Concrete Covina

That's an RBI

That’s an RBI or “Richard Branson Idea”

I’m going to pick on the guys on my side of the venture community fence.

Over the years, but in particular, over the last few months I’ve been approached by fellow entrepreneurs, who have a “hey I’m going to start a business” great idea. 

To be precise though, the ideas have been great BIG ideas. 

And that’s the problem.

I’ve given these sorts of ideas a name – and in honor of Richard Branson – I’ll call them Richard Branson Ideas – RBI for short.   In addition to the notion that you can hear them coming – literally – hear them, RBIs’ have 5 markers:

·  It’s completely Boardwalk-and-Park-Place-with-Hotels BIG. 

·  It usually requires, at a minimum, $25 million from the get go to kick start. Most of these ideas though, require a lot back-up-the-truck more. 

·  It always relies on a couple large partners to – at the same time – get on board with the idea.  Think NASA space docking guy with the vest asking for updates “same time” synchronization.

·  It usually involves a national rollout.  Not Covina, California one deli store rollout but national 7 Starbucks ine one city block rollout-ness.

·  Typically – the entrepreneur doesn’t have vertical market domain expertise.

RBIs usually have some financial model that scales wildly.  “Imagine I can get $ 0.02 cents per commercial aired on TV” says my wide eyed peer, “this business would make 8 kabillion dollars in

4 years”.

Regarding the RBI markers – here’s how to come down out of your hot air balloon:

·  Remember that good and great business ideas scale.

·  Most VCs (the sane smart one’s) invest incrementally. 

·  Idea’s that require 9 planets to line up rarely make it past concept stage.

·  All ideas rollout with one step forward

·  Become an expert on your vertical.  No excuses.

Now I’ve been guilty of having my own RBI.  I think any entrepreneur worth their Morton’s Salt has one in their sordid past. 

But let’s face it.  Only the Richard Branson’s of the world can pull off a Richard Branson idea. 

A full time job...

Lately - at least over the last month or so for reasons I'll skip - I've reflected a great deal on the amount of time and effort it takes for members of management, mainly the CEO, I think it takes to "close a venture round".

A while back, about 4 years ago actually, the Colorado Internet Kiertsu / Brad Feld asked me to give a presentation my fundraising experiences.  In that presentation, I had a slide called "tools comparison".  It was the kind of slide that would make Seth Godin cringe.  It was basically a table and it was designed to convey the notion that as you raise more money in later rounds - the tools you use grow increasingly more complex, and more exact in nature.  Since this was me telling the story of how we raised money at Vstream/Evoke/Raindance - it culminated in an analysis of the toolset I thought was necessary to execute your IPO.  Using the Seth Godin method - I'd probably verbally deliver the same message but the imagery I would use to interweave and emphasize my points would be something along the lines of a gorilla growing increasingly beastly...

Anyway - a point central to this experience that I tried to share and that I am sharing now - is that in the earlier rounds - it's usually more than one persons full time effort.  And as you raise additional funds in later rounds - it only gets worse in terms of time and effort required.  And that's the point I want to make here. 

It's a full time job.  If you're part of a start-up team and you're raising money - get it through your Neanderthal noggin that this is a full time effort.  100%.  Ask anyone that's done it - and this is what they will tell you.  If you approach your fundraising with anything less of an expectation - or worse you approach it with a yeah-yeah sure-sure attitude but not the action to back it up - you're designing a higher risk process to a critical function of your business.  Be aware.

Mistaken Attribution and the self correcting process

Are you guilty of mistaken attribution? 

I’m not sure why but I see mistaken attribution a lot more lately.  

“Mistaken Attribution” is my term for a behavior seen in some folks where they “mistakenly attribute” someone else’s' hard work and success and claim it for their own.  It's more than plagiarism (worse) because it isn’t an action or condition the afflicted typically try to hide.  Somehow stealing and showing it - is worse then just stealing.

Come to think of it, to suggest it is hidden is wrong.  Mistaken Attribution is usually in your face and it's almost always rude.  Mistaken Attribution is always obnoxious and it is always short-sighted.  It is - most certainly - a behavior based on weakness and ignorance.

I see it around.  More lately.

In an operating business, you see it in people that work for a company that once was great. 

The once great company got there because others worked really hard and worked very smart to get it there. 

