Startup School October 15, 2005 Kevin Hale's Notes Particletree Inc. It is raining in Boston. I am wet. ###FIRST SESSION### TripAdvisor Journey Lessons Learned Langley Steinert (experience starting up and investing 1. Follow Your Passion (trip advisor acquired by expedia inc. last year 7th largest travel site last year 2. Do it for the right reasons not for money but for passion for the idea be able to stick with it when it gets ugly 3. Choose Your Founders Carefully how well do you know them 3-5 year commitment reference checks. be extremely picky about your first 10 hires (only takes one bad apple) 4. Less is More -- Raise as Little Money as Possible Don't get big fast. Big checking acunts breed bad habits (breeds sloppy behavior) more you raise, the less equity/control you keep the more you raise the higher the price at which you need to sell (why bad? because they expect a certain minimum return for sellage and able to look at lower sell out options) explore angel investors (willing to invest in smaller increments) angel investor : definition - retired veteran startup person just willing to invest money and who know what it takes. IE. Viaweb and TripAdvisor raised less than $5 million each (first round for software startup don't need to be more than a million dollars. little different for hardware) 5. Don't be afraid of change next 3-5 years you will trip up embrace the cahnge in the face of problems redefine if you have to redefine business model if you have to (Hallmark of 1999 inflexible business / product strategies) Example : Trip Advisor - First business model a bust. ASP business model - no buyers spidered expedia's site without knowing it. called expedia and said do you mind if we send some free traffic. turned on for 2 weeks. turned off and got called back. 6. Keep an Eye on the Exit Signs most big companies are hardware companies actively think about who could/would buy your company and then contact them at least twice a year. big companies are typically horrible at innovation build a map of the partners that could use your service. (if you try and lean on investors you can meet some amazing people - heads of comapnies) don't pass up a "reasonable" acquisition offer, might be your last Example: TripAdvisor - had a dialogue with 2 different comapnies for 2 years before an acquisition came to be. Questions? feel free to email me lsteinert@yahoo.com valuations for sell out is 3x - 5x What to look to work on - - (intersection of search and shopping) (vertical shopping in search) gravitate consumer facing applications tends to stay away from hardware because have to raise high capital 12million a month traffic to TripAdvisor 7th largest travel site in world they represented a considerable amount of traffic/money to expedia. making good earnings was why they did well. took about a year to get profitable once found good business model. founding team was 3 developers and self. (like to have 12 months of run rate and then doesn't get more money. raising money is a pain. try to do once and be done with it. legal fees are very costly, almost $100,000 in legal fees and you don't want to waste your seed money on legal) sponsored links are much better and convert better not a big fan of outsourcing. outsourcing nothing. everything in house in proprietary. idea on a chalkboard before first round of funding (1 million) (but they had some experience -- so not typical of most startups) how did you drive traffic? 1. PR (can't spend enough money on public relations, aggressive and opportunistic with press--have a good story 2. have a good product and need 3. aggressive with search engine marketing - - - - - - - - - - ###SECOND SESSION### startup stories marc@precipice.org follows companies and hangs out with them and evaluate startups that come to them for funding (for o'reilly) **Adaptive Path** web consultancy firm moving from consultant work to product company anyone can be a consultant. just say you are and you are. get clients (easy) if you have experience they are building Measure Map (blog metric tool) (dude, where's the story ... he just told me about them) **Bloglines** RSS aggregator 70 percent market share. ran for 2 years and then bought by ask jeeves for 20 million everything is done by ONE guy! two months before being acquired he hired 2 people (crappy UI design explained by the one guy doing everything ... funny ...) he just worked at night. never took any money until he got something that worked. bloglines had no revenue and no chance of revenue before acquired. was bought out solely because of number users using it. that's how you do it **del.icio.us** social bookmarking network also no chance for revenue. did take venture capital (he is skeptical about investing in this because don't see money return) checkout Tim Orin book on venture capital information **Feedburner** run by four guys and this is their fourth startup together good to be able to work with the same people all the times in a fantastic point of control got VC funding. making money. great customer service. good team. **Flickr** great example of being adaptable launched by ludicorp (used to make online games for girls) it didn't work after getting grant from canadian government. had leftover money and so made chatroom (in 2 months!) chatroom allowed share photos and then focused on that then sold to yahoo. basically all done in a year and a half. **indico** started by dan arken. gotten no funding and no customers if you're a comapny gets a lot of resume submissions. put the 99% of resumes you don't use in a collective db problem is it takes too much momentum heat needed to market this would boil the ocean get VC money any way you can. send blind email. go to VC conferences. etc. etc. etc. the first one will help you find others **jotspot** founders of excite make this commercialization of wikis investors love veterans. better to have people with prior success. much easier to buid an application that has a platform then saying i'm building a platform. **koders** search engine for coders. find code samples. 