If I Put It Up, They Will Come….Right?

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You know what – if we all sat down and thought for a while, we can all think of at least one company that made it big all by itself, nice and viral like, without any help from anyone but users, and that first user was able to drag all his friends in, and then exponentially drag all their friends in as well, and so on, and so on. Pretty soon it became an internet dynamo, a dominant force on the Web and its founders made a gajillion bucks off it for practically doing nothing.
No advertising. No SEM. No SEO. No nothing. Just magic. Maybe a bit of accidental viral-ness, but nothing else.
The funny thing is, I’ve met so many entrepreneurs whose site growth strategy depends on this magic.
I listen to them tell me their idea, and sometimes their idea is pretty cool. Sometimes they’ve got the site up and their idea’s coolness is actually reflected in what they built. I tell them I really like it and then ask them if they are going to start a company. Then the story gets murkier.
Each one tells me yes they really want to start a company. Each one has big dreams. Then I start asking them about how they’re going to get the word out about their product. Then it’s unclear. They say they want to put it up and see how it does.
Well….Okay.
I tell them do they intend on doing marketing, even some marketing on the cheap like reaching out to bloggers, or SEM, or something. As soon as the mention of spending more money comes into play, the answers get murkier and murkier.
I persist. I ask them why don’t they go out and raise money and become a startup. Then they would have money to spend on marketing. They give a range of answers from not wanting to leave the comfort of their current job to fear of committing to something that might not work to “still thinking about it.” Mostly, they got the site up and are just waiting to see what happens.
At this point, I have my answer at least (which is “no I’m not investing”).
You know, it’s hard to leave the comfort of where you are now. You’re making money to support a great lifestyle, or a family. You are comfortable, and don’t want to face the potential chaos of the unknown, let alone a startup and its challenges. You might even fail – god forbid what others might think of you, or worse, what you might think of yourself. You might fail, and end up with no money, no job and you bet it all on this one thing and now you might have….zip…nada….nothing.
So you say you’ll just put it up and see what happens.
My thoughts to you are:
1. Growth by “magic” into an internet dynamo happens SOOOOOO infrequently that the chances of what you built doing that are so vanishingly small.
BUT – what you built might actually be useful and cool enough to grow into a decent sized business (or even a dynamo) IF you were to put some sweat and money into distribution and marketing so that users know you exist.
In absence of full commitment, you might as well be playing Lotto.
2. Since you won’t fully commit, you’re unfortunately not risk tolerant enough to become a great entrepreneur. No offense, and I don’t say it as negative criticism. Not everyone is built to deal with the uncertainties of being an entrepreneur, and the chaos that inevitably ensues from running a startup and living on the edge of having no money. So just stay home, make your money, live your life.
And don’t be delusional about the chances of your site which you just “put up” and are “watching what happens.”

More Reasons Not to Invest in Notes

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Way back when, I was happy to have encountered Josh Kopelman’s excellent post, Bridge Loans vs. Preferred Equity, to which I did sort of a re-post but also added my spin on the subject in Convertible Notes versus Preferred Equity Parts 1, 1.5, 2, and 3.
Now that I’ve been out here for about two years angel investing, I’ve uncovered more reasons not to do notes any more. So much to learn but yet no one to learn from except to fumble about and get myself into trouble. Now I’ve firmed up my rule to never invest in notes. I *might* do a note with a price cap on it, but it is still not without potential future issues. Here are some more reasons why notes are awful:
1. It is possible that the company you invested in achieves significant revenue, enough to do one or both things:
a. The valuation will inevitably jump. So when you put in your money, you expected the valuation to be one value, but when your note converts, the valuation has gone higher and now you’ve taken all the early risk with your note investment, but have lost share in the company upon conversion.
b. The company has enough revenue that it may not need further investment. Or it can delay seeking investment. If the company does not need further investment, then you’re in risk of just getting paid back and not obtain any share of the company. This can also happen if the delay in seeking further investment takes the next fund raise period out beyond when the note is due. Again, you could just get paid back instead of converting into equity.
It is possible to convert still, even if there is no conversion. But it depends on the entrepreneur and they are under no legal obligation to do so.
2. The valuation may jump anyways independent of revenue. Again, if/when you convert, the value of your participation will shift from where you originally put in the money, and it doesn’t reflect the risk of your early investment.
3. The terms of the next equity financing are unknown to you at the point you invest. While it is easy to ignore this in the excitement of doing an investment into a note, any problems that may arise will come up later during the conversion process.
You would think that at conversion time some large and/or experienced investor would take care of negotiating the proper terms. In most cases, this is true. However, it is also possible that not-so-favorable terms may appear and seem to be proposed by seemingly experienced investors. The big issue is that you don’t know what you’re converting to with a note at the time you give up your money; then, if you don’t like the terms, you’re kind of stuck into accepting them because you can’t get your money back. Unless you’re leading the investment, you won’t be able to affect them much. However, if you do get stuck in one of these situations, I would advise you to speak up about the terms; you never know when you’ll be heard and someone might actually change the terms to your liking.
Notes don’t align investors and entrepreneurs, and now I’ve discovered other reasons not to do notes…

