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Commandment #4: Know Your Audience

So…you’ve obeyed the first three Commandments:

·        Commandment #1:  you’ve contacted the right partner in the VC firm,

·        Commandment #2:  you’ve arrived early to make sure you’re ready to roll when the VC (who will usually be late) shows up, and

·        Commandment #3:  you’ve tried your best to carefully crafted your pitch so that it “teases, but doesn’t overwhelm”.

Now, you’re about to start….but, who are all these people?

Typically, your initial meeting with a VC firm will have 1-3 people in attendance (see more below).  But even if the only person there is the partner whom you originally contacted, make sure that you spend a minute or two at the beginning of the meeting understanding how his background relates to your startup idea.  At the very least (Commandment #1), you should have read the partner’s description on the firm’s web site, and googled him or her. 

Here are a few suggestions: 

·        Ask how any of his relevant portfolio companies relate to your startup idea (and make sure that you’ve visited the web sites of those relevant portfolio companies). 

·        Ask what other startup deals in this space has he looked at,

·        Where does his interest in the space come from,

·        What does he see as the major problems facing any startup in this area, etc. 

·        Listening carefully to the answers to these types of “range-finding” questions will help you make sure you don’t inadvertently head off in the wrong direction – which many entrepreneurs, believe it or not, do.

VC’s will often have other people attend even the initial meeting (BTW, it’s always a good idea to contact the VC’s admin prior to the meeting to find out who else will be there – in which case you can read about the other attendees on the VC firm’s web site (if formally affiliated with the VC firm) or find out about them through Google or a service like Linked In). 

These other people usually fall into one of the following categories:

·        Domain experts:  No matter how hard one tries, the VC cannot know as much as the entrepreneur about the specifics of the entrepreneur’s business (Note:  I did not say that the VC realizes or recognizes this…..only that it’s true).  So, all successful VC’s have developed networks of friends with domain expertise in areas of mutual interest. It’s quite common for a VC to invite one or more domain experts to sit in on the initial (or a subsequent) meeting.

·        Venture Partners:  Venture Partner (“VP”) is a category sort of like “Other”.  A non-exhaustive listing of categories of “Venture Partner” includes:

·        someone whom the VC’s would like to have as a general partner, but who wants to, for whatever reason, maintain more of an independent role (or not commit to full-time work with a VC firm);

·        a “friend” of the firm who has some domain expertise (or a business contacts network) that is of ongoing  interest to the firm’s investment strategy (e.g., an electrical enginerring professor with an expertise in, say, the CAE area or materials science who helps a firm look at semiconductor startups); and

·        someone who used to be a General Partner and is cutting back on their workload

·        EIR’s: “EIR” usually stands for either “Entrepreneur-in-Residence” or “Executive-in-Residence”.  An Entrepreneur-in-Residence is usually someone who has previously started a successful company with the VC firm, and who is using an office at the VC firm while exploring company ideas for his next startup.  But there are a range of variations on this theme.  Executives-in-Residence usually, but not always, are operating executives who are “on call” for a VC firm to step into a role at a portfolio company when a management role needs to be temporarily filled.  But again, roles with this title vary greatly.

·        Associate:  How VC firms treat the title of “Associate” varies widely.  In some firms, it is the first step on the “tenure track” to becoming a General Partner.  In others, it’s much like the job in an investment bank:  two years after college or a job to learn something about the venture business, but at the conclusion of which the person moves on to something else.

Unless you know the people in the room already, (or know “of” them in detail), it can help your cause to spend 1-2 minutes on each person finding out about their background and the perspective from which they’ll view your startup idea.  This can help you “tune” your presentation so it presents the appropriate information, and anticipates areas of probable concern.

As you do this, take notes (unless you have a perfect memory).  This will help you, as you go through the presentation, refer back to comments made, or concerns voiced in the beginning of the meeting.  To the extent you have material in the presentation that pre-emptively addresses concerns articulated in the early part of the meeting, you look more on top of things – and that can increase your chances for success.

Commandment #3: Tease, Don't Overwhelm

First he tells us to "Be on Time" (Commandment #2)....now, he advises: "Tease, Don't Overwhelm"...What the hell does this mean, readers (if any) will be tempted to ask.....But stay with me for a minute. There’s a subtlety here that might help you.

The goal of your first meeting with a VC IS NOT to get a funding commitment.  The goal of your first meeting IS to get a second meeting.  On extremely rare occasions, funding commitments are made in the first meeting, but only in very unusual circumstances: e.g., where the entrepreneur has worked (successfully) with the VC firm before, or where the proposing partner in the VC firm has been working with the entrepreneurs in the development of the startup idea, etc., etc.  In the vast majority of cases, I’d guess that the average number of meetings a startup has with the VC firm that eventually funds it ranges between 3-7 (but curious to know from any entrepreneur readers if their experience is, or data are, different).

