[My Plugoo] [grr] how do i no if my my dog is dying
12:38 PM
[grr] she is only 4 months old
12:39 PM
[grr] hello plz i need an answer

ceonyc12:39 PM
Take her to the vet.

myplugoo12:40 PM
[grr] i done have enough money

ceonyc12:41 PM
Most vets will at least look at a sick animal for free if you really don't have enough
12:41 PM
it's worth a try... I can't see them turning away a sick animal b/c you can't pay

myplugoo12:41 PM
[grr] she breathes weird she doesnt want to move a bit and will a few days ago she took a little totsie roll out of my hand

ceonyc12:42 PM
chocolate is very harmful to dogs...you should take her to the vet

myplugoo12:42 PM
[grr] i should

ceonyc12:42 PM
Yes... worry about the money later

myplugoo12:42 PM
[grr] ok thx

ceonyc12:42 PM
no prob

myplugoo12:42 PM
[grr] will bye

There are certain realities behind venture capital one cannot escape from:

• At the end of the day, the more of the best companies we own, the more money we make. 
• We don’t always know which companies will be successful, but if a bunch of other smart people think that a company has promise, there’s a good shot we’ll want in.
• We don’t always want to get off the merry-go-round the same time the entrepreneur does—and often times we want to go around again, at twice the speed.

Fortunately, some firms, like the two that I’ve been fortunate enough to work for, Union Square Ventures and my current firm, First Round Capital, understand the following:

• Owning less of *more* great companies works just fine, too—especially if that means you’re left with highly incentivized entrepreneurs who receive appropriate amounts of financing at the right time, focusing their efforts.
• We should strive to be *the* smart people that other people want to work with—by working hard to get smarter about the areas we invest in.
• At the end of the day, smaller funds can deal with the “high class problem” of the $100 million exit just fine, because we don’t need a billion dollar exit to make our find economics. 

But why do I like working with startup companies? 

I think that’s important for someone to understand when pitch their idea or project and agree to take on an investor.  I’d encourage every entrepreneur to ask the people that they’re pitching to, “Why do you do this?”

Some people are deal guys (or girls).  Always be closing—they love the transaction.  They just like having money behind them and putting it to work.  The bigger the deal the better.  They’re tough negotiators and they like pushing the envelope on how much they can get.  It’s a money and power thing.  Their steak dinners are outlandishly full of more food than anyone can actually eat.  Perhaps they were salespeople or bankers in the past.  I’m definitely not that guy. 

Other people are all about having better toys—getting into the hot deals.  They need the fastest, the best, the smallest, and their stuff is better than yours.  They don’t just order steak—they order the super secret cut of Kobe steak that was grass fed by albino ninjas wearing a certain kind of slippers.  They’ll wait until the train looks like it’s leaving the station and then they’ll come swooping in, absolutely needing to push their way in because they need to have it.  I’m not that guy either.

Me? 

I think I’m two things.  First and foremost I’m a relationship builder.  I doubt you’ll find someone in NYC who knows as many people in the innovation community as I do—simply because I love it.  (And PS…  there’s still a few thousand of you I haven’t met yet!)  I love meeting and getting to know interesting people—and venture capital just happens to be an industry where you’ve got unparalleled incentive to make a habit of this.  Plus, this is a self-selected group particularly high in awesomeness.  Maybe that’s why steak is celebratory food for me.  My best friend of 24 years and I take each other out to top tier NYC steakhouses for our respective birthdays.  Sure, we love the food, but it’s really all about the person on the other side of the table—and it’s the same with startups.  The people on the other side of the table over the last 6+ years have been amazing to work with.

Second, I’m a systems designer of sorts.  I like thinking about how data and other elements flow through a system and produce outcomes.  It’s the way a portfolio manager constructs a pool of assets within certain constraints.  It’s fascinating to me to try and take the randomness out of the equation and to try and figure out where the startups are coming from, what kinds of people are building them and what is making them successful—to turn those learnings into a strategy with actionable criteria, filters and decision points.  What that means is that I’m trying to figure out whether the waitress at Del Frisco’s is actually flirting with me or whether she’s systematically making every dumb guy like me feel like they’re special to get a better tip—and what percentage increase that generates in her net pay.  These are the kinds of things I’m thinking about.

