19 Mar 2008
0 CommentsThe “New Playbook for Venture 2.0: How to get from $0 to exit with less capital”
Yesterday, long time friend and business colleague Grover P. Righter who is General Manager Americas for Silicon Valley-based iMobileInternet, was the Keynote speaker at the Mars Experience Tech 2008 Conference. That conference was clearly a highlight of the year and was brilliantly executed by MaRS guru Peter Evans.
And, Grover’s keynote address, entitled “New Playbook for Venture 2.0: How to get from $0 to exit with less capital” easily stole the show. I’m keenly encouraging wider understanding of this topic, as it is central to our core “hands on” investment strategy at Verdexus. In a very detailed methodology, that I’ll dub the Grover Playbook, Grover Righter clearly has best captured the essence of the new world of building more capital efficient knowledge-based businesses.
I’m hoping Grover will provide a more detailed briefing on this methodology in a future instalment, meanwhile I’ll highlight a few key points:
- with the advent of open source, virtualization, outsourcing, social networks and new web/mobile models into the enterprise, building a web or wireless business from scratch to exit (“new home”) for about $2 million (rather than the more traditional $20 to $50 million for an enterprise software company), translates into 10 times improvement in capital requirements and efficiency.
- while undoubtedly attractive, this world isn’t easy to navigate. Requiring an incredibly detailed and disciplined approach, I would suggest this Playbook might demand 10 times the strategic and executional skills from the (extended) management team compared to the more traditional technology company build-out.
- perhaps the great unspoken implication of Grover’s talk was what it means to typical venture investors who have primarily focused on the provision of capital versus the operational and executional aspects.
- in fact, Grover’s model is really a way to optimize that notorious gap from Angel/Friends and Family to Series “A” by leveraging advisors and capital in creative ways,
- a truly synthesized approach, aimed primarily at the CEO (and senior management team), Grover’s Playbook covers all aspects of the business, including composite business models (“Revenue 2.0”) , overall financial models (the “Well Formed Company”), new cash model (the “CEO’s Mistress”), virtualizing nearly everything (including management), the limitations of traditional market research, decoding value (users vs. who pays the bills), go Beta early, etc.
- From the Q&A and later discussions, it was clear to me that the serial entrepreneurs and experienced executives in the audience immediately “got it”, but
- my suspicion is, the prominence of a very activist virtual management (advisors and mentors who are exhorted to be a constant thorn in the side of management), may challenge the natural tendencies of many founders (did I say “founderitis”?)
All the above was provided backed up by a financial model, that needs to be customized by each CEO.
Stay tuned to hear more about the Grover Playbook for Venture 2.x.
28 Mar 2008
0 CommentsFounderitis: Black Hats versus White Hats
As a serial entrepreneur, investor and (ex-)founder in technology startups, I have seen more than my share of experiences showing how fraught founder interactions can be. My friend J Paul Haynes, who is a serial executive (and founder), showed me an interesting article from the February 2008 issue of Harvard Business Review on this topic entitled “The Founder’s Dilemma”. In this article, Noam Wasserman analyzed 212 startups and observed some intriguing patterns. What is great about this article is that it provides a cold, analytic economic framework to assess the “founder’s dilemma” which is the “… choice between making money and controlling the business.” The Faustian bargain to give up equity and control in order to attract institutional (venture) capital that will grow the business faster is a hard one for many founders to accept. And yet, the leverage of external capital and talent typically goes hand in hand with technology startups.
Wasserman goes on to show that founders, who want to retain control, often choose (or are forced to accept) slower growth and less chance of making money in a “home run” exit. Conversely, the study almost paints a picture of the inevitability of founders being pushed out by investors. For most founders, it makes grim reading, while most VCs would simply nod knowingly at the picture of founder limitations. After all, many of those terms in the much vaunted VC term sheets (now often term books!) evolved precisely as defensive artillery trained on errant founders. The article’s implication that the half life of the CEO tenure founders is short, will make difficult reading for most founders.
Perhaps it is difficult for founders to excel at both and so they “… end up being neither rich nor king”, but I would hope to see less of a zero sum game and more scope for personal growth. Personally, I find most founders I encounter to be smart and compelling individuals. Of course, I’ve also seen many of the counterproductive traits and habits that the VCs pejoratively label “founderitis”. On balance, I’m mostly on the side of founders in this classic standoff between the “black hats” (VCs) and “white hats” (founders). Having said that, I’ve also founders pull some appalling stupid and counterproductive moves in my time.
Since most founders are super smart and highly motivated individuals, with better mentoring, role models and better expectation setting by all parties, I would like to believe that more founders could better integrate the “rich” and “king” parts. In other words, I would hope to see more founders figure out how to increase their management and team playing skills, while also building value in their businesses.
As I mentioned, I think founders are, as a whole, a creative, exciting and group worth celebrating. Therefore, to balance Wasserman’s HBR research, I’d encourage everyone to read the remarkable 2007 book Founders at Work by Jessica Livingston. In it, she endeavoured to analyze founders by interviewing 32 founders from the 1980’s and onward, from hardware, to software, to Web 2.0 she has deduced some interesting patterns of founders:
While it is easy to imagine the “blindspots” and self promotion inherent in interviews with founders, the sheer number of founders that Ms. Livingston interviewed helps to mitigate this concern over a wide range of time and types of technology businesses. And, for those who think the MBAs and marketers rule the world, it is refreshing to see the Silicon Valley model of very strong technical founders celebrated.
So, here’s to those remarkable individuals, the entrepreneurs founders who have the courage and tenacity to start business. For all their shortcomings and big egos, we do need to celebrate their important role in venture creation.