Please Don't Celebrate Failure!

Silicon Valley and the venture capital industry were built on taking risks and making big bets on technology, teams, and markets.  It's great that failure does not need to be worn as a scarlet letter as it does in other cultures or Hollywood...(wonder if a pic of Emma Stone will get a few new visitors to the ProfessorVC blog).

I remember back in the day when VC's took risks and would invest in nascent technologies and markets.  Now firms are more interested in piling on a late stage financing for an Uber or Slack after product/market has been de-risked and the only question is whether the sky high valuation will ultimately supported by the financial markets.

For a number of years (or at least since twitter has been around), the Silicon Valley echo chamber has publicly celebrated modest exits or acqui-hires.  However, now, it seems that the pendulum has swung so far the other way that failure is being celebrated.  Every week there is another post about "how we failed".   Medium seems to be the platform of choice to promote your failures.

Here are a few:

• Well We Failed, 
• Postmortem of a Venture-Backed Startup and 
• My Startup Failed

I recently had a fireside chat with Dave McClure at SJSU where I questioned Dave about a blog post he wrote on failure, late bloomer, not a loser (I hope). You can skip ahead to the 37:35 mark where Dave lets out the secret that writing about being a loser will get you a huge audience for your blog.



SVCE Speaker Series: Dave McClure from SJSU CoB on Vimeo.

Perhaps, those entrepreneurs are just looking to make a few bucks with google AdSense and Commission Junction while figuring out next career move...

I agree it is good to share lessons learned with other entrepreneurs.  Also, if it is cathartic for you to do a post-mortem for the world to see, I'm not going to stand in your way.  However, where I draw the line is when failures are treated as less than a little speed bump on the road to success.  FAILING SUCKS!! YOU ARE IN THE GAME TO WIN!! EMPLOYEES LOST THEIR JOBS AND INVESTORS LOST MONEY!!

Ok, now it's time to reveal what got ProfessorVC's tighty whities in a bunch.  I received this email from a CEO/founder of a company where I was an investor on April 14th at 8:29 PM:

Thank you for your belief in me and the entire team. We had bold visions for how we were going to upend research and investment in the private market, and we wanted to make that vision a reality. Unfortunately, like many startups, we’ve run out of runway to execute. As of April 15, company will be effectively out of cash.

Yeah, you read that right!  Oops. we're running out of cash tomorrow!! Oh well, we failed...This was with no advanced warning and only bullish statements on company's progress.  It's one thing to be an optimistic entrepreneur but another to be delusional and reckless!  Apparently the entrepreneur (can't tell you who it is but his name rhymes with Saul Pingh) was too embarrassed or arrogant to respond to my requests for answers and more info.  Another investor had to threaten to have his lawyer make the next request before getting a call.  It turns out there was ultimately an acquihire and investors may potentially receive a very small fraction of our investment back.

As an investor, I expect to lose money on many of my investments.  That's part of being an angel investor and luckily the returns on the winners far exceeds the losses on the losers.  However, if entrepreneurs are going to build their companies on other people's money, they need to communicate and work like hell to win!  Sorry, contrary to popular belief among the millennials, there is no trophy for losing (actually, a quick google search shows there is one).

Please don't win one of these!

PostScript: The identity of Saul Pingh was discovered by a DC reporter Chris Bing following in the footsteps of those other DC investigative reporters Woodward and Bernstein...Chris attended the celebration of the acquisition (pic below)

On April 16, the acquisition deal for Disruption Corp. by 1776 was announced. Those pictured include 1776 co-founder Evan Burfield (far left); Virginia Gov. Terry McAuliffe (center, behind podium); 1776 co-founder Donna Harris (to right of McAuliffe); and Disruption Corp. founder Paul Singh (far right). DC Inno photo.

What's wrong with Academia...

...partly, it might be a guy named Ivgot Tenure (not his real name).  I recently got in a flame war with a colleague in the marketing department that started with one of those emails Deans like to send out recognizing a faculty member who was awarded with an Endowed Professorship.

