VentureBlog

Fueling the IPO Fire? or Burning it Out?

This weekend I was reading a blog post written by Chris Douvos. Chris is an investor in a number of well-known venture firms and writes a blog called Super LP. His commentary always cracks me up, even when he's writing about the finer points of risk curves, financial models and the like.

In his post entitled "Keeping the Window Open," Chris cautions the investor community to not be too overzealous in taking companies public during this time when the gently re-emerging market is so fragile. As he rightfully points out, those companies that go public and then promptly miss their numbers, not only tank their own valuations but also spoil the markets for everyone else. If investors can't trust newly minted public companies to do what they said they were going to do, the markets will simply reject future public offerings as more of the same old head fake.

The conversation reminded me of the good old days when I was an attorney. One of my final acts as a lawyer came at the board meeting of a rapidly-growing but somewhat erratic startup. The venture investors in that startup sat at a board meeting reveling in their growing user-base and began discussing the idea of taking the company public. The VCs were in rousing agreement that we should promptly commence work on the company's S-1.

Lacking a certain self-preservation gene, I pointed out to the VCs that should the company miss its numbers after going on file, it would have to pull the filing and be in a much worse position than when it started. Thus, I strongly recommended that the company wait until it had greater predictability of revenue before filing to go public. Not only were the VCs not wowed by my erudite advice, they promptly fired me and hired another attorney to draft the S-1. Of course, I would not be telling this story if the startup did not ultimately miss its numbers and have to pull the filing. More importantly, this was precisely the sort of company Chris cautions us VCs against taking public this time around -- and I am with him one hundred percent.

There are too many great companies lined up and ready to get public for us to jeopardize the IPO window trying to get middling companies out. As Chris rightfully notes, if we can take solid companies public, "[t]heir success should lead to more opportunity for other companies." If, however, we take marginal companies public, their lack of success will spoil the market for even the most solid of performers.

I realize that the lure of liquidity may be too much temptation for some in the venture community, but I would urge patience in the face of uncertainty. The venture business is a long-term business and the more we can do to grow the overall pie by being circumspect about those companies we bring to market, the better off we all will be in the long run.

Customer Service Matters

Just yesterday I had breakfast with Rene Lacerte, the founder of PayCycle, and we discussed the power of great customer service. When Rene first pitched me on the idea of PayCycle, the service was not yet built. Nonetheless, he was already discussing how he would integrate the customer support experience into the overall service offering. He rightfully pointed out that every change you make to an online service will have implications for the customer support team -- whether it is training, navigation, speed to resolution, etc. So from its inception, PayCycle's product management and customer support went hand in hand. Rene is now building his second customer-focused service called Bill.com and it too has been built from the bottom up with customer support in mind.

As we ate breakfast yesterday, Rene and I had a long discussion about the fact that despite being called Software as a Service, very few SaaS organizations put any emphasis on the "service" piece. Sure, you could argue that the "service" in SaaS is all about delivery and not about customer support. But that would be a mistake. Service businesses live and die based upon the satisfaction of their customers. While it is conceivable that your software could be sufficiently foolproof that customer support is limited to receiving "thank you"s from your happy customers, so far no one has quite found that Holy Grail. Customer support remains a significant piece of all SaaS organizations and the more a company recognizes that going into building their service, the more likely they will succeed.

So what does that have to do with the Rosewood Hotel? I was reminded of the importance of customer service this morning as I experienced the Rosewood Hotel's stunning disregard for their customers. For those of you who have not yet been to the Rosewood Hotel (and I would not recommend that you go), it is the new "high-end" hotel that was just built on Sand Hill Road in Menlo Park. For those of us parked in VC-land here on Sand Hill Road, it was a welcomed new place for breakfasts and lunches and, in fact, I have eaten breakfast there 12 times in the little over a month that it has been open. But never again. (Warning: herein begins a rant -- a well-deserved rant, but a rant nonetheless.)

Three weeks ago, when parking for breakfast, I was surprised to see broken glass in one of the parking spaces. As I left breakfast, I pointed the glass out to a maintenance person driving his golf cart by. I assumed it would be cleaned up. Two weeks later, the glass had still not been picked up, so when the manager of the Madera restaurant came by to say hello to me (after all, I was there every other day), I pointed out to him that there was broken glass in the parking lot that had not been picked up despite the fact that I had pointed it out two weeks earlier. The restaurant manager apologized and assured me that it would be picked up. To my shock, it was not. Undaunted, I figured I'd give it a third try. Two days ago, on my way to an event in a conference room in the hotel, I asked to speak to the hotel manager. A nice young man named Daniel came to talk with me and I recounted my tale of woes. I explained to him that while the glass hadn't particularly inconvenience me, that I thought it didn't reflect well on his hotel and that he might want to take care of it. He assured me that it would be cleaned up by the next time I visited, which I told him would be two days later.

