Credit Card VC

Don’t do it.

I know sometimes it’s tempting, especially when mothers are going around cheating on board games with their own children just because the mother — not the child — is bored.

Michelle Hastings admits she’s sometimes cheated to get through a game of Candy Land with her 5-year-old daughter, Campbell. The board game can take just too long, she said.

Candy Land?!?!?

I’ve played Candy Land plenty of times with my 3-year-old son. The game doesn’t take that long, and if he was bored he would just walk away, but he never does.
What does this have to do with running a business without VC? Simple: Follow the rules, don’t get bored, stick with it. If that woman wants her child to learn to succeed, and not to cheat to fulfil her own need to be constantly stimulated, she needs to start right now.

Same for us: If we want our businesses to succeed, we need to behave ourselves in the way we want the business to behave; with real confidence, determination, stick-to-itness, and above all trust.

OK, maybe it’s not that related, but thanks for letting me rant.

How often do we get to say that?

The Wall St. Journal has a story out this morning that Congress is considering a tax break for Angel Investors.

The idea, as reported, is that investors would get to write off as much as $250,000 per company — up to $500,000 per year — in Angel investments.

It sounds awesome, though part of me wonders if the unintended consequence will be way too many Angel investors, and too many investments going to stinky companies. The investor will have already written off the investment, so they may see any possible gain down the road as something like winning the lottery. The upshot: Who cares if they don’t really understand the business model or have much faith in the founders? They were going to be writing a check to the IRS, and now they will be writing it to some startup, so how much do they care if the company they invest in is going to passionately go after a new idea?
I think it’s a risk worth taking. All the good jobs are being created by startups, and it’s just the way the world is going. If there are a few more dogs out there, oh well.
(One shameless plug joined with a hint of Catch 22: My company, LgDb, the Legislative Database, would be really useful to the Wall St. Journal, and any other blog writer or publisher of any kind to allow people to easily see the proposed legislation, and all of the associated links. That way people could easily read the actual bill, which is something I wanted to do after reading that Journal story, but I knew there was no easy way to do it. If the bill was in Colorado, I could do that now, but LgDb doesn’t yet have Federal stuff. For that, we need an angel investment. Catch-22.)

By the way, I know that the fact that LgDb is looking for investors is not totally consistent with the idea of Credit Card VC, but as I write in the Credit Card VC manifesto, if an idea is big you shouldn’t stifle it by keeping others away from helping you to grow. You can’t throw a big party AND keep all your beer in the fridge.

I stumbled across Founders at Work, and was immediately entranced. Guy Kawasaki had the same reaction, and quoted some of the best bits, including this: “All the best things I did at Apple came from (a) not having money, and (b) not having done it before, ever.” That’s from Woz, who founded Apple with Steve Jobs.

(I always feel a special kinship with Woz, because like me and Bob Redford, we attended CU Boulder, but did not graduate.)

Reading through the list that Guy has, it’s amazing how many of the quotes have to do with NOT spending money.

Focus, determination, drive, passion — those are the things most often talked about when it comes to success in entrepreneurial ventures. Money makes the world go ’round, but it is not the key element of success.

This is a forum for those who don’t want VC. If you are funding your own startup yourself, be it with credit cards or whatever, you are in a sense your own Angel investor.

Last week I attended an event in which five companies made a pitch for an Angel investment. The driving force behind the idea was Boulder’s David Cohen, who wrote about the event on his Colorado Startups blog. It was also reviewed by the mysterious 5280 Angel. I think I saw that guy in the audience, though it was hard to make him out behind the fake glasses, nose and moustache.
The audience got some play money, and got to “invest” in one or all of the five companies. My only complaint with the format was that they lined the investors up and you put the cash right in their hands. A little awkward.

I was surprised by my own reaction to the companies. If I read a story about lice, or even Genetically Modified food, I get itchy, queasy or otherwise squeamish. Two of the five were medical companies, and I thought both of them would be solid investments.

The panel of experts picked Livengood, which makes essentially a glorified cart for use in hospitals. The presenter was Dr. Livengood, I presume, and he was anything but polished, but he showed one slide of a patient in a hospital trying to take a walk surrounded by an IV pole, a walker, a nurse, and aid and a family member. He said something like, “Anyone who’s ever been in or visited a hospital has seen this scene many times.” Everyone in the audience nodded, in fact I think I saw the fake nose almost come off of the 5280 Angel guy. His contraption basically puts all the stuff that hangs on or near a bed in one place. They’ve had some customers, and those customers helped with the second version of the product, and now they just need money to build some more units and do some marketing. Great investment, I think.