Voyij at PlugAndPlayTechCenter Sunnyvale 7-8-08

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Voyij, a startup in the travel deals space has a cool space at the PlugAndPlayTechCenter facility in Sunnyvale.

PlugAndPlayTechCenter is like a big college dorm, but only for startups. There is great food, all the amenties you could ever want to keep you hacking into the wee hours. Lots of other startups are in there, adding to a unique camraderie.

Betaworks Moves Into New Meat Packing District Office 7-26-08

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We finally have our very own office, now in the Meat Packing District just next to Pastis. Yesterday I saw for the first time hanging carcasses of meat outside – and I thought the Meat Packing District was just all hipster bars now!

We’re in the old warehouse/building of Collier Encyclopedia, whose globe still adorns the main entrance.

Love the high ceilings and loft style openness! Thank god for IKEA whose inexpensive furnishings adorn our new home. We’re also right down the street from great restaurants, bars, the swank new Apple Store, and Google is 2 blocks away.

Fun with Wordle

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I just got sent a link to Wordle, a fun tool that takes a block of text and creates a word cloud of the text. Check out my bio washed through Wordle below. Interesting to see one particular graphical representation of the information therein:

Diversity in Investing is not Just a Cure for Internet ADD

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I am often asked about how many investments I’ve made and I surprise them by the number I have made in such short a time. I too think I went out too fast as a budding angel investor but, looking back, I think ultimately this had many advantages, some of which were not obvious to me until I did it.
The obvious disadvantages are that I had allocated a portion of my personal savings to do this, and I ended up deploying almost all of it in 2 years! This unfortunately meant that I had to slow down dramatically the number of investments I do from now on, and potentially ratchet down the size of investment into new companies.
The obvious advantages of going wide are that you spread out your risk, just like diversifying your investments in your personal investment portfolio of stocks, bonds, etc.. Putting your eggs in one basket, or a few baskets, increases your risk of losing it all no matter what you put your money in.
The non-obvious advantage of going broad was the knowledge I gained from exposure to different companies and their personnel (and their personalities!), their products, their struggles and solutions.
I always knew I had ADD, and that I enjoyed working on multiple products. In my old position as head of user experience at Yahoo!, I could satisfy my ADD tendencies towards getting my fingers dirty in a variety of projects, and learning about many others. After I left Yahoo!, I wondered about how I would provide an outlet for my ADD-ness and orchestrated a solution through angel investing. By investing in many companies and becoming advisor to them, I was able to continue to satisfy my Internet ADD.
However, being exposed to so many products and projects also allowed me to see across many different products and be able to connect them in ways I would never have been able, had I not had access to the depth of information in each product. I was able to see synergies and feed my creativity, which allowed me to come up with ideas that would not have come to light without the broadness of depth of information (if that made sense). I had always been a big believer that creativity can be enhanced with more information (but also knowing that creativity can often be reduced because you get bogged down by knowing too much) and this was further proof of my belief. Working on one or two projects would never had given me the insight that I can see now. Also, if I was not advising and/or investing in these companies, I would not have gotten the depth I needed to be truly successful.
It was an non-obvious result of the diversity of my investments that I would be a more effective advisor to internet startups. My broadness of vision across many different products and projects means I can bring creative proposals to time starved entrepreneurs whose myopic but necessary focus on their own projects sometimes prevent them from seeing the wide view and potentially better alternative paths and solutions.

