Credit Card VC

Now in the midst of my second startup, people often say to me, “Wow, so you are one of those serial entrepreneurs.”

It’s true, I suppose. I didn’t exactly plan it this way, but here I am.

The whole notion is regarded with a great deal of reverence, the latest example of which is here. (Hat tip Brad Feld.)

I’m not disagreeing with any of the sentiments. Lord knows I learned lots of lessons in my first one, MyTrafficNews, that I’m applying to the Legislative Database, LgDb.com.

But allow me to throw one other thought into the mix:

Let’s just say that I wanted to get a big job at a big company. Part of the accepted wisdom is that I would never want to do that, that I could never work in such an environment. There’s probably a grain of truth in that, but lets say that I could set that to the side and get excited about the goals of a large corporation, and would enter that organization in a position that would be interesting. The pay would be great, I wouldn’t have to worry that I’m taking all the risk, and when I went on my paid vacation I could leave the job at the job, and not think about it constantly, the way I do now.

Let’s say that could happen. Here’s the problem: It would NEVER happen. Never.

Why? Because I would feel stifled the first time I had to fill out a form to get a box of paperclips, or whatever?

Well, maybe, but it wouldn’t matter, because I would never get that job. It just wouldn’t happen.

For all the talk from big business about how they need to be more entrepreneurial, bla bla bla, they really all like their gig exactly the way it is. Nobody working within any large corporation is going to hire someone who will come in and upset the apple cart.

“Entrepreneurial” is another word for “Disruptive.” Corporations will issue press releases embracing “market disruptions” but what they really mean is they want to keep doing the same thing in the same ways, and by issuing a press release the execs can feel that they have done what they need to do to react to changes in the markets.

I’m not just blowing smoke here. If you are a person who has a steady career, you should think carefully before becoming an entrepreneur. It’s great, no doubt about it, but you may never be able to go back even if you want to.

(One note about this blog, it’s been quiet for a bit. It will be seeing some big changes and a big announcement soon. Stay tuned!)

Quite often, it seems, people violate, or come too close to violating a non-compete clause after they sell a company. Here’s the latest example.

Davis previously sold a recruiting blog to Jobster, and worked with the company for a while. He eventualy left, but apparently had a non-compete in place.

I never really understand why this noncompete stuff ever comes up.

When I sold MyTrafficNews to Traffic.com, I worked hard for them, and enjoyed it. When the contract was over we parted as friends. I gladly signed the non-compete.

Now I’m running another startup, but in a totally different indsutry. As much as I loved the traffic business, I’m very happy to NOT be in it any more.

That’s why I don’t understand when this kind of thing comes up. I would think entrepreneurs, by nature, would want to move on to a different challenge, and apply what they learned in one area to a different industry or niche that needs the same kind of new thinking.

I know I’m linking to Guy twice in a row, but his latest post makes it clear that he fully groks the Credit Card VC ethos:

By the Numbers: How I built a Web 2.0, User-Generated Content, Citizen Journalism, Long-Tail, Social Media Site for $12,107.09

Because of Truemors, I’ve learned a lot about launching a company in these “Web 2.0” times. Here’s quick overview “by the numbers.”

• 0. I wrote 0 business plans for it. The plan is simple: Get a site launched in a few months, see if people like it, and sell ads and sponsorships (or not).
• 0. I pitched 0 venture capitalists to fund it. Life is simple when you can launch a company with a credit-card level debt.

Now, Guy will tell you that this is not the next Microsoft or Google, it’s a service that may grow on its own and maybe someday some bigger organization will want to add it to a portfolio because of the user base or whatever, and so it may have a nice exit someday.

But the best part, I think, for Guy is that when people send him business plans about how they really need to have $1 million Angel Round so that the team can develop a prototype, he can look them right in the eye and say, “Why? I launched a site for $12,107.09, and within two weeks it had 315,000 hits in Google. Why do you need 82.596 TIMES the money I spent to do what you want to do?”

They better have a darn good answer to that question.

I love the whole Long Tail concept, and I saw a story and a chart that made me wonder if the concept could be applied to VCs.

…what success there has been in the venture industry has been highly concentrated among fewer than 40 venture firms.

So, the big “hits” of the VC world do very well, but after that they have not been doing well at all. This is important to note in this blog, because there may be some people who think they could self-finance a startup, but you think you have as a backup plan of going to a small VC firm and getting an investment.

