Hey VC, be good to me

In the startup circles, I often hear the founders living on Ramen noodles and soup.  No Sushi, No Starbucks for them. Sign of frugality that is good startup economics?   

Read this.

“Stanford professor David Cheriton made his billions by introducing Google founders Sergey Brin and Larry Page to the venture capitalists at Kleiner Perkins Caufield & Byers. He was rewarded with a sizable chunk of Google stock.

Canadian Cheriton says he prefers to ride his bike around his Palo Alto, Calif., neighborhood, and relies on an old Volkswagen van or a Honda sedan when he needs to get behind the wheel. He says he only flies commercial, prefers jeans to designer clothes and claims to reuse his teabags. He also cuts his own hair to save time going to a barber. His indulgence: two windsurfers.”

Hits me like a ton o’ bricks. HuH…? Do VCs reward introducers?  I do so much more in beefing up startup business plans, fixing early bugs, getting them right resources and connections and even doing preliminary due diligence and documentation that makes it so much easy for a VC.  A couple of VCs that I’ve dealt with have even recommended a few founders to me to run their plans over.   I lost a few million already.  Had it only from my clients so far.  

Ok VCs…let bygones be bygones…. Now be nice to me, huh ? 🙂

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On my other blogs

General Partners v Limited Partners 

But they are exporting it all

It’s like yesterday once more

who wants to change

Tech trends and business ideas 

Now how do you counter that?

Looks like UN meeting

A phone is a phone is a phoneShedding P in API 

 

All go-rhythmic 

 

Detroit would love this

That sinking feeling

Look who is shorting the dollar

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Get a load of “The New Normal”

Roger McNamee of PE firm Elevation Partners and the author of the book “The New Normal”  is quite vocal about change. 

He says, “The New Normal” is the era of the individual. In companies large and small, each person now matters more than ever before. The Internet has finally made it easy to launch and grow a real business. For entrepreneurs and managers, the global economy opens previously untapped sources of supply and demand, cost savings and innovation. Individual investors now have access to tools and knowledge that were, until recently, restricted to professionals.

The individual will have more power than ever as employees and consumers. Independent contractors and will be far more in demand as well as service organizations designed fill a niche for larger ones. Anyone who has strong specialized skills will have far more leverage in the company. China and India will be a powerful, if not dominant, force in the global economy. The stock market will be influenced more by individual investors.

“Forget about the Next Big Thing,” he says. “The New Normal isn’t where you wait for the next boom. It’s about the rest of your life.”  “Getting things right the first time is more important than getting things done quickly.”

That’s the opposite of the late-’90s mantra, “Fail faster to succeed sooner.”  I like that. 

I say “with you, Roger… My business is built on those assumptions. You’d better be right, Mr.McNamee…” 

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Are you sure…?

According to a famous paraphrase of a quote by James D Nicoll, “English doesn’t borrow from other languages.  It follows other languages down dark alleys, knocks them over, and goes through their pockets for loose grammar.” And loose vocabulary, we might add, wondering at two-thirds of English filled with foreign loanwords.  (Repayment is not likely in this lifetime, I guess).

Not content with that indebtedness of English language, upstart writers use their limited grasp of foreign language words and use them liberally often becoming les objets de raillerie (objects of ridicule).  Those you know well, you can correct. The others that you know only too well (out to claim “look, how versatile am I”) – allow yourself a hearty laugh and let it rip.  Here’s a small collection of comical goofs.

…I’ve seen many faux paus in modern society…

Ah, the inevitable social stumble, the misstep, the usage blunder. From the French for “false step,” the phrase faux pas, pronounced “foe pa,” is one of the first foreign phrases many of us learn. That word pas, by the way, is the same ‘step’ that appears in pas de deux, the French equivalent of the two-step – or is it the Cotton-Eyed Joe? Here our reviewer apparently attempted to form a plural through a spelling change, but has merely managed to change the pronunciation to “foe poe.”

In an interesting aside, the plural of faux pas is faux pas, however the plural is pronounced “foe pas.” 

…I think she deserved every kudo…

When I saw this one, coffee almost came out of my nose. People, people… The word kudos has been picked from the back pocket of our Greek friends. It arrives with a literal meaning of “magical glory” and a common meaning of “effusive praise.” The word is not, however, a plural! Therefore, each single morsel of praise, no matter how small, is kudos in its own right.

