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shaking the moneytree 4: Q2/2000

a billion dollars in mixed signals  

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the audience: q&a

Q:  How do you know where to go for investments of different sizes, or whether you should go straight to the public markets?

Mr. May:  It's a food chain and there is so much money out there right now that deals are being funded at $50 million for startups from venture capitalists. There is a full range of financing, but it all depends upon the size of the idea and the deal.  Generally speaking, you raise $1 million from angel private placement, and there is a much greater range of private sources before you have to go to the public markets.

Mr. Muleta:  My advice is that if you can bootstrap yourself and never give away control, that's the way to do it.  Money always comes with strings, so, if you have got a great idea, why are you talking to me?  Do it yourself if you can.

Q:  Do you see companies that are acting totally as portals being viable if they do not have a brick-and-mortar component?

Mr. Muleta:  For me, the Internet is about disintermediation.  Do you need to have brick-and-mortars, or do you need to have a good supply of things that produce brick-and-mortar types of products?  I don't think there is an easy answer to that.  If you're providing a product or service that can disintermediate the market and create new value, then we want to talk to you.  That's what the Internet is all about.  That's the best answer I can give you at this level.

Q:  Can you give us the mental checklist you go through when you're listening to a 3- or 5-pitch?  What are the things you check off in your head to see whether or not they have been addressed?

Mr. May:  At the early stage it’s: is the idea big enough, who's the management and is it a market we understand?  At that stage you should have a one-pager, a two-pager, a six-pager, a business plan and a business plan with appendices.  You should know and respect the time available, whether it’s the 3-5 minutes you mentioned or only 25 seconds.

          The most valuable resource we have is time.  The world is awash with money, so it's judgment and time that we're really dealing with.  If you only have 2 minutes with somebody, you better know that the opportunity is in a space we like.  I don't want to spend 3-5 minutes listening to something I don't understand, so the key things are whether it's in the right space, what's your differentiator and why you.  Then you just want to get a hook into the funding source to be able to peel the onion.

Mr. Burke:  When you sit down in front of us, do we trust you?  Are we going to give you $15 million and trust what you are going to do with the money?  Do we believe you when you say that you understand the markets?  Obviously, you need a management team, and what you've done before plays into it.  Is the market large enough, and is it addressable?  So many people are trying to go after the small- and medium-sized enterprise, but it is a notoriously difficult market to address.  While it may be huge, can you actually address the market you're looking at?

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          There is so much talk about business plans.  They have business plan contests at all the business schools.  I would be lying if I said they were all read.  I would be lying if I said that I read all the business plans of all of our companies.  You just can't.  We get hundreds of plans a week, some of them 500 pages long.  It's unrealistic to believe anybody is going to read that; it should be simply an internal planning document for yourself.  As John May said, send us a three-pager, send us a two-pager¾one page is terrific.  We don't have a lot of times to read through them.  We literally have stacks on our desks that we measure in feet.  The business plan should be for you.  Don't think that when you send a beautifully printed, four-color business plan to a venture capitalist they are going to read it front to back.  And when you get into the meeting, don't assume that all the venture capitalists have actually read your plan.  I hate to see these small companies spend thousands and thousands of hours writing these plans.  Get the idea crystallized in three pages.

Mr. Muleta:  I'm going to sell my stock in Kinko's after this.

          The key thing to focus on when you're meeting that person for 3-5 minutes is that you need a setup that is going to help you get through all the barriers.  Do your due diligence.  Find out what they like to hear and where their minds are.  Talk to people they know, like their auditors or others they’ve worked with, to get a frame of reference about where this person is coming from.  Do your homework so that your 3-5 minutes can be effective.

          These are all critical things you need to do, but I'm also telling you, as a practical thing, if it's a blind call, you had better have a very good idea, because there are tons of ideas.  They all sort of sound good because they all have words like “unique,” and “billions of dollars” and such.  The companies I like are the ones that say, “We have this idea and think we can shape it and I know so-and-so is going to buy us out.”  At least they are honest.  Get the setup.

Mr. Burke: It's a sales pitch, and you have to think about it like that.  You have to understand who you are talking to.  You don't just want to tell us what we want to hear, but you have to understand what we're looking for.  I had a company come in with a stellar background, all the education you'd ever want, worked for a top investment bank for many, many years, then joined a startup that failed¾but not because of him, of course.  He went to join another startup and it failed¾but not because of him, of course.  Then he was part of a company that was part of a larger group that decided to put “.com” on the end the name.  He told us a story about how he is such a great salesman that he sold this to the public markets and that it was total vaporware.  They had nothing and were going to do a billion dollar valuation, a $600 million offering, and it was going to get done.  They actually had an investment bank sign off on it.  He tells me this whole story about how he just lied to everybody and here he is with a great idea.  Think about what you're doing.

Mr. Thompson: On that note I think we're going to wrap it up.  We appreciate your coming and thanks to our panelists.  We look forward to seeing you next quarter.

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