But often the once great company is no longer great.  Sometimes it is struggling or worse, failing.  In these company's I'd guess that new folks have joined the business and they somehow have mistakenly attributed the number one position their company enjoys (or used to enjoy) to their own mediocre efforts.  And so the demise begins.

To say nothing of not working hard, these folks often drop humility and general polite behavior and before you can say “Wal-Mart” – poison their once-great company by treating everyone with an imperialistic air that would make the Queen of England flinch.

Short Google when you call them and the new guy acts like his BS from State is the same as Sergey's PhD.

If you’re an entrepreneur and your company has enjoyed some success - look for and root out mistaken attribution.  It will kill your good thing.

In the venture capital profession you see it displayed by some associates or junior partners or non-founding partners.

They are usually the ones who have yet to materially achieve or materially return anything but somehow, someway it has seeped into their grey-matter brain-bucket that the great things, great accomplishments, impact returns their partners achieved - have somehow, someway become a part of their own accomplishments, and their own success. 

They act without humility, grace or the minimum politeness.  They mistakenly attribute to themselves others real world experience, real world return and in the process fail before they have  begun.

Brad Feld called out once his appreciation for "the law of self-correcting process".  Does it apply here?

Vericept to buy BWBox

In an effort to educate myself deeper in the process of the venture capital profession - I made 10 investments directly as an angel investor.

I no longer actively angel invest.  I want to let my portfolio mature - plus I'm full time as a CEO of Oxlo - a company I co-founded 18 months ago.

Yesterday - one of my investments - Vericept - announced that it was acquiring another one of my investments - BlackWhiteBox.  I won't go into the details of what these respective companies do (check out their websites to get the skinny).  Both companies were doing great - the combined companyies will do even better.

Congrats to the CEO of BWBox, Shaun McNerney, and the team at Vericept.  Shaun enters the rare realm of being a successful two-time entrepreneur and Vericept is rocking.  Again - Congratulations!

Ownership

I think ownership matters.  In fact - I think it is the difference between indifference and attachment.    It's more than a title - that's for sure. 

In times when I have discussed team members on my company's teams - I think one of the highest compliments that can be paid is - "she thinks like an owner"...

What I'm talking about here is the idea that a new company really hums - really hits its stride - when the employees - the early ones - take "ownership" of the business.  It's more than just the options they're given when they hire on and it's more than the additional options they get for hitting that extra milestone.

I guess this doesn't apply to just new company's but ones that have been around forever - the kind that have one or two letter stock symbols - if you get my meaning.

I think it has a lot to do with the synchronization of the employee's personal and professional aspiration, their personal and professional hopes and desires and the success of the company in general. 

I believe that if a Leader of a company, a CEO for example, can communicate a clear and direct and exact connection between the team members' personal/professional success and the company's success - the end result is ownership.  This ownership isn't as tangible as the aforementioned class of ownership.  It's not represented in share count or percent of company. 

This doesn't just apply to the CEO I guess but probably any team lead in any company at any level.

I think a core responsibility I have in my new company is to learn about my team members' aspirations and personal and professional goals and help connect the dots between the achievement of those goals and dreams to the success and achievement of the company.  There are more parts to what I do - but I believe that this is core.  I believe I have a responsibility to assist is this goal achivement.

( Would you be surprised if I told you that this can be mathematically & financially calculated as a net present value number.  Sure - it's built on assumptions, some stronger than others. I had a boss do this with me once in the Air Force right after leaving the Academy.  Now that was an eye opener.... ).

I look at a number of company's in the press today (United Airlines for example) and I guess it's a strecth but I think that a host of problems - most of the problems - suffered by the you-name-it Fortune 50 companies - are this type of "ownership" related.   

Connect personal aspirations to the success of the company and you get employees that think like owners.

Everything-Assured Capital

So I’m in the meeting: we’re discussing the state of our market and I get asked the question:  Why enter this market now?  Why not wait until there are 4 or 5 competitors and a couple of major analysts covering your market?  The preamble by the questioner was along the lines of “we agree with your market premise – that what you’re doing is where the market will go – and we agree that you’re first in the market – and we love the team”.  My answer is well – it’s “venture” capital isn’t it?  I mean – it’s not “everything’s assured” capital is it?  This is our profession is it not?  You’re the venture investor and I’m the risk-taking entrepreneur.  We form a symbiotic relationship that in the best circumstances rewards our risk taking.  I mean this isn't Government Bonds Capital right? 