I must say I was surprised to see the glass still there two hours later when I got out of my meeting, but I figured I'd give him the benefit of the doubt and assumed that it would be picked up by my breakfast on Friday (today). I was wrong. To my horror, as I drove up to breakfast this morning, the glass was still there. Was I cut by the glass? No. Did I get a flat tire from the glass? No. So why do I care? Because I think that customer service matters. I think that if you care about your customers, you should do more than pretend to listen to them. So rather than park, I drove up to the front of the hotel and explained to them (amidst a fair amount of swearing) why it was that I would not be eating breakfast there any more. The same manager, Daniel, was there and fell on his sword, taking full responsibility for the incident. But as far as I am concerned, it is too little too late. Such blatant disregard for your customers maybe deserves a second chance. And, if you are feeing extremely generous, a third change (particularly when the restaurant is so convenient). But not a fourth chance. So I guess I'm heading back to Il Fornaio for breakfast.

Customer service matters. And it matters more than ever in this age of blogs, and Facebook and Twitter. If you search for PayCycle, you'll find a whole lot of happy customers. And if you search for Rosewood Hotel, I'm guessing you'll see a whole lot of dissatisfied customers. You'll certainly find me there.

Update: Shortly after I posted this rant about the Rosewood Hotel, I got a call from Managing Director of the hotel. Through the power of blogging, twitter and facebook, the Rosewood's MD had read my complaint moments after I had posted it and promptly called a staff meeting to address the situation. He then came over to my office to offer up his apologies for what had happened and his commitment to make customer service a priority of the hotel. While I wish it had not escalated to the point of needing such attention, I certainly appreciate that the hotel's MD took it seriously enough to come to my office and have the discussion.

More Than Just Writing a Check

As one of the leading analysts and Web Strategists in the social computing space, Jeremiah Owyang meets with a lot of companies. He has the luxury of talking with big companies and small companies, public companies and private companies, venture-backed startups and bootstrapped companies. He is constantly looking at what makes one company successful and another one less so. Not only is Jeremiah a really smart guy, but he has a ton of data to support the conclusions he draws both in his day job with Forrester and in his role as confidant and advisor to numerous startups.

Given all that, I was thrilled to read Jeremiah's post "Beyond the Money: Some VCs Provide Startups With A Competitive Edge." In his post, Jeremiah asserts that VCs (at least the better VCs) are good for more than just money. What are we good for? Jeremiah lists a number of categories: Thought Leadership, Strategic Guidance, Being Part of the Family (e.g., Keiretsu), Ancillary Services (marketing, recruiting, etc.), Umbrella Branding (e.g., "an August Capital company"), and Networking. I would probably add to this high level list Recruiting and Capital Raising, both of which VCs can be very helpful with. Jeremiah concludes that "What [VCs] do beyond the investment makes a different - I can see it."

Thank you, Jeremiah! While I recognize that my job as a Venture Capitalist is to invest other people's money and, if all goes well, turn it into more money, I have a hard time thinking of Venture Capital as a "financial services" job. It is certainly the case that the financial services aspect of the job isn't what gets VCs up in the morning. What gets us up in the morning is the prospect of working with really smart people to build new and exciting businesses. And Jeremiah does a great job of listing the fun parts of our job -- advising, connecting, recruiting, etc.

All too often I fear that VCs are thought of as fungible -- one VC's as good as the next. It is certainly true that our money is fungible -- a dollar from any other VC will buy as much as a dollar from August Capital. But the aggregate value of taking money from another VC will be vastly different from taking money from an August Capital. My partners and I work hard to deliver value to our entrepreneurs on all the fronts Jeremiah describes. And those efforts can have a big impact for a company. VCs don't build companies, entrepreneurs do. But good VCs can do a whole lot more than simply write a check.

