Archive for the ‘Venture Capital’ Category

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Just Say No: What the Venture Guys Really Mean

Posted: by chrisshipley on October 22nd, 2009 | No Comments »

Categorized: Chris Shipley, Entrepreneurship, Observations, Startups, Venture Capital

I had a delightful lunch yesterday with Howard Hartenbaum, a general partner at August Capital.  The lunch was offered as a “prize”  during Lunchster’s  six-minute product launch at DEMOfall. I’d agreed to have lunch with whomever won the draw, even these are the sort of promises that can pretty rapidly go bad.  You have no idea who you’ll end up sitting across from, wishing that you’d suggested Taco Bell drive through as a speedy alternative to the white-linen dinning you had to endure.

When I got the email that Howard would be my lunch date, I felt like I was the winner.  I’d first met Howard as part of the team that launched Public Minds’ response aggregation system at DEMO 2001.  Since that time, he’d made the move from entrepreneur to VC and scored his “big win” – an early investment in Skype. His choice of Palo Alto’s Tamerine Restaurant only confirmed that Howard still picks winners; it’s a local favorite of mine).

Most charmingly, Howard didn’t seem to want to monopolize the conversation with shop talk.   Instead, shared restaurant tips, swapped medical mystery stories, railed on litigation-happy parasites, and concocted an elaborate story of long-suppressed love unleashed by a chance encounter courtesy of Lunchster.

Since I was pretty sure no one would believe that last yarn, I asked Howard what he didn’t like about being a VC.  “I don’t like saying no,” he responded without hesitation, adding that it’s made worse by the fact that as a VC one must “say ‘no’ 99% of the time.”

Okay, I’m a bit cynical when it comes to what venture guys say and what they do, and in my experience, most VCs don’t say no.  They say things like “I need you get more customer traction” or “this deal is too early for us but come back in six months” or “I’ll need to get my partners on board with this” or a couple dozen variations on these themes.

Howard seemed to sense what I was thinking. “Venture capitalists have two responses to entrepreneurs,” he said, “yes and everything else.”

To his great credit, Howard decided to take on “no” head on.  “In life and in work, when there is something that makes me really uncomfortable, I make a point of doing it in the hopes that I’ll become inured to it.”

So when he decides to take a pass on a company, he calls the entrepreneur directly and tells him no.  Has it gotten any easier?  “No.”

But he does it.  He does it because he respects entrepreneurs. He does it because he isn’t going to waste their time.  He does it so that entrepreneurs know the why behind the no.

A “no” is such a rarity in the venture hunt that entrepreneurs may not know how to act.  Here’s my advice:  don’t argue, don’t debate, don’t tell a guy like Howard that he’s wrong.

Listen for the no and be glad for it.  That VC is saving you time and heart ache.  Listen to it, accept it, and move on.

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Rage Against Angels Or Reach Out a Hand?

Posted: by chrisshipley on October 12th, 2009 | 1 Comment »

Categorized: Chris Shipley, Entrepreneurship, Investing, Observations, Venture Capital

Jason Calacanis is at it again, and this time – dare I say it – the man has a point.  In a post last Friday, Jason rails (does he do anything other?) against angel investor groups that charge startups a fee to present at their forums.

He writes:

Recently, I was made aware of a group of angel investors that were charging startups to pitch them.

Yes, you heard that correctly: the rich people (angels) are charging the poor people (startup entrepreneurs desperate for cash to fuel their dreams) to hear their pitch. No, I’m not kidding. This is actually happening — and it’s widespread.

While I’ve long found insulting Jason’s “payola” rants and the accompanying characterizations of first-time founders as poor, lost and naïve inventors unable to make reasoned and reasonable decisions about how best to apply their scant resources, this time he’s got a point: savvy investors should bear the cost of meeting entrepreneurs and reviewing deal flow as the price of entry to the venture asset class.   But rather than decry the practice and advise young entrepreneurs, Jason does what he always does:

When I heard this, my blood started to boil immediately. So, I did what any maniacal, self-absorbed CEO from Brooklyn would do: I started a jihad against this dispicable [sic] form of payola and the people doing it. It’s on people … it’s on like a Donkey Kong.

. . . [If investor groups do not disclose their practices or stop charging fees],  my group of startup CEOs and angel investors will begin targeting specific groups for elimination. We will launch competing, fee-free events directly opposite your events. We will encourage angels [sic] investors, service providers and startups to boycott your events. You may even find our street teams outside your events handing out flyers.

So, while Jason arms his (cough) “Nation” with fliers and vindictive, how about some clear advice for entrepreneurs?