Should I Go Back and Help Yahoo?

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Earlier this week, a few emails went around the Yahoo Alumni Yahoo Group talking about the recent news about Jerry Yang and how Yahoo was totally floundering and going down the drain. Some of them talked about even going back and helping somehow, although they were quickly retracted in a tone of “that was a really stupid thought.”
In fact, after reading some of the news earlier this week, I too had a moment of “Maybe I should go back and help Yahoo.” It came and went quickly amidst similar feelings surrounding not wanting to jump back into the frying pan to not knowing what I would do once I got there.
However, instead of mocking such a thought, I’d like to put another spin on it. And that’s the fact that we would even have thoughts at all like that.
What was it about Yahoo that would make a whole bunch of us feel like we could go back and actually make a difference? Why would we want to save the company? What could have possibly shaped our feelings and attachments to a place that was our home for many, many years? Why is it so hard to let go?
Yahoo was a unique place. It was like family. It was like a revolution. You bought into it, got emotionally bound to it, and worked your butt off to make it happen. People would applaud the fact that we worked at Yahoo, and we were seen as celebrities of the internet back in the day. We all hung out, we partied, we succeeded and failed and brought it all back from the brink of internet bust.
That’s what makes it hard to let go.
It makes me wonder what we could learn from that experience. After all, wouldn’t any CEO want to create a workforce which, even after they left (or were fired, or laid off), that would want to come back and work there again despite whatever obstacles and turmoil there could be? What could inspire loyalty in a corporation like that, in a day and age where loyalty to a company is disappearing…?

How Does One Advise So Many Companies at One Time?