Lastly, I have this teaching gene.  I take a lot more pride in the success of others than in my own.  When I play softball, I could get 4 hits in a game and not be nearly as excited compared to when that girl who never gets a hit drives in her first run after I taught her how to swing.  Now, granted most of the entrepreneurs I meet wind up teaching me more than I could ever teach them, it still means a lot to me to be able to help someone achieve success.  It’s kind of like introducing someone to the crabcakes at Ben Benson’s—it’s great to be able to help someone have a great experience like that.

And as a bonus, another driver of why I love working with startups is my New York City pride.  I was born and raised here and love when people find what they’re looking for here—success, inspiration, a challenge, or just a good sysadmin. 

For the record, I’m not as big of a fan of Peter Lugars or Sparks as others are, and Del Frisco’s remains my favorite.  Other solid choices are Old Homestead, Wolfgangs, Angelo and Maxies and Strip House.

I just got off the phone with an entrepreneur that hit all the right points… 

- Followed up on a small idea to figure out if there were any customers for his service—turned out there were more than expected.

- Worked with other startups to figure out proxies for the set of most demanded features and compatibilities—and made a plan to offer them. 

- Got up and running right away—and on the cheap—to start testing the service.

- Crashed the service several times with early alpha users, leading to improved product.

- Almost as immediately, went out and started talking to all of his potential competitors, finding out where this service was on their roadmap.  Even found a way to derisk competitive threat by thinking about ways to work with them.

- Now that he’s done research and has initial customer validation, he’s raising just enough to get to the next milestone—to figure out what his business strategy will be out of a limited set of scenarios that he’s narrowed down to.  This will be dictated by real metrics like cost of acquisition, sales cycles, margins and capital requirements.

Color me impressed. 

A lot of times, when I see a startup’s advisory board, it’s a skippable slide.  You’re a vertical search for Play-Doh and you have some guy that owned a toy store for 20 years as an advisor.  That’s a yawner because their are probably 50,000 people just like that guy around.  It’s nothing special to get him involved, and while he has some domain expertise, it’s not so unique that he gives you an innate advantage—nor can he get you any doors opened that you couldn’t get yourself.  Now if you had the inventor of Play-Doh or the Chairman of the Play-Doh corporation, that would be something, because now you’re talking about people who have relatively unique experience and the ability to command unparalleled influence and respect in the market. 

When I first started Path 101, I made a list of who would be the ultimate people I’d like to get involved in the company as angels or advisors.  The founders of any of the big job boards were tops on that list, so I immediately looked up what they were up to now and did my best to network my way to at least a conversation with guys like Richard Johnson, who was the Founder of Hotjobs. 

That turned out to be important, because the more people I talked to in the jobs space, the more people wound up asking me if I had ever spoken to Richard and what he thought of the company.  Had I answered that I had never met him, that would make it seem like I didn’t have the ability to make the connections I was going to need to push the company forward. 

Investors do that all the time.  They leverage their network for second opinions and to try to provide help to portfolio companies.  I’m often sending companies that I meet to the best networking contacts that I can think of—but in reality, even though it rarely happens, I’m always thinking that the folks I send them to are connections the company should have already made. 

So, if you’re a startup in the fashion space, you should have already talked to the founders of Gilt—and actually that’s probably where I should have gotten the recommendation to meet with you in the first place.  When successful industry folks send me a company, in a way, it already derisks the competition question.  It means that the big gorilla in a space probably doesn’t initially see you as competitive, but that you’ve got something that people who should know what they’re talking about believes will get you to success. 

So who’s your ultimate “Who’s Who?” list of people you’d like to get involved in the company either as advisors, investors, or just champions?  Don’t wait until you raise money or even have your product launched to have a dialogue with them.  They’re undoubtedly the best people you can possibly get feedback from on the viability of your idea, what the customer pain points are, and what will sell in your market—and whether or not they might ever want to buy you or eat your lunch.  I’m going to eventually go to them anyway for due diligence as well, so best that they know and understand your story firsthand—and that you’ve sold them on it.  Also, if in fact you do get them on as angels, it provides the company with a nice validation on the market side.

So who’s who?

Here’s a list of the types of people you should be checking off:

• CEOs of companies that you want (or need!) business development relationships with
• CEOs of companies that you’re in possible competition with (Hey, you never know)
• The very top of the heap of pundits and thought leaders in your industry, including top industry analysts
• Financial backers of the most successful company in your space
• Original founders of the most successful companies in your space

Also, convincing top industry folks to champion your cause should conceivably be a helluva lot easier than driving $10 million dollars in revenues or signing the business development deals that will get your product the distribution it needs.  If you can’t sign up an advisor to a deal where they get a little equity in your company for a quarter call and a quickly returned phonecall, how are you going to ever hire that rockstar developer away from Google or sign that tipping point deal?  It speaks volumes if you’ve already hustled and hacked your way to the right people versus sitting on the sidelines without having tried.  You’ve not nothing to lose and everything to gain!

