Sunday, April 30, 2006

Startup School: Fun but Disappointing

A lot of interesting people showed up for Startup School and it was a fun experience. In fact, I even got to shake Tim O'Reilly's hand, which was kind of cool. However, I didn't learn anything and considering I sat through 7 afternoon speakers over 4 hours I was pretty disappointed. Furthermore, while several decent points were made including:
  1. stealth mode is overrated
  2. get your software out there early
  3. your website should clearly communicate what you do
  4. develop new improvements by listening to customer feedback
...but these are relatively basic points and each speaker seemed to say essentially the same thing. I will give Paul Graham points, his talk was clearly the best, but while the other afternoon speakers were interesting they were not educational. Furthermore, in a somewhat shocking and dangerously misleading series of statements Caterina Fake admitted that the Flickr founders didn't do any market research or have any idea who the dominant photo sharing competitors were when they launched... I really hope nobody in the audience took Ms. Fake's example as one to be emulated. Some startups will get lucky but as Dharmesh Shah has written most startups need to build real businesses and examples like Flickr can be very misleading as to how successful startups are built.

A little bit more organization and preparation would have gone a long way. The startup school organizers simply should have asked the speakers to prepare specific unique topics in their areas of expertise such as:
  • Tim O'Reilly & Om Malik on evangelism
  • Paul Graham on what investors look for in a startup
  • Chris Sacca on what Google looks for in an acquisition
  • Josh Schachter on determining when a hacking project can become a business
  • Caterina Fake on viral growth strategies
This kind or organization would have allowed the speakers to go into a bit more detail on their topics and provide the audience with a better educational experience rather than having 7 high level presentations that were largely redundant.

Lastly, the event title really needs to be changed to the "Consumer Web Startup School" because I didn't see a reference to B2B products all afternoon. Building consumer and B2B businesses are different and that point may have been lost on less experienced entrepreneurs.
Overall I'm glad that I attended the event but I was disappointed that it definitely did not live up to its full potential.

Friday, April 28, 2006

NFL Draft vs. Startup School

Tomorrow I have a very tough decision to make. I was invited to Paul Graham's Startup School but I'm torn over whether or not I should watch the NFL Draft. I really am an NFL Draft dork. With free agency, parity and the 49ers really sucking I don't even pay much attention to the NFL these days but for some reason I still love the draft. This year is especially exciting because the 49ers have two first round picks and the Texans have already shaken things up by signing Mario Williams as the #1 pick even though Reggie Bush is the consensus best player available.

I've looked at the schedule of speakers and the morning session is a couple of WSGR lawyers and Ann Winblad but they aren't posting the topics, which makes me skeptical as to how well organized this event really is. Anyway, with out knowing what the topics are, I'm uncompelled because I'm very happy with the legal advice that Fenwick & West has been providing us at Cryptine, so I don't feel the need to hear the WSGR attorneys speak and I've already heard Ms. Winblad speak several times recently.

I think my happy medium may be watching the draft in the morning to see what the 49ers do with the 6th pick and then heading over to Stanford for the afternoon speakers who look interesting and include Paul Graham, Tim O'Reilly and Om Malik among others.

Thursday, April 27, 2006

Phil Angelides's Family

All politics aside, is it just me or is Phil Angelides using his daughters in his latest TV commercial totally inappropriate? The advertisement is currently available Phil's campaign website. Does this mean that his daughters lives are fair game for the press? Using his daughters in this way is manipulative of the public and unfair to his children.

Monday, April 24, 2006

Equal Opportunity Google Disdain

I've written previously on my blog about how I don't like Google. I continue to stand by my reasoning that the company's success has been more about timing than brilliance, execution or even great marketing. Yet, I continually find myself saying there must be something about this company that I just don't understand so I decided that I should take it upon myself to learn a little more about Google. Over the weekend I purchased "The Search" by John Battelle. I'm not expecting much beyond the over-hyped-under-analytical story telling that is so common to both business books and books written by journalists. (Wow, a journalist writing a business book... this doesn't bode well for reasoned expository analysis) However, if I do find evidence of greatness or something that I think entrepreneurs can learn from, I'll be sure to follow up with another post on the subject. Be patient with me though, I don't have a lot of spare time at the moment to put towards reading the book.

