Master of 500 Hats

Silicon Valley Angel Investing and Incubation 2.0 (Hong Kong Cyberport Venture Capital Forum)

Below are slides from my talk today at the Hong Kong Cyberport Venture Capital Forum conference.  I'll be speaking about angel investing & incubator programs in Silicon Valley, and my experiences managing the FF Angel seed investing program ($2M US, 2009) and fbFund REV incubator program ($850K US, 2009).

Startup 2.0: From Silicon Valley to Hong Kong

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Startup 2.0 talk at Canada National Angel Summit conf

Slides from my keynote tonight at the 2009 Canada National Angel Summit conf:

Startup 2.0: A Silicon Valley Story

View more presentations from Dave McClure.

RethinkHawaii.com (Nov 1-5): Come Get Your Geek On.

Sometimes we all need a little time to Think. Time to get in touch with our Inner Geek.

Time to get in touch with Water, Land, & things Blue-Green.

Time to meet friends across the Pacific in the Middle.

It's time to...

RethinkHawaii.com

Come join us Nov 1-5 in Oahu for tech, green, clean, and mean social media... register now using code REDPILL, and save over $600 off the normal conference fee.

RethinkHawaii will feature a conference of mini-conferences around:

• Startups & Startonomics
• Sustainability & Clean, Green Tech
• Social Media & Business
• East Meets West (Internet Asia)
• Hawaii Unconference

Check out who's coming... including Pierre Omidyar, founder of eBay and the Omidyar Network.

hope you can be there with us, to think about what's coming next :)

Glenn Kelman has some good reasons i might be wrong

Glenn Kelman is a friend and experienced entrepreneur i respect.

He presents several reasons i might be wr... wr... wr... wrong.

Well, i guess it has happened once or twice before.  (COUGH)

Gordon Gekko 2.0: Flipping is GOOD. (aka Memo to Jason Fried: Sorry, You're Fucking Wrong.)

[clarification: i was a private angel investor in Mint's A round back in early 2007, when i was also doing some marketing consulting for the company. i was not directly involved in the Founders Fund investment in Mint's C round a few months ago. the comments below are primarily drawn from my personal experience with the company before i joined Founders Fund]

[disclosure: the views expressed below are my own, and do not in any way represent the official position or perspective of either Mint.com or Founders Fund.]

Dear Jason Fried:

Sorry, You're Fucking Wrong.

    Flipping is GOOD.

Let me explain...

In a poorly-researched post titled "The Next Generation Bends Over" (cute) penned a few weeks ago by Jason Fried, founder/CEO of 37 Signals, the author attempts to make the case that:

1) VCs behind Mint.com forced founder/CEO Aaron Patzer into $170M acquisition by Intuit

2) it's a growing trend "indicative of VC-induced cancer that’s infecting our industry and killing off the next generation"

3) young entrepreneurs should be more bold, audacious, go all-in on their vision, in order to "kick the ass" of the collective incumbents / dominant players

In order, these assertions are:

1) Fucking Wrong, and Irresponsible Conjecture & Hyperbole

2) Completely Wrong, and in fact Exactly the Opposite trend is going on, and finally

3) Wrong in most cases & crap advice for young entrepreneurs.

I'll now address each point specifically, and explain why Jason Fried -- although in his own right, an accomplished entrepreneur, whose products i use and respect -- is full of shit in this particular instance.

The VCs behind Mint.com Did NOT Force a Sale. Do Your Damn Homework Before You Speak.

First & foremost, while i respect Jason's opinion and right to post whatever the fuck he feels like, his article was -- by his own admission -- not based on any fact-checking.  At the beginning of his post, Jason states "i don't know the full back story, but i bet this sale was encouraged by a Mint investor."  IMHO, this is just incredibly irresponsible: you're a *very* visible figure ripping other folks on mere conjecture.

Perhaps you might want to contact one of these investors -- who, like me, are all publicly listed in Mint's entry on Crunchbase -- and ASK one of them, before you blow such a wild assertion out of your ass? You probably know several of them, and certainly through your connections it would be fairly easy to reach one of them to confirm or deny your suspicion. While i don't expect folks who aren't breaking-news bloggers to follow basic journalistic principles, making such an accusation without the tiniest shred of evidence is lazy at best, and borderline slanderous at worst.