I’ve now had my Kindle for a couple of months and I’m really liking it.  The battery life is amazing, purchases are seemless and fast, and the screen is easy to read from.  I’ve probably done more reading in the last couple of months than I have in the last year.

There’s something consipicuously absent from the Kindle, though—other people.  Reading and shopping from the Kindle is a disappointingly closed and solitary experience.  I can’t see what other friends of mine are reading from Amazon.  I can’t tweet my latest purchases.  I underline portions of books, but those clips just sit dormant on the device, completely unsharable.  What I’d really like to do is share all my book quotes on Tumblr. 

It shouldn’t be too surprising, though.  Despite purchasing Shelfari, Amazon has severely lagged behind the social game.  Despite the company’s blowout financial performance, you have to imagine the company is leaving even more on the table by not pulling its users into the service through social networking.  It could lock in loyalty to it’s fantastic Kindle hardware with network effects with a few simple features—like letting users opt in to sharing purchases.  The closest it ever came was letting Facebook post Amazon purchases through Beacon—and that didn’t turn out so well.  Perhaps they were left a bit bruised from that experience?

Still, you have to believe that a well thought out social strategy could cement Amazon’s place in the hearts and wallets of consumers and it boggles my mind that they’ve done so little in this area.

While I never did really stop seeing new deals, even when I was out of VC, now that I’m back in, I’ve really ramped up the deal flow engine.  I’ve been enjoying the meetings I’ve had over the last few weeks, but some of them have reminded me what I routinely see missing from most pitches. 

Here are the things that nearly every early stage investor needs to bet on that are too often missing:

1) Strong sense of the key milestones – Entrepreneurs often ask what metrics they need to get to in order to get an investment.  I often turn that question around and get them to tell me what the important milestones are.  Having 100,000 users may not be the right metric for everyone, and it also depends on stage.  A TechForward, a First Round Portfolio company, the team needed to find out whether or not consumers would buy into the idea of paying to protect their electronics purchases from obsolescence—and they needed a very small amount to prove it.  They knew exactly what metrics they were looking for—percent upsell—and how it was going to inform the business strategy—and whether or not there was actually a business to be made. 

Milestones are a waterfall—and having them as goals should inform product, marketing, financing, etc.  If you tell me getting to 25% penetration is critical mass, that’s what I’m going to judge your ability to execute against, and that’s how I’m going to evaluate the appropriateness and risk of the financing.  If you can’t identify a set of metrics that you’re driving at, there’s probably a zero percent chance that you’ll reach them.

2) Implementation of a product strategy – Especially at the stage that First Round is looking at deals (as early as a Powerpoint), we all know that the current product, as designed, is no doubt going to need a lot of work.  The idea will change.  So how is anyone supposed to know whether or not these future changes will not only be for the better, but that they’ll be implemented in a focused way that drive key milestones in the right direction?  You may think that search box needs to move, but how do you know?  More importantly, how do I know that you’re not going to spend the whole financing moving the search box around when it turned out that being on mobile was more critical to your success?  Do you have a roadmap?  How do features make it to the roadmap?  Moreover, how do features get removed from the roadmap, because chances are you’re not going to be able to do all of these things.

More so than any other aspect of the business, the thing I see early entrepreneurs tend to drop the ball on most—myself included—is product strategy.  I’m not saying you have to know all the answers, but you should at least know what your landing pages are trying to accomplish, where they’re going wrong, and what steps you’re taking to identify the solution.  I like to know that, even if you haven’t figured everything out, you have a process around product—so this way I can bet that you have the tools to figure it out.

3)  A theory on customer acquisition – You may not even have your product out yet, but having a reasonable sense on how people are going to discover it—past the buzz around your launch, is necessarily.  Just tell me how the first 10,000 users who aren’t your friends find it—and if it’s viral, tell me why people pass it on other than “because there’s an invite friends link.”  Zoominfo, for example, probably made a bet one day and said, “50% of people on the web do a vanity search at least once a year—and we’ll probably have 25% of those people in the US in our database to start, and 2% of those people, if we rank high enough, will come and claim their profile, which amounts to X number of users.”  