You see, unlike Jason, I don’t believe that entrepreneurs who pay to participate in investor pitch events are “ugly, unpopular and lack talent.”  Come on. Even Hugh Grant paid for sex.

Let’s face it: For the vast majority of startups, fund raising is a full-time occupation. Silicon Valley is a tight-knit and sometimes insular environment. It’s an environment of networks where who you know and how you know them is the difference between a call back and deafening silence.  And, frankly, an environment in which one should never confuse luck for talent.  Great entrepreneurs learn to navigate into that network, establishing relationships, seeking advice, giving as good as getting in order to be seen and heard above the throngs of entrepreneurs who also have dreams that just need a dose of capital to be realized.  For entrepreneurs relocating their businesses to the Valley from overseas or even across the Continent, the networking is even that much harder.

So, it’s tempting to want to shortcut that process, and nothing says “shortcut” like cash. Why not spend 1,000 bucks if a kiretsu of wealthy angels will listen to your pitch? And make no doubt about it, every entrepreneur who has ever pitched at a PlugAndPlay Expo has been told by at least one “investment consultant” that he’ll have to hire his way to venture capital.   A fifteen grand retainer and five to 10 points are table stakes.

For some entrepreneurs, the gamble pays off.  It’s an expensive way to raise money; before you’re even started as much as 10 percent of the raised capital is gone.  But, again, let’s be real:  the vast majority of startups don’t raise money from name-brand angels or top tier institutional investors.  In fact, the vast majority of startups aren’t successful in raising outside money at all.  These pay-to-pitch venues exist as a resource of last resort for entrepreneurs who haven’t had the good counsel to consider other options.

Railing against investor groups is one way to fight pay-to-pitch sessions, but I doubt it will work.  So long as there are entrepreneurs who relentlessly pursue their dreams, someone will find some way to exploit them.  But again, it needs to be said: no one is forcing those entrepreneurs to pony up for a pitch.  They make that (perhaps bad) choice all on their own.

Picketing investor meetings may make a statement, but if Jason – or any of us – really wants to support entrepreneurs, we’d do well to open our minds and our networks to them, remembering to give as good as we got when we first came to the Valley.

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Silicon Ivy and Main Street: Both Need a Thriving Ecosystem

Posted: by chrisshipley on April 28th, 2009 | 1 Comment »

Categorized: Chris Shipley, Outside the Valley, Startups, Venture Capital

Last week, my friend Ami Kassar posted a Facebook note coining a phenonomon he called the “Silicon Ivy Bubble.”

He wrote:

In the Silicon Ivy bubble, there is a perception about entrepreneurship. In Silicon Ivy, an entrepreneur tends to look like this:

1. You need a unique proprietary idea that could grow into a billion dollar company;

2. You must raise rounds of capital – b, c, angel, bridge. There is an entire ecosystem built around supporting this bubble.

3. You must follow these steps.

Ami’s conclusion, though, is that these Silicon Ivy startups are far outpaced by businesses that “start on Main Street” where there is “typically no ’secret sauce’ at the core of the business.”

Main Street businesses are traditional companies where an entrepreneur’s recognition of the need to provide for family and a need in the community coincide.  They are businesses funded by savings or maybe, if the entrepreneur is both lucky and good, a bank loan.

Ami sees plenty of Main Street businesses at his ideablob site, where entrepreneurs post business ideas and receive business advice in return.  The site is the kind of ecosystem that Ami laments is missing from the Main Street business arena, a vibrant ecosystem of support akin to that which supports those Silicon Ivy businesses.

As I thought about Ami’s post, my first inclination was as you might expect: the dynamics and metrics of a venture-fundable business are vastly different from those of the sort of lifestyle businesses that pop up on on Main Streets everywhere. Silicon Valley – or Silicon Ivy – is home to a high-stakes ecosystem exactly because the stakes are so big. It takes a lot of heavy lifting to build a $100M company, then grow it some more.

It’s different on Main Street.  A sole proprietor, a banker, maybe a real estate agent.  Set up shop. Hang out the shingle. Get to work. Bring home the bacon, fry it up the pan.  Feed the family. Pay the mortgage.

As if there is something wrong with that.

Yes, venture-backed businesses require a certain scale and ambition. They are bigger businesses, potentially, than Main Street businesses.  But not necessarily better businesses.  Main Street businesses, or what some folks describe (often with derision) as “lifestyle businesses,”  are good businesses. Some are even great businesses.  They simply don’t scale the way a venture capitalist requires in order to make an investment.

