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AM: RE: VC activity in the DC area

To:     "'Andrew Forbes'" <andrew.forbes@redbridge.com>
Subject:     AM: RE: VC activity in the DC area
From:     Terry Steichen <TerryS@DataFocus.com>
Date:     Tue, 24 Mar 1998 10:24:27 -0500
Cc:     "'ad-market@netpreneur.org'" <ad-market@netpreneur.org>

Andrew,

I'm curious to know if you received any significant responses to your
comments.  

I too have been through the business plan and investor game several
times, and like you, each time I've learned more and more.  I've been a
founder of a couple of companies and a principal in others (all software
product-related).  And yes, it does seem that there's much more
VC-funded activity in the Valley, compared to here.  Some of the
reasons, I believe, are those you mention.

You also observe that many plans are, to be kind, somewhat deficient.
Absolutely true.  What I've found is that too many startups begin with
an inside-out technology focus (which is kind of natural for our field).
But the business plan doesn't reflect an understanding about the need to
shift ASAP to an outside-in, market-oriented approach.

I certainly agree with your observation that VC's are heavily populated
by 'MBA suits', with more (real and apparent) credentials than
experience and insight. Many are quite myopic about the 'exit strategy'
and earning 'VC-level returns' by the time the exit rolls along.  Still,
undergoing their scrutiny, while frustrating at times, can provide a
discipline and challenge that let's you hone your plan to be better,
regardless of how you proceed.

I'm also curious as to what kind of business you are in (or proposing,
as the case may be).  I would be surprised if moving the the Valley
would make a whole lot of difference in funding, but perhaps the
specifics of your case might change that.

Terry Steichen


> -----Original Message-----
> From:	Andrew Forbes [SMTP:andrew.forbes@redbridge.com]
> 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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