These numbers may always need to be adjusted, but at least you’re starting with someone you can measure against and identify where the issues are.  If your strategy is to reach out to all the bloggers in your industry and get them to write about you, that’s pretty much what every other startup is going to do—and anyone who has done it will tell you the results will likely be underwhelming. 

4) A financing strategy that gets you *somewhere* – For whatever reason, there are psychologically satisfying numbers out there that people seem to latch onto when raising money: $250k, $500k, $750k, $1.5mm, $2mm, etc… Nice round numbers.  Unfortunately, too many people pick one of these numbers based on the confidence they have in their ability to raise and quality of their network, versus picking an amount that actually gets you somewhere.  When I say somewhere, I really mean one of three outcomes:  getting critical mass (whatever that is for you) or at a product milestone that makes you venture fundable, starting to get revenues, or cashflow positive.  When someone asks you, “What does this money get you?” they really want to know that it gets you to some amount of users, coverage of certain platforms, first enterprise customers, whatever it is… just something more mission critical than “18 months”.

5) Specific value creation- The easiest way to show value creation is to say that each customer is worth X dollars in revenue.  Pair that with the cost of customer acquisition, and net net, there’s your business.  I don’t care if these are wild ass guesses—at least make some attempt at showing that at customer N, your business is worth X.  Would it hurt to make an attempt?  Sometimes, the value creation is in the network effects.  That’s fine, too… what do we think that network is worth?  I’m not saying you need an Excel spreadsheet, but very often I talk to entrepreneurs who have never even thought about these numbers and wind up realizing that the market their going after, even if they were a huge success, just isn’t very large.  Back of the napkin is totally fine.  If you’re running a music startup that helps people find experts to help them learn an instrument, saying that, each year, x number of people try to find a music teacher, the avg lesson is $20/hour, they stick with it an avg of 5 hours, then figuring out the price of lead gen for X number of $100 lifetime value customers goes a long way to figuring out how big this market can be. 

One thing I often hear when I talk to other venture capital professionals when I mention a particular deal is “There are a ton of people in that space” or “So many companies have tried that before.”  

I never figured out why that’s a bad thing.

If a problem is worth solving, of course a lot of people are going to go after it.  That’s why there are a million ad networks and more security software companies than you can shake a stick at.  These are huge markets and numerous companies are minting money in these spaces.  In fact, I’d beware of spaces where absolutely no one is playing.  Capital moves pretty efficiently.  If anyone else thought there was money to be made in what you’re doing—I find it hard to believe no one else would be trying it.

Not to mention that, if there are a bunch of people trying to do something, chances are no one has completely solved the problem.  Last I checked, ads are still pretty irrelevant and people still hack into things.

On top of that, we all know that being first doesn’t necessarily mean you’ll be the winner.  Google certainly wasn’t the first search engine, and Facebook wasn’t the first social network.  Apple didn’t make the first MP3 player either.

Rather than being dismissive about there being too much competition or a bunch of people who have tried to solve that problem and failed, I’m going to start pushing back when I hear this.  Why did they fail?  What did this next company figure out that might enable them to succeed?  Where these companies just too early?  Did they fail to develop a key feature?  Did they misunderstand how people wanted to use the product?

Often times, it’s a small feature that makes a big difference—like how del.icio.us basically redid Third Voice, but had tags instead of folders, and defaulted to public sharing. 

Whatever the case is—if you’re an investor and you feel like you’ve seen 20 other companies in this space, you should spend some time trying to figure out what you believe makes a winner—and why everyone else hasn’t had success yet, before you completely dismiss the whole space. 

Today’s post is by request.  Someone pinged me on IM today and said that they had an idea for a blog post, but wanted to see me write it, not them.  It was an interesting enough topic, so I’m obliging.  This person may or may not work for Yahoo! and have a hyphenated last name that includes an item you’d find at a hardware store.

Working on applications where you are the intended user is undoubtedly more the exception than the rule.  Not all apps and servers are consumer facing, and ultimately they’re probably trying to cater to a much wider audience than just you.  On the other hand, niche applications still require a wide range of staffing and support, and so I don’t assume that all of the front end developers at Kayak like to travel or that whoever does sysadmin at Suicide Girls likes busty pinup girls with tats in leather.  Ok, wait… maybe that was a bad example…  but you get the picture.  You’re not always the user, but is it an advantage to be the intended demographic or will it cloud your judgment?