Main Street businesses, writes Ami, “need a place to feel the energy that exists in Silicon Valley coffee shops. They need access to financing for their businesses. They need mentors and cliques like the entrepreneurs in Silicon Valley. They need hip, cool resources that keep them inspired.”

I’d argue that they also need our respect.  These businesses deserve a vibrant ecosystem of support because they are, in fact, the life blood of the global economy.  They create jobs and drive productivity.  They are arguably the lever in economic recovery.

And, oddly enough, many – and I might argue, most — of Silicon Valley startups are Main Street-scale businesses masquerading as venture-investable enterprises simply because they are based on that spit of land between San Francisco and San Jose.  These are business that won’t find success with the venture community, but wouldn’t dare to identify themselves as Main Street businesses.

Maybe in all of this discussion, though, is the realization that a large part of Silicon Valley is Main Street. . . and a block or two of Main Street in most every global business center is, in fact, Silicon Valley.

TheUnFunded.com: A Conversation Starter?

Posted: by chrisshipley on April 2nd, 2008 | No Comments »

Categorized: Chris Shipley, Entrepreneurship, Observations, Startups, Venture Capital

I’ve always known that Josh Kopelman is smart, but his April Fools’ prank, TheUnFunded.com, is brilliant.

Had he wanted to open a dialog on the deteriorating relationship between Venture Capitalist and Entrepreneurs he could not have found a better catalyst. While the site was intended as a joke, its coverage and commentary on TechCrunch speaks volumes about the way in which entrepreneurs and investors view one another.

In admitting to the gag, Josh acknowledges the growing divide:

The fact that so many smart people actually believed that such an outlandish site could be legitimate speaks volumes about the state of the relationship between entrepreneurs and venture capitalists. . . . while I don’t want to read too much into a silly April Fool’s Day joke, I think it does shine a little light on the level of mistrust and ignorance within the VC/entrepreneur ecosystem.

If the commentary and controversy stirred by TheUnFunded.com is to be believed, entrepreneurs believe most VCs are a waste of skin and VCs believe most entrepreneurs are a waste of time.

Hyperbole to be sure. Still, the dialog does suggest that the co-dependent relationship between entrepreneur and investor is shrouded in misunderstanding and misrepresentation. As much as these firms position themselves as partners and catalysts for great ideas, VCs really aren’t in the business of building companies, except as a vehicle for making money. And there really are only one or two “next Googles” in any given fund life; most startups will be lucky to survive beyond their first 3 years and those that do will be luckier still to provide a respectable exit to their investors. Most of the vituperative commentary, I expect, comes from first-time fund-raisers who believe that because investors have money, they should invest it in their firms. And those who don’t are blindingly stupid for missing the golden opportunity which, frankly, may not be as golden as the next guy and certainly is not likely as golden as the entrepreneur believes.

While Josh intends to take down TheUnFunded at the end of the week, I’d love to see it stay, but as an open, transparent platform for an honest and constructive dialog between investors and entrepreneurs. Because if ever there were an industry that needed more transparency and a lot more trust, it’s this one.

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HiveLive Raises $5.6M from Grotech Capital Group

Posted: by chrisshipley on February 28th, 2008 | No Comments »

Categorized: Chris Shipley, Deals, Outside the Valley, Social Media, Venture Capital, Web 2.0

I was excited to see yesterday that HiveLive, a Colorado-based enterprise social networking platform, raised an additional $5.6M to bring its total capital raise to $7.8M. Grotech Capital Group led the round and Joseph Zell will take a seat on the company’s board.

I sat down with John Kembel and his sketch books about 18 months ago when he was first mapping out the social knowledge sharing concept that has become a premier enterprise social networking platform. John and his identical twin brother George Kembel (now the director at Standford’s dSchool) founded DoDots during the boom, and the two remain, to my way of thinking, inspired and inspiring collaborators. John, George and I sat around the table with a couple of Sharpies and sketched out ideas and patterns of information flow.

About six months later, the three of us got together again, this time on a cool but sunny Spring afternoon on the patio of Palo Alto’s Empire Grille.  Again the Sharpies came out, and we talked about how people collaborate in around projects and ideas.  I’m not sure if it was the wine or the smell of the indelible ink, but the crack was mighty and the ideas seemed to influence the transition of HiveLive from a personal knowledge manager to an enterprise customer collaboration platform.  At least I’d like to think it did.

Today, HiveLive is a rich platform that enables companies to create collaborative communities within their organizations, and extending them to include partners and customers. The early thinking about how ideas can be shared selectively is foundational to this unified environment.  And while I wanted to see HiveLive come to market as a consumer product (I’ve long believed that controls are key to creating rich collaborative environments that bridge personal and professional networks), the HiveLive team has done the right thing to take this product to the enterprise.