The Evolution of TED

For almost a decade I've been enjoying the TED conference. For those of you who haven't heard of it, the TED conference is a mind-blowing gathering of deep thinkers from the worlds of Technology, Entertainment and Design (plus any number of fields in and around Technology, Entertainment and Design). Over the years, the audience has become almost as star studded as the speaker lineup -- folks like Matt Groening, Paul Simon, Al Gore, who once graced the stage now show up to listen and be a part of the broader TED community. The result is 4+ days of mental over-stimulation, followed by exhaustion and then a countdown until next year's TED.

This year marked the 25th anniversary of TED. The conference started as a small gathering back in 1984 and has grown over the years in both scale and notoriety. Up until a few years ago, TED grew by virtue of word of mouth. Folks like myself who had the good fortune of finding our way to TED would inevitably return signing its praises and bring a few friends with us the next year and the next year and the next year. That all changed when the TED organization decided to release videos of the TED talks into the World Wide Web. Since that time, TED talks have been viewed over 100 Million times and awareness of the TED conference has skyrocketed, as has demand for the conference.

In response to rising demand and the logistical challenges associated with TED's old venue in Monterey, California, the TED organization moved the conference this year to the Long Beach Convention Center. In many ways, Long Beach could not be further from the quaint, upscale TED tradition in Monterey. For one thing, the old Monterey theater held a mere 500 people, whereas the new Long Beach venue accommodates 1,700 in the orchestra alone. Long Beach is a city. Monterey, a town. For those of us making the transition from the TED of old to the TED of new, the contrasts were great and comparisons near impossible to avoid.

Given all that, it is not surprising that many of the TED old guard expressed deep concern about TED in Long Beach. They felt that it was too large, too impersonal, too lacking in community. They objected to the new, bigger theater. They complained about the impersonal character of the city of Long Beach. And they weren't too fond of the food either.

So why am I not surprised by these complaints? And why do I think that the TED organization should not be too concerned? Those of us in the startup world have seen this play before. When companies succeed, prosper and grow, there inevitably comes a time when they need to move out of their quaint, nostalgic offices and into new, bigger, often less-personal digs. The employees who have been with the company since its inception bemoan the change, pointing to it as evidence that the company has lost its bearing. They are certain that the company will not survive the transition intact. And while some of those early employees may not make the transition themselves, the growing and prospering company usually does.

Those companies that manage to transition best from small, gutsy startups to large, established companies are the ones with the strongest corporate cultures. While growing companies inevitably have to make certain adjustments to their traditions to accommodate their increased scale and trajectory, the heart of their corporate cultures remains vibrant and continues to support the companies' expansion.

So too with TED. The TED culture is a powerful one. Indeed, the culture of TED has continued to grow over the two and a half decades it has been in existence. That powerful culture has been reinforced by the philanthropic bent of Chris Anderson, who has been TED's "curator" for almost a decade now. People attend TED, not only to have their minds expanded, but with high hopes for helping build a better planet. And with that overarching goal, the TED culture remains vibrant.

I suspect that some long-time TEDsters will drift away as a result of the move to Long Beach. But there will be plenty of eager participants ready to take their place. And those of us who remain will continue to be treated to a dizzying mental carnival, surrounded by an eclictic community of friends, old and new alike.

Will VCs Continue to Suspend Disbelief

A huge number of web startups were funded over the last five years. Anyone who reads TechCrunch has seen them chronicled; the Web 2.0 menagarie was dizzying. And, like in the late '90s before, the hopes (if not expectation) for each and every company were high. So why do I believe that we will see a big number of web businesses shuttered in 2009? Because the change in economic climate has made it more difficult for Venture Capitalists to suspend disbelief.

Early stage venture investors have relatively little information upon which to based our investments. We certainly have the most important clue as to the likely success of a company -- we know who the founders are. But otherwise we are necessarily making predictions about user growth, market expansion, monetization, etc. And in order to invest, we need to suspend disbelief about all of these metrics and assume growth, adoption, monetization....

At each stage of investment, VCs need to suspend disbelief about some criteria or other. Initially it may be the ability to build a product with universal appeal. The next investor may see a product with universal appeal but need to suspend disbelief about the company's ability to monetize that audience. The next investor may see a product with a big audience that is in the early stages of monetization but need to suspend disbelief about the ability to scale the scope of the business and the economics. Even expansion stage investors ultimately have to suspend disbelief that even with a working product and monetization that a company will be able to maintain growth and ultimately reach liquidity. So the investment lifecycle of a startup necessarily requires a fair amount of faith.