2 revenue models. public search that is ad supported private search for enterprises to search own code behind firewalls not good to have two money models. hard to make it work. much better to choose 1 revenue model and focus on that. **odeo** podcasting company evan williams founded blogger and sold to google. first thought was an idiot. and so can pretty much get money for anything he does. **project placesite** wifi cafe software selling thing. making engineering mistakes. going to sell to individual cafes. that takes too long. don't fear the MBAs. engineers aren't always the most savy. **spike source** o'reilly partner disclosure. open source support company. "one throat choke" you can call them if you have problem with open source software. everyone is helping them. they are targeting fortune 500 - 100 companies. don't compete with them because the board member is huge. if you have a competitor that's aiming at high end of market don't compete if you don't have the resources. got the other way, compete at low end. **splunk beta** got started by saying google for don't chase a hot term. that's a mistake. can't depend on getting funding by chasing a trend. money only happens if you have an investor that really likes you. **squid labs** berkeley company. have lots of products that are unrelated. looks terrible because they have so many ideas. but they're really smart and have lots of awards (genius grant) cool company **37signals** no debt. no investment hugely profitable web consultancy company that built web consultancy software. 100,000 company. 1 guy answers all of the support emails. focus on one idea. they know the market they are the market. **upcoming.org** just a good idea for fun. sold to yahoo. nice. **zimbra** demo gets you a long way. flashy presentation is nice. **words of advice** do you want to sell sugar water for the rest of your life or do you want to change the world? (steve jobs to pepsi head to be ceo of apple) don't start things just to flip it. people can see right through you. good investors prefer people who want to change the world. change the world - - - - - - - - - - - ###THIRD SPEAKER### Yahoo Engineer how large company like yahoo can be your partner can't out innovate the large community and so it is better to nurture that innovation. **new yahoo mail** building the new yahoo web mail client (nice interface, looks like desktop mail) looks like outlook express. . . ads are better placed ... or more hidden than the new hotmail version bc of beta perhaps? completely ajax based. very interactive. will compete nicely innovation comes from acquisition of 8 engineers called outpost those people were considered pioneers of some ajax applications. built web mail app with ajax before gmail did it. i am sneezing too much. this guy is an engineer ... sort of boring. talking too much about meh. **my web** save urls and tag them. social network infrastructure using yahoo 360. helps improve search quality **yahoo developer network community** they are building a new mapping product. going to have a lot of api hooks big businesses provide a good exit strategy for startups. this guy is rambling. ok Questions: How does yahoo value a company for purchase? Depends. --pretty much what you expect. will buy based on user base (geocities), regional presence, innovation that fits in larger company's main scheme or profitability. revenue models for services: 2 types subscription base (yahoo music, yahoo dating) - if it takes large operating costs and lower user base ad based - (free hosting services) how do you get bought by yahoo? work on search obviously. work on communications. those are yahoo's pillar. so if you improve the pillars, then you could be game. but they do look at new models and new technologies in an attempt to stay at the top. upcomming.org is one of these moves. 10 Minute Break. - - - - - - - - - - - - ###FOURTH PRESENTATION### Startup Finance Presentation Harris (Hutch) Fishman, CPA He just put up a slide of what looks like his resume. Not writing that. He worked with Viaweb and so that explains his presence here. He works with baby startups. soon as they start. Currently working with 2 companies C-market (ebay for nonprofits) vivio (in stealth mode about what they're doing) raised 15 million so far) **Financing Stages** Seed - strategy and market research - devleop business plan First Round - complete initial product - build initial team Second Round - bring product to market - initial customer deployment - complete team Third Round - expand slaes and marketing - significant risk taken out of the business Fourth Round / Mezzanine - working capitol needed for liquidity event *Different investors like investing at different levels. some only like first round financing. each round should get you enough for 12 - 18 months **Types of Investment / Equity** Common Stock - Founders - Employees Preferred Stock - Investors - Preferences over common borad representation liquiditiy participating preferred (goal burn off oafter specified return (3x 4x) dividends redepmtions anti-dilution (weighted average) Goal - GET CURRENT MARKET TERMS Note to self : wish Chris was here to explain this to me. **Dilution Impact** Sample First Round Financing - $5M Pre money Valuation - $5M Series A Preferred Financing - $10M Post-money Valuation - $1.00 price per share Ownership after the Series A Founders 20% 2M shares - $2M Seed Investors 5% .5M shares - $.5M Employee Pool 25% Series A Investors 50% **Liquidity Events** Acquisition -top choice today -fequently strategic partnership in place with acquiror prior to event - deal structure (stock for stock is tax free transactions) (stock for cash) IPO - Current Weak Market - Sarbanes-Oxley Impact - Senior Executives (high risk with today's environment) (difficult to get liquid) --don't recommend this because it's tough-- --better to get acquired because you can get liquid quick-- **Pricing of Stock** Investors pay FMV - VC preferred - Anges - Preferred / Common Founders get stock before investor money is received cheap stock (penny per share) Employees - Discount from FMV in early stage (example Price 10% of last round of prefrred stock - over time priving must move closer to FMV - Tax advantages in purchasing stock rather than granting options (options the right to purchage shares at a specified price for a period of time) (restricted shares - (you want to do this) ownership passes to holder, company has the right to repurchase unvested shares) - first year not vested **Banks . Venture Leasing Companies** Available Financing - fixed assets security deposts accounts receivable working capital Other Considerations - early stage companes must have VC / Angel backing - financial Covenants (minimum cash balance, owrking cpital, debt to equity, equity) Equity Participation - Warrants - to purchase preferred stock in future - Exercise **Budgets** Operating - month by month, by head count, fringe (20% salaries), facilities, hardware, PR, marketing, etc. - helps force milestones in development to help acheive certain goals Captial - equipment, software, etc. Equity - establish table based on employee position / compensation - based on all new hires for the year All Budgest should be done in adavnce of Fiscal Year **Professional Firms** Legal - corporate - ip - employment - licensing / customer (consider part time in house counsel) Accounting - Big 4 Firm (deloitte, PWC, E&Y, KPMG) makes a difference when getting acquired. - Other International (BDO Seidman, Grant Thornton Questions: People are buying earlier and earlier to avoid paying high costs for companies. But if you have something that could be big...be careful. It's a balancing act. Depends on how confident you are. Letting go is not a bad thing. Getting liquid is a good thing. (oh, you are a money man aren't you, you CPA) It's all about equity. If family and friends round necesary before angel round? Honestly, raise enough to meet the milestone that you need. Product to prototype stage is the most important part. If you can get from angel, that's nice. If you can't, go to friends and family. (viaweb is mostly credit cards? ) How much are the legal fees? 10M in financing is 100,000 dollars in legal fees. Basically on working on due diligence. First year fees for audit (financing firm) is 20,000 dollars to perpare for acquisition. why restricted stock better than stock options? taxes are just better. well that's the jist of it. don't really know what he's saying. - - - - - - - - - - - ###FIFTH PRESENTATION### Paul Graham. No presentation. Just paper and notes. He's a writer at heart. He's reading us his presentation. Very nice. Man, we're just moving right along. How do you get ideas for startups? Why do you think it's hard getting ideas? It's not that you can't think of them, it's just you don't have any. Reason people don't try to think of startup ideas is bc they think it is very hard. They think an idea has to be a million dollar idea. But you'd be surprised. Nothing evolves faster than markets. Startup ideas are really just worthless. most startups don't stay with any initial idea. initial idea is just a question. not a blueprint. don't say. Going to make a online spreadsheet. say Can I make a online spreadsheet? And then as you figure out how to implement it, you will find something else to do. If idea is a blueprint, it has to be right. If an idea is a question, there's no right or wrong. You can help modularize working on the solutions. So now startup ideas are really just working on questions. New technologies are the ingredients and conversations with friends are the kitchen. That's why universities are great place to see these things develop. Large cube companies too, because you want to fight that lack of innovative speed. Stay upwind. Maximize future options. The right environment doesn't have to a university, just a place where some part of your experieces in in school. Practically, every successful company has two people finding it. Might explain why so few female founders. Successful startups need good friends. And so people's best friends tend to be of the same sex. And since female hackers are already a minority, pairs of minority is going to be a number present squared. Never attribute to malice, what may be attributed to math. (funny) Why do ideas come in the shower? (ryan). Taking a shower is like a form of mediation. Allows your mind to wander and doodle. Unconcious but not random. Create habits of design. New ideas arise like doodles. YOu have to work on something before you have ideas. Deep. Allow an environment for mental doodline. You're looking for new good ideas if you're importing things from distant lands. Harder fields provide better habits of mind. Math for example. Takes stronger solvents to work on those problems. Finding the problem intolerable and feeling the solution is possible is the power behind the ideas of startups. Wealth is what people want. It is the tautology. Not all good ideas are wealth. Good ideas and valuable ideas are not the same thing but very close when it comes to technology. it's a questions of taste. one way to look at what people want, it is to look at what is being used but is broken. how to kill windows? not with a frontal attack. the question is not what operating system should we use on our computers? but how should we want to use our applications? believes the windows killer is not going to come from a big company like google (because the question is so subtle) but from a small company. (man, i hope it's us) redefining the problem is how you can compete. can work in the open without being detected. ie. we just want to work on search. just do one thing and do it well. that's our motto - google. simplicity takes effort. even genius. more flexibility leaves more rope to hang yourself from. you have to have an exit strategy. acquisition or going public. if you don't give your employees something to work towards (getting good people takes good incentives) then it's going to be impossible. make getting liquid a priority. be sure you have something that's wanted by multiple companies. if you try to just fix windows, only