Jeff Bezos: Extraordinary Entrepreneur

This is part of my Series on Entrepreneurial Culture.

If you’d like to hear an amazing entrepreneur talk about what he’s learned about over the past fifteen years, definitely listen to Jeff Bezos in this video below.  You’ll also hear why he’s so excited about his recent acquisition of Zappos. For those who don’t have time to watch it in its entirety his major points were:

• Be relentlessly focused on your customers

• Be ready to invent on behalf of your customers

• Be ready to think long term and ignore the noise

• Zappos is a remarkable company and is obsessed with its customers

• Remember, it’s always Day One!!

It’s easy to look at the behemoth that Amazon has become today and forget that all of this started with a tiny team working out of Jeff’s house. He is a true visionary.

Notable Posts: "Read All About It"

 

London VC, "Does Operational Experience Help a VC?"

In VC deals, Price Doesn't Matter - But The "Promote" Does

WSJ on Andreesen

Don’t Raise Money: China StartupBlog

Google Translate is Awesome

I recently found out that some folks in Asia have been using Google Translate to read my blog in their language. What a remarkable tool this is. Seeing a screen shot like the one below which translates my blog post on the five myths of raising capital into what seems like Japanese is also quite humbling.

Mourning Angels: What Went Wrong With Your Investment? (Case Study #1)

This is part of my Series on Angel Investing.

Some readers of this blog who are interested in getting involved in angel investing recently suggested I do some case-studies as part of this series. I agreed and thought we ought to start by examining some typically negative scenarios that one inevitably confronts as an angel. Hopefully these case studies will stimulate some questions and further discussion from which we all can learn.

Eventually we'll work our way back to the core issue at hand: your own judgment of other people’s capacity. (See my earlier posts on this topic here and here).

(**Disclaimer: These case studies are not modeled after any person or any company in particular- they are designed for illustrative purposes only).

CASE STUDY ONE:

So you hear rave reviews about this guy long before you meet him. The people raving about him are actually some customers of his whom you’ve known for years and respect and who have successful businesses of their own that have benefited greatly from his product. You meet him. He needs some growth capital. He’s an industry veteran, a go-getter, knows the business inside and out, knows how to stretch a dollar and generally checks out at first glance. You and your small band of angels analyze the business and perform your supposed due diligence.  Things look good actually and he’s in talks with a potential acquirer. After a month of analysis and discussion, the investment gets made. 

In the beginning all seems fine. There is some initial growth, some promising leads, but after about 18 months you all realize that nothing is happening. There is no growth and the acquisition talks have broken down long ago. There is also very little communication lately.  You hear that he’s borrowed some money recently and is having trouble paying it back. You fly out to visit him. He’s friendly, but seems evasive, a little down.  He’s gained about 15 pounds since you last saw him. Now what?

QUICK ANALYSIS:

He may have got caught up in other things. He may be having marital problems. He may have made some personal investments in other areas when the going was good but then the market tanked. Remember- as an Angel, you are probably not on the Board and you are a minority shareholder.

             Q: So what are your options?

             A: Welcome to Angel Investing. You have none.

Questions for Discussion:

• So what could you have done differently? Would a convertible note have helped rather than a traditional equity investment?

• Did you really know this person? Did you make reference calls?

• During diligence did you ever meet his family, see his home, see how he lives, what his hobbies are, etc.?

• What does due diligence mean to you?
  

Let's discuss this case study and the questions I've raised.  Looking forward to your thoughts and comments.

For the next post in this Series, click here.

Deal Terms for University Spin-Offs

This is part of my Series on University Entrepreneurship.

 Everyone asks about deal terms at some point, so we may as well address it sooner than later. Let’s say you’ve now visited a few tech transfer offices and you are ready to talk to their New Ventures person about spinning out some IP into a start-up.  What kind of deal terms should you be looking for?

The reality is that every deal is different and so it’s difficult to generate a one-size-fits-all response. Also be mindful that university tech transfer offices across the country vary greatly in their approach to start-ups.

Here are some very general guidelines to a fair deal that you may find helpful, however:

• In most cases you should obtain an exclusive license to the technology in the fields in which you intend to operate

• In most cases you should seek to back-end the economics of the deal and stay away from high up-front license fees

• You should be prepared to partner with the university and let it have an equity stake in the company. (We will have a separate series of posts on equity considerations as there are many nuances here).