When used as the subject of a sentence, by the way, the word takes a singular verb: not “kudos were rained on his head,” but “kudos was rained on his head.” If you have trouble remembering this, it helps to remember that the terminal ‘S’ is not pronounced like a ‘Z’ but as a soft ‘S’ – in other words, it doesn’t rhyme with “rose”; the last letter has the same sound as “ross.”

… forced the citizens to cow-tow to the new ruler…

Happily, I wasn’t drinking coffee at the time. Here, our coiner apparently has a bovine female that’s in need of assistance. Presumably s/he’ll call some Cattle Farmers Association for a tow truck? Ahhh, I get it now: the desired word was “kowtow,” a word borrowed from Mandarin Chinese and meaning “to bow obsequiously; to show servility.”

Since the word has been transliterated from a language that doesn’t use the western alphabet, some might – sigh – be inclined to cut the writer some slack. After all, the spelling of Moammar Khadafy/Ghadafi/Qadaffi/etc. changes randomly for that same reason. Except that kowtow has been in common usage for more than a century, so no slack’s coming from me!

…my truck has been horse de combat for more than a month…

Ohhhhhh, Willlllburrrr… It’s a darned shame that the spellchecker couldn’t catch this one before it galloped onto the site. Obviously, our author meant to use the French hors de combat, meaning “out of action.” Equally obviously, our author doesn’t know that the terminal ‘S’ in hors is silent, or perhaps s/he would have said the vehicle was whores de combat. I don’t know, though, that s/he didn’t try it and gave up – it’s hard to sneak that particular spelling past the in-line fil(th)ter.

And there you have it.

Not merely a small collection of comical goofs, but living proof that the Grammar Curmudgeon is human, too. Whatever else you take away from this little diatribe, next time you decide to dress up your writing with a foreign phrase or two, do some research – especially if you don’t happen to speak that particular language. Otherwise, you might end up seeing so many poke fun at a slightly altered version of your prose a few months down the road. 🙂

Early stage Boards

In the startups, this is a particularly touchy issue. 

So long as the founders are the only investors in the business, the Board of Directors (BOD) normally are the founders except the odd independent director nominated by them – either in an advisory capacity (also good corporate governance) or to embellish the Board with luminaries.  Regulatory whips don’t surface in this stage.

Normally it shouldn’t be such a pain, if Board seats can be reserved on the basis of proportional investments made by the investors.  But founders sweat it out with their time and effort too besides money,  while the outside investors may just have the financial stake. Now how to split the board seats between founders and financial investors, if “quantum”  is the only criterion? Can you disregard the value of founders’ sweat? 

Unless a method to quantify the value of founders’ sweat is devised, to arrive at the Board composition ratio is not easy.  This again depends largely on what is more critical to the business in a relative sense, sweat or finance.  If it’s a technology company, it’s always loaded in favor of sweat.  What if it’s a financial services business, where capital is the raw material and finished product?  What if both are equally critical, as is normally the case?

I have always advised my clients on a consensus route. I call it as “iterative calibration”.  It’s not important to decide on the split ratio of BOD all at once.  Start with some fair basis of representation between the founders and other investors and keep tuning it as we move forward. It’s fairly simple to define – set milestones of performance and keep measuring it on a periodical basis.  If the founders are constantly hitting the milestones or are over-delivering, they shall have the majority (why not when they are doing a good job?).  Financial investors are happy since their investments are managed well, and the risk levels lower.  

If it’s the other way round, the founders may see their position compromised and investors should have the freedom to have more say, including bringing in superior talent at the helm.  So far it has worked very well, but I would like to see more perspectives.

Here I get another perspective from FeedBurner CEO Dick Castello.  Good friend Dan Primack of PE Hub has clued me in.  Thank you, Dan…!

 

 

Enough of musings

How many times have you wondered “I want to crack it, but can I?”

It was the great Dutch post-impressionist painter Vincent Van Gogh that said “If you hear a voice within you say ‘you cannot paint,’ then by all means paint, and that voice will be silenced.”  