What happens in a down economy? Investors become less willing to suspend disbelief. Entrepreneurs need to make more progress between financing events before they are able to find investors willing to bet on their ultimate success. And while some startups will be able to manage that transition, others will not be able to reach this heightened bar. I suspect the end result will be a large number of web startups funded in the mid-2000's will run out of money and, unable to find investors who are willing to suspend disbelief, will have to close their doors.

I don't think that this is necessarily an indictment of those startups or the venture process. It is just a byproduct of a system that necessarily involves a huge amount of risk. In up economies, the system is more forgiving. In down economies, less so. But, in the end, the strongest startups survive and thrive.

So, will I continue to suspend disbelief? You bet. Early stage venture investors have no choice but to believe and build. Otherwise, we will invest in nothing. I realize it is a challenging environment out there for company building. But the best antidote to disbelief is real progress. The startup world is always a meritocracy but never more so than in a tough economy. Those companies that show results will continue to get funded. Those that don't, won't. My hope is to continue to invest in those that do. And then work hard to bridge the disbelief gap.

Innovation Doesn't Take a Vacation in an Economic Downturn

By the end of 2008, Venture Capital had been officially declared dead. Startups were laying people off so fast that even TechCrunch couldn't manage to keep up. University Endowments and Foundations, the source of the "capital" in Venture Capital, were hemorrhaging so badly from their public company investments that many long-time believers in "alternative assets" declared a moratorium on Venture Capital. And the IPO market was a distant memory. Good times!

Welcome 2009. The public markets remain closed. Venture investors and the investors in venture investors remain "challenged." Follow on financings have become increasingly difficult, in some instances impossible. And, while there may well be light at the end of the tunnel, it would appear that we haven't gotten far enough down the tunnel yet to see that light.

So why am I optimistic about investing in 2009? Because entrepreneurship is an addiction, it isn't a choice. Great entrepreneurs aren't driven to create companies because it is easy, or because capital is plentiful, or because the public markets are swallowing anything the venture community will throw at them. Great entrepreneurs start companies because they can't help themselves. They see a problem or a solution or white space or an opportunity and they have to do something about it.

Innovation doesn't take a vacation during an economic downturn. Innovation is a constant. While the resources an entrepreneur may be able to bring to bear on a problem may vary with the economic climate, the desire -- the need -- to innovate never goes away. And Venture Capital is the fuel of that innovation. [1]

So I remain excited about the companies that will be started in 2009. There will be great companies started during this economic crisis. Some of them will be born out of the crisis itself. Others will simply be born during the crisis. But, rest assured, there will be important tech companies hatched in the next year or two. And I am certainly hoping to fund them.

[1] Some of you reading this will say to yourselves "starting companies today is so inexpensive that we don't need no stinkin' VCs." More power to you. I don't mean to suggest that innovation will die without Venture Capital. There are many great ideas that can come to fruition without a meaningfully-large capital infusion. My hat is off to the 37 Signals and Smugmugs of this world. But for those ideas that require investment ahead of revenue to reach their full potential, Venture Capital remains an important resource for company building.

Great Entrepreneurs Build "Tribes"

I have just finished reading Seth Godin's latest book, "Tribes." The book tells many a tale of how out-of-the box thinkers, undaunted by conventional wisdom or fear of failing (or falling, for that matter), have changed the world in big ways and small alike. But it is not a tale of super heros who stand alone against the forces of evil. It is a tale of countless leaders who manufactured outcomes by inspiring others to lock arms with them in the quest for results -- fewer euthanized pets, a collective encyclopedia, deeper understanding of wine, etc. [1] The message is a simple one: you too can inspire a tribe to collective action, so get on it.

So what does it take to create a tribe? What does it take to inspire a team, or a club, or a movement? The question is certainly of interest to anyone building a startup. As Seth points out, there is a big difference between employees and followers. Employees do what they are told because it is their job. Followers do what they can because they believe. Great companies bear out this distinction. Look at the faithful at Apple or Google or Amazon. They are true believers. These companies don't recruit, they inspire. And the influence of great companies reaches far beyond the ranks of their employees. Bloggers become evangelists. End users become customer support agents. These companies become tribes, growing their influence and mindshare by leaps and bounds.

According to Seth, tribes are started by heretics of sorts. They are not blinded by the status quo. They are not afraid of failure. They are true believers in what they are doing. And they barrel forward without concern for the potential consequences of the decisions they are making. They lead by example. And they are unendingly generous to their communities -- giving of their time, their ideas, their selves. In short, these heretics are great entrepreneurs!