• You should mutually agree to some diligence milestones that lay-out time-lines for things like first product sale and in some cases capital-raised or revenue targets. These should have built-in flexibility and not be harsh

• Royalties depend a great deal on the industry in which you’ll be operating but should never be a yoke around your neck- allowing you to operate with a comfortable margin

If you’re not getting a deal done that reflects a win-win you should quickly move on, but such negative outcomes are less and less frequent. More and more offices understand the challenges of launching a start-up and, when a talented entrepreneur is at the table, increasingly have the right approach.

For Part Nine in this Series, click here

Golfing-in-Exile (2): Getting it off the Tee

This is part of my Series on Golfing-in-Exile.

We’ll get deeper into this in subsequent posts, but here are some initial tips for the GIE who plays twice a year and suddenly finds himself in some version of the following. (Tell me you haven’t been a part of this classic situation!):                       

So your friends show up to the course late, they’re still yapping on their iphones about liquidation preferences and getting rid of the CEO and of course, no one could hit balls before the round started.  You’re as tight as a board and haven’t stretched in 15 months. You’ve just seen the people at the clubhouse ring up your card for a $130 greens fee and you had to buy a pair of golf shoes with soft spikes on sale for $110 because the last time you played, hard spikes were still allowed and no one told you this had changed.  You bought a dozen Titleists (most of which you will lose during the coming round) for another $50 and before hitting a shot you’re out about $300.

You step up on the tee, address your ball and VC #1 is still in the cart getting angry at someone he’s talking to on the phone.  Your other hyperactive entrepreneur friend is moving all over the place and clearly visible in your peripheral vision. He almost hit you with one of his practice swings a few minutes ago. VC #2 is wolfing down a sandwich and potato chips not five feet away from you. Since you’re on the East Coast and it’s April, it’s still freezing and you have no “cold weather” gear because again- you hardly ever play golf.

Reality: if you don’t have my “Golfing-in-Exile Rules” memorized- you have a 1% chance of hitting the ball in the fairway.

Here’s what you need to do off the tee: (GIE RULES OFF THE TEE)

• Keep some movement in your body before you initiate the swing. Don’t just stand there like a statue and think you’ll suddenly uncork a 300 yard drive. Move a little, get some rhythm, swagger, etc. going- feel the legs and arms and waggle the club some. A golf swing is actually an athletic movement- so holding perfectly still at address will not help you accomplish this despite what you may think.

• Kick your right knee, (if you are a righty), slightly left toward the target at address, keeping it cocked throughout the swing. This will keep you centered and over the ball with a controlled swing.

• Take a smooth and deliberate backswing. Most disastrous shots (mine included) are born of the warp-speed at which people’s backswings travel, which consequently throws the whole body out of whack.

Ok- so you got it off the tee- it wasn’t great- but you’re out there and not speeding off in your cart cursing to yourself as you hurtle towards your horrific annual round.  VC friend #1 is having a fake heart-to-heart with a CEO he is “letting go” next to you. You can tell he really wants to assassinate the guy for costing him so much money. He sliced his ball into some thick bushes and obviously needs an aspirin.

 Now what? We’ll discuss in the next GIE post.

For Part 3 of this Series, click here.

Five Qualities of Great Entrepreneurs

This is part of my Series on Entrepreneurial Culture.

I mentioned in an earlier post  that I’d eventually share my thoughts about what qualities I think make certain entrepreneurs more successful than others. For me, this isn’t just idle philosophizing. When I invest in companies as an angel, or when I entrust a university spin-off to the hands of an entrepreneur, character judgment has concrete, real world consequences.

Over the years I’ve picked-up on a few key qualities that most successful entrepreneurs possess.  Below are the five such qualities I’ve identified. Keep in mind that these qualities are interrelated.

Extreme Focus & Big Energy: 

Laid-back people, folks who are easily distracted and/or disorganized do not make good entrepreneurs. Those I’ve met who drive businesses to great achievement all possess a single-minded relentlessness and intensity. At times this dedication and energy can border on what mainstream society considers “unhealthy”, but I think this trait is probably required, for better or for worse.

Ability to Do What It Takes and Multi-Task: 

Have you met folks who mention in an off-hand way that “I don’t answer emails at night or on weekends”? Or have you met folks who tell you that “people exhaust me”. How about this one: “I’m good when you give me one thing to do but don’t send me a bunch of stuff at once”. They may be wonderful people, but rest assured, they are not destined to be successful entrepreneurs. Entrepreneurs who excel always do “what it takes” and always make the extra effort.  They can handle multiple tasks on a given day often in an atmosphere of great uncertainty. Perhaps most importantly they can deal with all sorts of personality types and don’t spend psychic energy complaining about how much they dislike so-and-so.

