Startup Camp Starts Up

It started as an idea blogged by two guys and turned into an awesome event at Palo Alto based Vysr, where nearly two dozen aspiring entrepreneurs showed up to share ideas, learn, and teach. Startup folks from as far as Australia unconferenced with bloggers, media folks, and angel investors and angel groups about a variety of topics, such as scaling on a dime, finding angel investors, and pitching a deal. We even had the pleasure of meeting a fifteen year old entrepreneur behind Teens in Tech. The most oft-recurring themes of course were bootstrapping (discussion lead by Mukund Mohan), and angel funding (discussion lead by MR Rangaswami of Sand Hill Partners, Guda of Vysr, and Mark Balabanian of Koders). Between participating in a few sessions, I managed to snap a few photos, which can be found here.

Since the majority of sessions and the preponderance of collective interest were focused around angel funding (post-seed), I put together a 14-point list of learnings for entrepreneurs looking to pitch angel investors:

1. Relationships are a discussion starter. Get to know people with personal relationships to angels, and approach angels through those people. M.R. notes he’s never funded anyone outside his network in 11 years of investing.

2. Mind the basics. M.R. and Mark look for a clear value proposition which stands out.

3. Lose the Hockey Stick. The market size looking big is unimportant, as everyone who pitches investors has a habit of putting up impressive looking “hockey stick” graphs of how the total market is set to explode. Everyone can project a big market – what those kinds of graphs do is make your audience cynical. Savvy pitchmeisters specifically talk about total addressable market rather than total market size, which is received as more realistic.

4. Parallelism. Make sure your personal resume supports what you’re looking to do – investors are investing more in people than in ideas, and they want to know you’re not new at what you want to do.

5. Chemistry. The personality and chemistry is important. An investor’s involvement doesn’t end at funding, and they will be looking for people they can comfortably work with over the next 3-4 years time. Investors will sometimes provide a helpful “kick in the rear” and are keen on people who respond positively and decisively to it.

6. Demonstrate incremental success. They will also look into whether the person makes his commitments over a 3-4 month cycle -about as long as it takes to fund a deal. Even a stray comment can be construed as a milestone. Many a pitch has been blown off by a ballyhooed “we’re about to close a deal with Facebook, etc” pitch which never came to pass. If you’re working on meeting a milestone, alert investors to it only after it’s a sure thing, which make it appear you’re executing effectively.

7. Develop your story slowly. This may sound inscrutable but MR and Mark advise sandbagging to some degree. Giddy entrepreneurs usually make the mistake of showing all their cards as quickly as possible. A more effective strategy is to develop the story during the close process to maintain investor interest in your idea. It’s also important to maintain consistency. If the investor feels like they are being pitched a plan to be followed with a backup plan, then they will get cold feet.

8. Quit your job. Investors will be skittish about funding a startup in which none of the founders are working it full time. Said differently, they are looking for entrepreneurs willing to dive into their ideas without reservations.

9. Teamwork beats heroes. All else being equal, a founding team with well segmented duties will be more attractive to a single founder. While single founders do get funded, an angel will likely inquire why an idea is likely to be fruitful if a founder can’t convince others to join him or her.

10. Keep it real. Investors wade through many pitches and will mentally discount hyperbole with nary a thought. Do not pitch divine inspiration or perfection -be open about weaknesses you’ve identified and have a plan to deal with them.

11. Align interest with involvement. Pitching an angel based solely on the numbers is hubris; there are simply too many unknowns. Make sure to pitch to investors who are interested in your market. For instance, if you’re starting up a social network for soccer fans, then find angels who are soccer fans.

12. Advisory boards. Advisory boards are effective leverage: you pay people in stock and benefit from influencers who will talk about your idea to everyone they know. Adding an adviser is also a great way to mitigate risk of disinterest – advisers who do not want to be involved are usually removed quietly, while board members can not be removed to easily. Mark specifically notes that an adviser who is proficient in marketing wizardry is particularly important, since founding teams are usually weak at promotional savvy.

13. You Have No Secrets. Every angel or VC talks to every single other angel and VC. There’s no secrecy here so you have to pitch the idea intelligently and make sure that you retain value.

14. Put Everything on Paper. Many an internal founder power struggle has doomed a startup to failure. Since clairvoyance isn ot part of the business plan, preparedness has to be. Investors will feel more comfortable with a founding team defining their core competencies and their ownership stakes on paper, along with vesting schedules to each founder providing incentives towards continuity. That last thing an investor wants to see if half the team bail with full vesting in hand shortly after funding.