So, what does this mean?  Here are a couple of thoughts:

·        Don’t try to cram six or seven meetings’ worth of information into one meeting.  Pique their curiosity, don’t pulverize their attention span.  More on this in the next few “Commandments”, but think of the initial meeting as a way to say: “I’ve got a very cool business idea that you should want to know more about.” – that is, almost more of a “teaser” than an overwhelming deluge of information.

·        That said, absolutely do make sure you obey the three “Uber Commandments” (see my post on Commandment #1) and tell why: (1) you have a great technology idea, (2) being implemented by a great team, and (3) attacking a huge market in the midst of a transition.

This is probably overkill (and I’m sure goes without saying), but just in case…..this is NOT to advise entrepreneurs to “hide the ball” in any way in the initial meeting.    If you want to “succeed” (remember: success in the first meeting is getting the second meeting), you absolutely need to do something that’s really hard: crisply and clearly reduce a complex business message into a short set of slides that intrigues the audience and makes them want to find out more.

Commandment #2: Be On Time

 

So this really seems like a platitude, doesn’t it?  Something your mother would have told you if she knew you were pitching an idea to the venture community….And, of course, seven or eight times out of ten, it’s not an issue.  But every so often timeliness (or lack thereof) becomes very important.  Here’s why you always want to be early to a meeting with a VC (even though 95 times out of 100 they’ll keep you waiting).  I call it the problem of the HARD STOP.

Arriving early at the VC’s office avoids two main problems, both ultimately having to do with the fact that VC’s often over-book meetings (given everything else they have to do during the work day) and often have a HARD STOP after an hour or so (and are often, themselves, the cause of a late start – more on that below). 

First, believe it or not, the presentation technology provided by the VC doesn’t always work (shocking!).  Sometimes it’s the fault of their projector, sometimes it’s a glitch in the laptop the entrepreneur brings, and sometimes it’s just gremlins, or the failure to have made a large sacrifice to the Presentation Gods prior to the meeting.  In any event, if this happens you want to have plenty of time to fix the situation.  No matter what anyone thinks, it certainly doesn’t make one look good if the presentation isn’t working (no matter what the cause).  VC’s (who consider themselves very important) hate to sit around waiting.

Second, VC’s, themselves, are often late to your presentation.  Since this doesn’t alter the HARD STOP, if you are not ready to go as soon as the VC walks in the room, you run the risk of having an even more hurried, pressured presentation – which is not the way to show your best stuff.

So arrive early if you want to give yourself the optimal chance to do well.  Don’t worry, this means that you’ll often spend 10 – 15 minutes ready and rarin’ to go, while waiting for the VC to get off the phone.  Unfortunately, that’s life, and life’s not fair -- but maximize your chances of success: show up early.

Ten Commandments for Entrepreneurs

Over the next few of weeks, I'm going to post my version of "The Ten Commandments" for Entrepreneurs -- my ideas of the 10 most important "procedural" things to keep in mind when you approach a VC.

These insights, for whatever they're worth, stem from nearly 20 years as a lawyer who represented entrepreneurs seeking VC funding, as well as 6+ years now on the other side of the table as a VC evaluating funding pitches.

 

Although I'm going to write about 10 Commandments, there are really 13, the first three of which are, sort of, "Uber Commandments": (1) have a great technology idea, (2) have a great team and (3) pick a huge market in the midst of a major transition.  That's the hard part -- and it's where advice from a VC can't really help you.  But the next 10 Commandments are things you can control, more or less, and you should take advantage of this whenever possible.

Commandment No. 1:

Whenever you're approaching a VC firm for funding, it's always optimal (surprise!) to connect with the partner in the firm who has the closest investment interest to the space your startup is going after.  As busy as most good VC's are, it's usually hard to stop what one is doing and take time to come up to speed on a new market unless one is making a calculated shift in one's area of investment interest (which does happen --- over time).

No matter how hard you try as partner in a VC firm (and I have to say that, at Mayfield, I’m pleased at how hard we try), it’s difficult to be as interested in a deal passed along to you by a partner as you are in one that comes in directly through your network.  A number of reasons, but it mostly comes down to the fact that most good VC's are pretty busy and – for a referred deal -- you don’t have the same “context” as you do for a deal that comes to you directly from someone you know.

