded.
They get funded because they are connected — by family, friends, school friends, ex colleagues, etc. — which means they get into the right accelerators (just as Harvard and Stanford are the right schools) or are personally introduced to investors.
The end result is that if you take a superficial look at the stats Doerr’s comment seems to be true—but it is not.
Meanwhile, there are thousands of internet businesses out there, quietly making tens, and even hundreds of millions of dollars, who have taken the same path as In-N-Out. They don’t need to be first, second, or even tenth, in their space, and have instead chosen to focus on a small percent of a massive market. They answer to customers, not investors, and focus on making their employees, customers, and themselves happy.
SAS was founded in 1976; in not-quite 40 years it has grown to 13,660 employees who produced $3.09 billion in 2014 from 75,000 customer sites in 139 countries.
Whether the drive stems from the demands of the investor world or the need for instant gratification, Wilkinson’s attitude is a breath of fresh air.
Raising venture money is a high risk commitment to go big or go home, and it isn’t for everyone. It certainly isn’t right for me, but neither is the surfer lifestyle business. I’m somewhere in the middle, with the Snyders of the world. I’m not a unicorn, I’m a horse.
Give it some thought or, to paraphrase an old commercial, “try it, you might like it.”
It’s Valentine’s Day and I’m in deep fundraising mode. In essence, I’m the guy at the dance trying my best to land the pretty girl, and experiencing the challenges, rejection and hard work that this entails.
The process and preparation has made me reflect on a number of dearly held “truths” among startup founders. Most consider fundraising highly distracting and grueling; preventing them from doing the real work founders should be focusing on. Add to this the perception that investors and VCs often come across as assholes, and it becomes a chore worse than scrubbing public bathrooms.
I view it very differently. To me it is a real test of whether the Kool-Aid I’m drinking is actually as tasty as I believe it is. The fundraising process is an opportunity to interact with smart people (some are truly great people) who see a lot of deals and problems and have a very difficult challenge — putting themselves in the customer’s shoes without having their experience or being in their situation. As a consequence, they have to try to imagine themselves as someone they are not and ascribe value to problems they are not dealing with personally. If you try it, you’ll see that it’s virtually impossible.
This causes the constant delays, increased information search, desire for proof points, and the follower behavior that looks so ridiculous from the outside. But we who are starting companies don’t have to deal with problems as difficult as this; we just have to understand the customer’s problem and deepen our knowledge of them. And we’re usually not dealing with 15 different customer types, products and industries in a single day. Just one product, one customer and one industry everyday for an extended period of time. So let’s be a little more humble about the significantly more difficult work of making investing decisions.
Beyond that, investors often provide introductions (in their search for proof points) to knowledgeable and interesting people from whom I can learn. I usually don’t have the time to seek them out (or even know who they are) unless I encounter them in a fundraising situation. So I’m grateful for the investors that seem so frustrating — they make me more knowledgeable and professional every step of the way.
But the most important thing is my perception of My Baby — the product and company I’m creating. As a parent, I believe my baby is the most beautiful and important thing that has happened to the world in recent history, and I expect others to agree with this. It is so easy for me to believe that when people don’t see this, it’s because they are blind, stupid or narrow-minded. Sometimes it can be the case, but I remind myself of how often I visit new parents who proudly show me their new baby, expecting me to offer compliments on its cuteness and how often I’m amazed that something so ugly can actually be called human. Yes, I’m being extreme, but I’m sure that this is how investors feel when they sit through hours upon hours of meetings every day with delusional founders. Or maybe they are just pointing out a blemish on the cheek of the baby and we react as if it’s a mortal challenge, rather than take it as good feedback and a learning experience.
Ultimately, we need to have humility and compassion for investors. Making money this way is really difficult. And if we mix in the politics of being part of an institution I’m amazed that they actually manage to keep going every day. We have passion for solving a problem or seeing a market opportunity. They are just trying to maximize returns and hope to be able to work with great founders to accomplish this.
There is no question that we founders have the better deal. More fun, more learning, more challenges, more passion. And for this we have to pay a price – the risk of loss and temporary poverty, much heartburn and far too much work.
I enjoy what I do. In fact I love it. And investors help me to accomplish my vision in so many ways, even when they reject My Baby or me. I’m grateful each time they invest and each time they don’t – they are putting me in a stronger position to succeed whatever they do. Thank you.
Are you more focused on funding or on growing your business?
Do you read about huge valuations and the resulting funding and find yourself green with envy?
According to Ron Conway, founder of SV Angel, …it’s always good to bootstrap for as long as possible, meaning it’s better to not take money from a venture capitalist or angel investor; startups should strive to be self-sustaining at first.
When fundraising it’s important to know what you really need as opposed to what you can get.