windows will want it and so they'll just take their time and copy you rather than buy you. ideas come by accident. most startups happen because of accidents. wanting to do something else. patents are generally a good idea, but depends on acquirer's taste. - - - - - - - - - - ###SIXTH PRESENTATION### Intellectual Property for Startups How do you protect your ideas? Patents and trade secrets. Road Map - The Idea (or the question) - What kind of IP is relevant? - Things that you should think about when starting. The Idea (our example/illustration for today) - Babcock Grabber (an idea from mid 90s) What are the options? - patents - trade secrets - copyrights - trademarks All should be considered to protect your idea. What is a Patent? - protects products, systems, materials and methods. - almost anything can be the subject of a patent - must consider if it can provide advantages over prior art (is it faster, cheaper, easier to use or build, etc?) remember think broadly. enhance the value of the idea. business methods are even patentable. - patents must be novel, non-obvious, and useful - protection defined by claims as allowed by US Patent Office - Can take 2-3 years $25,000+ to obtain a patent in the US What does a Patent do? - gives the holder a *right to exclude others* from kaing, using, selling or offering for sale anything that the claims cover. **Trade Secrets** forumla, algorithm, business plan or other busness information remains valid as long as it remains secret must take staeps to keep the information secret most famous is coca cola. no filing or registration involved inexpensive **Copyrights** protecting expression of an idea original work of authorship can cover software, manuals, text, graphics, arrangements, or collections of materials, etc. protects expression not functionality **Trademarks** Word, phrase, picture symbol, sound, logo, etc "intel inside" , harley davidson distinguishes goods or services from those of others Selecting a Trademakr - dscriptive, suggestive, arbitratry (considered at a later stage) **What IP is Important?** All of it! Each in it's own measure Patents - increase the value of your company - exclude others from using the inventions - license patent for a royalty - can provide marketing adavantages - may discourage lawsuits or close copies of your products **What to do?** Planning - Do not disclose or attemp tto commercialize ideas before filing for a patent. - Make sure you own what employees and consultants create for you - Document inventions as the occur - Develop a patent strategy - Protect critical commercial products, major technical innovations - study competitors products and patents. You will have legal agreements that will involve intellectual property rights Sample Agreement types - Invention Assignement Agreements - NDAs - Service Agreements - Research / Collaboration Agreements Lunch Break - - - - - - - - - - ###SEVENTH PRESENTATION### Mike Mandel Why am I here? Been writing about technology and economy for 15years. Four Words. The 4 Bs. Boom. Bust. Boom. Bust. No matter what stage you're in, people think it's never going to end. There are almost no mention of technology in most basic economic text books. And virtually no mention of startups. POV of economists, most people in this room are invisible. From an economic perspective, other countries have access to the same technological . But United States has a possitive environments for startups. Entire boom of 90s was driven by ideas and not invesment. If you look at numbers, the rate of investment is no HIGHER than in the 80s and 70s. Interesting. Paradox in a country like the US. For an advanced and mature country, innovation is seen as an unnatural act. Because it is the creation of something from nothing. Verging on economic blasphemy. Cuts the idea that you need to save and the puritanical idea to do not something new. He likes Paul because he encourages people to just try new ideas. From his POV, people who try and do something that might fail, is doing God's work. In the US, people are willing to work longer and longer to get something done. Real reasons why we are working so hard--the ability to work long hours to make stuff right, is one of our biggest advantages. Some dangers. Venture Capital : The role of the VC is not to give out money. Anyone can give money. the REAL role of the VC, is to throw you out if you're execute an idea poorly. OUR job is to keep them from doing that. This keeps everyone working on the ultimate goal. Innovative economies are more likely to have booms and busts. Mob mentality is the appropriate reaction or thing to do. Piling on money is natural. BUT, fallout can happen at anytime and dramatically. Believes we are at the beginning of the boom phase. Economic pessimism is going to start disappating. Don't forget, however, that a bust will always follow. Let's look at China. China is in a Boom phase. We won't see how good of a competitor they are, until they hit their bust phase and see how they deal with it. 1st world economy, 3rd world social structure and Communist gov't. Interesting to see how they deal with a capitalist bust. CISCO - up till 2 months before cisco went public, there was no mention in major publications about cisco. we try to do the best we can, but analysts look through the same fog of uncertainty as everyone else. Questions when do you think china will hit it's bust phase? Next few years. Massive debt in chinese financial system. Things are being built with no competitive reason for it. people are worried about failure of science and education in US. what are your thoughts? don't worry about it. US edge is not technology education. It's people who are driven to make things happen. basically people in this room. people go where the money and opportunities are. in the US, it's not going to change any time soon. what people are really complaining about not that there aren't people who can do the tech jobs, it's they can't hire the competent people for the salaries they want to pay them. What drives the economy forward? New stuff. People