I think the answer isn’t A or B, but C…   that it probably doesn’t make nearly as much sense for someone on the team to be your intended demographic as it does for you to be immersed deeply in the community of your potential users.  So, if I’m building a social network for bungee jumpers, the fact that I’m afraid of heights shouldn’t really prevent me from being able to build a great app for them—so long as you are constantly getting community feedback on what you’re building.  In fact, you’ll probably be better at interpreting the feedback of others than you will be at identifying what will solve your own problems—if for no other reason than it’s easier to identify trends in the feedback of many than a trend of one. 

At the same time, when you’re not necessarily solving your own problems, you’re less tempted to “fall in love” with certain features that don’t advance the product towards key milestones.  In a certain sense, good product managers need to be a little dispassionate—with a quantifiable, logical, and actionable process for adding or removing features or changing strategy. 

That leaves open the question of where the original idea for the business or service comes from in the first place.  To some extent, you already need to be immersed in an area to identify a new way to create value—but it would take a lot of passion for that space to really want to build a company in it.  So, while I’m probably advocating a dispassionate product development process, at the same time I don’t necessarily relate to the Fabrice Grinda “9 criteria” approach to entrepreneurship—which lands him in ringtones one day, international marketplaces the next, and almost put him in cloud storage.  I feel like its more likely the case that you start out with a way to solve a problem that is close to your heart, but that, at some point, you have to put on your surgery scrubs on and operate on this service like its a machine, not someone’s grandma.

Some might argue that this approach makes it less exciting to build an application, since you’re not the intended user, but I don’t really think the best builders are motivated like that anyway.  They want to solve interesting technical problems, make services that are more robust, faster, and scalable.  To the extent that they’re solving the world’s problems or their own I think is more of the cherry on top—not the main reason to work on that project.  It’s certainly not enough to keep you at a place if you don’t have interesting challenges—and at the same time, few people I know with interesting, if not basic, product development challenges got tired because they didn’t care about using any of what they built as a user.

A new cafe opened up in Bay Ridge this year, on the corner of 83rd and 3rd, right opposite Cafe Cafe.  It’s called Cafe Rustica and the food there (at least the paninis, which I keep going back for) is pretty good.  They did a nice job of building the place out and it seems like a great place to get dessert as well.

When I went in there, though, I went to go check in on Foursquare, but it wasn’t on there—I added it and soon became the mayor.  They also don’t have a website, or a Facebook fan page or Twitter or anything.

A funny thing has been happening to me since I joined First Round Capital.  People have gotten a lot more self-conscious about sharing their ideas with me.  Several times in the past week, friends of mine and others that I know have hesitated to tell me about a new idea because it "wasn't ready".  The other morning, I ran into an entrepreneur on the subway coming in from Brooklyn and he kept stressing to me how early his idea was and that he wasn't really planning on pitching it to “an investor” that early. 

Getting Feedback

The truth is, you can absolutely never be too early--at least to talk to me personally.  First of all, I'm big on feedback.  I don't think you can innovate in a vacuum.  Ideas need other ideas and feedback to grow.  They're almost like little kids.  Lots of overprotective parents keep their kids from playing in the dirt or playing with too many other kids, so as not to get them sick.  What happens is that they never get exposed to all the other germy little kids and therefore never get the chance to build up any kind of immune resistance.  The kids who play in the dirt almost always wind up getting sick less as they grow up.  Similarly, you can always tell when a startup idea hasn’t been circulated among enough people for feedback. 

Who Else is Out There?

At the same time, there’s a good chance I’ve already spoken to the eight other people thinking about this space.  It’s in your best interest to ask me to put you in touch with them.  They could be potential biz dev partners, competitors about to each your lunch, or even acquirers—you never know.  Whatever the case, it’s better to talk to them as early as possible.

Strike While the Bar is Low

When your idea is half-baked, I’m really not going to expect much.  It makes perfect sense that you have a lot of open questions and unsolved problems when you’re just a few days or weeks into an idea—but it seems worse if you’re “ready” for an investor pitch and you still have them.  Holes and broken demos are fine.  Things always break and you always wind up missing things you needed.  One of the things it’s my job to do is to vet the person and to figure out whether this is the kind of person who can fix things.

I’ve also been there.  I know what it’s like to iterate on a business idea as an entrepreneur.  The early versions of the Path 101 concept look nothing like the eventual product.  That’s what entrepreneurs, at least good ones, should do—pivot and adjust based on market and customer feedback, as well as a internal process of continual improvement.

Is There a Market for This?