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Often I get asked by entrepreneurs to become advisor to their company and they take a look at my companies page and they wonder how I can handle so many companies at one time. Where does Dave find the time? Do the companies actually get enough support from me given that I am advising so many?
It’s actually not so hard. Here’s how:
1. I’ve found that advisor time commitment varies greatly from company to company. Some entrepreneurs use me as traditional advisors are used, which is to meet up once every month or quarter and give me an update and go through their plans and get my feedback. If all my companies were like this, I could definitely advise a ton more.
Others call or email me whenever they need something. I have many hours in the day and definitely can field calls or answer emails. Sometimes they ask for a site review or recommendations. This takes longer, but blocking out a few hours to do that isn’t a problem.
Some have wanted meetings weekly for a while. The weekly meetings never last though; entrepreneurs are pretty busy and they get going on something and they don’t have time to meet up any more. Or they learn enough or have firmed up plans enough to keep them going for a while and then they don’t need my constant interaction.
2. Perhaps the greatest time commitment is just thinking about each company daily. I often have at least one (or more) of my companies swirling in my brain and I try to record any ideas down asap. If I am in front of my Mac, I’ll open an email and just record the ideas in that; also, I have a small moleskin notebook that I carry around with me constantly to jot down ideas. Once I get all my ideas down, I check it over, do some rewrites, insert additional ideas that come to me on the fly, and then send it to the entrepreneur.
I like to get into the mode of a single company and its product and try to immerse myself in the product as a user, and the experience of needing/wanting that product. That enables me to really get into what I would want, and also what others could want in that product and where improvements can be made.
I multitask on this throughout each day, but sometimes I take some focused time and do this too.
Still, once a company receives these ideas and acts on them, they usually don’t need further time from me for a while.
3. Another task I do for my startups is connecting them with potential partners and sources of capital (although definitely I do not bill myself as a fund raiser). This requires me to network a lot with both old and newly met folks. Thus hour long coffees and lunches are the norm and these take time out of my week.
Also, I write a lot of emails introducing my companies to these partners as well. Thinking about which partner to send the company to and also sending the email does take up time, but not all that much.
4. My favorite thing to say about advisor time commitment is that almost all companies need the most time at the beginning of our advisor relationship. There is a big spike in time and thinking from my side and also in interactions and then somewhere between 2 and 6 months later, that time drops to near zero, with little peaks of time to do emails and check-ins.
The rationale behind this is that the company is supposed to learn everything I tell them. They finalize their plans with my input and feedback. They take this knowledge and are off and running building their product. They don’t need my interaction so much after this time because they have what they need from me.
This is one of my main goals: To transfer knowledge from my brain to theirs so that they don’t need me any more. If I do this successfully, they should be able to function for a long period of time without my input. Over time, my goal over the term of my advisorship is to help them find resources that would manage what I help them with day to day. This is finding and hiring a great full time design resource and great product management resource. It can also mean finding/hiring a great sales program person as well, to help them monetize their advertising programs.
I’ve been advising for about 2 years now, so many of the companies on my companies page are off and running without further need of my help.
4a. One thing that I have consistently observed is that if my time requirements spikes again after the initial peak, the company is in trouble…so I keep watch for this and hopefully help prevent this from happening.
5. OK OK I admit it. Even working like the above, I still can get pretty busy in the short term. In fact there was a time when I thought I was overextending myself due to the pace of advisorship signups. So now I am very aware of the pace of companies I advise and have slowed down dramatically based on my current support load.
6. Next, I tell people I shouldn’t be put on critical path for anything. It’s not what advisors do anyways.
A lot of people ask me to be advisor, but really want me to do the design of their site for them. If they want this, they should either outsource their design or find a designer to hire full time, and not try to turn an advisor into a fake full time person. I think this is especially true in product design; in order to do a great job, you have to be immersed 24/7 with the product and team. It’s hard to jump in and out or do it on the side.
If I’m not on critical path, that reduces time commitments from 24/7 to something much, much less and less frequent.
As advisor, I always tell people that I shouldn’t be expected to be put on critical path for anything because we’re both going to end up being disappointed and frustrated. Very bad!
7. Last, I love being involved in many things. It helps keep my interest level up and allows me to see the entire world of internet startups across the board, which is an advantage. I purposely try to get involved across a myriad of projects, across a range of areas.
It takes me out of being myopic into one thing, and allows me to help my startups by being broad in my thinking and not get too trapped into the details of one project. While this is important from an execution point of view, it doesn’t help when you’re helping to plan the strategies of these startups by not looking outward and seeing where the trends of the industry are going. Often I bring the broader view to my startups because they don’t have time to look at it themselves. They’re often too busy to do that. On the other hand, I want them to spend all their time executing and not get distracted.
I’ve really come to love advising startups. The connection with smart, energetic people working on cool new things is really great, and I enjoy helping broaden their vision and give them the help and knowledge they need to be successful.

Stealth Startup in SF 6-13-08

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Yet another (stealth) startup in their second location, and up to 6 people.

This building is one of those housing a few other notable startups. Many such buildings exist in SF, and the startups all seem to pile together in these old buildings whose remodeled interiors make conditions much more bearable inside.

Scrivener

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In Macworld magazine, I read about a great software program for writers called Scrivener. My writer and I have been using Google Docs and MS Word to write and we were reaching a point where this book was getting harder to manage as one long stream of text. We were using Kinko’s online service to print the whole thing out, but working this way, which is a more traditional way, would be time and money consuming. It was also difficult as we didn’t have outlining capabilities in MS Word, or at least hadn’t been able to figure out whatever was available in MS Word.
Enter Scrivener. Wow. What a difference. The software allows writers to separate the work into sections and gives you many different views on the work, whether in corkboard mode or in outline mode. You can then work on the doc section by section which is much more faster for me, and also take a look at the whole doc with the sections assembled to see if it all appears together correctly. The transitions then can be worked on separately, which is fine because my biggest barrier is to just focus on a particular section first and get the text out of my brain.
Then, you can always export the doc into one long Word or text file. The sections get all assembled and you can print it out or send it to a publisher.
The one thing that would have been nice would be to have some collaborative method of working together that doesn’t mean coordinating file versions and passing them back and forth. Perhaps some merge method? Online site support where the files are synced? For now, we’ll email the file back and forth when changes happen.
If you’re writing an article, book, or whatever, I would highly recommend Scrivener!