willing to do something. And that's basically difficult to do. The core of people moving the economy forward, you don't ever know who these people are before hand. if there's a financial crisis in china, how will effect US? can't predict, because that's a political question. in the US, there was a boom and then a bust. the only market that closed down effectively was the VC market. everyone else is not really doing that badly. what would it take to increase an order of magnitude increase in american innovation? good question. i can read textbooks ... that say i'm spending about the right amount on RD. [lol] basically increase the money on R&D, innovation. preferred political system that speaks well for innovation AND really support it. politicians can control the framework to fuel and stop innovation. don't see limits on immigration will affect the boom. companies will twist arms when they need to. trade deficit is a ridiculous concept. How do you feel software patents affect innovation? Been lobbied heavy by both sides on this, but don't have a really strong opinion. Can give reasons for what's wrong, but no one has an alternative. See any lifestyle changes with this next boom? Real lifestyle problem is people are working too many hours. (doesn't apply to startups because they'll always run 100 hours a week). need to see technology use digital spine to lessen work, beauracracy. that will make everyone happy. - - - - - - - - - - - ###EIGHT PRESENTATION### Steve Wozniak Alright so gets an applause before speaking. Nice. We have a computer inside of us. It's the brain. So he's sitting with nerve problems. Rearrange priorities. As long as you have enough gadgets, your health doesn't matter. Got to have the seeds of innovation. (he's speaking fast) Creativity and usefulness. Creativity - it's a lot of fun, but takes work. We want to do things. As babies we try and learn a lot of things. Direction in life come in the early ages. When it comes to computers, it takes a lot of risk. (ok he's going all over the place...string of anecdotes) when working on a product, you have to have the skills and know-how to put the pieces together. developing skills was accidental for steve here. thought he was going to be an engineer. all he knew was a staff thought. iterated and studying existing computer manuals and making his OWN computer devices better. it was a game that he was competing against not the world, but himself. you have to take a risk. different people have different levels of creativity. story will steve jobs on game called breakout, worked for 4 days straight. long tangent story about colors with computers. ok, back to breakout. games can be software now. if you're not laughing and telling jokes, it's not going to be work out for you. learn about creativity more from jokes. explains why he tells so many stories and jokes. talking about making diskettes. if you put it on chip, most people don't care. but the key to excellence is to have the person who cares how the backends work. better to be multidisciplinary. especially as an engineer. be motivated. keys to motivation is autonomy. be in charge of your problems. getting credit and recognition for what you did. sometimes you need to outline a complete task. the end product. woz biography. uh. you can check out wikipedia for what's going on here right now. might be a book out there. even a documentary. i'm just not writing it here. ok so here's a summary: he made a computer. he was proud. steve jobs came and helped him make money. awesome! had to ethically approach HP because HP owned anything he did. so he met with them and they turned down the pc board idea. awww. apple II. visical. 90% now going to small business. (they thought it was going to be for home). apple III. mistake. chips were in it that disabled features. boo. luckily, they still have apple II. out of time. remember to know your values and then WRITE THEM DOWN. then reread them when you have problems that need to be solved. (standing ovation, paul graham starts it) - - - - - - - - - - ###NINTH PRESENTATION### Mark Macenka (we're out of order...) The Great Value of Avoided Mistakes Mistakes made by entrepreneurs from an institutional standpoint. In the first five years, it's going to be mostly business issues.. Inthe beginning, study and analize the market opportunity, don't underestimate the competition. Environment is so different in current economy and so you can almost never get money from IPO. Unless, you are positive that you can have an auction for your product, YOU HAVE to have a plan to get you to get cashflow positive. Otherwise the competitors are going to eat you out. You have to get to a point where you don't need VC funding anymore (because evaluations will get too high) YOU MUST REMAINED FOCUSED. Must love it. Halitosis is better than no breath at all / cash vs. dilution (much better to build an expense plan that requires less money) Problem is some entrepreneurs focus so much on control that the market passes you by. Sometimes you just need a capital. Small piece of a big pie is something. Small piece of small or nothing won't work. If you have a choice between 1 million or 3 million... take more so you don't waste time always trying to raise money. Forget friends and relatives/ the value of a functioning Board of Directors. They need to bring a good perspecitve and good ideas. So set expectations early on for them. The requirement or failure to solicit stratetgic and tactical advice on business / legal issues. **Capital Structure** (things to keep you up at night) The KISS Principle. This will pay dividends Choice of entity, partnership vs LLC vs corporations (sub S vs sub C) The importance of proper documentation. **IP - Recurring Problems Areas - Do you own it?