I do hope that at some future point, HiveLive will bring the consumer product to market. But that’s only going to happen if the company can accelerate its growth with business customers that write checks for the software that becomes critical to their business objectives.   This latest round of capital is the fuel the company needs to do that.

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The DEMO 10: Our Picks To Out Perform

Posted: by chrisshipley on February 25th, 2008 | No Comments »

Categorized: Chris Shipley, DEMO Conference, Observations, Startups, Venture Capital

About a week before DEMO, I was talking to Pat Kenealy, managing director of IDG Ventures/San Francisco, about the success rates of startup companies that launch first products at DEMO vs. the average venture portfolio. I posited that while DEMO is really about products rather than businesses that young companies are little more than their first products and that our screening process is designed to bring the best concepts to the surface without the bias and influence that affect many investment decisions. As a result, if each class of demonstrators was a portfolio, I speculated, it would out perform many of the top venture firms.

Pat didn’t disagree, but he did challenge me to “do a Kreskin,” and put the names of the 10 companies I thought would be runaway hits to be opened in a year.

Never mind the envelop. I decided to wait a few weeks for the post-DEMO media to play out so as not in influence coverage, and to name my 10 picks here. Now, as a disclaimer, I will say that I am impressed by all 77 companies – startup and established – that introduced products at DEMO and I believe that each and every one of those products has strong potential to be both impactful and successful in the market.

But the challenge Pat posed was to chose 10 that would out pace the market in terms of growth, valuation, and/or exit. So here they are in no particular order. Read the rest of this entry »

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What Does It Take To Be a Venture-Backed CEO?

Posted: by chrisshipley on February 14th, 2008 | No Comments »

Categorized: Chris Shipley, Events, Startups, Venture Capital

On the evening of March 13, I’ll be moderating a panel of CEOs of VC-backed companies to explore issues of leadership, skills, pressures  and balance that every startup CEO faces.   I’ve had the pleasure to work with Frederic Lucas-Conwell, principal at Growth Resources, in preparing for the event, and have been impressed with the work he does helping CEOs identify their leadership style and the points of stress between individual style and the requirements of the CEO role.   

Frederic uses a quick and simple (at least on the surface) surveying tool to help executives analyze their leadership style in their role as CEO,  as well as the style differences in their management team.  It’s fascinating stuff. By understanding the points of convergence and divergence, you really can adapt style and expectations to drive to stronger leadership.

In advance of the March 13 event, Frederic is surveying CEOs of VC backed companies to identify points of similarity and strength in startup leadership.   Results will compiled anonymously and presented March 13th at the event, but you’ll have access to your individual results and have the opportunity to glean more understanding from Frederic.

I found my results fascinating, and I’d encourage any VC-backed CEO to participate in the survey.  It only takes a few minutes, and you can do it online.  To participate please send an email to Frederic Lucas-Conwell and mention that you learned about the survey here.

I’ve known Frederic for many years and I’m confident you’ll extract a lot of valuable learning from the experience. 

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Of Cat Herding, Fund Raising, and Business Focus

Posted: by chrisshipley on January 27th, 2008 | No Comments »

Categorized: Chris Shipley, DEMO Conference, Entrepreneurship, Observations, Startups, Venture Capital

I woke up Friday morning to discover that I’d become a cat herder. You know the role: trying to get dozens and dozens of pieces and people corralled into some semblance of order. I should come to expect it in the few days before a DEMO Conference is set to begin. After all, I’ve been reprising this role twice a year for most of the last eleven. Still, it always strikes me that otherwise smart business people can get so caught up in the weeds that they lose focus on their own objectives.

Here’s a case (and would that it had only happened once these last few days): An exec from a demonstrating company scours the news wires, looking for mentions of other companies also participating in the event. Spying a perceived competitor (for the record: we don’t think these companies compete), the exec searches for every mention anywhere in the media, on blogs, on the company site, that might serve as evidence that the company “broke the rules” of DEMO. The “evidence” is packaged into a stern e-mail — usually couched in a tone of “far be it from me to call out another company, but…” — and sent along to DEMO’s PR team. I then get a call, confirm that the assumptions of the exec are, in fact, wrong. This is followed by an e-mail or phone call that assures the exec that we’re “on the case,” politely thanking him for his diligence.

Normally, I’d let this sort of thing slide, and it certainly wouldn’t be fodder for a post. But this time, the predictable tattle-tale thread dropped onto my desk at about the same time my Guidewire Group co-founder at and I were talking about focus. Read the rest of this entry »

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