Lastly, I think you want to know early on whether or not something seems to be venture fundable.  When you pitch a half baked idea to people who could support you, and they seem to get excited about it, you get an early signal as to how easy or difficult fundraising might be.  If every investor you talk to wants to know who your technical partner is, than maybe it’s an early signal that you need to get one.  That’s better than waiting until your prototype or demo is perfect and then finding out no one really cares that much about your space or the angle you choose to exploit the opportunity. 

Ignore Me

Of course, if you’re really passionate about an idea, and your early feedback isn’t great, that doesn’t mean you should just drop in and move on to something else.  Sometimes the process of moving forward can help you morph an idea into something disruptive.  Besides, lots of investors initial instincts have proven to be wrong, but it helps to know where the market’s at while you’re building. 

Forward Progress

People tend to think that you only have one chance to pitch an investor, but one of the best things you can do to impress an investor is to meet them very early, and then let them see how your idea morphed over time and how you made progress.  It shows forward momentum and we love it when we see someone three months later come back and say, “Hey, we vetted the idea and we’d like to update you on what we learned and our new approach.”  Plus, if you first came to me before you were even sure if you needed money, how much, etc., then there’s really no way I can turn you down, because you haven’t asked for anything yet.

Idea Theft

Some people don’t want to share their idea early because they’re worried that someone will steal it—especially an investor looking to make money off it.  That notion fails on two accounts.

First, if I had any interest in having a long career in venture capital, which I do, it would absolutely not be in my best interest to steal your idea and give it to someone else, because then I’d basically do irreparable damage to my reputation.  It’s just not worth it, because word travels too fast. 

Second, an idea isn’t really worth anything anyway.  It takes execution to get an idea off the ground, and not only are you probably the one best suited to execute on your own ideas.  Even if they do get stolen, you can out-execute the next person if you put your mind to it anyway.   I can’t think of very many people in online technology who succeeded because they were *first*…   Not Facebook, YouTube, Google, Amazon, etc.  So, there’s really no incentive for me to go stealing early ideas because getting them to someone else to beat you to it doesn’t guarantee success.

So if you’ve got a half assed idea and you want to talk it out, feel free to drop me a line.  Even better, let’s get a couple of other people smarter than us together over lunch to kick the tires and see what’s there.

Here’s my quick response to Chris Dixon’s post on taking seed money from VC firms.  As a part of the First Round Capital team, I’m totally biased here.  First Round does quite a number of very early seed investments, even less than 500k (so you’re never too early to start talking to us.)  That’s ok, Chris is biased, too, because he’s an angel investor and wouldn’t benefit from more competition in the early rounds.  The nice thing is, there really doesn’t need to be any competition because seed investors and VCs can all play nice together in the sandbox.  Any firm like First Round would love to do a deal with Chris.

In any case, he points out that it looks bad when someone who can follow on, like a VC firm, doesn’t do your next round.  It becomes a case of “What do these guys know that I don’t?”

I have several issues with this:

1 – This assumes that angel/seed folks don’t ever follow on.  They often do—which is why they rarely do a deal without the prorata right to maintain their ownership stake.  Some of these “super angel” folks can write checks of hundreds of thousands of dollars, if not more.  So, you have the same problem if you have *anyone* in your deal who could ever write more than like a $25k check.

2 – If a VC invests in a seed round, something has to go pretty wrong for them not to follow on.  VCs aren’t generally in the business of just putting 100k slugs to work here and there.  They’re assuming and *hoping* that you will have an investable deal for them when Series A time comes around.  They’ll sit down with you early on and say “This is what it will take to be a viable Series A deal for us and for anyone else in the market.”  The entrepreneur should only agree to take seed money from them if they agree to that milestone.  If the company falls so far short of that milestone that the seed VC thinks that additional investment won’t get them there, then what other invester is going to want a piece of that deal?  Wouldn’t it be clear that this is a company going in the wrong direction?

3 – Having a top tier VC in your seed round, versus some random band of family members, the local real estate developer, etc. gives you a *better* chance at building a company.  VCs bring to bear an expertise, a network, and a powerful brand that often brings a halo effect to their companies.

So, yeah, the problem doesn’t seem to be with the optics of who’s in/who’s out… it’s more the problem that the company didn’t do enough to make themselves a screaming buy to the people who knew them best. 

Two years ago, I partnered with an awesome CTO, Alex Lines, to start a company called Path 101.  We didn’t get enough traction on the product and business to continue it fulltime, so we’re now working on it as a nights and weekends project as we take on other jobs.  This is the 2nd of a series about what I learned starting up a company. First one is here.