Ivgot Tenure responded to the dean, entire faculty, and the recipient of the appointment with a screed on another perk for administrators and nothing for peasants (his words) like him.  I generally let these things go, but since this was far from the first one of his rants, I decided to call him on it (see embed on exchange below for the gory details if you wish...)





One important thing to note about the endowed position is that it was funded by a donor interested in the work being done by that professor or the position at the University.  The budget situation for the California high ed system is in bad shape and unlikely to get materially better in the forseeable future. The mission of the CSU is to provide high-quality, affordable higher education.  I won't debate the overall quality here, but the affordable piece is clearly challenged.  State support has gone from close to 100% 15-20 years ago to close to 50% at undergraduate level and much less at graduate level today. My grad school alma mater (Anderson School at UCLA) was getting so little state funding, it said "to hell with it" and declared self sufficiency.

My experiential classes (ELAB and VLAB) require external funding as hard to justify small class sizes.  Luckily, we have donors interested in supporting the work we are doing in entrepreneurship at SJSU.   

Back to my buddy Ivgot Tenure.  Unlike a commercial enterprise, he does not need to produce results.  His job is safe due to our tenure system.  I am a firm believer in the tenure system as it relates to academic freedom.  However, a non-productive byproduct is that it provides a shield that protects faculty members who are not good educators nor producing valuable research.  It is also interesting that Ivgot refers to himself as a peasant when it is actually the non-tenured junior faculty and adjuncts who could make that claim.

At the end of our tete-a-tete, I did what I should've done at the beginning.  I blacklisted Ivgot so I don't have to see any more of his whining.  I'll just focus on teaching and providing my students opportunties to work in the new venture ecosystem and build their own startups.  Hopefully, many will be successful and able to fill some of the growing funding gap in the future.

Was Launch the right platform to Launch?

While the rest of Silicon Valley is slamming drinks at SXSW in Austin and trying out the mobile app Bang with Friends, I'm sitting in my office thinking about last week's Launch Festival.  Seriously, Bang with Friends?? We decided to launch SocialParent at the conference (full disclosure: I'm an adviser, part-time CFO and investor). 

SocialParent is a social network for those who have moved beyond the Bang with Friends stage, have settled down, had a family and are looking for a social network that mirrors their real life social network.

 
 My proposed tagline for the company was "Powering the Modern Family" (with pic below), but the CEO (Reza Raji) shot that one down and reminded me that I was the CFO and not in charge of marketing.  I do love the tv show, but if they all used SocialParent, they wouldn't get involved with nearly as many predicaments as they would be on top of their schedules and where the rest of the family was at any given time.

(For more info download the app or listen to SocialParent CEO explain the service on PandoDaily below).

The founding duo of SocialParent (Reza Raji and Gerry Gutt) were also co-founders of iControl Networks, where I was also an investor and part-time CFO.  We used the DEMO conference in 2005 as the launch vehicle for iControl and got me thinking about how the seed funding landscape has changed in the past eight years.


In 2005, incubators were thought of as either bubble era disasters or university science projects.  The term accelerator wasn't in the vernacular and YCombinator had yet to set their first class free.  First Round Capital (one of the early entrants in the post bubble seed/micro VC funding category) was just getting going and it's primary focus was investing in companies coming out of DEMO.  The term "super angel" had yet been coined, and Naval and Nivi were several years away from sending out the first interesting deals email which ultimately became AngelList.  Demo days were weeks spent hiking up and down Sand Hill Road not a single afternoon when you can pitch to 150 angel investors and VC's. 

When we launched iControl at DEMO in 2005, the conference was not the only show in town, but was definitely a big deal.  Investors and press would flock to the desert to see future hot startups unwrap their products and mature tech companies show off their latest and greatest.  It was expensive ($20K+) but no better way to get major mainstream and tech press coverage, not to mention interest from venture capitalists.  6 minutes on stage were truly a CEO's 15 minutes of fame. There was a ton of energy, great networking and the jam sessions were epic!