** Rights of former employers. - IP ownership rights - Nondisclosure agreements - Noncompetition agreements - Nonsolicitation agreements The default is in most states, that employers have the preference in courts on this. Like thinking in the shower about ideas. Rights of consultants in developed technology. (opposite in states about consultants) if you ask someone to come up with a solution to help out, the consultant have some rights to it. SO, make them sign rights to you on this. Rights of sponsors of non-commercial research, such as universities. Joint ownership. (have to figure out WHO owns it, you can license things--but if you don't you will see lawyers who will try to figure it out) Third Party Claims of Infrigement - proprietary code - open source Use open source the right way from the start. You will run into problems. It could cost your valuations to fluxiate by millions. Defective licensing transactions. Lack of adequate trade secret protection. Have your employees and consultants all sign NDAs and etc. Anyone that touches your information must sign something. Be able to say to patent office that yeah, no one knows about it. Can you use it? Can you enforce it? **Founders Issues** - Who owns what? - Who's on the Board? - succession and voting (two founders, venture guys, business guy, etc) - Noncompetition agreements amongst the founders. Not enforceable in california but ARE in massachusets - when it takes two to Tango (remember breaking up is hard to do) (so think about vesting schedule -- typical is four years) sometimes if this isn't stated, VC will change the vesting schedule. so keep this in mind. - transer restrictions - right of first refusal, drag along, right of co-sale, IPO lock-up - other rights of repurchase - I.R.C. Section 83(b) - IRS believes you don't own a stock if you're not vested. then you could own taxes that . 30 day grace period to tax today on everything on what i pay and what it's worth. **Be Prepared** - start organized and stay organized - do it right the first time with advisors who know what they're doing someone in the company has to be compulsive - give corporate and legal matters the same respects as your source code/lab notebooks/engineering documents. How much does this cost to do it right the first time? depends. sometimes people will defer 25% until they get institutional financing. (couple of grand with 3 founders sometimes) - - - - - - - - - - - - - ###TENTH PRESENTATION### Notable Matrix Companies VC or not? -not right in all cases -changes the game (on the clock, spending other people's money) -biggest outcomes tend to be VC backed (65% of tech IPOs of 1990 - 2003 were VC backed Game changes the moment you get in bed with VC. Watch out that burn rate intersects with bank account. Remember, you're spending other people's money ... people will watch over you. VC helps people make big companies. It has to do with the money and with the connections and experience to keep you from making mistakes. Seeing a chart of VC fundraising 1980 to Present. (hmmm contradicts with Mike said about amount of investing taking place in the 90s. it goes through the roof) Raising money is relatively easy. But sometimes you can get money from the wrong person for the wrong idea. Most VCs are pretty much new. **Which VC?** "unified theory of VC suckage" very small number of VC are associated with the overwhelming bulk of the successful companies make the decision with a lot of care --can't study forever, but think hard. Last thing to think about. Money gets to be put on multiple squares when you're a VC. But us, we only get one square usually. Be realistic when choosing from 4000 VC firms. If you got to ten firms that are smart, and they said it's a bad idea. sreiss@matrixpartners.com as far as VCs stealing people's ideas...doesn't really happen if you go to good VCs. also the stories circulate on the internet...but he's never heard of that happening personally. there are no garuntees in life, but honestly it just can't really work because ususually ideas and people work together. the best people to implement an idea are the ones that are the most passionate about it. for the most part, entrepreneurs have an itch and they like to work on their thing, having other people work on other ideas, often it just doesn't work. break. - - - - - - - - - - - ###ELEVENTH PRESENTATION### Stephen Wolfram. Dude sort of looks like George Castanza. Story of Mathematica. Stephen wanted to be a physicist. Didn't really want to start his own business. Using C to build math program. He's a scientist. People who were business fellows made some mistakes. He got frustrated. He took over. No longer just an academic. Now a business man. Basically made his own tools and used them to do his own research. Mathematica is actually company #2. But, what happened to the science? He started pointing his software (like a telescope) and discovering a lot of new things about computational things. Then wrote a book. Big book. Product spot for his book. Picture of a fractal. Now he's building more tools. Mathematica is great. (dude, a room full of startups. where's the lesson?) oh, be passionate about what you do. hire good people because it helps. if things need to be organized, stephen has to do it. if he doesn't, something goes wrong. be sure to delegate with understanding, if you don't things get messed up. oh, on his time everyone creates things. nothing purely managerial. ok, end of his story. Should we be doing these kinds of things? (these = business?) People do these things for different reasons, but you have to really care about it. And if you're the one who cares, you're the one who should be pushing it. Can't delegate core motivation. Make plans for people drifting apart. At his company, not a single person with a MBA, has succeeded in his company. (lol, i guess) Need a long time scale to make a successful company. Writing a detailed business plan is pretty useless to Stephen. Now, making a good plan can show that they have good thinking skills...but Takes hard work to build things. Business is sometiimes contradictory. Other cliches. Stephen is also in a sort of startup phase. Looking for good entrepreneurs. To build off of mathematica. Mining of computational universe will be a trillion dollar industry. Might be the greatest industry ever. Is that so? Looking for a meta startup