A few months ago, I wrote about the three types of deals VCs do.  One thing I realized was that aside from just betting blindly on an experienced entrepreneur or funding a later stage project, was that when VCs put money into something that's innovative, they tend to do it in an innovative sector.  So, it's not just about the idea, but they want that idea to live in an ecosystem that is in flux or generating new and interesting approaches.  For example, BazaarVoice (a First Round portfolio company) helps power social commerce with a variety of applications that help amplify customer voices to both sellers and to other customers.

No matter what they started with, social shopping was definitely an interesting area when the company started in 2005 and got funded in 2006.  It was clear that reviews and social media were helping sell product, so a bet on a suite of tools that helped companies create conversations around commerce would seem to have the wind at its back.

That's exactly what we didn't have at Path 101 in the jobs space.  In fact, what was fascinating to me, and unexpected, was how negative VCs were on the jobs area--especially for something so monetizable.  There there had been very little innovation in the way that companies hire and the way people find their jobs online in the last 15 years--except for LinkedIn--and investors largely saw that industry as a hopeless dinosaur.  Sure, there were business model innovations, like TheLadders and Indeed, but these were mostly about subtle changes in the way these companies made money.  It was still job ads and resumes at the end of the day.  The average VC didn't quite believe there was a disruptive job play to be had, so the idea of thinking of us as that play was a stretch. 

I can't exactly blame investors either.  Often times, investors bet on the "pivot"--the ability for a startup to stop what they're doing and have a strategic shift in the product or business plan.  It probably happens a majority of the time, and so an investor needs reasonable assurance that the team is going to pivot into something good.  If you're in a dynamic industry that is primed for innovation, not only is it easier to see where the next big thing is going to come from, but you get more experimentation from customers.  They're more willing to try new things because they know business is changing, but they're not sure exactly now. 

On top of that, it's easier to get press if you're in an industry with some buzz around it.  If you were to do a new geolocation startup, like Hot Potato, everyone will want to talk to you because there's obviously something happening in this space.  No one was really that excited about talking about new models in the job space.  Heck, the only blog actually covering new models in the space, Cheezhead, stopped publishing over a month ago.  

The other thing was that ideas don't happen in silos.  It helps to surround yourself with a vibrant community of entrepreneurs--and in the job space, there were only a handful of people I felt like I could talk with about new models.  Everyone else was basically minting cash on businesses that I couldn't understand how they'd even be able to exist in five years.  That meant that our inflow of new ideas and great feedback was pretty limited.

It's hard, because there wasn't another industry that I really wanted to change so badly.  Careers was my thing.  I'm extremely passionate about helping people figure out what to do with their careers, but ultimately, creating a startup in this space was an uphill battle from the beginning.  I'm not saying this was a fixable problem--just more like a warning to new entrepreneurs.  Take a look at your space.  Wipe your finger on the tables.  If it's too dusty, you may want to wait a little bit before trying to move the furniture around.

Two years ago, I partnered with an awesome CTO, Alex Lines, to start a company called Path 101.  We didn’t get enough traction on the product and business to continue it fulltime, so we’re now working on it as a nights and weekends thing as we take other jobs.  This is the 1st of a series about what I learned starting up a company.

Raise money--That's the first thing many entrepreneurs think of when starting a business.  They plot world domination schemes that hinge on their ability to get an angel round together, without answering a lot of important product questions first.  That's fine if you're Rich Barton from Zillow and Benchmark gives you 7 million bucks to go do to real estate what you did to travel at Expedia.  If you're running leaner and you're raising "Get something up" or "just feed ourselves for a little while" money, you need a lot more questions answered. 

That was our first mistake at Path 101 and I'll take the blame for that one personally.   Or, you could think of that mistake in a different light and say that I should have realized that we were going to have to be a lot more experimental and iterative.  That would mean needing closer to a million dollars than the 350k we raised—and we definitely could have gotten more.  We just had this innate desire to be lean and only take what we thougth we needed.  Nowadays, I tell people to take twice what they think they need, especially if they’re doing this for the first time.  Maybe it should have been a little of both, but regardless, wireframes, specs, etc  should all be done before you take money.  Granted, these will all change, but you can go a long way to honing in on the product roadmap in great detail on your own time. 