The next time I went to DEMO was 2010 and it had moved from a nice resort in Scottsdale, to a Hyatt Hotel in Santa Clara, right in the middle of Silicon Valley.  The energy level was much lower, the startups less interesting, and the jam session gone...I've found through the years that conferences are much better when attendees aren't stopping by between the office and meetings.  I wrote a post forecasting the demise of the conference, Are DEMO's days numbered?  I'm surprised it is still around in 2013, but am sure the selectivity criteria has changed to whoever is willing to pay.

The Launch Festival was Jason Calacanis' response to the pay-to-play of DEMO and other similar conferences.  Launch is a bit of an entrepreneurial orgy (not in a Bang with Friends kind of way).  It is held at the San Francisco Design Center (125,000 sf), had over 5,000 attendees, a massive Hackathon up in the loft, demo pit with over 150 companies, and a cavernous hall where the entrepreneurs took to the stage and Jason held fireside chats with a number of interesting entrepreneurs and investors.  I had the opportunity to judge the Hackathon and was blown away by what the teams were able to build over a weekend.  The winning team (WizzyWig) flew in from Pittsburgh and walked away with over $100K in cash prizes!

While the investors and press made up a relatively small number of the attendees, the overall vibe of the conference was great.  One new addition to the conference was a crowdfunding simulation in partnership with MicroVentures.  I imagine the original intent was to make this real, but with the SEC dragging their feet, this provision of the JOBs Act is far from final.  The simulation was interesting, and was glad to see SocialParent finish on top of the leaderboard.

Hopefully, we can turn that fake investment to real financing.  You can watch the real investment meter go up on AngelList

Back to my original question on whether the Launch Festival is the right platform to launch your start-up.  It obviously depends on a number of factors, one of which is timing.  At a conference held once a year, this is clearly important.  For SocialParent, timing was good.  Also, as experienced entrepreneurs, an accelerator program wasn't that appealing.  For many entrepreneurs, you'll get more investor traction and press coverage out of a YCombinator, 500 Startups or AngelPad demo day.

However, I definitely look forward to Launch 2014.  I hear Jason is looking for a bigger venue.  I wouldn't doubt him and perhaps he can even give those folks in Washington a nudge to make the crowdfunding real next year.

Rebuild our Inner Cities one Venture at a time?

As an active participant in the Silicon Valley new venture ecosystem and entrepreneurship educator, I'm intrigued by the recently announced program Venture for America (VFA). VFA is sending high achieving recent college grads into small businesses and start-ups in inner cities.

Conceptually, this is very intriguing and goes against the current popularity of accelerators in start-up hubs (Silicon Valley, New York, Boston, Seattle, Boulder) that are filled with recent grads and drop outs looking to build the next web sensation. I am a big fan of the accelerator programs and while most of the companies coming out won't be successful, many will, and all of the graduates will receive a tremendous education. Many will likely be successful in subsequent ventures and you can't start your second company until after you've done your first.

VFA is taking a different approach to fostering entrepreneurship. It is modeled after Teach for America (TFA), a program that sends high achieving college grads into inner cities as teachers. These have become very high sought after jobs as TFA has been successfully recruiting students that would otherwise be going to McKinsey or Goldman Sachs. Rather than spending 80-100 hours per week on Wall Street, these students spend 80-100 hours per week creating lesson plans and learning how to teach disadvantaged children. While certainly a laudable mission, I question how many of these teachers actually remain in the career vs. using TFA as the golden ticket to Stanford Business School, Harvard Law or other select grad school.

VFA's tagline is "Mobilizing graduates as entrepreneurs" and is "A program for young, talented grads to spend 2 years in the trenches of a start-up with the goal that these graduates will become socialized and mobilized as entrepreneurs moving forward." In an Inc magazine article on VFA, one student is quoted:

I've applied to a ton of companies," she says. "I have this entrepreneurial mindset that I have to work at a start-up and do marketing, but every company I have applied to, whether it was a start-up or not, said they found someone more qualified or I didn't have enough experience."