Not to say that good things don’t happen.  At Mayfield and some other firms, the partners do pretty readily pass around deals that seem more appropriate to the interests and backgrounds of other partners.  For example, at Mayfield, we have done two deals this year that came in initially through me but ended up being “done” by other partners (who, BTW, are better suited for the companies than I would have been).

Despite the above advice, however, there is a caveat:  it's definitely better to get a good personal introduction to any partner in a particular firm than to it is to merely approach the “right” partner out of the blue.  For a whole variety of reasons, VC firms almost never seriously consider deals that come in “over the transom”.

So, whenever possible, do your homework on the partners in a particular firm, and try to get a personal introduction to the one whose background and investing interests seem to best fit your company.  From an informational perspective, this is usually not hard to do.  Most VC firms have good descriptions of their partners’ backgrounds and interests on their web sites, and you can also tell a lot about what a partner is interested in by looking at the deals they’ve done.

Philosophy of Science

Yet another excellent entrant in the Very Short Introduction series from the Oxford University Press (check them out: http://www.oup.com/us/catalog/general/series/VeryShortIntroductions/?view=usa).  Samir Okasha, Lecturer in Philosophy at the University of York, gives a well-organized quick tour of the main topics in the Philosophy of Science.

Starting with an introductory chapter on “What is Science”, he takes the reader on a tour of “Scientific Reasoning”, “Explanation in Science”, “Realism and anti-Realism”, “Scientific Change and Revolutions”.  He then adds a chapter on three specific historical philosophical disputes in the Philosophy of Science:  (1) the dispute between Newton and Leibniz about the nature of space (absolute or relative), (2) the dispute among three different schools of taxonomic classification in biology and (3) the dispute among psychologists about the ‘modularity’ of the human mind.  He then ends with a wrap up chapter on some of the disputes about science (‘Scientism’, or an over-reliance on ‘science’ as a model for all of (or the only legitimate kind of) ‘knowledge; Science and Religion; and the debate around whether Science is ‘value-free’).

In each case, he gives a very clear, even-handed overview of the arguments that have raged (since the 16^th Century) about these topics.  He is quite good at giving analogies or examples that make otherwise abstract propositions understandable.  He deftly lays out (which is difficult to do) the reasons why philosophical questions about science are not resolvable by science itself, and thus why disputes over these topics continue even today   (e.g., all ‘empirical’ scientific theories ultimately rest on concepts that are more or less ‘metaphysical’ – which doesn’t mean that choosing among fundamental principals is simply a matter of taste, belief or faith (e.g., Creation Science is clearly not just as good a ‘scientific’ theory as Evolution), but it does help clarify the nature of the assumptions that serve as the foundations of our scientific beliefs.  In Okasha’s descriptions of the debates over these topics, I often couldn’t tell from his writing anything about his own – one of the marks of a good introductory work.

Given the importance of science to modern life, understanding the debates around the core concepts on which modern science rests (and the enormously broad reach (as well as the limits) of science as a way of generating knowledge), is something every educated modern person should do at some level.   This little book is an excellent way to get started.

Interesting Political Theory Book

I recently read a very interesting book that gives a very useful “overarching structure” of the history of political philosophies (or at least the part of the history of political philosophy that depends on a view of human nature).  “A Conflict of Visions”, by Thomas Sowell, is an historical/philosophical analysis and exposition of the two major views of human nature – called the Unconstrained Vision and the Constrained Vision --that have dominated mainstream Western European and American political debate for the last 350 years or so.  Sowell explores the different views, and the consequences of holding those views on a number of important issues: liberty, equality, freedom, etc., of a number of well-known Western European and American political writers, both historical and current (e.g., Locke, Hobbes, Burke, Condorcet, Godwin, Rousseau, among the historical figures and G.B. Shaw, O.W. Holmes, Ronald Dworkin and Milton Friedman among the more recent).  “A Conflict of Visions” stands on its own and may be read to great benefit without any prior acquaintance with Sowell’s work, but it can be most fully understood as one third of a trilogy, the other two parts of which are: “Knowledge and Decisions” and “The Vision of the Anointed”.

The Constrained Vision more or less asserts that (1) human beings (whether individually or in groups (e.g., legislatures)) are incapable of broad knowledge (i.e., at the societal level) about the effects of their actions, that therefore societies are better off relying on structures (e.g., markets, cultural traditions) that in some sense collect (or in the case of traditions, have collected over time) the limited knowledge of many independent actors, (2) that the Law of Unintended Consequences is alive and well, (3) that human nature is basically self-oriented (if not downright selfish) and (4) that, because of these profound limitations, only suboptimal “trade-offs”, not “solutions”, are possible on most important social and political issues.  Adherents to The Constrained Vision -- definitely -- do not believe in the “perfectibility of man”.  This view has most often been associated with thinkers that most would characterize as “conservative”. 