The other medical one was Torii Medical, which had a great patch that basically makes a patch that holds any tube that gets stuck into your body much more securely and cleanly than tape, which hasn’t advanced much in 40 years. The presenter was the weakest, making the deadly sin of reading every word on every slide in the presentation. The product, however, was awesome. Just as with the other one, it fits in the category of medical advances where they are really needed. I know PET scans and all the new drugs are all super, but there seems to have been very little advance in the more mundane things like enabling a patient to take a walk or keeping an IV tube where it’s supposed to be.

The audience winner was Chaperon, which has built a tool that makes offshore coding slightly more secure. The concept is that an offshore coder would have to use this software when writing the code, and this software prevents a person from copying and pasting the code to steal it. I think this company is on to a serious problem in a big-picture way, especially as made clear in China Inc. Intellectual Property protection is a huge issue, and will be for a generation.

One of the others, Kerpoof, probably has a great chance to make money, but they are involved in something I would never put money in: figuring out new and clever ways to get advertising in front of 3- to 5-year olds. Any business plan that carves out any demographic and then tries to figure out how to get advertising in front of it is inherently foul to me, but doing it with pre-schoolers is especially opprobrious.
The other was Magic Home Entertainment, which makes a kind of a glorified iTunes interface for very high-end home audio systems. I like country music on AM radio, so I just don’t get it, but that probably says more about me than about that company.

Seeing the presentations was also an important reminder that anyone running a business should be able to make the business case for their business clearly and quickly at any time. It’s not just a mind-game; it’s being clear about goals, which is a crucial first step to reaching them.

OK, back to work!

Credit Card VC has not exactly caught on as the buzz word of the moment, but that’s OK with me. It shouldn’t. You have to be nuts to start a company on credit cards and expect everything to be OK.

Still, I like “Credit Card VC” better than “Peer Production,” which doesn’t seem to say very much and yet seems to have some people trying to use it as though it’s the accepted way to describe… something… perhaps the “movement” behind Open Source software. It comes from an academic, if Wikipedia is to be believed. Figures.

I first learned of it from an alert reader who sent me a story about some of the political ramifications of “Peer Production.” If you have better things to do, and I know you do, don’t read the whole thing, and for sure don’t read the comments, which devolve into a miasma about the Future of Journalism.

And I’m not sure I buy into all of the political ramifications of lowering the cost of production. Maybe I’m missing something. I just think it’s the way the world is going in so many ways: Cheaper, more complicated, more interconnected, more information-driven.

So, you can either sit back and ruminate on that, or you can get to work and create some cheaper solutions that are more complicated on the back end and yet they makes things easier for people on the front end and — by the way — those solutions are more intereconnected and information-driven.

So, use whatever buzz words you want, but if you really want to change the world, you’ve got some work to do, and blogging about buzz words doesn’t count. Not even for me, so back to work I go.

Credit cards are bad, evil, a pain in the arse, etc.

But they will never do this to you.

Michael Arrington does an excellent job, as he always does, of being honest and open about the stuff that other people are  only honest about in private. Kudos to him for that post.

I’m a huge fan of Guy Kawasaki, and I wonder if he will be able to talk about this mess in his blog. More likely, as Arrington points out, he not want to foul the waters. I’m sure his lawyers are telling him to keep quiet, and there’s a reason that lawyers get paid what they do, so he’ll probably listen to them and keep quiet.

Clearly not all VCs are the same, but one way to avoid getting fired from your own company is to never use a VC in the first place. Any ethical VC will tell you the same thing.

A VC is talking about the importance of saying no. Sure, of course. A VC eats “no” for breakfast and poops it all day long. That’s what VCs do.

The discussion from that post gets into the need for startups to say no to customer requests, which is different than a VC saying no to a pitch, but it’s the same answer. I’m not sure I agree with the idea that you should reflexively say no to customer requests. I mean, if you are trying to sell something then the customers are the experts on what it is they are buying. If they won’t buy it, then why wouldn’t you change to have it do what they want?

