Posts Tagged ‘VC’

Lotus In The Fire

Friday, November 21st, 2008

It’s an ancient metaphor at least 2500 years old. Yet it is so apt today. The DOW has careened around 7500 all day, jumping in the last half hour to 8000 on the news of Obama’s pick for Treasury Secretary. If it weren’t for that bit of news, it would have been a terrible day for investors on Wall Street. Sumner Redstone had a margin call. The CEO of AIG had a margin call. Just about everyone I know is lamenting the loss of at least 40 percent of their investment portfolio in the past 6 months. Maybe fire is too gentle a word for this lotus. Maybe Lotus in the conflagration is better.

What is the lotus in this flaming financial hell? My clients are alive and well in Seattle and San Francisco. Everyone is facing financial turmoil. An online game company had it’s B round erased by the credit crunch a month ago. They restrutured, regrouped, and now have raised capital from the orginal investors and a few ballsy new investors to buy time to get to cashflow positive in the near future. A tech company with a huge cashburn has pushed for and attained an enviable client list and found strong interest in several large acquirers who remain undaunted by all the financial carnage around them. A hosting company that survived the bloodbath that killed Exodus, PSInet, and other hosting companies now finds itself completely sold out of capacity and yet unable to finance an expansion, and so they have decided to hunker down and optimize their client list for profitability. A startup that launched a clever social merchandising application on facebook less than a year ago finds its current investors skittish. The team has regrouped and is finding solid interest from new investors who like the progress to date.

The entrepreneurial spirit in this sector is the lotus in the fire. Not one of the CEOs i work with have given up. Not one of them has shown any willingness to concede. Everyone has had their mettle tested and are showing their ability to keep their eyes on the prize. It is a privilege to work with them and a privilege to watch such people of great character and intestinal fortitude driving for a win in the midst of such a storm.

Who says we are a nation of whinerse? I say bullshit. We are a nation of hard driven men and women willing to batte lwith self-doubt and a naysayers and high odds against us in order to have a shot at winning tomorrow.

The lotus in the fire is a beautiful sight

of widgets, bubbles, and wildebeest

Friday, November 7th, 2008





  I was asked eariler this week by a friend – a seasoned veteran of internet investing – what my opinion was on widget world aka web2.0 and if it was indeed time to stick a fork in it, then what was next? It’s a funny topic.

Web2.0 is bursting for the same reasons that Web1.0 met its filmy end. Lack of business model. Lack of management talent. Irrational exhuberance. Herd-like behavior of institutional investors.

I distinctly remember in 1997 how entrepreneurs with absolutely no business model (…oh hell, not even a revenue model…) could get financing from angels and soon thereafter VCs because they were going to “disintermediate” something using the “new power” of the internet. I now sheepishly admit to succesfully raising money for a bplan that called for a website in which all consumer product was free. Why were we fixated on free? Because Nicholas Negroponte and other pundits often quoted by WIred Magazine were saying “Information wants to be Free!” on the internet and that was one of the drivers for disintermediating shopping malls, newspapers, book publishers, catalog merchants, etc.

As I came to know my fellow entrepreneurs, I discovered that most had no prior management experience and almost none had professional management training. They were techies with hubris posing as business acumen or else they were inspirational salesmen and women with a brilliant command of jargon. And most were pretty darn young. My peers claimed I was a gray-beard at the ripe age of 35.

All was well for a while.  All boats rose with the tide of consumer enthusiasm and the massive infusion of loose capital. Many of us crazy entrepreneurs were able to raise capital on a napkin plan, stake out solid growth in consumer visits and page views on rude software in a semi functional browser (t was 1999 after all) We had convinced ourselves that eventually we were all gonna make a lot of money from a business model TBD in the future. My MBA counted for nothing. My 10 years of operating experience in F100 companies counted for nothing. Well, for a few years anyway.  Then it all came home to roost. Most of those “businesses” proved fatally flawed. Web 1.0 popped. No bailout from congress for us.

Then along comes Web2.0  a few years ago, and those of us with an ounce of short term memory still functioning, said “huh?” We wondered what happened to all the people who just learned their lesson from Web 1.0  Here we were once again with engineers filled with school boy test taking skills thinking that was the same as brilliant business skills.  Once again we had bplan devoid of P&L linkage to product plan. And once again we had a heard of Wildebeest investing in these ventures because they didn’t want to miss out on the next Google or Facebook or Youtube.




And now the Wildebeest are running in the opposite direction. Web2.0 companies aren’t making any money. In fact, Facebook, on the backs of which many Web2.0 companies were formed, isnt making money yet. Then the credit crunch hit and the DOW lost over 40% in market value in about 12 months. Panic ensued and for a few weeks there was no investment by any of the VCs. It’s already thawing now as VCs start quietly entering the dealflow again, but it’s a whimper compared to 2 years ago.

What’s next after all this?

I am an optimist. Web 3.0 will start with more seasonsed veterans of the first two Web phases. VCs are asking for bootstrap business plans and business models that have inherent cashflow from (gasp!) paying customers. There will be fewer investments made, the tech VC industry will consolidate to a much smaller number of players. But they will be better investments in fewer plans. And where? I believe the iPhone is the watershed moment for the mobile device as the next place. It’s been hyped for over 10 years but I think the time has come. Facebook will finally make money when a viable consumer application that has inherent value runs on it. In the same way that Microsoft was a silly company until Word, Excel, Outlook, and Powerpoint became mainstays of business operations, somebody is going to find the killer app on Fbook. At which point Fbook will face the same choice MSFT did when Lotus succeedded with 123.  Build? Buy? Kill? Tax?

Is tech investing in the internet dead with Web2.0? No. No way Jose. It’s just finally growing up. And although i’d like to believe it’s mature, there is probably room for another bubble or two to burst in the next 5 years or so.

Scary Times

Friday, October 31st, 2008


It’s Halloween. Kids are having fun scaring each other and eating candy. And acting really weird.  This evening’s antics serve as an appropriate background for the past week. Two of the start-ups I am working with are suffering from a lack of funding. Not because their businesses are bad. No, they suffer from a lack of funding because they had the bad fortune of needing to raise a round now when most VCs are running like crazy headless chickens in the midst of the credit crunch. Thanks to Sequoia’s hysterical 100 CEO meeting a few weeks ago and the wacky deck they let out onto the blogosphere, many VCs act like they need to be afraid to be intelligent.

Have seen a few VCs actually step up in the midst of this and say “wow, now that the big boys are out, let’s step up our investment focus so that we pick up the best deal flow.” But those contrarians are rare. Has anyone noticed that Warren Buffett isn’t hiding? No, he is buying and since cash is king, he gets a great price. Lord if only I had a bigger bag of cash, I’d be shopping for companies, too. It’s amazing to me how little faith VCs have in the future. It’s ironic, given that they are supposedly in existence to provide capital where banks fear to tread. Well, here we go again. Time for a hunker-down period just like they had after the Internet bubble burst. As a result of that last chicken phase, many missed out on youtube, google, facebook, and other winners this go-around.

This gets me back to the CEOs I am working with. I am proud to be associated with these companies. They have built great products. They are not daunted by fearful VCs. They scrap for bits of investment from those with intestinal fortitude, they scrimp on costs, they build product, and with a little luck and the hard work they put into these ventures, they will come out on top. And leave the chicken VCs behind.

Trick or treat? That all depends on who’s handing out the candy. Today it’s the VC hemming and hawing at the door, but in the not too distant future, it’s the CEOs who stick it out through the hard times. And win.

Happy Halloween.