This is one sure way for the little dash between the two dates in your tombstone matter a whole lot more to others. Embarking upon something that you wished you could do, but never could get started, takes a lot of courage.  You need that one spark. These are times when you wished someone from behind egged you on, got you started.  

Here’s to the crazy ones. The misfits. The rebels. The trouble-makers. The round heads in the square holes. The ones who see things differently. They’re not fond of rules, and they have no respect for the status quo. They guard well their spare moments. They are like uncut diamonds. Discard them and their value will never be known. Improve them and they will become the brightest gems in a useful life.  

You can quote them, disagree with them, glorify, or vilify them. But you just can’t ignore them. Because they change things. They push the human race forward. And while some may see them as the crazy ones, others see genius. Because the people who are crazy enough to think they can change the world, are the ones who do. 

Go ahead and take that shot.  Canadian Ice hockey player Wayne Gretzky said “one hundred percent of the shots you don’t take don’t go in.”

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What are you waiting for?

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How to land an angel

I see startup founders seeking out angel investors when they find VCs don’t respond to them or if they feel they’re too early for VCs. Chances are they might not have even worked their idea through.  

Here’s how they go. “I’ve got a great idea and have filed for copyright.  Now I am looking for an angel investor”. Scrape it a bit and you get what they mean – “ I am clueless how to raise the money. My mails to VCs didn’t get a response.”  They don’t satisfy the VC criteria of developing a proof of concept, beta tested product or have any early customers willing to pay a price.  By extension it means, “All I have is a pre-alpha prototype and I certainly don’t want to bet my money on it, leave alone my farm.” 

In short, (s)he wants others to run the risk of investing in his/her barebones.  VCs didn’t perk up.  Somehow they think angels would. 

I think it is borne out of a confused notion of what Angel investors are.  Angels have wings and they roamed the skies as far as I know.  Angels never walked the earth and they certainly don’t wear a badge. You just call someone an angel when (s)he touches you and get you out of distress. That would mean you recognize an angel after you are touched by it. 

Now you draw a parallel and add the word “investor” to it. What do you get? A bunch of experienced investors who made a fortune for themselves from a combination of hard work, an innate astuteness and application of enormous intelligence they came to possess. They’re quick witted, have taken some early risks that got paid off. They are so shrewd that they see right through you from a mile. Would you think they will bet away their hard gotten resources or apply them without a thought? Get a life, folks! 

That leaves the question – how to land an angel… 

First, look closer home. Your family is the first band of angels. Try getting your dad interested.  See if he’s willing to bet some money on your idea. Then try some of your relatives and close friends. Even if you score 6 on a scale of 10, you know you are investment grade.  You clearly make the cut. Now look for people from the same industry, your teachers, professors – it might stoke their interest, you never know. If they’ve taken that road before, they would certainly appreciate your hard work and the value you carry. They will seize the opportunity if they think that they can add value and make it a hit. Word spreads. You may not hear a knock on your door just yet, but I suggest you leave it ajar.  

Keep chipping away. Soon, you’ll sense a flash of bright light slipping through the door (or it could be your inbox) and you know you’re being touched.   

Recognize the angel.

Taking to extremes…

I reflect upon my spirituality.  Once in a while I go into that shell and peace out.  This morning I had a trance… 

How much more is darkness than just absence of light?  How remote is a spider from its web?  To some believers, can evil exist if God is omnipresent?  I think these are all related in many ways than one. In that God and evil question, God loses his essential qualifications to be God if evil exists as a separate force.  If you recognize the existence of evil, you have to forego God’s omnipresence. 

A scientist also knows there is nothing absolutely good or evil in existence. Everything is relative. Whether it is a poisonous metal such as mercury or lead, or a vitamin, the scientist does not assign any predetermined moral value to it. He just knows them as they are; that they are useful in different places for different purposes. Usage alone makes something good or bad.  

Doesn’t that make philosophical approach to evil, as well as its concept of divinity, consistent with scientific thought…? 

Too bad, the speechwriters of President Bush wasted time coining *Axis of Evil* – when all they meant was just Saddam Hussein…. (Iran and North Korea were after thoughts.)

