Fundraising Mistakes

I've seen a few hundred fund raising slide decks pass by my desk at Enterprise Partners Venture Capital and Third Security and while only a few have been funded, the ones that did all had met a minimum standard of quality for their slide deck.

It is certainly possible to get a company funded through personal connections, amazing technology, or market traction but the companies I've seen funded also put together really good pitches.

Pitching your company to a venture capitalist is a lot like selling your product to a customer. If you can't explain your story in terms your customer can understand you won't get the sale. A lot of entrepreneurs looking to raise funds for the first time have very little experience talking to or understanding a venture capitalist.

In the next few posts I'm going to highlight some of the most common mistakes I've seen. Before I do, let me introduce a fellow UCLA Anderson MBA, class of 1979, Guy Kawasaki, who has written extensively on this subject and can give the positive side of how to build a VC presentation to win over an investor. His colleague at Garage Technology Ventures, Bill Reichert, adds even more detail to that outline.

Good luck!

iPhone Total Cost of Ownership Calculator

I drool a bit when I see my friend’s shiny new iPhones.However, I'd carefully shopped to find the lowest total cost of ownership for a Blackberry and tethered laptop data service so I knew the iPhone could be expensive.I wanted to see the total cost of ownership for the iPhone from AT&T when I added back in all the functionality that I have now from Verizon.

I’m comparing my current:

+ Verizon Blackberry 8703e
+ Tethered modem cable (which gives me unlimited data for my laptop)
+ Family-share second phone

to:

+ AT&T iPhone
+ Verizon EVDO data card (the AT&T card was the same price with worse reception)
+ Family-plan second phone

The results were terrible. For two years of phone, laptop modem service, and 2nd phone:

+ Verizon: $3840 ($160/month)
+ AT&T: $6498 ($271/month)

As much as I drool over the iPhone, I’m going to have to wait for AT&T to drop their rates (by $111/month) before I can make the switch! You can find the wiki spreadsheet I used to calculate these costs and calculate your own TCO, here:
http://www.numsum.com/spreadsheet/show/70851
Please let me know in the comments if you find any errors. I’d love to find out some way in which the iPhone is cheaper!
P.S. So far I’ve found these “discounts”:

+ By waiting one year, the two Verizon contracts expire, saving $350 ($15/month)
+ If I don’t get an iPhone, I’ll probably upgrade to a Blackberry 8830, cost: $200 ($8/month)

Who am I?

I'm a UCLA Anderson student, a venture capitalist, and a bay-area native. I'm writing this blog to release some of the thoughts zipping around my head, help out a few entrepreneurs, and see if I can find some people who will challenge me, tear apart my assumptions, and sharpen my thinking.

Great ideas vs. Sustainable competitive advantages

It's a painful lesson that most young entrepreneurs must learn the hard way. One day you wake up with an idea so perfect, so world-changing, so unusual that you are sure it'll be the foundation of a billion dollar company. Maybe it is "rent-a-pet", pets for people who can't keep them. You've never heard of anyone doing the same thing, so you assume you were the first to think of it. Inside your head you rationalize "sustainable competitive advantages" like first-mover advantage and capturing all the good locations for rent-a-pet stores. But this brilliant idea will hit a wall the moment you try to get smart funding.

Smart investors, either who have been angels for a dozen companies or who work professionally in venture capital, have seen every brilliant idea past their door already. Sometimes a quick Google will find the idea. In the worst of cases the idea already lives, widely discussed, on half-bakery.com. Even when there isn't a direct counterpart today, there are new entrants who could copy any idea at a moments notice. The rule I've always applied when discussion new companies is simple: "If your "magic" can be lost by telling me a single sentence, then you don't have a sustainable competitive advantage".

So whether the idea is rent-a-pet, spray-on-gravy, or a web-spider that aggregates classified listings, if your only magic is captured in the description, you are in for an unpleasant fund-raising process. So what is a sustainable competitive advantage? It's very hard to pin down what "magic" makes some businesses succeed long enough to build other strengths. Most people use a description much like Associate Justice of the Supreme court Potter Stewart's description of pornography: "I know it when I see it".

Here are the types of "magic" I've seen:

1) Cornering the intellectuals - Take a PhD, his thesis advisor, and any preeminent researchers in the space and found a company around them. So long as the value they create for customers is driven by having technology that is just a little bit better than the competition, the company can derive a sustainable competitive advantage from the competitors being unable to catch that bleeding edge of technology.

2) Market share - if the technology is used by one million people, and the user base is growing at 20% monthly, is generally doesn't matter what has been created, the momentum will carry it forward. If you've created this user base by selling a $1 for fifty cents or illegal activities, other forces may doom the company. However if your business model isn't fundamentally flawed, the growth rate can build a great company before competitors catch up.

So when you are evaluating whether or not to quit your job and start a company, first consider a few simple tests:

1) Google the idea. Then have three friends Google it for you. If someone wrote about it on half-bakery or it's the basis for a dozen half-dead startups, it's probably a bad idea. If it's been funded for 10M or is the basis for a billion dollar business, the idea is probably good, but you likely aren't the one to do it.

2) If you told everyone in the industry exactly what you plan to do, you could still be successful. If describing the idea ruins it, you won't be able to keep your secrets long enough to succeed.

3) Are you talking with the three smartest people in this field of research? If you aren't, or don't know, then you are probably behind the curve.

For those technology ideas that don't require a huge investment to start, go ahead and start them. Don't spend more than $100 or a week implementing the idea, but if you start seeing exponential growth in users, you may have hit on something. Otherwise, quit as fast as you can so you can spend your timing developing the real "magic" that can build a billion dollar business.

Verizon Blackberry 8703e

I finally switched from a Samsung i700 to the new Blackberry 8703e. I'd been suffering the Windows-devices blues for almost two years with that i700. Finally I don't have to fight with a needlessly counterintuitive and time-wasting user interface.

The good: It just works. E-mail arrives instantaneously. You can't even imagine the difference this makes until you feel it. I'd been using POP3 e-mail for years. The 5 minute delay in receiving e-mails seemed perfectly normal. The blackberry delay of 10 seconds or so enables a whole new use of e-mail. Blackberry e-mail can be used like chat. The faster response time enables me to send shorter notes, confident that any details can be quickly clarified in a second speedy e-mail.

The bad: I managed to screw up the internet access. The phone was supposed to bridge my laptop onto Verizon's high-speed EVDO network, but the VZAccess software never quite connected correctly. There are so many settings in here that my inner geek, in love with fixing his own messes, has given up and sent me to re-install and call the dreaded tech support line. No amount of googling is going to fix this trouble.

All in all, the speedy e-mail and full keyboard are changing the way I view the phone. I had always assumed the old i700 and it's "mini" version of windows was the most laptop-like device I could create. The Blackberry OS, with its much better replacement of e-mail, has dramatically increased the amount of time I'm spending on the device instead of my laptop. It's hard to argue with that kind of result.

Rosarito Expeditions

Just got back from Rosarito. I'd heard about the MTV spring break side of Rosarito, but the Mariachis serenading our table surprised me. I think I've picked up the travel bug - there are few things I like better than being pleasantly surprised.