One need look no further than Seth's seven elements of leadership to appreciate that he is talking about entrepreneurs.

• Leaders challenge the status quo.
• Leaders create a culture around their goal and involve others in that culture.
• Leaders have an extraordinary amount of curiosity about the world they're trying to change.
• Leaders use charisma (in a variety of forms) to attract and motivate followers.
• Leaders communicate their vision of the future.
• Leaders commit to a vision and make decisions based on that commitment.
• Leaders connect their followers to one another.

I am often asked what it is I look for in an entrepreneur and this list isn't a bad starting point. Great entrepreneurs care deeply about what they are doing and are able to convince others to join their cause (i.e. their tribe). Their followers include employees, customers, journalists, partners and, on occasion, VCs.

For those of you starting companies out there (or trying to strengthen your corporate culture), "Tribes" is worth a read. It is certainly not prescriptive. But it has many nuggets of wisdom that will help you inspire and lead.

[1] While I was in college I ran a speakers bureau that brought a eclectic group of brilliant individuals to campus. One of my speakers was Chuck Jones, the creator of the Road Runner, Pepe LePew and Wile E. Coyote. I remember vividly listening to Chuck Jones' rail against the cartoons of the time, which he said gave kids the wrongheaded message that no one could do anything on his own -- everything required a team or a group or a tribe (his favorite example were the Smurfs, which he viewed as a tiny blue scourge on the cartoon world). I wonder if Chuck Jones would have taken issue with "Tribes" and its call to collective action.

Wired Teaches us "How To" Get Funded By a VC (and Written Up on TechCrunch)

I just flew back from Europe and boy are my arms tired [insert rimshot here]. Actually, I just flew back from Europe and boy are my eyes tired. I have this bad habit of accumulating magazines until I have a long plane flight then powering through 30 pounds worth of reading.

My typical airplane reading starts out with a zillion of those alumni magazines we all get. If you can wade your way past the inevitable articles on anthropology, sociology and pop psychology, you can often get a first glimpse into some really interesting scientific and technical innovation in these magazines. I'm tempted to go get a masters degree in anything from Carnegie Mellon just so I can get their alumni magazine.

But the magazine I probably spend my most time reading, en route to wherever, is Wired. It is such a great combination of entertainment, info-porn, and deep dives into things that really matter. This trip I had managed to accumulate 5 months worth of Wired's -- good thing I was flying to Europe, there's no way I would have gotten through them by Denver or Chicago. (The other great thing about reading your way through so many accumulated magazines is that it is a little bit like eating your provisions on a long hiking trip -- my load gets noticeably lighter with each magazine I've finished and discarded in the seat back pocket in front of me.) While I don't always act on it, I often times find myself reading something in Wired on which I want to blog. I'll rip out the pages and then forget about them or just never find the time to write. But not this time. This time I'm going to remedy that by writing this post on the plane flight back home. Right now (Jeesh, I'm three paragraphs into the post and I haven't really written about anything yet -- my apologies to those of you who are looking for pithy commentary on technology and the venture community -- I seem less and less capable of pithy these days).

How to score venture capital.

August's issue of Wired this year was the "How To" issue. How to stop a fight. How to crash a party. How to twitter an event you're not even at. . . . One of Wired's how to's was "How to score venture capital." Now there's a topic near and dear to my heart. So I read on with great anticipation and discovered that whoever wrote this did not, in fact, know how to score venture capital -- at least not from me. So here is Wired's advice with my commentary.

1. "HAVE AN IDEA. We'd say it has to be good, but many Web startups demonstrate otherwise."

Despite Wired's snark about Web startups, there is a reasonable point in here. It is true that you need to have an idea -- you've got to build something and, eventually, you even have to sell something. But "good" is in the eye of the beholder. I think you would be hard pressed to find a single startup that managed to get a term sheet from every VC they pitched. One VC's next Google is another's wasted hour. That doesn't mean one idea is good and the other is bad. It just means that venture capital is still more art than science. Trying to pick winners is what we do for a living and some of us are better at it than others.

2. "STICK WITH what you know. If you've spent the past few years building MySpace plug-ins, don't propose launching a chain of bowling alleys."