to fund and help him make money. mention one of his startups: customized music mined out of computational universe. cell phone ring tones. deep science combined with frivolous consumer need. tones.wolfram.com amazed that this stuff works--even though his science says that it must. note to self: discover science for own self. Questions: If we think there is a single set of rules for everything, does destiny exist? Is there a creator? Just a bit about this, then business questions. Even though rules ... came up with a term called computational irreducibility---simple rules can lead to complexity. wait, that's his thing? i thought that was chaos theory decades ago. mm hmm. look into this later. what kind of perspective do you need if you want to keep your company private (and not public or acquired)? have a strong, financial motivation to be able to maintain it for the long term. You wrote off MBAs, do you see any place for business people at the early stages of a startup? Useful to talk to people, but the formulaic studies to figure things out tend to be counterproductive. How do your find employees? Gosh, receives 12,000 resumes each year. More interested in finding interesting people rather than finding people to fill positions. YOu have to understand the person to see how they will fit in the culture of your company. Prefer clear thinking, focus on GTD and nonpolitical person. Choosing people for technical merit alone tends not to work out. - - - - - - - - - - ###TWELTFTH PRESENTATION### Did I spell twelve-th right? F? No F? Can see Chris and Ryan getting angry for making too many jokes. Ok. Serious now. Hard core here on out. Promise. Shepard of straight thoughts. This is Chris Sacca, one of the guys in charge of acquisitions. Fascinating how many powerbooks there are in this room. Story of Larry and Serg. Photo of them in garage. They upgraded from dorm. They just focused on hacking. For years, they didn't worry about making money. **Cheesy advice: JUST START.** Have a list of things you think are most important. Shows a funny slide. **Focus on User Experience** What do users want? **Just solve user problems** Organize the world's information and make it universally accessible and useful. (they take every word of that to heart) gigapixel picture. 1000 megapixels. - when you organize information you see details you don't realixe existed yet. 5 million terabtyes out there. google has about 170 of it. good start. **Go big** best approaches are large platform approaches. providing our services requires vast computational resources. too many startups waste time trying to duplicate google's power. **Cheap to Demo!** if you build software for google, they'll probably have to change it anyway...almost completely, so just get a demo going. acquisition is bought for talent. no amount of machines or money can account for talent. peopel forget that geeks run this place. **We owe our success to our people** And the lawyers sit across the street. They're job is to keep all the **Geeks rule, don't be ashamed** **Secret Sauce** Best engineers, with best equipment attack world's biggest problems. Extraordinary accomplishments deserve extraordinary awards. They give restricted stock options for good ideas (worth millions of dollars). Ok, now we're seeing job employment pitch. 401k, laundry, food, etc. These benefits pay itself over and over again. Dinner is when cool things happen. Charlie the chef was the 40th person hired. Not the thousandth. **FOOD is important** every friday, everyone gathers together in one room. they go over the week's accomplishments. all of them. and then introduce every new employee by name. and then larry and serg gives time to answer any question answers asked. and then they'll explain why they do whatever. but they'll even say when something is bullshit. transparency is important and it is honorable and so it helps entire atmosphere to maintain motivation and integrity. **Be Open** Orkut is done with .NET and it's very slow. and so they believe heavily in open source. in this room are a lot of people who will build companies that they will probably buy. so they want us to come to them earlier. they'll hire us and even give a few million dollars to use their amazing resources. don't build a company that just builds a feature of another company. that's a waste of time. the world thinks we're doing everything. well do only way we can do that is if we you contact us and help us do everything. sacca@google.com (send ideas and check out blog to see the best way to present idea to him) google maps was four people who came in by acquisition. Questions: orkut built in 11 days. .NET allowed to build fast and google tried it. unfortunately, .net just doesn't scale well even with sql server. so they prefer technologies that scale. why no google presence in boston? actually there is a guy here (Rich Miner) who came to google by acquisition and looking for people to work for him. may or may not be doing in boston. (email miner@google.com) how do you evaluate companies? ask to look at product and see if it works. don't look at code the first time. remember, demo is important. they acquire passion to build something cool. what is a cool technology? something that solves of a user problem. housingmaps.com paul figured out the craigslist gmap mashup. he solved a problem, and so they acquired him. nice. google is great at building scalable platforms for people to build off of. IE. googletalk. people focus too much on the client. they don't want to build emoticons. they want to build the backend that allows for other people do amazing things with it. game developers are building google talk into their games. so the API stuff people are doing is great. future is there and google follows through. - - - - - - - - - - - - ###THIRTEENTH PRESENTATION### A Random Walk Through Space Computer science professor at Georgia Tech (found SmartLeaf) **People** Choosing your co-founders - Think of it as if you were getting married. Bad Choices - When it's not working out, don't hope for the best. **Stock and Options** Exponential tail-off: - Founders: Papal landgrant sized blocks - First 10 people small interge % - Everyone else: missed it (sorry) There's no shame in talking about money and options Distrust management that isn't open about allocations. Your're not doing this for fun. You're doing this for money. Possible alternative reason (you're a revolutionary.) But you can't do revolutions without healthy revenue. **VCS : Souless agents of satan or just clumsy rapists?