But those are not the “nos” that concern us here in the CreditCardVC community. We say no to VC before they can say no to us!

The most important no, however, is saying no to spending. We just had some good publicity over at LgDb.com, and with it came a raft of people wanting to sell us all kinds of doodads.
I’m trying to sell a new thing, too, so I’m sympathetic to the people trying to make a buck off someone who was just in the paper. My job, however, is to have more checks coming in, and fewer checks going out. Saying no is the only way to keep that balance.

OK, Apple, nee Apple Computers, announced a phone that looks so awesome, I’m seriously bummed that I have to wait six months for it.

It’s clear that the gang at Apple has put all their effort into making the best phone possible. Some marketing will flow out of that, but it will be easy, basically telling people, “Hey, why not own the best phone possible?” Not too tough of a message.

Microsoft, on the other hand, is doing whatever it can to make you look at anything other than their products, going so far as to send you into outerspace. From there, I suppose, even Microsoft products look good.

And compared to the new iPhone, the Zune looks really silly.

OK, back to my sales calls.

The core meme of this blog is a bit unusual, if only because it goes against the grain of so much of the conventional wisdom.

So when there’s an exception, it jumps out.

I just today came across this blog post from the amazing gang at 37Signals.com. I missed it first time around, but they included it in their year-end wrap-up. The entry is a critique of an article from a Money Magazine imprint called “Business 2.0″ that shows how to build a “bullet-proof startup.” 37Signals correctly points out that following the advice would not make you bullet-proof, but instead is more akin to shooting a bullet right through the startup.
They don’t go quite as far as I do in this blog; they say there’s no reason to spend $20M to get to be a $20M company, and that makes all kinds of sense. They don’t say you should startup a company using your credit cards. You’d have to be nuts to advocate that.
I would like to say one thing here that the blog item did not say: Part of the reason it’s more possible than ever to build a new idea on the web for less money than ever before is Ruby on Rails, a web application framework that comes from … 37 Signals. These guys are so good that they didn’t even feel the need to pat themselves on the back for being a core part of why it is that the “Business 2.0″ pabulum is so wrong, and so dated.

They didn’t pat themselves on the back, but I will. Good job 37 Signals!

OK. If you are really thinking about CreditCardVC, if you are really thinking that you should take your idea and fund it yourself, there are a few things that you need to have.

Most of them are listed in the CreditCardVC Manifesto, but here’s another: External Validation.

This can take many forms. Some of them don’t count. For instance, if you tell an old college buddy about it, and he says it sounds like a great idea, and then changes the topic and talks about sports, it doesn’t count. If he wants to talk about it for a while, and says, “Good luck with that, man!” it still doesn’t count.

If he says, “Awesome, man, you’re going to be the next Bill Gates.” that is actually a sign that you need new old college buddies.

If he says, “Hey, I love that idea. Can I quit my job and come to work for you with no pay for the first six months?” that counts. Anything short of that does not count.

Also important is feedback in public from someone with nothing to gain or lose one way or another based on what they say. That is, getting a positive mention on the aforementioned college buddy’s MySpace page does not count.

I’ve been hesitant in this space to write too much about my current project because I fear that potential customers will see LgDb as undercapitalized and therefore somehow not trustworthy. But that probably doesn’t matter that much. Either LgDb will become the most-used site for state-level legislative information, or it won’t. Either LgDb will save them an hour or so of mind-numbing busy work every day, or it won’t. Either it will help an association make a meaningful web page, or it won’t. I think it will in all cases, which is why I shouldn’t worry so much about perceptions of perceptions.

But I want to say in this space that I’m pretty psyched about our first bit of external validation from a serious and respected blog: ColoradoStartups.com. David is usually pretty gentle with his subjects, but is willing to — correctly I’ve found — point out in his helpful way a seriously flawed business model or a glaring technical glitch or user-interface problem.

For LgDb, however, he had a positive, felicitous, and succinct summary. He even increased my base price by $45, which I see as a sign more of his perceived value in the product than a sign of his note-taking skills from a month-old conversation.
In any case, it sure is better then telling me I’ll be the next Bill Gates, so I’m excited for the write-up, and thankful to David.

And I’m looking forward to getting through the holidays so that people will focus on business again and I’ll get some more of the best external validation of all: paying customers.