Thanks again to everyone who came and made the event a success. I look forward to the next such event; we’re hoping to put another one together sometime after the summer. Please drop me a line or comment below if you’re game!

General and contact info on Startupcamp:

Wiki: http://barcamp.org/StartupLegalandFinanceBootcamp

Twitter stream: www.twitter.com/startupcamp

Email: startupcamppaloalto@gmail.com

Startup Camp?

One of the coolest things about working at Socialtext is the openness leadership has with the company as a whole. One example of this in action is the company face to face meeting, where our CEO drove a conversation about venture capital, appropriate goals for a VC backed startup, the implications for stock and stock option ownership. As I watched the room during the discussion, it struck me that this sort of continuing education is valuable in developing future leadership in an entrepreneurial society.

Enter Ross Mayfield’s blog post I read (and he composed) while present in the company face to face about what he calls “Stockcamp”. Since stock ownership is a key driver in silly valley, an unconference for startup stockholders would be a great idea. Extending it to include future startup leaders would be neat also, as there would be some neat synergy in getting together entrepreneurs and people who would work for them in hallway chatter. Three distinct topic areas off the top of my head (and typical questions) are:

Stock and Stock Options

What are the tax implications of stock option ownership?
When is the best time to exercise vested options?
What kinds of stock grants are typical for positions like mine?
What are the implications for foreign workers vesting options?
What are additional grants?

Funding

What’s the difference between angels and venture capital?
What should you look for in an angel?
What should you look for in a VC?
What funding rounds do companies usually go through, and why?
How do I mitigate friction between different investors?
What’s a term sheet and what does one look like?
VCs fund people they’ve worked with before – how do I break in?
What motivates angel and VC behavior?

Operations

How do I structure the organization?
What are common mistakes entrepreneurs make?
What kinds of partners should I look for?
What kinds of people should I hire?
How do I attract the right kinds of people?
How do I find and negotiate the best office space lease terms?
How can I leverage community to build product awareness?

There’s a startup camp happening in March in the UK already focused on entrepreneurs only which is a great idea. I’d like to see it extended to include a wider audience here in silicon valley. Would you join a StartupCamp? Are there any key areas of interest I missed? Please join the conversation below..

Super Happy Dev Chats 2007

I’m to semi-live blog my first trip to Super Happy Dev House in San Francisco. This post will essentially be a “living document” until noontime November 11, 2007, where I’ll probably clean up a whole lot of post rambling and finalize the whole thing with pics. I’ll be updating this storyline in batches (hence semi-live blogging), as sinking my head into WordPress to blog somewhat puts a damper on the cool conversations I’m having. Anyway, here is the stream of consciousness post..

3:15 PM Arrived at SHDH

Ran into 2 “Tims” downstairs and took a pic right outside the location. It looks like Will, who is hosting the dev house, has a really neat home – it’s essentially a big square box with a staircase right in the middle. The exterior kind of has the appeal of a warehouse, which is what this building originally was.

One of the Tims is working on layer 2 security stuff. I’m moving on, as I’m not terribly interested.

4:30 Met John

Ran into Jon Callas of PGP, and had a fascinating conversation about virtual worlds, designing social structures to support the world’s strategic goals, and inevitable scaling issue involved as the world grows. Here’s an impressionistic transcript of the chat:

4:45 Socializing World of Warcraft and similar MMOs

One of the issues Blizzard is having is that they are crafting social structures with input predominately from the 1%ers who are the hard core gamers. This leads to some design decisions where the majority of development team time is spent creating social structures and crafting the experience for places like Blackwing layer, which the overwhelming population of users will never see. The reason most of their time is spent on these people is strategic: one of Blizzard’s primary goals is to elevate gaming to the same cache that professional sports like baseball and football enjoy. While this may frustrate some players who disagree with that strategy, by all accounts they are executing well on their strategy.

Making sure females join your world is absolutely critical for a number of reasons. The women tend to encourage stickiness in a boyfriend or husband, so you get 2 players for the marketing cost of one. In additional, women tend to invite others more often to join them than their male counterparts.

Hardcore gamers are a drain on your system. While they may be loyal, they are also fickle, and use up resources (both technical and people resources). They will also demand an inordinate amount of dev time. Blizzard in particular has huge issues with the gold farmer market – they view it is cheating in the same vein as like using steroids in football. However, their key 1%ers are the ones funding it most of the gold available, and since they want to keep them happy as can be, they’re stuck in a dilema they accidentally created.