Thursday, April 20, 2006

Presenting to Band of Angels

Last night I had the pleasure of presenting Cryptine Networks to the Band of Angels. The presentation was done over dinner at the Los Altos Golf & Country Club and included two other startups. I was really impressed by the knowledge and experience of the all the Band members that I met. Also, the other startups, pb wiki and picaboo did a great job and both had really compelling stories to tell.

Pitching to a room full of people eating dinner was definitely a different dynamic that sitting across the table from an investor. Two key things really stuck out to me. First, while everyone in the room was highly intelligent and highly successful they were not necessarily familiar with the security software industry. Second, while there was time for questions after the pitch it was not nearly as interactive as presenting one-on-one, which has generally been more of a conversation than a one-way dialogue. If I were to do it over again, I would spend more time hammering home my key points and less time on my secondary points. In the 10 minutes that Band of Angels gives its presenters nobody is every going to answer every question, but if the audience doesn't at least walk away comprehending your key points your unlikely to get to the next stage.

All in all, presenting to Band of Angels was a very good experience. I met a number of intersting people, I learned something and who knows, maybe even set the wheels in motion to raise some capital.

Tuesday, April 18, 2006

Peter Rip: Barriers to Entry Don't Exist

Peter Rip of Leapfrog Ventures just posted a great article on barriers to entry for startups. He argues that barriers simply don't exist. Rather, startups should focus on "obstacles" to imitation, the best of which, Peter writes, is an entrepreneur who can keep up the pace of innovation. To some extent his argument is one of semantics but it hammers home the point that if you have a great idea, competitors will find a way to copy it and that the real advantage startups have is the ability to react more quickly than larger established organizations. I believe that Mr. Rip's post is the best I read so far in the current patent jabber spreading across the blogsphere. Anyone looking for ideas on non-patent "obstacles" may also want to read my earlier post here.

Monday, April 17, 2006

Investor Value-Add: Angels vs. VCs

Matt Marshall wrote a post on SiliconBeat about Kaboodle raising $3.55M in financing from 10 angel investors. (Jeff Clavier, one of Kaboodle's angels, also writes about the financing here) Mr. Marshall suggests that Kaboodle’s financing may signal a new trend of startups seeking larger angel rounds because a group of angels may provide more value-add to the startup than any one VC can.

I’ve heard this topic debated both ways.

The first argument says that VCs are dumb and arrogant herding creatures that foolishly invest in fads and who battle and fire the founders rather than really adding value. The second argument goes that if the VCs won’t invest or if you want a higher valuation, its an angel deal, which clearly implies that angels are less savy investors. Ad hoc examples can be found to support either argument, however, on the whole most angels and VCs are smart and successful people and the barriers to entering venture firms as a GP or becoming and accredited investor are fairly high.

At this point, I should add the disclaimer that I am a first time entrepreneur who has never seen a company from initial investment to liquidity event. However, this is a subject that I’ve spent an awful lot of time thinking and reading about so the rest of this post is based heavily on logic and what I’ve read but only lightly on my own experiences.

I believe that the value-add of angels vs. VCs is totally dependent on the individuals involved but on average VCs will add more value than angels.

As a general rule the VC value-add should be more consistent and is also likely to be more valuable than any individual angel because they are professional investors and their job is to facilitate the growth of their investments. Furthermore, the VC has the partnership (at least in theory) paying attention to what they are doing, which acts as a check to provide a baseline for their behavior. That said there are VCs who are known as good board members and others who are known as not so good board members. The more famous the VC, the more doors s/he can open but the less time you will likely get with him/her. It’s a trade off and the value will depend on the needs of the startup, ie, operational help vs. introductions. For example, a first timer at an early-stage firm will probably need more hands-on operational help from their investors, while a serial entrepreneur at a later-stage company is likely to be predominantly seeking investors for their connections.