Self-Confidence and Flexibility:

Launching oneself into the realm of the unknown takes a great deal of self-confidence. It presumes that such a person feels he or she is equipped to successfully deal with whatever is thrown their way. New ventures are all about being prepared to address the unexpected obstacles and bad news with which you will inevitably be confronted. Generals say that the battle plan lasts as long as the first engagement with the enemy occurs. Mike Tyson famously said that his opponents’ strategy coming into the ring with him lasted up to point when they first received his fist smashing into their faces. The same is true for start-ups. It’s a game for confident people who can deal with reality. They have to be confident and flexible enough to change their plans and adjust their expectations based on the feedback their business receives where the rubber meets the road.

Communication Skills:

This particular skill is not necessarily required depending on the type of business you have. In the world of consumer internet companies, for example, there are plenty of ultra socially awkward entrepreneurs like Markus Frind (Plenty of Fish) and Tony Hsieh (Zappos) who are well known for their shy and retiring demeanor. However, in the case of both of these gentlemen, it would be hard to find other human beings on this earth who are more driven than they are. (Here’s Markus describing his own killer-instincts and relentnessness: http://bit.ly/4AZDu)

In businesses that require interacting with other human beings in the non-virtual environment, however, I do believe that strong communication skills are a pre-requisite for being a good leader. You need to convince talented people to work with you and you need customers and investors to want to do business with you. Articulate, clear-minded people have a huge advantage over other entrepreneurs who lack these skills.

Enlightened Stubborness:

This is perhaps the most elusive one of all. On one hand I actually do think great entrepreneurs are stubborn. They are stubborn in the sense that when they first struck out on their own they faced down all the people who doubted them and told them not to do it and not to stray from the primrose path of job security. They are stubborn in the sense that when certain people or certain old ways of doing things get in the way of their innovative businesses, they persist and overcome this resistance. And they are stubborn to the core when customers first tell them “No” and when competitors come after them with a vengeance.

So where’s the enlightened part? Well, although I have not actually met someone with this quality in the real world, I believe that the ideal entrepreneur would have an almost preternatural self-awareness lurking inside them amidst all this primitive stubborness. For example, they would have a sixth sense about when things just aren’t working and are flexible and confident enough to change plans. They would seem to know just when they’ve reached the point at which they’ve built the business up to the highest level they were capable of and are suddenly willing to step-aside for a manager with the right management skills to help take the company to the next level. Lastly, they would have the capacity to really listen to respected advisors and to take advice without bristling.

The reality is that no one person has all five of these qualities in abundance. And if they do, they’d probably have a bunch of other foibles that would diminish the effectiveness of the ones I’ve mentioned above.  Integrity, for example, is of paramount importance and the absence of it has been the Achilles heel for a lot of talented entrepreneurs.  My points above should thus be taken for what they are- a general guide born of my own experience and not some kind of definitive checklist.  Ultimately we all use our own judgment about the entrepreneurs with whom we partner or in whom we invest.

For my video conversations with great entrepreneurs: Venture Studio

For my ongoing Series on Entrepreneurial Culture: Entrepreneurial Culture

How America’s New CTO Can Help Launch Game-Changing University Spin-Offs

This is part of my Series on Entrepreneurial Culture.

I was introduced to America’s new CTO, Aneesh Chopra, a few years ago after a rousing speech he gave in Washington DC. Back then he was Virginia’s Secretary of Technology and I clearly remember being impressed by what a great a speaker he was and just how different he was from the typical government policy wonk we’ve all heard talking in broad strokes about the importance of technology, job-creation and the like. As he was finishing his speech people actually got up off their seats and started applauding. He had the whole place buzzing.

This was obviously a guy with great intellect who was talking specifics and who brought a tremendous understanding of the tech landscape to the table. Tim O’Reilly actually wrote the definitive post (http://radar.oreilly.com/2009/04/aneesh-chopra-great-federal-cto.html ) about Chopra back in April and it is well worth reading as it outlines his qualifications, his vision and the many initiatives he brought to fruition in Virginia. This is someone who actually gets things done!

I’m bringing Chopra up because he was recently interviewed by the New York Times http://bit.ly/PIPwJ  and specifically mentioned what he’d like to see change within University Technology Transfer:

“Mr. Chopra noted that among universities, there is a wide range in how effective they are in commercializing the work of their laboratories. He wants to take the practices used by the most commercial of universities and spread them to other research facilities.”  He also stated that “…. rather than purely thinking about basic research…. the government should focus on investing in technologies that can be developed. A first step is to find ways to actually measure how much research is being commercialized.”

