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AM: VC activity in the DC area

To:     <ad-market@netpreneur.org>
Subject:     AM: VC activity in the DC area
From:     "Andrew Forbes" <andrew.forbes@redbridge.com>
Date:     Mon, 16 Mar 1998 15:08:41 -0500
Reply-To:     "Andrew Forbes" <andrew.forbes@redbridge.com>

A common refrain both on this list and in conversations
I've had recently is the complaint that "all" of the high 
tech VC money is going to startups in the Valley, instead 
of to the deserving startups here.

I've floated several plans over the last few years, and
none of them has been funded. If I thought, even for an
instant, that they would be funded if I lived out West,
I'd be out West now. My operating assumption is that
my plans have not been funded because they didn't
deserve to be funded.

Each time I've learned something about the process 
of writing business plans and raising money, and 
eventually I'll hit on the combination of components
required to put a deal together. If I was in an 
environment where deals were being made daily,
where a new startup was on every street, I'd be
learning much more quickly. If everybody I talked to
wanted to be part of a startup, I'd be able to pitch
much better teams (with less assembly effort on
my part). If this area was heavily populated with people
that had made their money from a startup, and that
wanted to play "Let's be a VC now", I'd find money
with much less effort.

In other words, if this area had achieved a certain critical
mass of a "Hey, guys, let's start a company" attitude,
things would be easier. But it hasn't.

Why is this? I believe there are several reasons.

There are not that many people writing business plans, 
and few of the business plans that are written are realistic
(and I'll be the first to admit that some of mine fell into 
this category). I've noticed as well that the people writing 
the plans tend to perceive those plans as having 
immense value, and as being full of proprietary content.

So there aren't many plans out there, and the few that
are out there are closely held. This means that novice 
entrepreneurs can't learn about business, and business
plans, via osmosis. They have to just dive in and learn
the way the cat learned to swim.

I've talked to many technical people about the ideas
they and I have had, and a common thread is that most
technical people I speak to will join a startup only if 
they get paid the same thing they're paid now, have
the same benefits they have now, get a major piece
of equity participation, and get a fancy title. Oh, and
they're not willing to miss a single paycheck, or do 
any work on the plan without compensation.

There are too many 9 to 5 government contract style 
positions in this area. Unless you work to avoid it, it's all
too easy to end up in a series of clock watching,
meeting attending, career stalling positions. In other
words, jobs that teach people an anti-entrepreneurial
attitude.

It takes worker bees to get any job done, and there is
a distinct lack of entrepreneurial worker bees in this area.

Finally comes the source of funding. When I try to raise
money I've come closest to succeeding  when I talk to 
people that got their money via a recent high tech startup. 
They can still remember the excitement and enthusiasm
they themselves experienced, and they still appreciate
how there isn't an obstacle that a motivated team
can't overcome. Unfortunately, most the VC types 
around here either did their startup years ago, or 
believe that business school is a more than adequate
substitute for having been through the spin cycle
themselves.

So there are few technical people with a successful
startup under their belt looking for places to invest
here, resulting in a fairly uncompetitive VC market
populated by MBA equipped suits that get excited 
by balance sheets rather than great technical ideas.

So three of the differences between Silicon Valley
and us are:

1) It's harder to learn entrepreneurial business skills here; and
2) It's harder to recruit entrepreneurial workers; and
3) Our VC market is less competitive, and we have to sell
our ideas to MBA equipped suits rather than microbrew
guzzling techies like ourselves.

I believe that this results in us looking like our counterparts
out West, but just enough different that investors used 
to people from the Valley sense that something is 
different, and therefore wrong. They're going to invest
where they're comfortable, and we don't make them 
comfortable.

I said at the beginning of this message that I'd move to
the Valley if I thought that would get my plans funded.
I don't believe it would. What is going to get my plans
funded is having a plan (and sales pitch) that looks and
feels familiar to the specific investors I'm pitching at 
that moment and that specifically addresses those 
areas where they believe the DC area has a disadvantage.

For those of you that are trying to get business plans
funded: What specific things in your plans and sales
pitch do you change for local investors/Valley based
investors? How do you tune your pitch to the geographical
and psychological positions of the investor(s) you pitch?



Replies
AM: RE: VC activity in the DC area, David J. Simonetti

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