Nothing against Ashley from UVA, but that is not how you go about finding a job in a start-up. You network! You attend start-up events! You go hang out at the engineering school! You find companies you are passionate about and where you can offer solutions to problems! You don't send in a bunch of applications. Is this the kind of individual that is going to create jobs in inner cities? I don't know, but I'll bet against her.

Couldn't you accomplish the same thing within the university environment? That is what I am doing with the ELAB program at San Jose State University. (Entrepreneurship Lab Provides Students Work Experience in Start-up World) We have had 50 students through the first four offerings of the program and almost 50% have received job offers at the end of the semester for either full time jobs or paid internships. All have received tremendous experience not available in a typical academic setting.

Back to Venture for America. I hope they are successful in creating companies and jobs in inner cities. Clearly, we live in a bubble in Silicon Valley and our economy is rarely in sync with the nation as a whole. If the rest of the country were experiencing the new company growth, hiring challenges, decreasing office vacancies and rising rents that we are in the Bay Area, the economy wouldn't be the top issue in the presidential campaign. In fact, nobody outside of the far right would care about the Republican primaries as Obama's reelection would be a fait accompli. Politics aside, as the Beach Boys sang, "Wouldn't it be nice"...

Can Entrepreneurship Be Taught?

I attended the annual LP meeting for a venture capital firm this week and got into a discussion about the above question. Seems like a good question to ponder given that I spend several hours each week as a professor of Entrepreneurship.

At a high level, I definitely agree that being an entrepreneur and being in school don't necessarily mix. Most of us know of Exhibits 1 (Bill Gates) and 2 (Mark Zuckerberg) from Harvard, but I have met dozens of other successful entrepreneurs who felt a greater need to get going on an opportunity than to wait around to complete a degree.

However, for most of the rest of us, the analytical skills honed in college or grad school, along with the opportunity to network and explore different fields prove invaluable later. With that in mind, I created a new course at San Jose State last year, the Entrepreneurship Lab (E-Lab). The seminar course combined an internship at a start-up or venture firm with classroom learning and sharing of experiences. There was an application and interview process to be admitted to the class so I was able to have a diverse group of students with varied educational and work backgrounds. Business, Engineering, Computer Science, and Design were all represented.

I'm teaching the class again this coming semester and held an information session for prospective students this week. I had several of the students from E-Lab I come to share their experience with those interested in applying for E-Lab II (went with the Super Bowl numbering scheme to see if I can convince the powers that be to make this a permanent part of the curriculum). I was blown away by some of the testimonials of how the course was a career and life altering experience for the students. I realized that opportunities like this are so rare and students don't get enough of this type of experiential education.

Here are a couple of quotes from the students:

"The internship provoked by thinking and challenged me to pursue my interests with more drive and determination. The opportunity provided by the [E-Lab] has been truly inspiring. And now I know exactly where I want to spend my time"

"This internship truly provide me an entry point into the private equity world. I am still not certain about exactly what I would like to do for the next 30 years, but I am certain that it will have something to do with funding/valuing/investing in start-up companies."

I think something else they liked was that there was no final exam, since in the real world, you are judged by the market and investors rather than on a grading curve...Instead, we spent the designated exam time with a final debriefing of the semester at Gordon Biersch brewpub (see below)


Special shout-out to Dan Gordon, founder of Gordon Biersch, who has been a great supporter of our entrepreneurship program at SJSU and is hosting my Entrepreneurial Finance class at the brewery next week.

If you are interested in getting involved in the E-Lab, there are a few opportunities. If you are an SJSU student, the priority application deadline is December 10 and you can find more information and an application here. If you are interested in hosting an intern, we will be accepting employer applications in December and January for internships beginning in February. If you are interested in sponsoring the course, would love to hear from you as being part of a state institution in California provides its own special challenges.