Or, if you're simply too damn lazy to do some basic research, maybe you could just ask any experienced entrepreneur or venture investor why in the hell would it make any fucking sense for Series B investor Benchmark to encourage a sale that's likely only 4-5x its investment, or Series C investors who just put money in 30 days ago?  or do you somehow think the seed or A round investors were controlling Aaron's actions with a car battery attached to his balls? if you had any knowledge of Aaron whatsoever, you would know that he is one confident sonuvabitch who RARELY lets anyone force him into doing anything.

In short, your logic here is not only faulty, it's piss-poor and reveals your absolute ignorance of what goes on in the venture world.  Sure, you're absolutely correct there are some VCs that might force an entrepreneur's hand -- however, in most cases IT'S IN EXACTLY THE OPPOSITE SCENARIO of what you suggest. They usually want the entrepreneur to stay in the game, NOT sell, and aim for a larger / later win -- typically by FORGOING an acquisition and instead taking a round of capital -- which, in fact, was exactly what Twitter did when you were hypocritically whining about them last week.

Although there may indeed be examples of VCs forcing an entrepreneur to sell to get liquidity to investors, it's not at all typical and usually the opposite of institutional investor motivations.

The "Growing Trend" in Internet deals is towards More & Smaller Acquisitions.  But it's not because of VCs, or the Financial Crisis, or Sarbanes-Oxley.  It's because the Web is Maturing, and Internet Platform Giants are outsourcing / buying Innovation.

The second point that Fried asserts is that this is somehow a growing trend, and that VCs are changing the industry, "killing off the next generation" of entrepreneurs by forcing premature acquisitions. Again, nothing could be further from the truth... and in fact, the EXACT opposite is the notable trend going on in the industry right now.

First it should be noted that M&A have always outnumbered IPOs, but regardless IPOs basically shut down in tech after 2001 due to the dot-com blowup.  Subsequently, many armchair analysts have stated that Sarbanes-Oxley legislation has made it more expensive to go public. Others have noted the financial crisis ending as a reason for more acquisitions.  Still other conspiracy-theorists like Jason think VCs seeking liquidity for investments are at fault.

While any of these may be contributing factors, the more basic trend is this: there are now tens, if not hundreds, of large online platform companies with millions of users and positive cashflow.  In addition to Google, Yahoo, & Microsoft, there are also eBay, Apple, Amazon, News Corp, Facebook, AOL, CBS Interactive, ComCast, IAC, etc, etc, etc. There are tens of companies that can pull the trigger on a <$500M deal, and 100s that can do a <$100M deal.

What's fundamentally different in the last ten years is that most big companies didn't have a need or facility for acquiring web startups.  They didn't understand them, and couldn't figure out how to integrate them into their business.  However, as the Internet has matured, ALMOST EVERY company is now a web company, and the Internet is both a primary and low-cost distribution channel.  It is now very easy to integrate a web-based acquisition [at least from a technical standpoint... might be more challenging re: politics & fiefdoms].  And since most innovation doesn't happen at big companies, it's almost guaranteed that we'll see more acquisitions of small startups to help grow larger company platform strategies. 

In fact, as more platform companies compete for deals, you'll likely see deal size go down as they try and acquire products & talent ever earlier in the startup lifecycle.  There's no need to wait for companies to become $1billion-dollar powerhouses -- it's much more capital efficient to acquire them after they've proven out basic technology & gotten a little elbow in their customer adoption.  Why buy it for $500M a few years later, if you can buy it for $50M now?  I'm sure this was part of Intuit's thinking about Mint... as soon as they saw the Series C deal go down, they realized if they waited another 2-3 years, the pricetag might go up even further.  So they cut a deal now.

This particular trend is what is scaring the shit out of big VCs right now.  Both lower capital costs for startups and lower average exits for acquisitions are screwing up large VC firm strategy.  Fred Wilson and others have written about this, & experienced investors like Alan Patricof have downsized funds to under $100M to make them more manageable in this "small-ball" environment.