I’ve been away from my blog.  I had to.  I’m committed to candor as a way of “being” and if I was blogging consistently during my fundraising process – I would have basically published a day by day blow of events detailing the nitty-gritty dirty nasty highs and lows.  I’m certain this would not have been a good thing. 

By putting time in between my experiences and my blogging – I can protect the innocent (that would probably be me but in all candor would be half the folks I met with).

So we get the phone call: “we need to see your deal – you are absolutely in our fund focus”.  My thoughts are something like “wait – that’s not right – these guys principally focus exclusively at old-man-telephone-services intense capital plays – how in the sam-high-holy-hell are we within their fund focus?  But we take the meeting – in part because I want the drill.  I want the questions and want to practice the answers and give me and my team a “test the waters” event.  I want the out-of-body experience of pitching and grading how we pitch.  I get a little delusional though.  Part of my seriously believes – “these guys actually want to hear our story” and “these guys might actually invest”.  But what I learn is what I suspect.  These guys are tire-kicking for the data point.  They learn pre-money and post-money and the associates get to write up deal-flow activity (substantiating their purpose).   We have the pass before we start.  The purpose was never to actually seriously consider the investment.  It was a spiteful teach-you-a-lesson puppet-string pull from high above motivated by a specific set of events years ago – in a board meeting - when allegiances were adjusted – not to everyone’s liking.

So we hear the pass:  “we think it’s too early; we’re not sure about the technology: we can’t get our head around blah blah blah blah blah blah blah blah”. I’m on the phone and I’m acknowledging this feedback but I’m thinking back to the days when I was an Air Force Academy cadet and we – as college students would be suspicious that our term papers weren’t being read.  That we should turn in our 30 page paper in with pages 17 and 18 stapled together (near the left margin so a quick flip doesn’t reveal the obvious) and see if we get it back with the staple still in place but with a grade on it. But we didn’t do it.  I think it had something to do with the catch-all we-will-get-you-if-we-want-to-get-you uniform code of military justice uber-regulation – “conduct unbecoming of a cadet-office candidate”.   I’m thinking (during the blah blah blah portion of the call described above) that “this guy hasn’t read anything we’ve sent him.  He’s generalizing so that he doesn’t disclose he hasn’t dug in.  If I press him – he’ll side-step and hit harder on his general-level negatives but still generally.  I can press him specifically and put a light on his lack of knowledge but to what end?  What will it get me?  It’s a bell curve profession and I conclude he’s on the left side of the bell probably 1 sigma left and he’s in stuck in the profession until the self-correcting process of our profession filters him out. 

Well I did it again.

In all of the meetings I’ve had raising capital for company’s I’ve been a part of I’ve only done it once before.  Numerator = 2 and denominator = about 100. 

And the first time was after a 20 minute verbal assault where we had been set up to be taught a lesson. It really had nothing to do with our deal – or their interest. 

What it was – it was really just some strings had been pulled and one VC doing a favor for another).

Basically back in 1999 while raising our Series D - $100M round for what was then called Evoke – my co-founder and I were hammered by a purposely bad tempered, unprofessional proverbial you-know-what-hole for not knowing where our lead investor stood on our round and how or why a potential local investor might participate in the round.

Simply - we were set up.  And after taking 20 minutes of being screamed at – we shut down our presentation at slide 3 and packed up.

And I did it again yesterday.

Basically after realizing that I hadn’t finished one of the 20 sentences I had started in response to 20 open ended – I don’t have a clue where you want me to go questions – and looking at my laptop stopped at slide 3 – I did it.   Actually finishing sentences implies I was close to finishing.  I was consistently cut off at word 6 of every sentence. 

It might have been the blue blood affectation.  It could have been the “I’m the smartest human on earth” boredom having to tolerate sharing physical space with us.  Maybe it was the smarmy smirk.

I shut down my laptop and I packed up.  And I waited patiently.  This too shall pass.

Working With Microsoft...

Forgive me – but I am going to be prescriptive as hell here.

If Microsoft is “around” your business in a non-competitive way (meaning a partner, supplier, supporter, etc.) then do and don’t do the following (and for the purpose of writing here – I will refer to a Microsoft business relationship – or counterpart – as an MS POC or Point Of Contact.

These are my lessons learned as a result of having a great partnership with Microsoft in my last business – Raindance Communications and the success we are having with Microsoft in my current business – Oxlo Systems.

There are probably a lot more do's and don't's then I've listed - but this is a start anyway - and something that occupied my time on a place from Columbus, Ohio to Ann Arbor, Michigan.