Now back to the question at hand. Entrepreneurship can be taught, but the jury is out on whether you can teach someone to be an entrepreneur. However, I've seen a number of students not find their entrepreneurial DNA until exposed to the content and guest speakers in the entrepreneurial program. That's enough to keep me teaching!

Can you start a company on $10K?

Nope, not another post on boostrapping, although certainly a big part of this question. We held our annual business plan competition at San Jose State this month and first prize was $10,000. While difficult to do a lot with, there are a number of non-pecuniary benefits in addition to the cash.

First prize went to one of my students, Ryan Guerrettaz (giving the winning pitch below), for his college notes sharing service, Rate-the-Test. I think it's a great idea, although one of colleagues starting calling it Cheating.com and StealtheTest.com. One way to look at it is to level the playing field for those students not in fraternities where old (and probably sometimes current) exams are in the filing cabinet.

This is a much bigger idea than that and is really about helping students succeed. Particularly at a school like SJSU, where a large percentage of students are working part or full-time while taking a partial or full load of classes, time is a precious commodity. As a professor, I would also be very open to loading my materials to a site like this both to help students and to share with entrepreneurship faculty at other universities.

Ryan was actually working on another business plan for my class when he came to discuss this concept with me a few weeks before the business plan competition. He was concerned that he wouldn't have enough time to do a good job on the business plan in such a short time and asked me to advise him on whether to proceed. As a part-time academic, I had to pontificate and give him the scholarly answer, which was "Why the Hell Not??". He worked over 50 hours the final three days, saw his girlfriend once in three weeks and blew off other activities, but beat the midnight deadline by a few minutes.

Rate-the-Test was selected for the semi-finals, which gave him a couple of days to prepare a pitch deck. He did an adequate job presenting and barely made it to the final round. However, this gave him a full week (or 30% of the time already spent) to focus on the presentation and feedback from the semi-final judges. By the morning of the finals, he was ready, gave an excellent presentation, and responded to the judges questions with well thought answers.

Back to the question at hand. Certainly, starting a company on $10K is not easy, but it can provide a great start and the motivation to move ahead. In addition to the first prize, he was also given office space at the Plug and Play incubator for the summer and get to spend his days with other entrepreneurs and investors.

However, it will be under a different name as it may be hard to get profs to cooperate with a site called Rate-the-Test and the service will offer much more than previous exams. I look forward to seeing my students using this service in the fall semester. Also, if it turns out he neglected his girlfriend too much while starting up the company, he'll certainly have the opportunity to meet plenty of co-eds as he hands out flyers for the site on campus. With $10K, certainly can't have a marketing budget to do anything but guerrilla marketing.

Bootstrapping 101

I moderated a panel discussion last night on one of my favorite topics, bootstrapping, as part of our Silicon Valley Center for Entrepreneurship Eminent Speaker Series at San Jose State. One of my colleagues, Joel West, beat me to the punch with a summary of the program.

We had a good mix of experts on the subject:

• Jon Fisher, serial entrepreneur, blogger and author of Strategic Entrepreneurism
• Gustavo Alberelli, director of Kennet Venture Partners that specializes in investing in bootstrap companies
• Ilya Ronin, a former software engineer and SJSU alumnus who is one of the three executives of bootstrapping Marpo Kinetics (an exercise machine company)

Gus shared the strategy of Kennet, which is a unique breed of venture firm, sitting in between early stage Sand Hill Road VC's and late stage/private equity players. They have a standard presentation on bootstrapping, which they present around the country. Kennet has a white paper on that summarizes why bootstrapped businesses are the best. Another interesting related point that he made was that only in Silicon Valley does this message seem to fall on deaf ears, although maybe not now! In other parts of the country, this is business as usual:

1. Identify a customer need
   
2. Build a product
3. Sell the product

In the valley, the knee jerk reaction is to start with the powerpoint deck and look for the venture capital drug....