Ego trips, too, play a role in fundraising. After all, think of the bragging rights and the media frenzy that come with large investments.
But raising funds means giving up equity as Xenios Thrasyvoulou, founder of PeoplePerHour.com and SuperTasker.com in London and New York, learned the hard way.
…venture capitalists expected his company to grow five times in 12 months. Though he viewed his firm as having a healthy, sustainable growth rate, it didn’t meet those expectations, and he was forced to hire an expensive and large management team. Eventually, Thrasyvoulou regained control of his company, but he reminds other entrepreneurs that “sanity is more important than vanity.”
Of primary importance for all founders is to remember that what goes up always comes down—especially the economy.
That means not just careful fundraising, but careful spending; it’s far smarter to bank the money than to spend it on plush startup living.
Read the article and learn from those who can say, been there/done that. It’s not the same as listening to them on-stage, but it’s a lot less expensive.
The US startup ecosystem is complaining (more like ranting) that Rocket Internet is a copycat/cloner/, even scamster, because they are successfully creating new businesses in various parts of the world mimicking the business process of successful US companies.
Samwer says he doesn’t mind being called a copycat. “Most innovations come on top of other innovations, if you really look at it,” he says. To Samwer, Airbnb’s suggestion that Wimdu is a “scam” is as silly as the idea of Samsung’s alerting customers about a Vizio scam of developing a similar flat-screen television and selling it for less money. “There’s always competition,” he says. “We win because we take our work very seriously.”
Let’s get serious, folks.
Ford didn’t invent automobiles.
Boeing didn’t invent airplanes.
Apple didn’t invent computers, MP3 players or mobile phones.
Google didn’t invent the search engine.
The idea that most Silicon Valley startups are original is hilarious.
In fact, many of the current service darlings were done on Craig’s List long before they were a twinkle in their founder’s eye.
There’s also a small company started by Jack Ma called Alibaba.com, which has many parts that mimic the same companies that Rocket does.
Not only that, but many of Rocket Internet startups are tailored for developing countries.
What I think has infuriates entrepreneurs is three-fold.
They didn’t think of doing it first;
even if they did funding wasn’t available in the US and finally,
Rocket Internet is a German startup and Germany, as we all know, is highly risk adverse.
It’s also incredibly successful.
Since its founding in 2007 by Oliver Samwer, and his two younger brothers, Marc and Alex, Rocket Internet has helped launch over 70 companies across 50 countries, generating a combined revenue of $4 billion.
Note that the $4 billion is revenue, not valuation.
It’s called success—whether you approve of it or not.
A slicked-up entrepreneur is inevitably a salesman trying to compensate for an inferior product. Based on this perception, Mr Thiel’s venture fund instituted a blanket rule to pass on any company whose principals dressed in formal wear for pitch meetings.
There’s a basic problem with these kinds of rules.
No rule can be applied universally, without question and no exceptions.
Universal rules are just another form of bigotry—one size does not fit all.
A Friday series exploring Startups and the people who make them go. Read allIf the Shoe Fits posts here
“Vic” is the go-between and coach for an organization that arranges for entrepreneurs to pitch panels of investors in an ongoing program.
The investors provide feedback on the product, pitch, etc., and may end up funding it.
When entrepreneurs apply Vic sends them a questionnaire and set of pitching guidelines.
Both were developed by the investors to ensure high quality pitches that contain the information they want and address their basic investing concerns.
Completing the questionnaire makes it simpler to organize and build the pitch, while the guidelines include important Dos and Don’ts.
Vic then works with the entrepreneur to refine and polish the pitch, which results in better and higher-level feedback from the investors.
I thought it sounded like a great program for founders looking for early investment and asked how it was received.
Vic’s response was about what I expected.
There are eight points in the questionnaire. Of the ten accepted applicants, only a couple will return the forms and even their response are the result of being asked two or three times. Moreover, those who do respond only cover two or three of the eight questions.
I asked Vic how creditable the pitches were and what was the investor reaction.
Most of the pitches are missing crucial information, which annoys the panel and makes their feedback more abrasive, because they feel their time is being wasted. The constructive part is much more basic and often covers verbally the same information that was in the questionnaire and guidelines.
I asked how the entrepreneurs reacted to that.
They aren’t happy and often blame me for not coaching them on the what and how of the presentation. One guy, who didn’t return any of the prelim work, even said, “Why didn’t you help me the way you were supposed to?”
Now the question you need to answer is if this guy is a ten (on a scale of one to ten, with ten being the worst) what number are you?
Entrepreneurs face difficulties that are hard for most people to imagine, let alone understand. You can find anonymous help and connections that do understand at 7 cups of tea.
Crises never end.
$10 really does make a difference and you’ll never miss it,
Whether your goal is to be a 