While this trend may negatively affect some VCs, it's actually a very positive trend for angel investors and smaller VC funds, and it's an especially GOOD trend for entrepreneurs.  This creates a great market environment for small investment / small exit deals that are exactly what Web 2.0 entrepreneurs are serving up. In other words: the Future is Bright, Time to Buy Sunglasses.

Why Flipping is GOOD, & Why Young Entrepreneurs Should Probably Sell Their Startup Sooner than Later.

Finally, i'll make an intentionally controversial stmt:

 Young Entrepreneurs Should Sell Out Early (and not Late or Never)

Why?  For the same reason Why Dogs Lick Their Balls -- BECAUSE THEY CAN.

Look, i'm not trying to get anyone to sell their grand vision short.  If you've got a great business to build, by all means give it your all and run it forever.  However, for most entrepreneurs it's not going to be the only business they do in their lives.  And for the young entrepreneur -- particularly those under 30 who've never done it before -- the single best thing you can do to ensure your future success is TO GET A DEAL DONE. It's heroic and glamorous to "go all in", but realize that many times that means you may come away with NOTHING.  Playing well sometimes means you take a single or a double instead of getting thrown out trying to steal home.  And sometimes it means just taking 4 balls and getting on base.  However you play the game, swinging for the fences every damn time may work for Babe Ruth and Albert Pujols, but i'm personally more a fan of Ichiro Suzuki and Billy Beane. Small-ball and MoneyBall can be just as beautiful as a homerun.

it almost doesn't matter how large or small it is (altho firesale acquisitions don't count), the ability for an entrepreneur to have future success is typically judged by historical metrics.  and since most startups FAIL, the fact that you can take a startup to ANY size exit proves you can beat the odds, and that you may have the ability to do it again.  Once you have a deal under your belt -- whether it's a $3M deal, a $30M deal, or a $300M deal, you are bankable.  People will bet on you again. Investors, Partners, Employees, Reporters, etc will all believe you can do it (sometimes to their detriment, because again the odds are most startups fail -- even those by previously-successful entrepreneurs).

In addition, contrary to all these haterz who paint acquisitions as a bad deal or a sell-out, i actually think it's a great thing -- imagine being able to take 3-5 years to build a product, develop it to some level of usefulness, grow customers, build revenue, and then sell to a larger organization that decides it could use that innovation to help their business where it sees new opportunities.  Isn't that awesome?  Isn't that a vision fulfilled?  How about the fact that you can perhaps after a few years go back out & do that again?  Why is it that no one seems to think switching jobs every 3-5 years is a bad thing, but somehow think that selling your business to someone who really wants it and will grow it isn't terrific?

More Transactions Grow The Market. Startup Ecosystem Efficiency Raises All Boats.

Lastly, here's the thing i really want to stress, more than peeing all over Jason's post: more transactions of any kind or size help improve overall startup ecosystem health.

Fact is, startups operate in a financial system that is inefficient, illiquid, and challenging to manage.

Venture Capital exists because startups are generally deemed too risky for debt capital, or for traditional financing. This item is often overlooked by entrepreneurs (and investors) who view the VC field as glamorous and confident, when it fact it is mostly ignorant and risk-averse.  VCs like to maintain asymmetric information advantages over their competitors, and sometimes even over entrepreneurs.  Keeping competing VCs, and even sometimes their own LPs & entrepreneurs in the dark about value and pricing is sometimes in their best interest -- it KEEPS PRICES DOWN.  However, infrequent financing round / transactions and lack of objective pricing actually don't serve the interests of entrepreneurs.  As with most markets, liquidity and transparency provide the enabling mechanisms to grow the market larger and to reward market participants more richly.

This is a non-obvious point. 

More & smaller transactions in the market actually improve ecosystem efficiency, and provide better pricing transparency.  In the long-run, it benefits all system participants for small transactions to occur, because it makes the overall market more knowledgeable -- this in turn, reduces risk and encourages greater investment... which also encourages greater [overall] returns.

