The Seed, The Early And The Ugly

The Distance Between Failure And Greatness

As an entrepreneur, I am sure this sounds familiar: I have this great idea, but those (*##@#) VCs just don't get it! You are almost correct on both counts.

First, the great idea: the right way to state it would be "I am close to the great idea". Your instincts are good, you are really close, but your foot has not stepped on the Big Idea yet. For example, the startup I alluded to a few posts ago has developed this really incredible nano-sized nonvolatile switch that is completely CMOS compatible. OK, they are close to a great idea, but nobody invests in a technology by itself. What is the breakthrough product that will enable them to dominate a large market?

After some gnashing of neurons, it is so clear that the Big Idea is to develop a new type of FPGA that will be very fast, very low power and very low cost. If this works, they will have their fair chance at World Domination.

Now to the second point: yes those VCs do not get it! And not because they do not like your idea, but usually because they cannot connect the small dot of where you are now to the big dot of a $100M revenue company. VCs do have a lot of imagination, but they need some help here.

So in the case of the above-mentioned startup, I helped them connect with a FPGA architect genius, to really draw the Plan to Greatness. Stay tuned for further developments.

In summary, close is not good enough, your foot has to be cleanly stepping on the trigger for the Great Idea, and please help those VCs connect the dots.

Until then, happy chasing!

ZillionTV Emerges Out Of The Seed Cocoon

ZillionTV unveiled a new personalized TV service with on-demand access to content from major studios (Disney-ABC, 20th Century Fox, NBC Universal, Sony Pictures, Warner Bros.) all of this on your TV using a Wii-like remote control. Oh, and no subscription or monthly fees needed (take a look at this coverage on CNBC, and this on Engadget).

ZillionTV was seeded with a small investment in December 2007. The team has done a terrific job in a little more than a year's time, and this is a perfect example of how seed investments can grow and flourish when driven by a determined and focused team.

I am sure you will hear more about ZillionTV in the coming months.

TARP For Dummies

The Troubled Assets Relief Program, while widely (and superficially) covered all over the news, still remains a mystery for most people. What is it for? How is it supposed to work? How can we monitor its progress?

Well, fret no more, here is an illuminating illustration of what the best and brightest in your government are doing to make your life better.

Do you need all the answers before you meet a VC?

Nope.

First, it is always wise to give your future funder a chance to make an insightful remark, that would cause you to answer "that is a great point" with all your facial muscles in the right position.

But really nobody expects you to have all the answers, because you are still a seed/early stage company. However, you must know the range of the possible answers. And you must show how you will get to the answer - usually this is much more revealing of the thought process of an entrepreneur than the simple recitation of a well rehearsed answer.

"What will the LED cost?"

a) "No idea, we will see after we make a few of them"

b) "Between $1 to $3, given the following assumptions for yield profile, wafer cost, process cost,..."

c) "$2.11"

Of course you as an astute reader have selected b) as the best answer.

Top 10 Reasons Why VC Firms Should Be Immediately Nationalized

Why just the banks? Actually the government should focus its attention on VC firms. Here are the top 10 reasons why nationalization must be put in place immediately!

10 - VC returns have been awful for years. 

I can argue that VCs have been in dire straits for longer than the banks.

9 -  VC firms are just too big to fail. 

Remember, 20% of the US jobs are created by VC funded companies, so letting so many VC firms fail is just unconscionable!

8 -  Partners will continue to have life employment just like today.

No worry about long term view, firm culture, ...

7 - The carried interest will be used to fund healthcare.

This should add at least a few $B to healthcare, enough to add aromatherapy as a covered procedure.

6 - The LPs will be the 41 members of the Ways and Means committee, with Charles Rangel as the "lead LP".

(shudder)

5 - Startups will be able to get funding through earmarks.

Who said all earmarks are bad?

4 - GP perks will be severely limited by the GAO.

Now, I can't wait for those reports to come out! (hey why did he get a gold plated toilet seat in his private jet?)

3 - However, lobbyists will more than make up for it.

(sigh of relief)

2 - Tim Geithner will be able to tell the difference between a VC fund and a hedge fund.

Uh, a hedge fund is still private and a VC fund already works for me?

And for the top reason why VC firms should be nationalized...

1 - GP will go back to its original meaning "Government Property".

Seed 2.0, or Core Tech Seed?

A common perception of seed deals is that those are mainly web 2.0 startups, because it takes only a couple of hungry programmers to start the next Google. However, quite a few seed level startups take on core technologies. Now, last time I checked, a semi fab is a few $B, 3 to 4 orders of magnitude more than a seed startup can raise, so, where is the catch?

Well, one of the seed startup I am working with right now has its aim on a new core technology (that shall remain undisclosed, sorry!) that can upend quite a few components in your cell phone. They have raised so far $500K from angels (before the Oct 2008 debacle...), and with that money have done a few prototypes using the Stanford fab. One more $M would enable them to deliver a first product for the cell phone. Wait a second: this is a core tech startup, and they can develop the technology and a first product on $1.5M? The answer is ... maybe, if their plans come to fruition.

They have done it by a) having experienced and smart people who are donating their time because yes, they believe, b) using simulation models and neurons instead of trial-and-error prototypes, c) squatting at the Stanford fab, where for a low fee they can do some prototypes, d) not paying any salary worthy of being called such. 

When you think about it, any core tech seed startup can do a proof of concept that somewhat verifies the core of their technology without having to develop the whole big bang product. That proof of concept, if carefully defined and limited, can be done for pretty much petty cash, when compared to the real funding needed to develop the product.

Word to the wise: only the hungry survive...

First, the good news... but then...

According to a WSJ 2/24/09 article:

Entrepreneurs Can Lead Us Out of the Crisis

"Only entrepreneurs have the flexibility, the freedom and the risk-everything ambition to find the path back to prosperity in a rapidly changing, technology-driven global economy."...

"- The marquee venture capitalists have little time nor inclination anymore to invest seed capital in early stage companies. The real heroes these days are the nonprofessional investors -- the "Angels." These folks aren't always the high net worth people we imagine, and often they aren't as sophisticated as we think."

Ouch! Of course, not being a "marquee venture capitalist", I am not really the target of those comments, and will happily continue to invest in seed and early stage companies. So rest assured, you can continue to throw at me inane ideas without markets!

Does the universe need yet another VC blog?

I have to admit it, yes I am one of those dreaded VCs who will decide on your life's dream without pretty much any idea of what you are talking about. All right, most of the time I try hard to understand your project, and sometimes I DO get it!

Because of my entrepreneur past (I started 4 companies with a variety of exits: IPO, M&A, and good old crash), I have always felt an attraction towards the graffiti on the University Cafe paper table cover early dreams of budding or experienced entrepreneurs. So I have spent my last 8 years as VC trying to coax some life out of half-hatched projects. 

So many early stage entrepreneurs need some simple feedback that I thought this blog might be useful to them. I will share my experiences with seed and early stage startups, while obfuscating them enough that only some entrepreneurs will recognize themselves, but I hope that the general public will get something useful out of these experiences.

So hang on for my next entry....