5:00 MMO platform decisions

Creating Macintosh clients for virtual worlds is critical to creating stickines, but more importantly to bringing over new players to your new virtual world. The reason is that Mac gamers are overrepresented in MMO communities mostly because their solo game choices are limited. Hence it’s likely a guild can’t bring everyone over to the new game unless Macs are supported, since the odds are at least a few key members will be on Macs.

5:15 Virtual World Economics

One attempt to curb the gold farming in World of Warcraft involves creating daily quests – quests you can only do once a day in certain places. While these rovide an entertaining way to spend time without creating vast amounts of wealth (and hence inflation), there is a design problem inherent in them also. The problem is they provide a reward of a few gold coins, which is not enough to offset the repair bill on damaged gear. Hence, the daily quests basically suffers from the AMT problem.

Fighting inflation in MMOs is a critical problem, which has several well know and easy solutions. For example, City of Heroes entirely eliminates coinage in favor of a skills only system. World of Warcraft intorduces a number of money sinks, like trasportation costs (why does flying on griphons cost money??), gear repair, and nontransferrable gear. The key to creating inflation controls is to make appropriate decisions and be consistent. Many players who purchased the WOW expansion pack were frustrated when they found profession development (armorsmith, tailoring, etc) to proceed slower in the expansion world. Breaking with inflation controls consistency introduces turnover risk.

5:45 Traffic control

One issue Blizzard is facing right now is that the older existing worlds feel like ghost towns whereas the newer worlds are crowded. They have tried to counter the problem by conjuring up specific quest locations in the old world nd creating pointers to them in the new world. However, the flow of traffic is a bit irregular, which makes places either rushed with flash crowds, or makes them feel like ghost towns.

6:00 The Second Life model

Second life is a libertarian anarchy experiment with scalability issues. Linden scaled horizontally as opposed to vertically (EVE online, WOW) so hence these latter ones stack really well.

While Blizzard did a great job at scaling WOW, they also introduced certain rigidity as compared to the consummately flexible Second Life. For instance, Linden Labs allows virtual world participants ot create their own textures and wireframes for physical attributes like hair. Anyone can upload a new design. The problem is, what happens if someone decides to upload a 5GB hairpiece? Linden’s decision to allow user creatable bjects hence places responsibility on Linden for performance, but takes control of that performance way from them. Hence dialup on Second Life is unfeasible.

Blizzard took the opposite approach: all the body types are exactly the same. Your hair is the same t level 70 as it was at level 1 – the world might change, but your hair won’t. However, WOW is playable on dialup and Blizzard can scale well since the only thing which needs to be stored on the servers is an array of data representing each player’s apperance.

The lesson to learn here is it is critical to map out the consequences of design decisions.

Linden provided objects with standard physics movement – dresses flow and weave in the wind and such. People creating their own objects apply these behaviors and end up with flowing hair in a way that seems unnatural. Blizzard created a worldwith the opposite problem. Everyone in a given race the same bodytypeand noone can change their appearance (add a tattoo for example). There is room for a middle ground, that represents an opportunity.

The porn question is a tough one to solve. Certain adults who are welcomed into an online world will inevitably do certain things people will always do things. You can enforce policy disallowing it in various creative ways. For instance, bars only admit 21+ people, regardless of whether there is real booze or not – and private areas allow for more freedom.

PVP decision on virtual world.. creating some degree of ambiguity as to what good and evil is creates all sorts of plot possibilities. While Blood Elves are the prettiest looking race in WOW’s horde, they are arguably the nastiest. The Tauren are different, and the trolls are simply campy. To have allowed the Draenei to join the horde and the elves to join the alliance would have muddled the waters significantly, and spread out the players who would like to explore the dark side, so to speak.

Question to ask yourself as you’re creating an online world: can you buy your way to the top or slog your way to the top?

To have an MMO take off, you have to have a storyboard property. For example, the Lord of the Rings online game has a shared universe and shared vision which binds together the participants. If starting with an entirely new universe, it makes sense to create media which allows potential user base to learn about the shared universe prior to the virtual world opening up for participation.

Best of Bar Camp Block 2007

Bar Camp Block was tons of fun, and huge success if you’re to garner such success from the quality of ideas shared and the amount of drunken revelry involved. Both score pretty high. It was great seeing people come in from out of town, from places like Arizona and Miami. There’s been plenty of coverage of bar camp block from great folks like Jeremiah Owyang, Jordan Sissel, and Kent Bye. I’m not going to reinvent the wheel here, but rather give you a Biz dev guy’s impression of what the two most interesting conversations were at Bar camp.