On the one hand, it is true that VCs love the idea of "domain expertise." On the other hand, it is silly to say that you need to stick to only what you know. What if there isn't a business to be built from MySpace Plug-Ins? Are you doomed to never create an interesting startup just because that's what you know? Look at Joshua Schacter. What did Joshua know before creating Delicious? He knew how to build huge scale, high performance, enterprise applications for the financial services sector. Does that mean the VCs were foolish to invest in Delicious? Should they have urged him to start an enterprise software company? VCs love passion and energy more than expertise. I probably wouldn't fund Joshua to create the next generation nuclear power plant. Then again, he's a really smart guy -- if he spent enough time getting himself familiar with the space and thinking differently about the problem, you never know.

3. "SPEND an inordinate amount of time crafting your business plan's executive summary. It's the first thing VCs read -- and the last if it's poorly written or long-winded."

The two things that I look at when first getting up to speed on a company are either an executive summary or a PowerPoint. So it is certainly the case that you would be well served by a concise and compelling executive summary. On the other hand, you may well want to stop there. A full blown business plan is rarely necessary to raise venture capital. VCs tend not to read business plans because a) they are too long and b) your business will likely have changed by the time anyone gets around to reading your business plan So focus on the things that matter -- understanding your competition, building great products, innovating on your business model, etc.

4. "SEARCH FOR VC firms that have recently funded startups similar to yours. Then hit those firms' Web sites, where they'll likely have instructions for submitting business plans. Don't worry -- the best do actually mine their slush pile."

If Wired's advice falls on a spectrum from "sort of right" to "way off the money," this one is deep in "way off the money" territory. It doesn't start off terribly wrong. You should definitely do a lot of research on the VCs that you will approach for funding. And the ones who have funded related businesses in the past are potentially good targets for your business as well. But not always. Imagine you are building a gaming startup. Some VCs who have invested in the gaming space may be signaling to you that they are excited about the gaming sector and would be happy to fund other gaming companies in the future. Other VCs may feel that they have made their bet in the gaming space and will be hard pressed to invest in another gaming company. So previous investment can be a double-edged sword.

The place where this advice goes far afield is the suggestion that you should go to a Web site, find instructions on how to submit a business plan, and "drop it in the mail." Wired claims that "the best" VCs actually look at unsolicited business plans. It may be true that many venture capital firms look at unsolicited business plans. But rest assured that it isn't Mike Moritz or Dave Marquardt or John Dooer reading these plans -- it is the most junior person at the firm. More importantly, the way to get your executive summary read is to have it passed on to a VC by someone he or she trusts. This is a referral business. Your credibility as an entrepreneur will be bolstered by the credibility of those individuals who vouch for you. So rather than spending time writing a business plan, go spend time pitching your business to technology influencers who can help you build a business and can introduce you to the right people to fund your business. My advice would be to never ever submit a business plan through a Web site -- if you can't get it directly to the person who you want to read it, don't bother.

5. "ONCE INVITED to present your plan, remember that brevity is a virtue: Use no more than 30 PowerPoint slides, and keep your presentation under 45 minutes."

Yikes. 30 slides. Unless you are Lawrence Lessig, I don't think the words "30 slides" and "brevity" can possibly be used in the same sentence. I completely agree that you should aim to keep your presentation to about 45 minutes. If a VC gets excited about what you're working on, they'll spend more time with you in future meetings. But, as with entertainment, you are way better off leaving them begging for more. Get in. Pitch. Get out. There is no way that should take anywhere near 30 slides. I've blogged here before about the 6 -- yes, 6 -- slides you need to pitch your business. Even if you feel that 6 slides is too spartan, don't confuse quantity for quality. The fewer the slides and the more discussion the better.

6. "KNOW EXACTLY how much cash you need."

They waited until the final piece of advice to nail it. I just wrote a whole post about this. Don't just ask for a specific amount of money, explain precisely what it is you intend to do with that money and why it is the right amount of money. This should be the last slide of your PowerPoint presentation and is your chance to summarize the strengths of your company: you're building something important; you understand the competitive pressures and how they impact how much money your are raising and how quickly you are spending it; you have the right team to build it (or know where to find the right people to add to the team); and you can make meaningful progress on the very reasonable amount of money you are seeking to raise.

Those of you who are still reading have incredible endurance and I appreciate that. My apologies for further testing that endurance. (But have no fear, there will be no pop quiz at the end.)

How to get a plug on TechCrunch.