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The Art of the End

The end game in a startup is as important as starting up itself.  Yet very few have mastered the craft.  Here’s some tips… 

Build a good database :  Get every piece of information about how other startups fared while evaluating, say,  a buyout proposal, stake dilution, time to exit etc.  This is one instance where the adage “let’s cross the bridge when we come to it” is falsified.  You can’t go tracking history after the suitor/competition has shown up.  Keep it handy, review it periodically and absorb the trend.

Avoid big talk(ers):  While you recruit a banker to advise you, hire the one that can walk with you, keeping your interests in mind.  The first guy to avoid is the one who talks more on big valuation numbers than on the immediate value maximizing steps, say, getting more bidders, due diligence, protection of minority interests etc. Big talkers normally have little to lose and often are bad negotiators.  Their focus will be on how their name gets flashed in the media “XYZ was the banker for ABC Inc. on $_000,000,000 deal”.  I’ve seen their stubbornness wreck many a good deal for startups.  In a way, they will be a little like Bill Clinton in white house if Hillary were to become president – I mean if a guy’s banging interns under his desk when he’s the president, what do you think is gonna happen when he’s got no stake at all?

Eye on profit: Most founders, especially if they happen to be techies are often great preachers.  Too much of academic Kool-Aid drowns them, making them look better on the pulpit than in a startup garage.  They dwell in detail on the intricacy of the technology but mostly have little to say on how it is going to make money in the end.  They mistake “execution” for translation of a theoretical ingenuity into a real time functionality blissfully neglecting the first move that sets the stage for a perfect end game – making profit. If you don’t know how to lead your business to profit, don’t waste time and effort.  Volunteer for the Red Cross. 

Just be wary, don’t fear competition :  Many startups fear an early go to market fearing formidable competition.  They delay it expecting the competition to wear out. Many founders quiver the moment you mention competition.  Remember, when we hate our enemies, we are giving them power over us: power over our sleep, our appetites, our blood pressure, our health, and our happiness. Our enemies would dance with joy if only they knew how they were worrying us, lacerating us, and getting even with us!  And they love winding the guy up and driving him nuts. Our hate is not hurting them at all, but our hate is turning our own days and nights into a hellish turmoil. Hit them where it hurts, by outthinking and outselling them at the market place. The valuation math depends to a large extent on sales numbers. 

Have you been part of a well executed startup end game…?   What other steps you think are important…? 

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What ails Indian Startups…

I often hear startup entrepreneurs ranting about VCs not funding their idea.  They point to Silicon Valley ecosystem and say the VCs out there took large bets on young upstarts and that’s how they got a Google, Amazon or Apple (alternatively their founders Larry/Sergie, Jeff Bezos, Steve Jobs in that order).

They also go on liberally about how Startups in India are done for money and not for passion (I am yet to see someone settling for “Nirvana” and not prosperity – anywhere in the world), Media is poor, dearth for good teams, VCs bet only on sure things and how they have no reality perspective etc…

Does that mean startups have no future in India? I say, look to the past.  You’ll get all the insights.

Imagine the India before the VCs came trooping in. There were entrepreneurs around even then. No, I am not referring to the famed Tatas, Birlas, Ambanis – I think of the millions of kiranawallas (local shop owners, general stores, sweet shops, caterers, informal event managers) that qualified far better as startups and never griped about lack of an outside investor to fund their ideas !  Several of them made it, quite a few of them may have bitten dust too.  They all had ideas, no teams, no investors – but they stood out by betting the farm (or whatever in its place), started small, settled for a street side shack (where they also slept in), kept shops open from 9.00 am to 11.00 p.m and the whole family ran errands.  One thing that never probably crossed their minds had been valuations, and all the illusions and assumptions that come with it. They just worried about stocking up enough to serve the customers the next day. Period. 

While it’s good to expect VCs to get a reality perspective, startup entrepreneurs too can do some introspection and figure out a way how not to imagine being a Bill Gates, Larry Ellison, Steve Jobs and start thinking like a Harishbhai, Chandulal or a Kesavan nair – even as you work on something like a Google, Amazon or Oracle.  Having the right local values, (we have it by the ton) is important – if you want to make it.

So, let’s talk of `localisation’ of startup minds – for a change.  If not, just shut up and stop being livid.  I for one think, this is the best of times for Indian entrepreneurs. We never had it so good. If you can’t make it now, you’re never gonna make it. Argue with me at your own risk….

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