Over the past year there have been some great moments in the history of the company that I co-founded. For context this is my fifth endeavor into the world of start ups. The other four had very nice outcomes and I have been involved with all sides of “The Process”: Raising money, advisory boards, venture capital technical due diligence, acquisitions, acquiring (at large corporations) and making the tea (of which I just made a refreshing batch…). I have seen and heard some amazing comments and have seen some amazing stunts. I remember one VC who fed his wolf hybrid dog biscuits during pitches. The time allotted to present was three dog biscuits and then at the end they would decide whether or not to move forward. Very efficient no muss no fuss. Do or Die. The proverbial elevator pitch had better be novel, succinct and efficient. Each VC has their own process. One must adapt either apriori (if possible) or in the moment to what particular moon phase or bio-phase is occurring with respect to the particular partner during the pitch or hopefully further due diligence. Associates are always nice to deal with as they are usually excited to be talking to you either because 1) they dig the technology 2) they are trying to make an impact on the new ‘found’ company. Hopefully you will make it past the associate, get a second meeting and get a couple of partners on the phone.
This past year we have met with no less than 75 potential funding partners. That in and of itself has been amazing to me but given the global train wreck of the economy, it needs to be put in perspective. Given this large footprint of meetings we have had to be extremely adaptive in the moment much like the software we are creating. Here is a list of the usual suspects of responses during an initial meeting or subsequent meetings:
- Interesting, looks like it has legs
- We are intrigued
- Great! (multiple times)
- How will you monetize?
- Interesting (said with added emphasis)
- What is the specific business model?
- Are the engineers all FTEs and in the office?
- What do you think your pre/post/exit valuations are?
- How do you compare to XYZ company?
- Hitherto, other and etc…..
OK so you say big deal been there done that got the t-shirt – swag city. So here we were cruising along answering question after question in the relentless Chinese Water Torture of Due Diligence and Elevator Meetings – one after the other – after the other. This is the process. If your dealing with disruptive technology you need that money amplifier to succeed and get a jump on the competition as fast as possible First one ships usually wins in this space. Its the give and take of the game. It is a great game. As far as I am concerned it is the only game.
So as we are grinding along and the following questions are the ones that still to this day have slack jawed me in amazement:
- Is it done yet?
This was in response to “Are there any further questions?”. The question was entirely reasonable with one exception: This was ONE MONTH after we had opened doors. I have been involved in some eureka software moments, as well as quick turning some builds – but nope – sorry to say I ain’t that good. We went through the checklist, passed the checklist for their process and was told, “Well we can’t give you a reason why we are passing, we just aren’t going to invest.” Wow maybe I need to change my deodorant.
- Where do your ideas come from?
This was a during technical due diligence. So we are going through ‘The Process”. I was a little taken back that the tech due diligence team wanted to look at our code during a series A raise. yet the good folks at this institution assured me that if the tech due diligence team gave us a thumbs up they would proceed to a term sheet as they only do deep tech due diligence to close. Here is our build process, here is our code, here are our specifications, provisional etc. Then they asked, “Where do your ideas come from?” I thought this person was kidding then I realized this was FOR REAL. Oh yea we forgot tell you about our process, the idea fairies come and leave the answers to the grand unified field theory on my chair every night so I can write up the architecture and specifications. We ended up passing the tech due diligence with flying colors, yet no term sheet materialized. Maybe the idea fairies took it and left being that I haven’t seem them around.
- This is a Flash Demo right?
Well no it is not, in fact it is running software. As I was demo-ing our real time software and explaining what was occurring, one of the partners said, “This is a Flash Demo right?”. This was after an hour of discussion of what we had up running. I was standing in front of the 60″ HDTV with the current date and time showing from the results of our software, I then hit enter again and again the current date and time changed to the appropriate current data and time. The discussion then centered around if the current date showing was the actual date. Why yes it was and no this isn’t a Flash demo thank you very much.
- What about Google, Microsoft, IBM, Oracle Apple etc.?
I always love this one. I do not consider “thoughting” to be working on or competitive to your current endeavor. “Thoughting” is what happens at many companies. Have you worked on that? Oh yea we THOUGHT about that a decade ago. These companies are concerned about huge issues like Net-Neutrality, data privacy, anti-trust concerns, identity and cyber-security. Of course you need to consider what (insert large software company here) is doing in the current tech your involved with creating, but that does not mean you shouldn’t go out and work on the “Next Big Thing”. Is that what this country is built upon? I cannot stand people who play to failure. I try to be extremely self critical and one of my faults that I try to work on is solipsism. I generally believe people will strive to win at adversity and I end up placing my ethics and value system upon them. Case in point when we were starting our current endeavor, we were told by a large software company engineering executive, “It would not matter if you were making pencils. You and your team will make great pencils. We are investing heavily in (current tech). Go off write come code, file some provisionals and we will probably buy you. We are buying everything in (current tech) not nailed down.”. So yes what about the “guys inside the firewall” as I like to call them. Go do something don’t just sit there and be scared. You have speed and agility on your side (and no rules).
- It’s not just Timbuktu, it’s beyond nowhere.
This was in response to location. Lest anyone think that location does not matter. It does. Sandhill, Embarcadero, 1st Street Pioneer Square, Newbury St. Having to get on a plane and leave requires time and time is money especially in disruptive software. Geography makes a difference: Menlo Park, Seattle,Cambridge, London, Bangalore, Israel. You can make the argument all day about burn rate and easy access to talent but it is much easier to go where the money is to begin with and not have to compete at a disadvantage.
- Will this Angel Round get you to profitability?
As entrepreneurs, we strive to be optimistic in all endeavors. Yet somehow, this inquiry is even a stretch for me. Yes, it would be great if you could just put in some angel funding and the next thing you know out pops a Microsoft, Google or (Insert Large Publicly Traded Entity Here). Times have changed. World markets have changed. There is a conflict with the requirements of experience and basic needs of becoming more experienced. What is wanted is the 15 year experienced multiple company, multiple exit founder or initial team with little or no salary or living requirements much like say a new college graduate. It is also interesting in light of the recent market that large VCs are now looking at angel type investments due to lower valuation and better values due to market pressures which put pressure on traditional angels because 1) the large VCs can afford the risk 2) it will probably squash down the angels on the series A raise. So many angels are trying to posture as though they are institutional investors and asking conflicting questions in the same instance, “Can you go off and be self sustaining so we make unbelievable gains, higher than 10x on an exit in the near term” and “We do not want to get crammed down on the valuations during an institutional round.” A couple of weeks ago I had an interesting discussion with a C-level executive of a large software corporation concerning our company which they had already pushed down to corporate M&A. I asked them how it was coming along and they said they are trying but we aren’t expensive enough, go raise some more money.
Aint that always the truth.