In the very same issue of Wired, there is a blurb on "How to get a plug on TechCrunch." The thing that I think is interesting about Wired's advice for enticing Mike Arrington into writing about you, is that it is better advice on how to get funded by a VC than Wired's missive directly on that topic. It isn't perfect advice for either getting VC money or getting written up in TechCrunch, but it makes some reasonable points.

1. "Casually mention you hold the women's record for javelin in Tajikistan. People (especially women and minorities) with unusual backgrounds pique his interest -- maybe enough to propel him past paragraph one."

The simple fact is that both Mike and the typical VC get pitched on a lot of businesses in any given year. So anything you can do to stand out is helpful. Maybe I shouldn't say "anything." There are all sorts of ways that you can stand out in a bad way. But if there are things that you have done that are both interesting and demonstrate major commitment to achieving a crazy goal, they will help get you noticed and give you a certain amount of credibility as a go-getter (you'd be surprised how many successful entrepreneurs are triathletes or have climbed Mt. Everest).

2. "Cozy up to his friends. Comment on their blogs. Meet them at industry events. An introduction from someone he trusts wins you a few extra seconds."

This is the best advice by far. But it sounds far more cynical than it really is. Don't confuse Wired's advice about "cozying up" to mean that you should suck up to Mike and his friends. VCs and journalists alike hate suck ups. But, as I said above, getting to know the right people who can help you build your business is essential to your success. That isn't "cozying up" in some cynical sense. It is about convincing other smart people that what you are building is meaningful and that they want to be involved in that success. Those people will then sing your praises to Mike and the VC community -- not because they're your buddy, but because they believe in what you are building.

3. "Get a pro to write your pitch. Arrington hearts good writing and catching intros. Sometimes all it takes is one great sentence."

Who doesn't like good writing? So much about building a startup is selling your vision. The better you are at doing that in person and on paper, the more likely you'll be successful. But don't trade your ability to articulate your vision for the ability of a professional scribe to do so. If you can't pitch your own business anywhere, any time, any how, you will not succeed.

4. "Minimize the chitchat. 'it's not like we're going to be BFF,' [Mike] says, 'Just get to the point.'"

This is where Mike and I may differ. Mike is going to talk with you long enough to understand what you're building so that he can write in an informed way about your business. But that's about it. He doesn't need to be your BFF. On the other hand, if a VC funds you, he or she could be working with you for the next decade and beyond (My partner Dave has been on the Microsoft board for 25 years -- after that much time, Gates is legitimately one of his BFFs). So the "chit chat" is important. We don't need to be your BFFs, but we do need to feel that we can have a great working relationship with you for many years to come.

5. "Then back off. If he doesn't respond, don't 'check in' again and again. He's just not that into you. Come back when you have a better idea."

This one is a delicate balance. I agree that Mike doesn't want to be bugged by an entrepreneur when he decides not to write about that business. The same is true to a point with the venture community. "No" really does mean "no" when a VC passes on investing in your company. And arguing the point will do you little good. On a number of occasions, I have passed on investing in a company only to get an angry response from the entrepreneur explaining to me why I was wrong to do so. Even if the entrepreneur is correct, that tactic will not likely get him or her funded. On the other hand, there are two sorts of "No's" in the VC community -- there is the "no, I am not interested in investing in your company" and there is the "no, I am not interested in investing in your company ." I will often say that I am not interested in investing in a company because of X, Y or Z, but if they make progress on any of those fronts, I'd love to hear the story again. When I hear back from those entrepreneurs it is very much welcomed. In fact, on more than one occasion, I have passed on the company in the first instance, only to give them a term sheet at a later date. So don't make a pest of yourself, but don't be sheepish about being persistent when the door is left open.

Well, I guess I've come to the end of this unruly post. Thanks for slogging through it. I hope it's useful. And I hope I haven't crossed the "fair use" line with Wired. I really have tried to use no more of their original article than necessary for my commentary (you worry about these things when you teach IP Law). Thanks to Wired for occupying my long plane flight and giving me such useful food for thought. I look forward to my next journey when I can again catch up on my magazine reading.

(Pop Quiz! Ok, I know I said there wouldn't be a quiz at the end of this post, but since you made it all the way through, don't you want to test your comprehension skills? Here's the question. Who is one of my partner Dave Maquardt's BFF's? :) Answer below in the comments.)