As for angels, there are some very famous investors that practically build the company themselves. However, there are no institutions behind angels’ to provide checks on their behavior and some will have stubbornly held ideas about the way things work that come from left field. Also, many angels are senior executives at large corporations with demanding work schedules. While these angels may have all of the knowledge and connections necessary, they may not actually have any time to help their startup investments. Lastly, most angels don’t have access to the deal flow, nor the experience working with startups that VCs do. Some counter examples clearly can be found but on average a VC will look at hundreds to thousands of deals per year. I don’t think its possible for even the most dedicated angels to have access or time to review that many opportunities. Lastly, while more angels does mean more hands helping, it also means more mouths to feed. I highly doubt that all 10 of Kaboodle’s angels plan to take an active role in the company because managing them would drain all of the founders’ time.

So in conclusion, it really boils down to the individuals that the founder is working. Rather than just seeking capital (if one is lucky enough to be in the position of having any preference) founders should seek investors who’s opinions they respect, value and want to have about the business moving forward. If you don’t value the other person’s opinion, why would you want to give them levers of control over your business and lock yourself into a position of having to listen to them at every board meeting? That said, I suspect that as with all relationships, money changes everything and how two people get along when closing a first round will not necessarily be a good indicator of how well they work together when the shit hits the fan. I guess this just hammers home the point that it’s always important to do your due-diligence on the people you work with vigorously no matter what one’s first impressions are.

Sunday, April 16, 2006 The Best Page on the Web

Can anyone deny that is the best news aggregator on the web? Clearly their algorithm for finding relevant venture capital industry news is among the most intelligent lines of code ever written. :)

...Oh and I love the fact that the ridiculous photo of Tommy Hilfiger has been on the page for weeks now

Congrats to Jigsaw

Jigsaw Data, which has created a database of sales contact information, celebrated their series C financing on Friday afternoon. Myself and several of my colleagues at Cryptine Networks had the pleasure of attending their party and celebrating with them. Congratulations Jigsaw!

Jigsaw has had some negative press from TechCrunch recently, but I believe they are a great company with a great concept led by great people. Jigsaw has mapped the corporate hierarchy of nearly every major corporation in the United States. Jigsaw is a great service for startups because unlike Hoovers, Jigsaw allows salespeople to view the hierarchy before purchasing the contact info. Thus, the salesman can determine whether or not s/he should be calling on an engineer, manager, director, or VP based on who else works in the organization, which makes both the purchase and the time spent on the phone more efficient for everyone involved. For any startup looking to generate its first couple of sales, subscribing to Jigsaw for targeted sales prospects is easily the best $25 investment any founder can make.

Interesting NYT Patent Article

The New York Times recently published an article on Geoff Goodfellow who invented wireless email well before Thomas Campana patented it. The patent that Mr. Campana wrote won NTP a $612.5M settlement from RIM, the makers of Blackberry. The story clearly demonstrates that while the patent system maybe flawed, participating in it is better than ignoring it. Nonetheless, I give Mr. Goodfellow kudos for having such a good attitude about the situation.

In case you missed it, the blogsphere has been buzzing with commentary questioning the value of patents:

  1. Greg Blonder kicked it off by writing "Cutting through the Patent Thicket"
  2. Paul Graham asks "Are Software Patents Evil?"
  3. Brad Feld urges us to "Abolish Software Patents"
  4. Fred Wilson wrote "Patently Absurd"
  5. Lastly, I suggest several non-patent barriers to entry here

Wednesday, April 12, 2006

Web 2.0 + Beer = Stirr

As I'm winding down this evening, I'm remembering how much fun I had last Wednesday night at the inaugural Stirr event, which was basically a tech focused happy hour. A lot of networking went on but it felt more like having a beer with my big extended entrepreneurial family. Fanny & Alexander was a great location and the group of people attending was also really amazing. In fact, the list of attendees is posted on Stirr's website and its almost jaw dropping to read how many of the most interesting startup's founders were in the audience. I can't wait for the next event and I hope the organizers don't change a thing.

Monday, April 10, 2006

I'm Funded Now What?