Jon Fisher purposely avoided raising venture capital in his ventures. His latest venture, Bharosa, was sold to Oracle for a 6X multiple in 3 years to his angel investors, a sweet close to triple digit IRR. His goal in building the company was to spend 3 years building value and find a good home for the engineers and product. In this case, a win-win for everyone, except perhaps the VCs who didn't get the opportunity to participate. Certainly not to say they couldn't have raised more cash and built this in to a bigger company, but was nice to have the option of going either way and doing what was right for the founders and employees.

Finally, Ilya Ronin, shared the Marpo Kinetics story, a true bootstrapped garage start-up. The three founders shared a vision, built the exercise machines in the garage, and knocked on doors at health clubs, attended trade shows, and worked the phone to get initial sales. We don't know the end of the story, but they have built a real business with hundres of machines sold to gyms all over the world along with government contracts for military purchases.

In this economy, all entrepreneurs are going to hear a lot of "no's", but time spent going after customers rather than investors should provide a higher return on investment. Of course, assuming you are successful in the first, the latter will certainly be an option in the future.

Why didn't I think of that??

Great ideas can come from many places. Some result from years of work and/or education while others are a result of trying to identify a unique solution to a consumer or business problem. Of course, there are those that are completely ridiculous (think Pet Rock). We recently had our Neat Ideas Fair, which is my favorite annual event of our Silicon Valley Center for Entrepreneurship at SJSU.

The NIF (in it's 5th year), is essentially a science fair for entrepreneurs. A science fair conjures images of excited middle school kids standing in front of their poster boards explaining which type of paper decomposes the fastest or in my daughter's case, the longevity of chewing gum flavor. Not sure whether she was truly interested in the answer or just thought it was a great way to get her parents to buy her a big stack of gum.

Many entrepreneurial programs feature a business plan competition, which is a great exercise. At SJSU, we also have a business plan competition in the spring, which ideally allows the students to build a viable business model around their NIF projects. However, the NIF forces the students to focus on their idea and ability to communicate it's need, kind of like the Demo conference is all about the product.

The NIF brings together students from all parts of the university (business, computer science, mechanical engineering, design, life science, etc.) to share their passions and projects. Some have developed working prototypes, while others are still at the concept stage and only on posterboard. I really enjoy the collaboration among students in different parts of the university and the excitement of talking about their ideas and thinking through the business potential, particularly for the non-business students.

One of my favorite projects from 2007 was a solar power wetsuit. This was a collaboration between students in industrial design, electrical engineering and business. This team had a working prototype of the first solar powered wetsuit using nano-solar technology. They had done a lot of research talking with surfers and divers, as well as working with O'Neill, one of the leading wetsuit design and maufacturers.

Some of the most popular projects from this year's NIF were:

• I.C.E. - Solar thermal collector that functions as an ince generator to provide cooling through a building
• Tenebra - device with cryptological communication protocol that revolves around a cheap hardware random number generator to enable consumers and businesses to communication with military-grade protection
• Snack Caddy - Reusable tray for carrying snacks and drinks at the movies or other events
  

You can see a description of these and other projects at the NIF site.

Here are a few of the budding entrepreneurs that I chatted with at the event:



Jeff Gibboney, a graduate mechanical engineering student, developed a battery operated skateboard for cruising to school or work. This new mode of transportation included a go-kart wheel, a motor and battery pack from an electric scooter, and sensors from a Nintendo Wii.



Manija Ansari is an undergraduate business student (currently in my Entrepreneurial Finance course), working on a social entreprenurial venture. She has developed a new twist on the micro-lending concept. Unforgettable treasures will provide micro-loans to third world crafts artists to enable them to build their business and will also market their wares through the Internet. She is planning on starting the business upon graduation.