In summary, the benefits of selling startups early -- or simply when a transaction is available -- may be a smart strategy for both entrepreneurs and VCs to help improve the market, and reward themselves at the same time.  It may not be the best strategy for Bill Gates, Steve Jobs, Mark Zuckerberg, or other titans of industry, but it might be a reasonable strategy for 1st-time entrepreneurs under 30 looking to establish their careers & ensure that future endeavors are more likely.

And Jason: now that i've ripped you a new one, i'd like to apologize for all the harsh commentary and say that altho i disagree with you on this issue, i still think you're an amazing entrepreneur, and i still use your products. Happy to buy you a beer and shoot the shit anytime.

Hit it Gordon:

Startup Metrics for Pirates: SeedCamp 2009 (Sept 2009, London)

Same old shit, just a different day (+ 1-2 new slides, not much tho):

Startup Metrics for Pirates (SeedCamp, Sept 2009)

View more documents from Dave McClure.

LAST CHANCE for GeeksOnaPlane DC/Europe 2009: Countdown in 7 days...

COUNTDOWN to GEEKS On a PLANE in 7, 6, 5, 4, 3, 2, 1...

We're getting everything ready for the upcoming GeeksOnaPlane.com trip to Europe, which begins with a kickoff event in Washington, DC next Friday, 9/18.  For you folks making last-minute decisions, better hurry up!  You can register for the tour here if you'd like to join the main tour group.

Note: although some of our events will be available to the public at each local city & venue, many of our meetings are by invitation / priority for those who register with the core travel group (including the DC event at the White House with the Digital Media team & State Dept Innovation team, and also for SeedCamp Week in London).  If you live in one of the tour local cities (DC, London, Amsterdam, Berlin, Prague, Paris) you can also register for individual events on the GoaP website (individual event registration will be available shortly, after we finalize reservations for the core travel group).

An overview of the entire tour is below:
(and yes, we're still interested in more sponsors!)

GeeksOnaPlane DC/EU 2009

View more documents from Dave McClure.

fbFund REV: Our Summer of Social Startups

I'd love to write a longer post about the fbFund REV social incubator program i've been running this summer, but tonight we're getting ready for our investor demo day presentations tomorrow, and it may be a long night before i get to sleep.  for a more in-depth review of what we've been up to, check out the Techcrunch post on the fbFund REV Summer of Social.

in the meantime, checkout the video below of me pimping REV, and tune in for our fbFund REV webcast live on ustream Tuesday, Sept 1st at 1:00pm PST for all our fbFund company presentations.

fbFund REV: We Make Startups Social from fbFund REV on Vimeo.

Join GeeksOnaPlane for DC (9/18-19) & Europe (9/21-10/2)

Want to meet geeks, startups, VCs, and other folks in DC and/or Europe?

Come with us in September for the next GeeksOnaPlane.com trip!

Here's our current travel plans & agenda (note you can join us for just one city, or for the entire trip):

• 9/18-19: Washington, DC — Tech & Govt Meetup, Startup2Startup dinner
• 9/21-23: London — SeedCamp Week
• 9/24-25: Amsterdam — Picnic Conference
• 9/26-27: Berlin — Ignite, Startonomics, Startup2Startup
• 9/28-29: Prague — Ignite, Startonomics, Startup2Startup
• 9/29-30: Paris — Ignite, Startonomics, Startup2Startup
• 10/01-02: London — Future of Web Apps

Costs vary based # of cities/events; estimates as follows:

• Full Trip (4-6 cities): $1250 all events + travel/hotel = ~$3000-5000
• Partial Trip (2-3 cities): $750 events pass + travel/hotel = ~$2000-4000
• Single City (DC or other): $500 events pass + travel/hotel = ~$1000-1500

Want to come along?  Great, just request an invite:

Here are some of the fun & awesome geeks that will be joining us...

Hosts + Travelers:

Dave McClure	Brady Forrest	Adriana Gascoigne	Frank Gruber
Founders Fund 500 Hats	O'Reilly Media Ignite	SGN Girls in Tech	AIM/AOL Somewhat Frank
Eric Ries	Vanessa Fox	Wen-Wen Lam	Sean Ellis
Kleiner Perkins The Lean Startup	Ignition Partners NineByBlue	Slingshot Labs	12in6 Startup Marketing
Ben Rattray	Evan Cooke	Mark Hendrickson	Rashmi Sinha
Change.org	Twilio	Worldly Developments	SlideShare

Your SOLUTION is Not My PROBLEM

QUICK !!!

i'm a VC. you're an entrepreneur. 

we're in an elevator, and you've got 30 seconds.