The Social Graph

One of the most interesting discussions was on the social graph, moderated by Brad Fitzgerald of Plaxo, David Recordon of Verisign, and Joe Smarr of Plaxo. Brad’s article about the social graph. That’s what started this whole discussion.

Here’s the ADD summary: Many of you may have joined a social network like Facebook or Involver. You may also be messaging on tools like Twitter or Jaiku. The problem is each time you join a network, you have to add your friends, associates, and family all over again. And again. And again. And again. Lame.

That’s David over to the left and Brad to the right. You can just make out Joe in the corner too.

Aggregating the social graph allows users to port over contacts and relationships regardless of social network. The holy grail here would be that I can join Linked in, then join Facebook and transfer my contacts effortlessly, while allowing linked in users to send me messages and make changes which I receive in facebook. The problem is biz dev types will be slow to support this idea, simply because everyone interested in profiting from attention loves vendor-lock in. In fact I’ve been told point blank by one person that nobody will ever cannabalize their own market share by introducing free export of data.

This is incorrect for two reasons. First, fencing off you audience almost never works. Even sans-export feature, a more ambitious competitor is likely to provide a means of reconstructing relationships from email or other user supplied data. Just ask any old school AOL exec who was in denial about the emergence of the internet in the mid 1990s. Or ask the people in charge of biz dev for Sony BetaMax. You’re also just a feature away from users feeling it worth while to manually reconstruct their relationships because of a cool new competitor feature. That leads me to the second point: open data ironically maintains market share. Personally, I spend a disproportionate amount of time on one particular social network and check the others from time to time. A social network which allows a tight integration with my favorite portal stays relevant and useful in my mind. I’m far quicker to discard a social net cul-de-sac from my daily routine.

Here’s one example of what this may look like: most of my social activity is on Facebook, but most of my work related activity is on Linked in. There’s no real reason to discard either; this isn’t a crowded space. I like Linked in for business networking purposes as much as I like poking the heck out of people on Facebook. Both become even more indispensible to me if they share data. Which is not to say this leaves us with the weakest of differators in the form of brand equity. Rather, the whole point here is that tall this social graph discussion is simply an acceptance of the fact that one-size-fits-all doesn’t work for social networks any more than it does for Levi’s jeans. The best part is that the technology infrastructure to support this social netowrk mobility is already in place. As is a logo for this, which Brad probably drew in MS Paint:

If you’re a director level or above invididual tasked with any kind web presence strategy, you’ll have to deal with the implications of social networks, and network portability. It’s time to start thinking about this now.

The Crash of Web 2.0, Uh Oh!

Are we seeing a bubble again? What are the leading indicators of an inflection point of growth or market maturity? These were the topics of discussion at hand which Mukund Mohan was good enough to moderate. Basically this was a cool chat simply because anybody who’s interested enough to show up to Bar Camp is going to be interested in this.

The consensus (one I don’t necessarily agree with) is that Web 2.0 applications have hit the point in the product lifecycle where you cross over from research and development to growth.

Some of the leading indicators mentioned were matriculation rates at universities (and conversely, drop out rates), investment capital flowing in (or lack thereof), “mainstream” media attention (a sure sign of maturity), and investment in fiber. The idea here is basically we’ve been through the growth, maturity and decline of Web 1.0, and the patterns which developed back then should repeat themselves unless we proactively take steps to ensure a softer landing this time. And we should. I’m going to leave the details of the leading indicators for another time, simply because I’m going to write a blog entry solely about this topic.

The participants also spent time analyzing the differences between the previous rise of the web, and this turn around. For instance, the first wave required massive amounts of investment in infrastructure than does this wave. Web 1.0 hence was definied by the need for VC capital, barriers to entry for smaller competitors leading to a small number of competitors, and the 80-20 rule defining ratio of infrastructure cost to people cost. This time around, the infrastructure is easier and less expensive to acquire, and so the 80-20 rule this time relates the reverse – namely people costs to infrastructure cost. The result in turn should be a greater number of market players and a much longer shake-out and consolidation period.

Viva La Bar Camp

So my first Bar Camp was tons of fun. If you’re nearby a local Bar Camp and have the opportunity to attend, I highly recommend it. I’m going to try to time my next trip to China such that I can hit the Bar Camp in Shanghai as well – should be a great opportunity to find out how the discussions differ on the other side of the world. I’ll post if I can make it.