There were a number of green projects at the NIF, including environmental studies major Alan Hackler's Zero Waste Solutions. Alan's concept is a foot pedal operated sink (to save water) that automatically separates compostable and other waste. While many people would have a hard time doing without a garbage disposal some municipalities have banned the use due to the impact to the water treatment systems.

Is it the Horse or Jockey?

It seems appropriate to have this discussion as Kent Desormeaux grabs Big Brown's reins and goes after the Triple Crown tomorrow at Belmont...There is an age old debate in the venture business on whether it is better to bet on the horse (business/market) or the jockey (management team/founders). Hans Hvide at the University of Aberdeen Business School just published a paper, "The Horse or the Jockey? Evidence from Nascent Firms where a Founder Dies" in an attempt to quantitatively answer this question.

Hvide analyzed 6,800 companies that started between 1996 and 2003 in Norway. Out of the 12,500 founders of these firms, 181 (1.7%) die at some point between starting up the firm and the end of 2005 (Hvide 6). This leaves a relatively small sample. And there were certainly many other founders that were figuratively "shot" by their board rather than literally kicking the bucket or left on their own to pursue other opportunities.

As you might guess, the results were inconclusive. The 6-year firm survival rate was 60% for dead founders and 61% for live founders, while the average Operating Return on Assets was 6% for dead founders vs. 8% for live founders, but neither are statistically significant (Hvilde 15). Some conclusions were that the founders role is more important in the very early stage in the creation of the horse and as the visionary and as the company moves beyond this stage, becomes replaceable. This obviously depends on the "horsepower" of the founder, but speaks to the differing skill sets required in starting vs. growing the company. Of course, this would be obvious to anyone who has been in the start-up ecosystem for any length of time

This led me to think through some anecdotal examples of the companies that I have invested in or been on the management team that have had successful outcomes. In most of these cases, the founder relinquished the CEO role within the first 18 months following institutional funding, but remained in a critical technical or visionary role, often as the company's external evangelist. In the cases where the founder has remained as CEO, this has not been their first start-up.

I typically advise the founders of my companies to be open to being replaced as CEO and to remember that a company can have a number of CEO's over it's lifespan, but not founders and that is the best title to have on your business card. Of course, that doesn't mean being sent off to Siberia. Upon taking the CEO role at a venture backed start-up, one of my friends got this word of advice from the VC investor, "Your CEO now. Do whatever you want with the founders". Basically, I invested in them, but they are your problem now.

Back to the Triple Crown and wishing Big Brown and Kent Desormeaux success tomorrow. I'm not a big horse racing fan, but do remember the glory days of the 1970's when we had 3 triple crown winners in 5 years, including Secretariat who was the first horse to claim the triple crown since Citation 25 years earlier. Who would have known we would have to wait at least 30 years for another. I'm still a little sad at having to turn down an invitation to see Secretariat run at the Preakness, but it happened to fall on the same day as my brother's Bar Mitzvah.

4 Lessons of Entrepreneurship

For golfer's, Ben Hogan's Five Lessons is a classic. While the golf courses and equipment have certainly changed over the five decades since this was published, this tutorial is still relied upon by professionals and amateurs worldwide.

As I mentioned in the previous post, Jeff Fluhr (founder of StubHub) recently stopped by my Entrepreneurial Finance class to share his 4 Lessons of Entrepreneurship with the students. I was glad to see he didn't try and upstage Mr. Hogan by adding another one.

1. Do you have the right make-up to be an entrepreneur? You need to be true to yourself and many people aren't cut out to take the personal and professional risk associated with being an entrepreneur. There are going to be a lot of tough times and perseverance is essential.
   