GO.

ok, if your pitch began with "we're building an X for Y", then guess what 

YOU FAIL.

yeah, i know in an earlier presentation i said "we're X for Y" works well for short-hand notation. 

but the problem is... it's not my problem. it's your solution. 

and the solution isn't your solution, it's my problem.  

more specifically: 

your SOLUTION is to SOLVE MY PROBLEM

or i can say that another way:

IT IS NOT HELPFUL TO YOUR CAUSE TO DO AN ELEVATOR PITCH WHERE YOU SHOVE YOUR SOLUTION DOWN MY GODDAMN THROAT. OVER and OVER and OVER.

got that?

      let me explain...

several months back at Startup Weekend San Francisco, as is my usual wont, i was being a real dick.

we had just finished doing the typical mind-numbing bullshit VC panel on what's trendy / what's hot. (which was of course, incredibly insightful and useful... NOT).  next, the attendees -- all 300 of them -- were asked to get up and do a quick pitch on the startup idea they wanted to do over the weekend. the concept here was that other people might hear the idea & want to join forces. now, not to say there aren't some flaws with listening to 300 people do a quick pitch in a crowded room with terrible acoustics, but beyond that auditory imposition, there was one other big problem:

almost all of those pitches SUCKED ASS.  

big time.

after about the 4th or 5th one, i just couldn't stand it any longer. i was NOT going to sit thru an hour-and-a-half of shitty elevator pitches.

N. F. W.

so i grabbed the mike from the next open-mouthed entrepreneur and said:

"Ok folks... if there's ONE thing i can help you with tonight, it's how to pitch.  it's very simple, and i can teach you in about 5 minutes."

"Here's the secret: PITCH THE PROBLEM, NOT THE SOLUTION."

"That's it. done! that's all there is... just tell me the problem FIRST, not the SOLUTION.  the reason is, i may not be able to understand what your solution does, but if you connect emotionally with me on what the problem is -- and i hopefully i also have the problem, or know someone who does -- then i'll give you PERMISSION to tell me more about how you're going to solve the problem."

after that, i handed the mike back to the entrepreneur... and you can guess what they did.

yoo betcha.  

they pitched their solution.  

and i interrupted them, RUDELY & WITHOUT MERCY.  

i grabbed the mike back and said:

"THAT WAS NOT A PROBLEM.  

THAT WAS YOUR SOLUTION. 

            DO IT *AGAIN*."

and they tried their best, and barely got through the problem statement.  then they handed the mike to the next entrepreneur.  and guess what happened?  yep, AGAIN, they pitched their SOLUTION.

and i again, i rudely stopped them, grabbed the mike back, and said again "Nope. that was another SOLUTION.  tell me what the PROBLEM is that you're solving... i guarantee you, the PROBLEM is NOT that the world doesn't have enough RSS readers out there." again, they barely got thru stating problem.

this happened for another 4-5 entrepreneurs.  they would pitch their SOLUTION.  i would then be a dick, yell for them to stop, have them start over, and state the PROBLEM first.  after about 10-15 minutes of this insanity, i think i scared the shit out of them, and perhaps only to stop me from berating them publicly in front of several hundred people, they FINALLY started pitching the PROBLEM.

slowly, excruciatingly, over the course of the next half-hour, the pitches gradually got better.  they didn't necessarily get good, mind you... but they didn't completely suck balls.  they were at least easier to understand, and by end of evening most pitches were understandable, if perhaps still crappy.

and i made a name for myself as perhaps the biggest asshole VC of the northern california area.

but that aside, i made three hundred people NEVER forget the point i was trying to make, and hopefully at least 5-10% of them will have a slightly better pitch the next time they get stuck in an elevator with a VC.

if so, then it will have been worth me being such a complete dick.

remember folks: pitch the PROBLEM first, connect with your audience emotionally around the problem, and then -- and ONLY then -- offer your solution as the remedy to that problem.