Folding, and saying no.

There are only a few things we can actually do in VC investing. It's almost mindless, OK, not so "almost".

After we see a company we can:
1. invest
2. decline

that's it.
Therefore, if there are only 2 things we CAN do, then there are also only 2 types of mistakes we can make:
1. invest when we should have declined
2. decline when we should have invested.

but these mistakes have different results.
if I make mistake #1, then what bad stuff happens?
1. I lost money on the investment
The amount of money lost is easy to determine: it's how much we put in.
2. I lose time, working on this bad investment, instead of working on good investments
This bring up the principle of opportunity cost. Not only the money that was put into this company was lost, but all the time and effort spent on this company was also lost. And this opportunity cost will usually be much more expensive in the long run than the cash involved.

Making mistake #2 is easy.
1. I lost the money I COULD have made if I invested.
2. I DID NOT lose the money I didn't invest in that company.

Thus of all the options I have, saying no has the smallest consequences. even when I'm wrong.

Saying yes is the only way I can get into trouble. Unfortunately, it's also the only way I can make money. Thus, I have to be much more confident and satisfied to say "yes" than I do to say "no".

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Poker bit:
You DON'T HAVE TO PLAY THE HAND.

this is not a tournament situation. you can always fold.

Change!
Do something else.
When are you ever really trapped into a career or job? Only when do you don't leave yourself with any outs.
Rounders is/was a terrible movie about poker.
many concepts in that are horribly flawed.

One of the few I did appreciate was the concept of giving yourself some outs. In business, you don't lock yourself into a single customer, or supplier, until you have to. Why become a slave to someone else?

Give yourself the out of going to the open market.

Swallow your Ego. It does nothing for you.

Learn to let go (fast)

You can never fire that person fast enough. This is a lesson that countless entrepreneurs have remarked about their first company. Always, they felt that if they gave that one guy a little more time, he would catch on. It rarely happened, and never in time. Also, how to handle the '5th wheel' founder. The guy who was there in the early years, but now, time/requirements/developments/stage have passed him by. He was fantastic when the company was 5 people, but now that you're at 80, he's still running it like the company's at 5 people. the quick answer, get rid of him. The right answer: buy him out with a little bit of skin left in the company, let him enjoy the success, when it happens, but also give him a GOOD way to escape out of the business. If he's not being effective in an 80 person company, he's probably not happy, and want to recreate the feel of a 5 man company.

Help him out with that, get him funding, be his first 'customer', put him in touch with young entrepreneurs/companies who are at 4 people, or 8 people. Let him go do what he likes, in an environment he enjoys, instead of trying to accommodate him in a situation he's over his head.

Being Right isn't enough

For most of our youth, and even into adulthood, being "right" has been a shield we can hide behind. There is nothing so sacred as the "truth". It is involitile, and pure.

Unfortunately, there are few things that can hold up to absolute scrutiny. Stop trying to hide behind a perfect solution, perfect answer, or coaching your responses with a "Yes, but no" qualifier.

Your solution has to be more than right, but less than perfect. Stop focusing on the right/perfection answers that were rewarded in grade school. Instead, recognize the acceptable solutions your customers are looking for. It'll save you a lot of effort and money, plus get you on the way to market acceptance faster.

Experience

good judgment comes from experience
experience comes from bad judgment

Be prepared, but don't do paralysis by analysis. Go out and do. Most of the time you will be wrong. That's OK, it just eliminates the number of wrong things you can do next time.

However, avoid the stupid mistakes, rookie mistakes, the mistakes that everyone else seems to know about and avoid themselves.

This leaves more interesting and valid mistakes to make.

rookie mistake: Running out of cash, not knowing why your customers buy from you, not knowing who your customer is, not knowing the purchasing decision tree of your customers, who signs the checks, what to expect from your suppliers, etc.

not a rookie mistake: A big company all of the sudden having an interest in your area. If a big multi-billion business all of the sudden changes tracks and comes down on you, you lose.

Hanlon's Razor

"Never attribute to malice that which can be adequately explained by stupidity."

Not just stupidity, but sloth, ignorance, indifference, etc. can be the root cause of a lot of problems.

Malice requires too much effort, energy and concentration.

Plus, with this attitude, it's easier to let things roll off. No one's really out to get you. Most of the time, you're not worth the effort.

But when a misguided person does decide to target you, take him out with extreme prejudice.

It's not worth living your life in fear

What does a rejection letter mean?

In one word: No

Why did the 'perfect' VC group not like you? It's nothing personal, except when it is. Funds receive 300 business plans a year. Some more, some will get less. But let's keep it simple, 1 b-plan a day. Knowing that with the due diligence, investment process, investment committee meetings/memos, LP updates, etc. things will get backed up, it comes out to having to clear 3 business plans every day we actually get to it.

Of the 300 bplans a fund sees, 1% (maybe) will get funded. Of the bplans the fund sees, maybe 3% should get funding, and 5% will get funding.

Translation: We say no to a lot of good ideas, 3 times as many as we should.
Addendum: Funds say YES to a lot more companies than they should.

But 'Why?'
One word question, deserves a one word answer: Because

Funds loathe to specifically state why you were rejected. Tagging onto one reason focuses the entrepreneur on trying to fix that 'one' thing, and then maybe the fund will invest.