These statements were quite stunning to me actually. First of all, a prominent government official was unequivocally stating that some universities are doing a better job commercializing IP than others.  Second, in terms of that age-old policy debate  that pits the funding of pure basic research against the funding of commercializable technologies, Chopra feels that government must also fully embrace the latter. This is refreshingly plain talk from a senior political appointee.  

So how do we make this happen? I believe that the best way for the government to help commercialize the country’s most promising university technologies would be through the creation of a special fast-track program.  This program would selectively provide proof-of-concept funding for breakthrough university technologies suited for a spin-off. Bridging this “gap phase” or “valley of death” as it is called in the industry, is the most formidable challenge we are faced with in the world of university spin-offs.  This money would thus be used to fund the vital proof-of-principle work that really needs to get done before talented investors/entrepreneurs can be incentivized to spin-off companies from the academy. I am specifically talking about funds for beta versions of software, prototypes for medical devices and animal studies for drug discovery projects.

Obviously these emerging spin-offs would have to address the innovation mission of the Administration http://www.whitehouse.gov/issues/technology/ : Modernized infrastructure: broadband, health care information tech, electrical grid & cyber-security.

The other crucial feature of this Program would be to assemble a world-class Selection Board comprised of successful entrepreneurs and/or investors with domain expertise in the relevant disciplines. This Board would not only select the country’s best spin-off opportunities but could also help recruit the right management for them.

Hopefully I'll be able to get this message to Aneesh because I truly believe it could lead to the emergence of game-changing university spin-off companies that could have a role in helping us transform this economy.

"Conference-Room Boarding"... Does it Violate the Geneva Convention?

This is part of my Series on Entrepreneurial Culture.

Like most entrepreneurs I know I am big on keeping things moving and dislike long, drawn-out meetings.  For me, the best pitches and/or meetings are short and to the point- sort of like a hurry-up offense in football.

The worst kind of meetings for me are where everyone goes around in a circle and gives their background for 40 minutes.  We’ve all been in these I’m sure. No one gets carried-out on a stretcher necessarily but I'm sure there is some cumulative psychological damage building up for some. This format may actually be ok for groups of 2-3 people, but beyond that it gets incredibly unwieldy and time inevitably runs out before we can get to the business at hand.

Another strange meeting experience is the sort where almost everyone around the table is focused on their respective laptops for the duration.  Evidently, this has now led to the phenomenon of "topless meetings", aka no laptops allowed:   http://bit.ly/I2pcm

I love it when after folks exchange initial greetings we all quickly get down to the business at hand. Interestingly, we'll often end up having time left over to get to know each other better.

Should There be Profit in Knowledge? A Century of American Debate

 

This is part of my Series on University Entrepreneurship.

I recently hosted a talk by Geoff Smith of Ascent Biomedical Ventures entitled: Should There be Profit in Knowledge? Geoff is a fellow Williams College alum and recovering attorney who, like me, got ensconced in the world of launching companies and venture investing in the mid-nineties.  He’s a Managing Partner at Ascent which is one of the few truly seed-stage venture funds in New York operating in the biomedical tech space. He also happens to be a Scholar at Rockefeller University where he founded and teaches the University’s Science & Economics Program. (See here for his bio: http://bit.ly/gbnAC)

One thing I learned about Geoff during his talk is that he’s really a very deep thinker about public policy as it relates to university tech transfer. His lecture covered the evolution of the intense American debate in this field over the last century, from the time of the World Wars up through the passage of the Bayh-Dole Act of 1980, taking us right to the present day. His analysis wove in the scientific norms of Sociologist Robert K. Merton,  the effect of the Ransdell Act of 1930, and the pioneering work of Vannevar Bush (one of the gentlemen pictured above), who drove so much of the ground-breaking government policy in this field. Lastly, I'll say that Geoff’s conclusions were not what one might have expected from a venture capitalist. He has a real reverence for the singular importance of basic research to our society.

I left the talk and ensuing discussion with both a deepened historical perspective and greater appreciation for the transformative effect on our society that a century of American policy evolution in university tech transfer has wrought.  I also emerged perhaps with a keener understanding of its boundaries.  Fascinating stuff and many thanks to Geoff.

For Part Eight in this Series, click here

Raising Capital (2): Five Myths About Raising Capital

This is part of my Series on Venture Capital.

Let’s start by dispelling some myths about raising capital.

Myth #1: That because you've started a company, someone ought to fund it.

Fact: Actually, no one owes you anything. VC’s are in business to make money, not to take a bunch of fliers.

