top 10 lies of entrepreneurs and other lists for startups
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the audience: q&a
Q: Is there
any prerequisite for Bootcamp that you have your seed round already?
Mr. Kawasaki: There is no
preferable that you've had a seed round, but we don't really care. Our sweet spot is firms looking for $3-$10 million with a
pre-money valuation of $3-$15 million.
come across a company that has a good idea in which you might be
interested in investing, how do you approach the issues of
Mr. Kawasaki: I will tell
you that one of the big marks of being a bozo for an entrepreneur is
asking for an non-disclosure agreement (NDA).
You should never ask for an NDA unless, maybe, if you're in
medical devices or biotech. Other
than that, never ask for an NDA because no institutional investor that
I know of will sign one. The
reason why is because at any given moment there are five companies
giving us the same idea. If
we sign your NDA and then we fund another company, you might sue me
for violating your NDA. There are five people with the same idea, so no one can sign
it. Even asking for it
says on your forehead, “I am a bozo.”
Don't even ask for it.
The way you get around this is to quickly explain to the
potential investor what your company does and ask, “Do you have
anything in your portfolio or are you considering anything that
competes with it?” They'll
say yes or no. If they
say no, no problem. If
they say yes, I would still explain it to them because I am no longer
paranoid. I used to be
paranoid. I used to think
that the key to success for a company is the quality of the idea, but
I no longer believe that. I
believe it's the quality of the implementation.
Good ideas are easy, and lots of people come to us with this
really secret idea that they don't want to tell anybody about it.
Finally I bludgeon them and say, “I’m not signing an NDA.
You want money? You have to tell me the idea.”
Then they say “Online book sales.” Really? Wow. I can see
why you wanted an NDA for that. No one is selling books online.
Just ask them, and don't ever ask for an NDA.
Q: Your first
rule was that institutional investors will apply a 0.1 multiplier to
your projections. How do
you get around that?
Mr. Kawasaki: Put in $49
million instead of $50 million.
In business plans, most people spend about 80% of their time
doing the financials and 20% doing the executive summary.
That is exactly 100% wrong.
You should spend 80% of your time on the first three pages and
20% on the financials. Quite
frankly, most people don't even read the financials because they get
so turned off by the executive summary.
You're sitting there in Excel with this 2000x2000 linked
spreadsheet that takes 15 minutes to recalculate because you figured
out that in the third month of the third year you're making
$1,000,786.65. You think
you have the world's greatest financial model because you took a class
at night from Wharton, but nobody cares.
They have to get past the executive summary.
All they want to see in your financial model is that you're not
on hard drugs, okay? What
they're going to look for in your financial model is, “Boy, these
people are going to do $50 million, but to do that they're assuming
that they're going to penetrate 95% of the Internet users in the
world. No company is
going to do that. This
model cannot work.” All
they're doing is looking for the assumptions of your financial model.
They're not going to believe your financial model because
nobody knows in year three what a company is going to do.
You just need to show that you can add and subtract and that
you have reasonable assumptions in your model; that's all they care
Q: It's almost
schizophrenic: make sure you're believable in your projections, but no
VC wants to touch a company that doesn't show $25-$30 million in
revenue in the third year. Is
that still true?
Mr. Kawasaki: I would say
that $20 million is probably the floor.
Any lower than that would not be interesting enough.
On the other hand, if you’re saying you're going to do a $100
million, be careful that you don't exceed the run rate of every
company in the history of mankind.
That is a problem. I
realize that it is schizophrenic, but I'm just telling you that's how
Now, I'll say also that very seldom will a VC tell you why they
really are rejecting you. It leads to too much argumentation. If somebody wants to do business with you, they're going to
look past your weakness and figure that they're going to fix them.
If they don't want to do business with you, they're going to
harp on those weaknesses. If
you meet with a VC who says, “You don't have enough of a team for me
to fund you,” that doesn't mean that if you fixed your team they
necessarily would fund you. They
were looking for something that you cannot argue with.
If they really, truly believed in your business, they would
say, “You know what? You
don't have a team, but we have a recruiter and we know people at
Heidrick & Struggles and Korn/Ferry.
We can call them and they can recruit for you, so we could
build this company together.” If
they were interested, that's what they'd say; if they're not
interested they say you don't have a team.
It's much like dealing with job applicants.
You can't tell a job applicant, “I didn't hire you because
you have bad breath and you wore double knits that day.”
You say, “You don't quite meet our educational
requirements” or something else that no one can argue with, right?
That's what you ought to translate.
If people want to do business with you, they will look past the
weaknesses. People fund
people from strength, not from the lack of weaknesses, so you have to
have strengths that make people willing to overcome the weaknesses.
Otherwise, it's a no. No
matter what they said, it's a no.
Q: When do you
set up options for family and friends in a new startup corporation?
Mr. Kawasaki: I don't
know why you would set up options for friends and family unless they
are investors. There is
no reason to give your friends and family options unless they're going
to add value to your company. You
can give them stock up to $10,000 with no tax consequences per year,
so I've done that for lots of my friends and family, but I didn't give
them options. I don't see a reason to give people options unless they're
contributing to your company.
Q: What is the
compromise between exaggeration, which you sometimes have to do, and
being totally honest?
Mr. Kawasaki: Well, the
difference between exaggeration and a lie is that you believe your
Well, I promised to get you out by then 9:30, and it's 9:30
now. Thank you all very
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