For example, Aardvark worked on their product design and user interactions for 8 months before writing any code and before taking a big slug of cash.  The social answers platform started out with a dude on the other side of a chat account manually interacting with users in a structured way in order to product test.  They knew a ton about how their product was going to work and what it needed at the onset of development--and that's something you can do nights and weekends or bootstrapping.  It doesn't need a designer either.  Just tell me your best thinking on exactly what the product will do, in detail--talking basic wireframes here--at each milestone and how much money it will take to get there.

Milestones are important because not only does it help to estimate cost, but it helps figure out revenue and funding potential.  You can (and should) take a wireframe to a customer and say "If we build this, will you buy it...and if no, why not?" 

VCs may be a little different.  They probably won't take a vaporware presentation very seriously unless you know them or someone vouches for your ability to build something.  Get a warm intro.  Scared that they'll take your idea?  Someone can steal your idea a month after launch anyway, so what's the difference?

At Path 101, everyone we talked to thought that the idea of pulling resumes off the web to figure out career paths was really interesting.  We talked about what data you might want to pull out of the Resume Genome Project but not a lot about what the data actually needed to look like to be useful to a user.  There was no way we were going to get that right on the first try, but there's no reason we couldn't have had three or four iterations of that done--not just to show investors but to show developers, too.  This would have helped us get a sense of technical challenges that maybe we weren't considering or just to generate more interest in our vision.

There wasn't a good model out there for what we were trying to do, so answering a lot of the questions about how users were going to interact on the site would have gone a long way.  Instead, we did a lot of this research (and made more mistakes) when we should have been developing to more specific, vetted milestones.

That was lesson number one--more to come.

On Tuesday, October 13th, at 6:30PM, 100 Founders and CEO’s of NYC tech companies will gather at Sun Microsystems for nextNY’s “NYC Media: Meet the startups” event.

The idea behind the event was that, on a pretty regular basis, tech and small business reporters find their way to me and want to know about the “comeback” or “birth” or “rebirth” or whatever of the NY tech scene.  Then I have to tell them all about the fact that we’ve been here for years, heads down working.  Half the time, they don’t know about the most successful startups or the most innovative ones. 

It’s not easy, either.  NYC startups blend in pretty easy—squatting in other offices, in coffee shops, in their own apartments.  You never know when the two dudes in the back of your Williamsburgh design showroom are actually a couple of hackers trying to change the world.

Therefore, I thought it would be great to gather a bunch of NYC’s really awesome startups together in  one room—and that’s what we’ll have.  There will be 100 Founders and CEOs of NYC startups all in one room, including:

Brian Adams – AdMeld (Raised $15 mil in two VC rounds since 11/08)	Seth Besmertnik – Conductor (Raised $12 mil, including $10 mil this year from Matrix Partners and Firstmark)	Zephrim Lasker – Pontiflex (Raised $8.75 mil since 4/08)
Anthony Volodkin – Hype Machine (Doesn’t need VC to be cool… Inc Top 30 Entrepreneurs Under 30)	Dave Morgan – Simulmedia (Founder of Tacoda, sold to AOL for $275 million)	Geoff Lewis – Udorse Up and comer from TechCrunch 50 - $500k from Founders Fund, Private Beta

So the big question is… where are all the local tech and small business reporters covering this?  We’re going to have Jenna Wortham from the NY Times and John Abell from Wired, but I expected journalists to be tripping over themselves for this and we haven’t seen it yet. 

Where have all the reporters gone??   If you cover innovation, small business, technology, etc. you absolutely need to be here!  We’re also going to include a short presention called “Your Guide to the NYC Tech Community”.  Reporters, RSVP here!

PS… If you are an entrepreneur, we are sold out (or more like free’d out, since everything at nextNY is always free).  Please do not try to sneak in with a media ticket.  I will find you and hunt you down like the dog that you are.  Grazie.

Donor’s Choose is a fantastic way to get educational projects funded.  I had a great time with it last year and raised $1875.58, to be exact. 

This year, I want to double it:  $3751.16  Check out my giving page.

Here’s what I need from you: $3000

If I make it to $3000, I will kick in the $751.16, because I think this is an awesome way to get people involved.  Also, I’d like to beat the pants off the O’Reilly folks.  That’s right Tim.  I’m calling you out!  (The way I figure it, I probably wasn’t going to get invited back to another Foo anyway, so might as well go down in flames, right?)

Here’s an additional challenge…  if you get me to $4000, I will kick in another $1000, b/c $5000 is a psychologically satisfying number.   Anyone else want to throw in some matches at different levels?  Comment away.

So let’s get started!  I handpicked the projects this year… and they represent about $10,000 in needed funds.  Getting halfway there would be amazing!