If your goal is just to get back what you put into the business, I guess that’s OK. If your goal is to make your company something that really does change the world, well, then you are in trouble.

If you’ve got a big expensive idea, position it so that you can get one of the biggest and best VCs in the country to buy in. Go big or go home.

If you’ve got a big idea that can be created for a lot less money and funded significantly by sales, that’s awesome. That’s why we’re here. But don’t have some small VC as your backup plan. Don’t move up to the curve part of the tail, that’s a recipe for heartbreak. You may need to move a little to the left on the curve, up to an Angel, but there are lots of good Angels out there.

Introspection for a blog is a good thing, and will always be part of any good blog. Old media doesn’t do as much of that, they don’t have to wonder what is their core purpose — they know that their job is to deliver advertising. The good ones try to reach that goal by being interesting, etc., but that’s not why they exist.

(That said, it’s clear that the big papers will soon be much like sports teams, owned by people with oversized egos. The two best examples are David Geffen trying to buy the LA Times and now Rupert trying to buy the Wall St. Journal. Warren Buffett and I spotted this trend at the same time!)
A blog is different. Well, it is for all those people who aren’t so nefarious as to get into pay-per-post, etc.

I’ve seen two great bits of introblogtion recently from two of the best.

The first one is from A VC:

I know one thing for sure. This blog has to have a personal feel or its just another windbag pontificating about technology and we already have enough of that on the web.

The other one is local to me, Brad Feld. In that one, he makes a connection between what he read about Global Warming and what a reader sent to him complaining about the blog.

Both are good, but Brad’s, I think, does what good blogs do best, which is make connections between things that may not seem to be connected.

Now, you may be asking, why am I linking to two different VCs in a blog that is designed to talk about how to avoid VC? That’s a good question!

If you are building a company, and you are hoping that company has a healthy exit some day, the way to do that is to focus on what it is you are doing, and do it so well that some larger exit opportunity comes along.

It’s kind of Zen, but you really can’t focus on the exit, you have to focus first on the task at hand. Sure you have to be smart, be well positioned for an exit, etc., but most of getting well positioned for a good exit is the same stuff you have to do to run a smart and solid business in the first place.

There’s a flip side to all this, however. If you do have an exit; If your company does get bought by some larger company, the way the rules of this country work, and the way the rules of human nature work and even the way manners dictate is that after the exit, it’s no longer your thing. It belongs to the ones that wrote the check. You have to just let go.

Here’s an example of two otherwise fine young men screwing that up. If you don’t want to click, it’s the story of two guys quitting Google because — grab your Web 2.0 Kleenx — they weren’t getting enough attention from their bosses.

So…. Alex and I quit Google on Friday.

It’s no real secret that Google wasn’t supporting dodgeball the way we expected. The whole experience was incredibly frustrating for us - especially as we couldn’t convince them that dodgeball was worth engineering resources, leaving us to watch as other startups got to innovate in the mobile + social space. And while it was a tough decision (and really disappointing) to walk away from dodgeball, I’m actually looking forward to getting to work on other projects again.

Whhaaaaaaaaa!

Look, if these guys want to quit, I have no issue with that. Fine. It’s the whining about not getting enough attention that rankles me. If they wanted to complain privately, I’m sure they could and some other sources could make their case in probably a much more effective way, as in this post from A VC pointing out how Google really is just a big company now. He easily could have written that post without having to link to that whiny missive.

I speak from direct experience here, as my first company was bought by bigger guys. I suppose I could have complained about something or another (though probably not as it was a great transaction.) And now that I’m out looking for investors in my next thing a connection from California through New York actually made it back to Traffic.com in Pennsylvania. The key guy there had great things to say about the whole transaction. If I had complained publicly, would I have gotten that positive back-channel feedback? I don’t think so.

And worse, I’m now running a great business, one that won’t be as big as YouTube or DoubleClick, but still could be a great acquisition for Google or some other big name. Knowing the bad taste left in the collective mouth of Google about this Dodgeball thing, aren’t they going to be just thismuch more shy about all the deals that are less than $1.5 billion?
Look, if you didn’t get the support you needed from within the acquiring company, that says more about your inability to work within the structure of a big company. If you can’t succeed at that, don’t blame the big company for acting like a big company, blame yourself for not being better at playing by those rules. If you just don’t want to be good at it, that’s fine, but don’t burn those bridges… other people may still want to use them.

So, thanks for nothin’, Dodgeball.

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.

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!

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.