Believers in The Unconstrained Vision basically believe the opposite: that humans are so-called “blank slates” whose human nature is not innate, but is more or less completely determined by their environment, and that large social improvement/political projects are possible because human beings are capable of knowing much about the consequences (at the societal level) of their social actions.  People holding this view do believe in the Perfectibility of Man, and this view, not surprisingly, has most often been associated with thinkers that most would characterize as “liberal”.

 

The analysis is very clear (typical for a Sowell book), easy to follow (also typical) and is fairly even-handed, especially for someone like Sowell, who more or less holds the Constrained Vision (as do I).  While he uses strong versions of each Vision as foils to explicate the analysis, he also is clear that many positions along the Constrained/Unconstrained spectrum are possible and have been held by writers, and that some famous thinkers (e.g., Marx and Mill) have actually held hybrid versions of the Constrained and Unconstrained Visions.

None of the writers discussed is a scientist of any kind, much less a scientist in a relevant field; and most of the writers discussed wrote before anyone knew (or certainly understood well) what a gene, a neuron or a hormone was.  Because of this, after finishing “Conflict of Visions” (and, if you’re up for it, the rest of the trilogy), one wants to know the answer to the question: what does “science” currently say about Human Nature – which Vision does the generally accepted empirical evidence support:  Constrained or Unconstrained? 

Several (conflicting) books (all well-written) that help fill out the debate include:  “The Blank Slate”, by Steven Pinker, “The Selfish Gene”, by Richard Dawkins, “Guns, Germs and Steel”, by Jared Diamond, “Human Natures”, by Paul Ehrlich and “Nature via Nurture”, by Matt Ridley.  Ehrlich (famous for making a series of wildly wrong predictions of environmental disasters, and for losing several high-profile bets about the environment (loosely speaking) to the late economist, Julian Simon) and Pinker (evolutionary biologist/psychologist, now at Harvard, who studies the brain and language), for example, strongly disagree about mostly everything, and there is no broad consensus that emerges from these books, read together (Ehrlich and Diamond give more weight to environmental factors – Pinker and Dawkins more to genetic/evolutionary factors.  Ridley attempts a modern synthesis of the positions). 

What does seem to be true, however, is that two (sometimes inconsistent or at least not wholly consistent) views are gaining ground:  (1) most basic (and some not so basic) human drives are increasingly believed to be genetically determined (and many, though clearly not all, of these are “antisocial” or “selfish”); but that (2) this genetic determination can be very complex, including complicated interactions among genes (or more accurately the proteins they express) and between genes and the environment (broadly conceived – e.g., whether a person is well fed, has access to good medical care, is raised in a stable, loving environment, etc.).

Sowell, in “A Conflict of Visions”, helps organize in a sensible analytical structure a great deal of the core thinking (some not even explicit) of the two main camps of traditional Western political thought over the past few hundred years.  It provides a lens for a deeper understanding of the original profound thinkers analyzed in the book, and makes one want to return to them for re-reading.  In this sense, as well as many others, it is a very good book.

Enterprise Software Today

Thoughts on Enterprise Software

For at least the last few years (one could argue: ever since the Y2K scare ended) the “traditional” enterprise application market has been distressed. Most of the big areas of “application white space” have been covered, the vendor/systems integrator/customer relationship has become strained, applications were bloated and too difficult to install. And, oh by the way, once they were installed, users didn’t like to use them because of, among other things, the rigid workflow they required – always different than the workflow that users had previously used.

Yet, despite this, the enterprise applications market is huge. With a new investment we just made, JotSpot (www.jotspot.com) we’re trying to address the need that enterprises (of all shapes and sizes) have for easy to write, lightweight and flexible enterprise applications that knowledge workers in enterprises will actually use to increase their productivity. JotSpot is building apps using a wiki on top of (one of several) databases. This has a number of advantages over traditional enterprise apps and over most of the existing open source wikis (some of which are quite good, but most of which require more “programming” skill than the broad base of enterprise users will ever acquire.

Other areas that are interesting in the enterprise space are security, where there are still too many “point” solutions and inadequate management tools. A couple of companies we’ve invested in Determina (www.determina.com) and Elemental (www.elementalsecurity.com) fit into this “white space”, with, respectively, a powerful host-based security offering and an easy to deploy and use security policy management set of applications.

