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AM: Re: VC activity in the DC area

To:     "David J. Simonetti" <djs@projix.com>, <ad-market@netpreneur.org>
Subject:     AM: Re: VC activity in the DC area
From:     "Andrew Forbes" <andrew.forbes@redbridge.com>
Date:     Tue, 17 Mar 1998 11:51:08 -0500
Reply-To:     "Andrew Forbes" <andrew.forbes@redbridge.com>

David:

In an effort to address what I believe are the weakness of trying a
startup in this market I got involved in a contract bodyshop
startup. I figured that if I did nothing but recruit for a few years I'd
learn what it took to get the kind of people I needed.

One of the things I've learned is it's actually bad in a recruiting ad
to use phrases like "startup, ground floor opportunity, help build
a company, looking for a challenge?", etc. These phrases will
scare away a vast majority of the people in this market.

I've also learned that most people in this market don't understand
stock options and equity. It's better to raise enough money to pay
your initial employees a market salary and conserve equity for
the people you'll need when serious growth/additional rounds of
funding occur.

This isn't bad, per se, but it's certainly not the mindset out West.

Andy Forbes

-----Original Message-----
From: David J. Simonetti <djs@projix.com>
To: Andrew Forbes <andrew.forbes@redbridge.com>; ad-market@netpreneur.org
<ad-market@netpreneur.org>
Date: Tuesday, March 17, 1998 11:52 AM
Subject: RE: VC activity in the DC area


>I agree with Andrew.  In fact, I believe that there is complete
>methodological disparity between East and West Coast VC's.  Recently, I was
>working with a company based in California that had been looking for
>funding.  They had a business plan, but the financials were weak at best.
>They didn't see a need to shore up the financial plan because the west
coast
>VC's were more concerned with the product and the perceived market
potential
>(i.e., the technology) than with the soundness of the "business plans" that
>the inventors were able to develop.  The VC's there seem to have the
>attitude that they can install any of the talent necessary to make the
thing
>a viable business.  In my experience, were the same plan to go to an East
>Coast VC, one look at the financials would have merited the "is not in line
>with our current portfolio" response.
>
>I agree as well with Andrew's take on the tech talent pool here in DC.  It
>is anything but entrepreneurial for the most part.  The concept of start-up
>created more fear than it does excitement for the average developer who has
>been working on a long-term contract at HUD for the last three years.  The
>culture here, to date, has not promoted the endeavor of the start-up.  In
>the Valley people are lauded for leaving a job and attempting to start a
new
>company.  The culture here is more conservative and seeks stability and
>short-term financial security over the possibility of "changing the world"
>or creating wealth.  Possibly I am showing my anthropology background
>however, I feel that Washington has a long way to go in creating a business
>culture that promotes and supports netprenuerial endeavors.
>
>David J. Simonetti
>Projix Corporation
>
>"What the hell's a Marketeer?"
>http://www.projix.com
>
>
>> -----Original Message-----
>> From: owner-ad-market@netpreneur.org
>> [mailto:owner-ad-market@netpreneur.org]On Behalf Of Andrew Forbes
>> Sent: Monday, March 16, 1998 3:09 PM
>> To: ad-market@netpreneur.org
>> Subject: AM: VC activity in the DC area
>>
>>
>> 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?
>>
>>
>


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