I am consistently amazed at how often I hear people complaining about how “vc’s don’t want to take any risks”.  Of course they don’t ! They want to de-risk deals as much as possible. Venture capitalists are already in the highest risk class of the alternative investments category.  Definitely keep this in mind when you are pitching your company to investors. Remember, fewer than 1% of start-ups actually receive venture funding.

Myth #2: That a first-time entrepreneur can raise Venture Capital money.

Fact:  Of the less than 1% of start-ups that actually receive venture backing each year, you can be assured that with few exceptions the leadership/track records of those companies are well-spoken for in the venture community.

If you are a first-time entrepreneur, 99.9% of the time you will be looking at funding your company with your own money, friends and family money, or, with angel money.

Myth #3: That investors will actually read your business plan

Fact: Investors do not read business plans. If they did, they wouldn’t be able to get any work done.

The way deals get done are through referrals to investors from trusted colleagues. A one-page executive summary is an acceptable way to initially share one’s company profile with an investor.  So never bother sending your 50+ page business plan  to someone unless they’ve asked for it. If you don’t believe me, see these links below from actual studies that have been carried out.

http://bit.ly/O4kO4   http://bit.ly/Cj92J

Myth #4: That a first-timer can raise money without serious proof-of-concept.

Fact: Unless you are Marc Andreesen or an uber-successful, cashed-out entrepreneur who has made his investors a lot of money, you will need to demonstrate a certain amount of traction before professional investors will even consider investing in you.

What I mean by this is as follows:

·        If you are a biotech entrepreneur, you will need to show at least strong results in animal studies.

·        If you are a medical device entrepreneur, you will need to show a working prototype, validation and support from multiple clinicians who would use such a product, as well as a clear path through FDA approval.

·        If you are a tech entrepreneur, you will need to show heavy traffic and consistent month on month growth to your site.

Myth #5: That because you have spoken to a venture capitalist about your company you are “in talks with investors”.

Fact: What this simply means is that you met someone that may or may not be interested in your start-up.

Spare yourself a lot of heart-ache and lower your expectations. If you’ve had a conversation or pitched someone who happens to be an investor, don’t get your hopes up until they are actually ‘in diligence’ and you have a term sheet.

Angel Investing (3): Judging the Team

               

This is part of my Series on Angel Investing.

Another observation I’ll make is this. With the advent of the internet we’ve obviously seen a remarkable democratization of information and in particular, unprecedented access to heretofore difficult-to-obtain information. Previously arcane disciplines such as venture capital, for example, have been “opened-up” and laid bare for anyone with a laptop and some free time to explore.  Chess is another example. In the past decade the internet and sophisticated chess software programs have created the phenomenon of the 12 year old Grandmaster! No longer are years of practice and study with dusty old chess tomes and wizened instructors required for a really talented human being to acquire the knowledge needed to ascend to this kind of playing strength. Now 10 year olds can course through thousands of classical grandmaster games with the click of their mouse and, through pattern-recognition and raw talent traverse in a few years’ time a landscape that required almost a decade of study only a generation ago. Do we even need to discuss the technological revolution we’ve seen in golf? Videos, DVD’s, handheld GPS devices to tell you the yardage, hybrids, belly putters, and titanium shafts lined with kryptonite. Everyone has access to equipment that Sam Snead could have only dreamed of.  We now see things that are shocking to the senses as a result. I already mentioned the spectacle of the baby Grandmaster in chess. What about that celebrity golf event I stumbled upon on TV a few years ago? Remember that kid actor from the movie Sixth Sense who could “see dead people”? I watched this tiny fellow stride up onto the tee like King Kong, suddenly pull out his driver like it was Excalibur and start smashing huge drives way out there on every hole. I think he was hitting it past Marky Mark. He'd probably hit puberty by then but still looked like he was maybe 15 years old to me. No doubt he’d shelled out a lot of his movie royalties for professional golf instruction out in L.A.

For the most part though, most of us who are not quite in the league of the Andreesens, Kasparovs and Tiger Woods’ of the world are simply walking around with an immense amount of superficial information in our heads. (Certainly an order of magnitude more than our parent’s generation). Thousands of Google and Wikipedia searches, films, DVD’s and the like are no doubt responsible for this.

And in this particular context- which involves the judging of entrepreneurs, you’ve simply got to be aware that plenty of people looking for funding have read pretty much everything that’s available on the net having to do with raising capital. So what I’m saying is that a ton of entrepreneurs you’ll meet all “know what to say”.  You’ve just got to get good at seeing when they don’t “know of what they speak”.

The bottom line is: just look for authenticity. You’ll know it when you see it.

For the next post in this Series, click here.