** Inferred character traits - technical depth - managerial executive experiecne - unafraid to be contratrian - nevers of steel , can handle risk This is , empirically, wrong, on every point. Hey their interests are at least partially alrigned w/yours. WRONG. Sometimes, their interests aren't even self-aligned. (sometimes you need them, sometimes you don't) **Attitude** Failure is part of the process. There wil be pain. "Thank you for what you have taught me." (what you say at end of every judo match) Easy to say; hard to do. When you accept it is part of the process, then you won't be so hard on yourself. Have a high tolerance for feeling like a moron. - can you handle permanently residing outside your comfort zone. Boils down to having courage. Accept that you are occupying an extreme niche. You're a loser until you're a hero in a startup. You will spend much of your professional career a huge loser. Example: Steve Jobs - Huge Loser. Made so many mistakes and problems. And so what makes him special is that he can extract success from failure. lisa -> macintosh newton -> ipod nEXT Step -> OS X Life in academe means learning to manage uncertainty. - A. Newell **Courage** Why shouldn't you do significant things in this one life, however define significant? --R. Hamming Answer: principally, deficit of courage. Recommendations: - Sutherland's "Technology and Courage" - Hamming's "You and Your Research" **Be Stubborn / Be Flexible** Stubborn - You will be told that you are clueless, and too late - You wil have dark days and nights. Flexible - No battle plan survives contact with the enemy. Both stubbornness and flexibility require courage. No battle plan survives contact with the Adobe's original business plan was to do consulting. "Thank god we didn't execute that business plan" - A. Geshke , founder of Adobe **Work** You can only do it if you're motivated or obsessed or passionate about it. I'm not very disiplined; I have to substittute being obsessed. Wake up thinking about numbers, go to bed thinking about numbers. **Stand Where the Ligtning Strikes** Be a place where people want to start companies, ideas , etc Optmize your context: PEOPLE LOCALE CULTURE IDEAS **Dreaming with your eyes open** All men dream: but not equally. Those who are dangerous dream with their eyes own. - Lawrence of Arabia. **Be a technical master** nescape : jim clark - cs professor microsoft : billg is the smartest guy here google : page rank akamai : theory prof and grad student etc **Family man vs warrior monk** age plays a part at 22 you aren't worried about morgage payments. **grad School** A way to immigrate into excellence and find a secret weapon, do reconnaissance. grad school ffriends make an excellent mafia fantastically expensive basically, are you burning to start a business or burning to do science? **learn to write** you can't move the world, if you can't communicate. privacy agreement example (huge citibank example) - basically says that users aren't important, but data is. smartleaf's privacy policy (barring compulsory legal process, we do not release individual information about our clients to any outside parties, at all.) just one sentence. anyone is free to use it. nice. - - - - - - - - - - - - ###FOURTEENTH PRESENTATION### All the little kiddies from summer founders. Are these comapnies successful? How does the founders program work? Fill application. Winter application is out now. Y Combinator helped incorporate and did all the paperwork. No easter eggs. They were free to do whatever they want with seed money. Realized that they want to be like the people they were hanging out with. Personal relationships will suffer. - alexis (nice speaker) infogami - startup is a socially audacious thing to do. it's a lot more work and a lot more fun. even if society shuns you for what you're doing, know that you're helping society. mckale - business guy, not so much a hacker. nobody wants to talk to you if you're a startup. people don't respond. remember, make sure you have someone that is articulate enough to explain product to other business people (engineers aren't the best at this). when people call to cancel, it's not a failure--often it's a misunderstanding. kiko - justin . don't just work with your friends. you want partners who are really smart and hard working and don't know about you but my friends aren't found at that intersection. talk a lot. don't always be on stealth mode. MAKE a demo. People won't believe what you're saying unless you show them. starting a company is like jumping off a cliff and trying to build an airplance on the way down. when you hit the bottom, you've run out of money. so remember to try to build a glider and not a 747. memamp - building a dating web site. Questions: Biggest mistake made? kiko - co founded with a message. co founded as an LLC. that's not good. not analyze competitive landscape properly. sometimes the little guys will surprise you. if you don't know enough about competition, it can bite you. get clear about everyone's motivation. getting a lease in the wrong place. thinking too much about anything. there's always someone smarter than you. it'll be figured out. your ideas are valuable, but don't underestimate the time it might take. also won't if you have a big problem. cut it in half and keep cutting it until you have something that's managable. (these guys are very likeable, very articulate, very smart and very clever...i am thoroughly impressed. didn't want to be, but i am. these are the kind of guys you'd want to hang out with) it's over. and very nice. coolness. might do it next year.