Will Price and Terry Gold have written several excellent posts, which any entrepreneur that is getting close to their first round of financing should definitely read. Post funding most startups seek to begin executing their marketing and sales strategies. However, execution, marketing and sales can be very difficult for newly born companies because every thing is new and growing rapidly. Yet, seed and series A financings are relatively small investments that provide little margin for error. Thus, Mr. Price's post on creating operating plans and marketing best practices as well as Mr. Gold's post on hiring the right sales people are must reads. Its just too easy to blow an early round of financing amidst the chaos of any startup on marketing that doesn't pan-out and executives that would rather forecast or manage than sell...

...but if your in the market for sales forecasting and/or sales management advice, Mr. Price's posts on these subjects are excellent also.

Sunday, April 09, 2006

Government Computer Security Graded D+

In regards to my post earlier this morning on government computer security and the nationality of its vendors, it dawned on me that the entire conversation is moot. The GAO audits the security of federal agencies each year in accordance with FISMA. However, the federal government has never averaged better than the D+ it received this year. Furthermore, key agencies like, Defense, Homeland Security, the IRS, the SEC and the Treasury received flunking grades. If these key federal agencies can’t even pass our own audit, how can we even begin to worry about foreign national governments tampering with a private company’s product like Check Point and Lenovo. It just doesn’t make sense to write a stealthy back door into the software code when our government’s most sensitive data can be had so easily.

Lenovo, Check Point & US Government Computer Security

Brad Feld wrote this morning on the issue of the US Government purchasing computers from Lenovo here. As Mr. Feld points out, the government also derailed the merger between Check Point and Sourcefire based on the argument that sensitive government agencies (using Sourcefire's intrustion dectection/prevention product) would only use security products developed domestically. I don't believe this issue is black and white and I’m not actually sure where I stand on it, so I’ll simply put forward a couple of points that I think add color to the debate.

First China and Israel do have a history of spying on the United States so it is not paranoid to believe that either country would attempt to target the our nations most sensitive computing resources. Second, China is taking the same precautions by shifting to Hengzhi chips so that sensitive government computers are built and controlled domestically.

However, while Lenovo and Check Point are headquartered in China and Israel that does not mean that they are puppets of the Chinese of Israeli governments. Imagine the ramifications to either company if it was found that they had written backdoors into their products and could spy on all of their customers… it could put either company out of business. Microsoft survived the famous NSA key scandal but I don’t think either Check Point or Lenovo has the same market power that Microsoft did/does.

Furthermore, if the problem is the government purchasing computers manufactured in China is there really any alternative? I believe that Lenovo been manufacturing many of IBM’s computers for several years anyway. Also, where do the “American” vendors, like Dell or HP, build their computers? I suspect that many of the major components are built in China.

Lastly, the previously hidden “Lenovo Tapes” do shed some light on Lenovo’s capabilities… definitely worth a look they are very funny.

Sunday, April 02, 2006

Barriers to Entry: Patents & non-Patent Barriers

One of the key criteria that venture capitalists look for in potential investments is the protectability of the technology. Paul Graham’s recent essay questions the value of patents, yet it seems like most entrepreneurs still focus primarily on patents as barriers to entry. VCs know that patents usually aren’t enough to protect a startup’s technology. First, the patents are granted relatively easy but they aren’t necessarily defendable. I have heard that the US Patent Office spends approximately 3 hours deciding whether or not to grant a patent. However, if the patent is ever going to be enforced attorneys on both sides will clearly spend much more time investigating what the claims really mean and who really has the prior art. Often the victor in patent litigation is the party with the greatest resources that can “out lawyer” the other side… which doesn’t bode well for startups. Furthermore, it can be especially hard to determine exactly when software patents have been violated. Certainly no venture investor wants their capital to be used in patent litigation. Thus, non-patent barriers to entry are very important to venture capitalists.

Here are some quick thoughts on non-patent barriers to entry that entrepreneurs should consider how they can maximize.

Cost of Imitation:
Labor Man-months
Knowledge Databases

Loyal Customer Base / Sticky Features

Long Customer Contracts
Government Licenses or Permits
Distribution Channels (VARs & OEM)

4/10/06 UPDATE: Check out Brad Feld's intersting post titled "Abolish Software Patents"
4/14/06 UPDATE: Fred Wilson also wrote an intersting post titled "Patently Absurd"

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