2. Challenge the Status Quo - StubHub entered an industry dominated by a couple of large players who had a vested interest to block the legality of their business of providing a marketplace for the sale of tickets in the secondary market. In the early days, Jeff spent a lot of time with state legislators to get beyond the stigma of "ticket scalping" and change regulations. He definitely had a lot of people tell him that it couldn't be done.
3. Go with Your Gut - This certainly goes hand in hand with challenging the status quo. Jeff founded StubHub during the dotcom bust and funding for consumer Internet companies was disappearing rapidly. His gut told him the opportunity might not be there in a year and he dropped out of business school to launch the venture. He raised less financing than originally planned but was able to launch the site and was running a business by the time his classmates graduated 9 months later.
4. It's Ok to Exit a Little Early -StubHub was experiencing great growth and hitting it's metrics when Ebay acquired the company in early 2007 It is quite possible that Jeff could have gotten a higher price for the company by waiting, but felt there were a number of benefits to exiting when they did. Besides the natural fit with eBay, he wanted the buyer to feel good following the acquisition and certainly the investors in StubHub were happy. All of this only helps for the next venture.

Here's another bonus lesson. Be passionate about whatever it is you are doing. Any start-up is going to be all consuming and will require a lot of personal sacrifices, so make sure you believe in what you are doing. Dan Gordon, founder of Gordon Biersch, came by my class this week. Prior to founding the brewery, Dan spent five years studying beer in Germany and not the way most college students partake in this particular study. He was the first American in 30 years to graduate from the 5-year brewing program at the Technical University of Munich, the highest technical degree in brewing engineering. Upon graduation, he knew he wanted to open a German brewery restaurant in California and the passion and determination drove a lot of the early success. Brewing a great beer certainly doesn't hurt, which the students got to taste at the brewery after the class.

Buyer's Remorse

Wikipedia (where else would you look....) defines Buyer's Remorse as "an emotional condition whereby a person feels remorse or regret after a purchase" and "a natural human reaction, rising out of a sense of caution". I certainly remember the feeling after buying my first house. The feeling is fleeting and then you go about making the house into your home.

I have noticed this same feeling when making a venture capital or angel investment. While spending time with the entrepreneurs and championing the deal through the group, you tend to become emotionally attached. Of course, rigorous diligence is performed, the team is challenged, and assumptions are tested. Once the point is reached where you want to move ahead, we put the sales hat on and convince our partners about the incredible opportunity that we are lucky enough to be able to invest on the ground floor. However, once the deal is completed and the wire hits the start-ups bank account, all the warts seem to jump out. In most cases, the entrepreneur hasn't hidden anything, it is just buyer's remorse kicking in and the realization that the hard work is beginning. As early stage investors, our goal is to eliminate as much risk as possible with the least amount of cash spent.

Of course, the opposite of buyer's remorse is exercising too much caution and not making an investment where your gut was saying yes. I've found that the opportunities we let pass often stick around longer than many that we do. I started thinking about this yesterday when Jeff Fluhr, founder of Stub Hub spoke at my San Jose State class. I first met Jeff about 8 years ago when he was finishing his first year at the Stanford GSB and was beginning to raise money for a business plan he developed for a secondary market ticket exchange. This was the beginning of the dot com bust and getting a consumer deal through the partners at my venture firm was next to impossible. I liked the founders and considered making a personal investment, but ended up passing.

However, I was glad to see they were able to raise financing and launch the service. I used it as a buyer and seller on a number of occasions and rooted from the sidelines for their success against the Ticketmaster, state regulators and others trying to knock them down. Jeff was able to build a profitable company and a successful exit when Ebay acquired Stub Hub for $300 million early last year. Jeff shared some entrepreneurial lessons with the class and I may include in a subsequent blog post.

Of course, I'm not the only one to feel this way. I was listening to a podcast recently on Venture Voice with legendary VC Tom Perkins. When asked the question about the worst investment he ever made, he turned it around to mention the one that got away, Apple. Kleiner Perkins had looked at a few other computer start-ups and weren't interested, so didn't even take a meeting with the Steves. Bessemer Venture Partners lists an anti-portfolio of investments they passed on that includes Apple, Ebay, Intel, and Google.

Now, back to that house in Mountain View, California. Hard to believe you could buy a nice house like that in the Bay Area for only $300,000....