Raising Venture Capital: How Much Money Matters

After watching a bazillion venture pitches, I've come to the conclusion that every VC Pitch should end the same way -- with the ask. If you want to crescendo into it, feel free to summarize why it is your technology is life changing, but finish with the ask -- "we are looking to raise six million dollars." Don't beat around the bush. Come right out and ask for the money. After all, that's what you're there for.

There are a number of reasons VCs want to hear what you're raising. And it isn't just the obvious one. Yes, it is helpful to know how much money a company is hoping you will invest. But there are other more valuable pieces of information that come out of the ask.

First of all, the amount of money you are raising is a good general indicator of how much you think the company is worth. I was in a pitch once learning about pretty interesting but pretty early stage technology. From where I sat, it seemed to me that the company could use single digit millions to take the technology to the next step. Yet, when we got to the slide that stated how much the company was raising, I learned that they were hoping to raise more than $50M. By my assessment, $50M would buy the vast majority of the company. Clearly the company felt differently -- they were hoping to sell closer to 20% of the company. It certainly refocused the conversation on what the company felt was the justification for such a high valuation and led to a very interesting discussion of the underlying economics of the company's business.

The thing I find most interesting about how much money a company is raising is not the actual number itself, but rather the conversation about how the company arrived at that number. What is interesting to me is what the company plans on doing with that money? What are the milestones the company can reach with that much money? Could they do it for less? What would they do if they had more money?

For me, the right question isn't "how much money do you want to raise?" The right question is "how much money should you raise?" Ask some entrepreneurs and they will tell you, the right amount of money to raise is as much as they possibly can (some recent monster financings suggest that strategy). That makes no sense to me. The right amount of money to bring into the company is enough to reach sufficient milestones to raise more money at a higher price at a future date (or, in some rare cases, enough to get to cash flow positive). If all goes well, the money I invest will be used to drive all sorts of risk out of the business, enabling the Company to raise the next round at a much higher valuation.

Figuring out the right amount to raise is more art than science but can have a big impact on the Company. If you raise too little money, you may run out before you have proven the business sufficiently to raise additional capital. In other words, raising too little money can be fatal. On the other hand, if you raise too much money early on, you could well be selling off too much of the company for too little capital. Companies should leverage early stage venture money to drive up the value of the company (by proving out as much of the business as quickly as possible), so that the next time the company fundraises, they will be able to bring in larger amounts of money while suffering smaller amounts of dilution.

Unfortunately, the perfect amount of money to raise is not always obvious. So the question isn't whether a company is raising the "right" amount of money. The question is, "why is the company raising the amount of money it is raising?" A great deal can be learned about a company from their answer to that question. So when you go out to raise money, be prepared to not only answer how much you are hoping to raise, but also why?

Know Your Competition

I was recently being pitched by a smart team of guys who are building an interesting business in the digital music space. The team has great domain expertise and plenty of credibility as entrepreneurs who have built a number of related businesses in the past. They were doing a nice job of selling the opportunity . . . until they got to the competition slide.

I have noticed that often times when I am pitched on a business, the competition slide is treated as, at best, a necessary evil. It's in there because it is "supposed" to be, but not much more. Sure, I've seen some really creative ways entrepreneurs have found to place themselves alone in the upper right corner of a 4X4 matrix. And I've heard -- perhaps more often than is merited by reality -- that there isn't any competition. But I rarely get a thorough assessment of how others are approaching the opportunity and how the pitching team is meaningfully differentiated.

So why should you focus on the competition? Isn't that just unnecessarily opening yourself up to questions about your business that may not otherwise be raised? Shouldn't you focus on your own business and its powerful attributes and not on the competition? Sure, the glories of your own product and strategy should be the centerpiece of your presentation, but the competition slide gives you a unique opportunity to show how smart you really are about the market you are attacking. Great entrepreneurs eat and breath the space in which they are building their business. And they don't just internalize their own market strategy, they watch every move the competition makes.

How do you know a great entrepreneur when you meet one? Great entrepreneurs would do a better job running the competition than their competitors are doing. They can tell you not only the ways in which their strategy is better than their competitors', but also the ways in which their competitors have created the very opportunity that they are exploiting. There is nothing more credibility building during a presentation than doing a great job of answering questions about the competition, and nothing more damning than doing a bad job.

My advice to any entrepreneur -- learn as much as possible about the competition. Not just because you'll do a better job of pitching your company, but because you'll do a better job of running your company. And, in the end, that is what ultimately matters the most.