No.

This turns into a long drawn out scenario of point/counter point, and at the end of the day, the fund might still be too dumb to put money into the company.

Rookie mistakes

Reading this article in the WashingtonPost magazine about a start-up with interesting technology.
http://www.washingtonpost.com/wp-dyn/articles/A50140-2004Jun17.html


The writer makes it a good read for a very old story. Techies who believe in their vision, ignore what the market is telling them, and proceed to reinvent everything. They make rookie mistakes along the way, and will probably drown underneath their errors.

This is their first company, they're supposed to make rookie mistakes. What my complaint is, some mistakes are forgivable, others are not. Why spend time trying to establish the nuances that differentiate champions, when you can't even perform the basics?

Business is NOT school! You don't get a C for effort, nor are you rewarded for being 'correct'. Don't spend your time trying to calculate pi to the 100th digit when being able to plug in 3.14 is ENOUGH. Doing calculations to the 100th decimal point is nothing more than a form of mental masturbation.

No Guarantees

Lakers will win against Detroit in 2004.
Smarty Jones will win the Triple Crown.

No guarantees, not now, not ever.

Just because you're hard working, clever, and efficient has no determination on your success as a company.

Then again, just because everyone doesn't believe in you, doesn't mean they're right.

VC money is no guarantee of success, either. All it means is that a team of people believed in you and your idea. They could be right, or wrong. I've been wrong enough times to know. The only way to know is with 20/20 hindsight. Until that time.... No Guarantees

Success, and then what?

Don't be afraid of success. But realize that reaching the elusive goal is never the end. The ones out there working all their lives, spending all their time for one goal, sometimes the worst thing they can do is succeed.

If it's a Journey, then it's never ending. But if you manage to reach your goal, then what?

Some people stop so fast they get dizzy. Left adrift, with nothing else to strive for, they meander without cause.

Most will never reach this stage. This message is not for them. This is a warning to those who are good enough, lucky enough, to succeed.

Application vs. Platform.

Everyone wants to be a platform. Business plans are filled with the concept of getting customer validation, and providing the tools, while letting other people work on top of your systems.

Unfortunately, it rarely works that way. Most companies have to prove the usefulness of their platform with… an application! You’re going to need to prove and show why someone should choose to use your ideas, and pay you some money. Otherwise, they’ll invent their own platform/application, and you become another solution looking for a problem.

Who are you?

To define yourself is a difficult task.

Most people will go through life never having to figure out who they are, why they do what they do. And some will have a good life, never going through the self examination.

Companies can follow a similar pattern. Doing what they do, and never really caring much beyond what’s going on outside their shop. Customers come and go, suppliers move on. But your business just keeps going.

This can describe most flowershops, toy stores, retail businesses. It’s enough to survive, and maybe do well, but it will not been enough to succeed. In order to be successful, you need to understand who you are, and why your customers need you.

Figure out what you do, how you do it, and where you make money. Then do the same thing for each and everyone of your customer, and suppliers. After that, go one more level, and do it for your customers’ customers, and your suppliers’ suppliers.

Then you’ll be a ‘good entrepreneur’.

How to tell if you’re a ‘great entrepreneur’? Know what’s coming in over the horizon. Be able to maneuver yourself to avoid the impending storm, and you’ll be sitting higher than all the competition that wasn’t prepared.

Bring it to the next level

There’s always someone out there who’s better than you. The only thing you can do is make sure they’re not playing in your game.

Is it a matter of avoiding the bigger sharks, picking your niches carefully. This is true in business, and in poker. Don’t set yourself in front the steamroller and try to outrun it. Instead find the niche that those guys are ignoring.

In poker, the 0 level skill is finding the right game, one you can beat. Then your job is to be at the top of your game at that game. Once you’re read to move up, make sure you can do well and pick the right game again.

People always want to put up a good fight, prove themselves against tough competition. This is an ego trip. Don’t bother. Instead, make decisions that will allow you to survive and succeed. You might have been derided for taking the easy path during school. However, as a company, your first responsibility is to succeed and survive. It’s impossible to succeed if you go bankrupt.

But once you do find the right game/niche. Bring yourself up to the next level, not just win that particular game, but use the opportunity to push yourself, in the safer confines of a game you’re already going to win.

Once you’re good enough to win at the next level, then you move up. This isn’t the sports leagues, this is your business. No one wins if you lose.

Sometimes, you might get lucky

I'll admit, if bio-diesel takes off, I can be considered lucky, not 'good' for getting into Calvert and the Green technology VC investing.
http://www.wired.com/news/autotech/0,2554,63635,00.html


The article on Bio-diesel is showing the the Cleantech, Green sector of VC is in the news right now. Mostly because of oil prices. Prices are higher, not because of supply, but because of uncertainty.

Will this prompt the US to start producing and using more bio-diesel? On the East Coast, the price difference is about 10% cheaper for diesel than regular. Bio-diesel can be even less.

Perhaps investing in alternate energy/fuel cell/ bio-gas area will be a fantastic career move. Software/high-tech is more mature, biotech is starting to lose steam, and nano-tech is still waiting in the wings