Do:

§ Systematically and exactly understand where your everyone of your MS POCs exists in the Microsoft organization structure.  At Microsoft title and place in organization chart matters.  The MS POCs all understand this.  Find out where they sit in the big giant Microsoft organization chart.

§ Ask every MS POC somewhere in your first conversation with them “how are you measured?”.  I believe that every Microsoft employee turns in some sort of progress report on a regular basis to substantiate their efforts to their assigned objectives (trust me they have them and know then and some will explicitly share them with you).  What they are measured on is written about in this report (No one has told me but I will bet you meaningful cash that they turn these in on a regular basis).  You matter to your MS POC if they can write about you in their progress report.  Asking the “how are you measured" question will tell you what they want to write about and what you have to do to matter in their world. 

§ Get on an Airplane and go to Redmondon a regular basis.  How often?  I’m not sure – enough that you and your MS POCs are familiar with each other enough that they can recognize you.  You can do some of what you want to do by phone – but only so much. Get on a plane and be in Redmond redundancy intended here).

§ Work every angle to know as many people at Microsoft as possible and how they matter to your business.  Know the MX local support people.  Know the Redmond people that support the local MS people. Know the applications group that matters to your business both in the marketing side of the business as well as the development side.  Know the vertical people that are watching your vertical.  (Trust me – Microsoft has every Fortune 2000 company assigned to someone that cares about how that company is adopting Microsoft technology)  Know what product groups they work in and what VPs and SVPs and GVPs they work under.  Know the local MS Consulting guys consulting your end customer.  They know the budget cycles of your customer, the technical review process by your customer, the decision maker in your customer’s hierarchy and they had dinner with that person last night.  If you sell or help sell or make Microsoft matter in their world – you and that local MS POC have something to talk about.

§ Email your MS POCs regularly about your business but don’t over do it.  Email them about your progress and keep them up do date.  Microsoft is an email culture not voicemail.  CC who matters in your Microsoft world.

Do all of the above to further your interests.  If you focus on making your business work and coordinate with Microsoft – they’ll be able to see a good thing when they see it. They will help in meaningful, measurable ways (which is usually you selling more of your product which in theory based on the premise of all this – is in their interest).

Don’t

§ Don’t ask your MS POC to “make your business”.  What I mean here is don’t go ask for Microsoft to do anything for you are until you are on firm ground in your marketplace and they can directly see the benefit of working with your company to achieve their measured goals (see above – Do # 2). Let me be clear here:  Microsoft people have about 1000 companies a month come to them with some far fetched idea that if they partner with your company – they you can sell a million something’s. Doing this will lose you everything in their eyes.  It can make you look desperate with relates to my next point.

§ Don’t kiss your MS POCs you know what.  Microsoft is an aggressive culture where having your act together matters and being subordinate to get further with them doesn’t help you. 

§ Approach them without your act together. Be well prepared and know your stuff. Don’t waste their time.

Not everyone calculates an IRR --- Investment Stage Matters…

Not all venture firms calculate an expected IRR.  Some venture firms – especially those focused on early stage investments – will regard the need to calculate an IRR as unnecessary, impossible, and even irresponsible. I’ve heard this more than once.

Why?  Because the earlier an investment – the more the ability to calculate a return is complete guesswork.  I have directly experienced this.

At a minimum – all firms “eyeball” an opportunity – and or do quick mental calculations of expected cash on cash return based on an investments business model, space, revenue potential and other areas of analysis germane to the deal.  I’ve observed and participated in this process.

The degree to which any of this is done is a function of the partnerships culture – or the firms’ investment process (the steps required by a partner or principal to “get a deal done” within a firm).  This is entertainment and I’ve enjoyed seeing this process execute.

The more mature an investment – the more likely an IRR – carefully calculated – matters and makes sense.  I believe this.

The question becomes – at what stage in maturity does calculating an IRR make sense and mean more than guessing?  I like the grey areas.

Fenwick & West

If you track terms and conditions and valuations and other key financing metrics in venture rounds - this newsletter / analysis publised by Fenwick & West is a must read.

A copy paste of that newsletter reads:

Results for Q404 showed continued improvement.  The Fenwick & West Venture Capital Barometer™ showed a very healthy 36% average price increase for companies receiving venture capital financing in 4Q04 compared to such company’s previous financing round.  This was the highest quarterly increase since we started the Barometer in 1Q04.