The other day I was talking to a entrepreneur friend of mine about how to get acquired by a Yahoo! or Google.

This person had noted that they had tried to get in many times to show something they were working on and could not. It wasn’t their technology; I took a look at it and it was pretty cool on its own. But for some reason, Yahoo! and Google just would not give this company some time to present their technology. I noted to this person that it may be a “lost cause”.

By “lost cause” I don’t mean that Yahoo! and Google are lost causes as businesses. What I meant was that it may be a lost cause for the entrepreneur in trying to get air time with the Yahoos and Googles of the world.

What could cause it to be “lost cause”?

I find that there are two reasons for the “lost cause” label. The first being organizational defects, and the second being the people themselves.

Organizational defects:

Basically, too much work and unaligned goals. Sometimes an org places so much work on an individual where he just can’t think clearly about anything else but what he has to get done now. So all future, innovative stuff goes down in the dumper. He can barely get the stuff he has now done, let alone freeing up brain space to process new stuff.

As for unaligned goals, here is an example. At a major internet company, the goals of a general manager of a business unit were very numbers driven. I make my numbers, I get a raise. I don’t, no raise. Anything that clearly helps me make my numbers gets first priority. Anything else that is unclear in driving towards me making my numbers (hence my goals) is shoved down the priority chain. So you show up with your nice tool, but there are about hundred other things that this GM knows could make his numbers faster in the short term and decides he doesn’t have time to talk to you.

People defects:

Some people just can’t grasp the big picture. They can’t see broadly where things could fit in. They may be smart, and great operations folks and get lots of things done, but sometimes can’t figure out how to integrate a new thing. This relates to multi-tasking ability, ability to handle information overload, general creativity, and physical/mental/emotional energy. When you’re in a place like a Yahoo! or a Google, you’re running at 1000 MPH. You get the physical/mental/emotional energy sucked out of you, and you can’t multi-task or handle all this information and you are back to just doing what is placed on your desk at that time.

Again, new, innovative stuff just falls off the plate.

The entrepreneur suffers because he could be selling his technology to a prominent company; the company suffers because they may be missing something they should be integrating.

How do we, as a society of businesses, do better?

How funny was the site Fucked Company back in the day.
But now it seems very quiet on the personal attacks and sensational content front. It is filled with rumors, but it seems so dry. I find that Valleywag is much better at the fun, outrageous stuff you want to know about each internet company. Think gossip magazine for Web 2.0.
But I did find something useful. I dug up my copy of F’d Companies by Philip Kaplan who is the founder of the fuckedcompany.com site.
I love his brash and cutting style on writing about these dot-com boom era companies. Companies that had such ridiculous, or no business models and were getting unbelievable funding. As I thumb through its pages, I reminisce about those days where us naive Internet pioneers thought that anything should be tried, and who knew what would work and what would not. And all these money people tried to jump on the bandwagon, fund any company whatsoever, and try to take the most ridiculous companies IPO in an attempt to score big.
But now, I find I am drawn back to some of the businesses in that book. In today’s Web, things are different. Now some of these businesses that failed could realistically be tried again. In fact, I just read an article about some venture fund guys who were precisely “mining” old Industry Standard and Wired magazines just for that reason. Sometimes a tweak is all it takes.
I am hoping to find some ideas in F’d Companies and see if they work today. But I also think that some of the ideas were truly F’d and should never again see the light of day!

These last two days have been incredibly busy. We’ve driven all over the Bay area now, meeting up with people we’ve been introduced to.
Some items of note:
1. Gotta have a great personal brand. Otherwise, why would someone introduce you to one of their buddies in the VC world?
2. Try to find the good people. So many VCs are into the money and that’s where the term “sharks” comes from, and they always want something. We’ve been really fortunate to have been introduced to many who have offered their help to a bunch of amateurs like us.
3. Making the connections is crucial. Who knows when you’ll need some other people to go into a deal with? Or, they can help you with deal flow they see by referring deals to you that are more appropriate for your model versus theirs, and likewise.
4. More and more entrepreneurs are popping up. It’s nice to see this happening with previous associates. Many are starting up things and now looking for funding. As soon as they hear what we have to offer, they really like what we bring – experience, connections, help.
If only now we had the money….Onwards to fund raising. Our paperwork is almost done!

An interesting comment from one tech venture firm. They actually liked the fact that we didn’t have business cards. The reason they gave was that it showed that we were focusing on the work and that we weren’t about the “flash”.
I guess that meant that if we had shown up in suits, flipped out some bad-ass designed business cards, showed some swank term sheets and/or presentations, that would have presented a different view of us. Instead of being heads down and about the work, people could have interpreted that kind of presentation as being all fluff and no substance.
In the previous Internet boom years, I suppose many people showed up with fancy powerpoints, documents, and cool business cards. I would think that many people couldn’t live up to the fluff, despite how much money they had put into it. These showmen lost a lot of money for investors and now people are wary of the “flash”.
We were lucky that we showed up the way we did. Being Mr. Designer guy, it doesn’t take much work to whip up some decent looking business cards. It was only pure chance that I got hung up trying to buy a good piece of stock photography for the card’s imagery and never made it to a printer to get some made.
But now we’ve had another valuable lesson in the current venture environment, and that’s to not be that showy, but to focus the attention on ourselves and what we bring, rather than hiding it behind a showy presentation.
I am now working on the website and some business cards. I think showing up with nothing can’t be good in all cases. I think something simpler but professional looking should be good for us, and definitely something that does not remind people of the “all-flash” designs of 1999…

These last few weeks have been filled with meetings. At each one, we
describe what we’re trying to do and we’ve been getting almost unanimous
consent that what we’re doing is great and that we have something really
interesting going on. They tell us that we’re on the right track and tell
us they want to put some cash into our fund.