Other interesting areas we’ve explored include the enterprise messaging marketplace with our investment in Scalix (www.scalix.com). Many enterprises (and other educational and governmental organizations) are seriously considering moving their “rich messaging” (email, shared calendars, contact management, tasks, etc.) infrastructure to Linux. Based on the proven OpenMail technology, but with man-years of improvement and thin-client development, Scalix offers an alternative to messaging infrastructures that require Windows or UNIX to run. Interesting TCO and flexibility benefits to the customer, as well as the benefits of Linux (no lock-in, etc.).

You’d think that, given the history of software development (and the importance of software to the world today); more would have been done to improve the software build process. But anyone in the software development world (certainly the non-java world) can still vouch for the slow, nightly heartbeat of the build. One of the companies we’ve invested in, Electric Cloud (www.electric-cloud.com) is addressing this by massively parallelizing the build process. This achieves significant speed ups in build times, but also offers improved build management tools in future releases.

So, there is still opportunity for entrepreneurs in the enterprise applications space, with the right approach. In particular, building enterprise apps on top of some of the newer web-centric concepts such as blogs, RSS feeds and social networking (social mapping) hold some interesting promise.

If you’ve got an interesting idea for a new company in this space, let me know.

Opportunities in Online Tools

To state the blindingly obvious, almost all of us are “living” more and more of our lives online – dating, job hunting, house-, and apartment-hunting, getting news and entertainment, and, of course, buying, well, nearly everything….and blogging, of course.

Of course, there are lots of reasons why, but I think several reasons stand out:

• Good Internet Search: Google and Overture have made internet search useful and usable, and other efforts (e.g., A9, and Microsoft’s efforts among them) should, because competition is always good for consumers/users, continue this trend;

• “Pervasive”, always-on broadband internet connectivity:

o I don’t have the data, but I believe that most Americans have daily broadband/always-on internet access, if you combine access available to them at school, at work and at home

o BTW, I’ve always felt that “always-on” was more important than “broadband” – I’d rather have an always-on 56K modem connection than a broadband connection that you had to “dial-up” and for which you paid by the minute.

• Mass Consumer “Training”: I’m sort of joking (but not entirely), but thanks in some measure to the strikeouts by the venture capital industry, we all have had a multi-billion-dollar, 7-year training course in learning to “live” on the internet (a/k/a: the funding by VC’s of probably billions dollars of failed, “ahead-of-their time” dotcom startups).

o More thoughts in a subsequent posting, but many Web 1.0 ideas that failed in 1998-2000, were nevertheless great ideas, and are worthy of renewed VC interest – for the three reasons described above.

Interestingly, with all this increasing time and energy spent online, the main tools we use to “live” online – email and the browser – have not been significantly innovated since they both became owned by a monopolistic software company. No surprise here, of course, since industries of all types rarely innovate when controlled by a monopolist (innovation, after all, is risky and expensive).

I think this creates a “white space” of opportunity for entrepreneurs: the gap between (1) the steep, “up-to-the-right” curve representing what people want to do online, and (2) the virtually flat curve representing the lack of innovation in the main tools available to people online. At Mayfield, we’re spending a lot of time looking for investment opportunities in this area.

Also interestingly, the most exciting attempts, until recently, to innovate in this area have not been by either big software companies or even by smaller, venture-backed startups, but instead by “amateurs” (who were often awesome, even famous, programmers) and by open-source enthusiasts:

• Wikis, developed originally by Ward Cunningham in 1995;

• Blogs, which don’t seem to have a single or small, easily identifiable group of inventors, but which were initially used and subsequently popularized by a number of folks involved in the open-source community; and

• RSS feeds, whose origins go back to efforts in 1995 by Guha, then continuing to be co-developed by Tim Bray, Dan Libby and others (if you think metaphorically enough, this idea was first launched, sort of, by a Company called Pointcast); and

• Social-mapping (or “social networking”) technologies, which relate back at least to the early-to-mid nineties.

There are many other efforts now afoot, both at large software companies as well as venture-backed startups, to build new tools (many based on wikis, blogs or around RSS feeds) to enable people to do more interesting stuff online, to use information online in more and more useful ways (work, home and play). This is a very promising area for entrepreneurs, especially as web services increasingly make the web a robust application platform.

At Mayfeld, we’re actively pursuing investment opportunities in this area. Among our current portfolio companies innovating in this general area are:

• JotSpot (www.jot.com)
• Pluck (www.pluck.com)
• Scalix (www.scalix.com)
• Tribe (www.tribe.net)

Check them out, and let me know if you have a great, new idea for a company in this area.