When we come out of those meetings, we’re on a high. Getting positive
validation about what we’re trying to accomplish makes us feel incredibly
good about what we’re doing, and when we survive grillings on our plans by
seasoned professionals in this area, we gotta feel good about that!

It’s like going to a therapist. You have a problem; you’re
depressed; you feel like the world is down on you and you can’t make things
right. You hate yourself and it seems like everyone else thinks you’re
worthless too. Then you see a therapist. They boost you; they tell you
you’re not a loser. You can get better and they’ll show you how. They
change your outlook on life and you start feeling really good about
yourself again as a result.

These meetings are like therapy. We go in wondering if we’ll leave
mildly bruised from the expert pounding. Instead, we defend our plans and
assumptions and the biggest validation anyone can give us is for them to
commit their own funds to us, which shows their trust in our model and in
ourselves. So instead of leaving feeling like we suck, we leave instead
feeling like we’re doing great and other people think so too.

But at this stage, it’s all therapy to me. The next stage is about commitment.

People say they will invest in us, but who knows if they really will.
Money changes people, as I said in a previous post. Saying something is
not the same as doing. Until we see the money actually come in (or in this
case, commitment by signing the subscription agreement), it’s just all
therapy. Nice therapy for sure, but our goal isn’t to prop up our
self-esteem; our goal is to build our fund and implement our plan to prove
it works.

I have already met people who have changed when it came to money. I have
already met people who could not commit their own cash no matter what. I
am sure I will meet more, and even some who will invest money and then
change later. Does money bring out our true natures? In the uncomfortable
world of cash, I almost think I don’t want to find out some things about
people, especially those close to me.

Yes it is an interesting thing, to peer into peoples’ inner feelings. But
as I said before, it’s about the commitment and not therapy and truly, it
is a “put up or shut up” world we’ve leaped into…

Corollary 1: Saying you’ll do something and actually doing it are two very
different things.

Corollary 2: Don’t start work until you see the cash in the bank account.

A repeating notion we’ve found while raising money, as a budding new venture fund and as a bunch of guys with no track record, is that we want to appear as ordinary as possible.
By ordinary, I mean that we don’t want to do anything that is not traditional to the world of venture funds. In doing so, we concentrate the discussion on ourselves and our value, versus why a bunch of inexperienced amateurs want to try something different and potentially introduce more perceived risk.
Some of the things we have encountered that we wanted to do, but are very wary of, or status-ing down, or not doing at all anymore are:
1. We are going to have larger than normal fees. Normal fees in venture funds are about 2% of the fund annually. We need more fees because we think we can do more with less cash, which also means we need more staff to hire and help us manage our investments.
2. We were going to start an incubator but are not going to do this or even use the word ‘incubator’. We have found that a huge amount of the investor community have suffered greatly with the spectacular flameouts of virtually every incubator through the Internet bust years. To suggest that we, a bunch of newbies, could do it better would probably not be believed. The funny thing is that incubators actually do exist in different forms within some venture funds now. Many use the term ‘Entrepreneur in Residence’ to describe people who sit with venture firms, dream up new ideas, and try to create businesses out of them. The second funny thing is that even though we were thinking of doing an incubator in the beginning, we still want to do an internal think tank. But now we’ll have to shove that into our list of projects, not draw attention to it, and face investor approval to begin it.
3. We intend to deploy cash as soon as we get it. There are already several entrepreneurs who want to work with us but need cash right now. Traditionally, the fund raises money first and then begins to deploy cash. We, however, want to invest as soon as possible. This method brings more risk to early investors as their full investment could be deployed to early investments while traditionally the risk would be spread out to other participating investors. However, we do want to diversify as soon as possible to minimize risk to these early investors.
Everything else is pretty much in line with what experienced investors would see with any other venture fund’s term sheet. So hopefully the above three points won’t cause too much consternation, confusion, or make them wary of us as we ask for their money.
Doing this without a track record doesn’t give us much leverage in being creative in setting up our fund, but on the other hand, we don’t need to be too creative at this point either. And especially if it is a detriment to us raising money, we won’t do it.

Today my partner and I went to visit some Masters in the art of venture funding, if such a thing could be labelled.
These guys have been doing this for about 25 years. That’s a pretty long time.
One thing they said that struck a chord with me was:
If there was a way for an entrepreneur to fuck up, we’ve seen it.
In that one statement, it dawned on me that I was talking to true Masters. Their decades of experience in entrepreneurship give them an incredible leg up on how to create sustainable, growing businesses. To discount their advice would be foolhardy and ridiculous.
Their other piece of advice was our desire to form an internal innovation lab where we could build stuff from our own ideas and launch them. Due to the spectacular failures of almost all of the incubators through the Internet years, there is a incredibly bad taste in investors’ mouths about incubators since none of them delivered to the potential they said they could.
In the interest of not generating negative opinions about us by doing something different than the norm, we’ve decided to tone down the labs and put it as a future thought for a project that will be approved by the investors. We won’t be setting this up at the outset, which could sour investors’ opinions of us due to their past experiences with previous incubators.
I am fortunate to have met these individuals and look forward to working with them, and learning from them. I kind of feel like Caine in “Kung Fu”….before he could snatch the pebble….