Lessons from a Garage

Run for your Money

If Enya needed a hundred thousand square feet of office space, she'd probably find herself at the Pacific Shores Center on Seaport Boulevard in Redwood City, California.  It is one of the most spectacular office parks that I've ever seen. The buildings are beautiful, the grounds are lush and laced with interesting stonework, sculptures and pathways.

From my vantage point that day, it looked like the green glass buildings had risen out of San Francisco Bay. They stood alone on the horizon looking just a bit like a mirage.  It was a beautiful California morning. I was trying to "get right" for my meeting by taking a walk on Seaport Boulevard.

The night before I had been working very, very late. I was tired from coding and irritable after driving through traffic on route 101.  It was no-way-to-be before giving my second pitch to Draper Fisher Jurvetson. The first pitch, about 2 years prior, didn't go so well. Quite frankly, I was still annoyed.

I decided to go casual. I was wearing sandals, shorts and a short sleeve shirt.  Beyond the casualness, there was probably a little rebeliousness too.   Like I said, I was still annoyed by the meeting 2 years prior.

The company's second CEO was Paul Edelhertz. Paul was a great guy - he was fun to work with and highly ambitious.  Paul had flown in from Seattle for the meeting.  His suit was in a bag.  He planned to change just before the meeting - that way, he'd be fresh and wrinkle-free.  He was justifiably put-off when I showed up for the meeting wearing shorts.  He was right, it wasn't a winning strategy.

We were super early.  We had about an hour to kill.  I hate to be early, particularly if I could have spent the time sleeping off my code hangover from the night before. So I decided to go for a walk. I figured 25 minutes out, followed by 25 minutes back would get me to the meeting with plenty of time to spare.

I left the DFJ offices and started walking east towards the beautiful green buildings on the horizon.  The buildings were mesmerizing. I wondered if I could make it all the way to the buildings and back in 50 minutes. The closer I got to the buildings, the prettier they appeared. I wander between buildings, past a very elaborate exercise facility, along a shoreline path.  I noticed that most of the buildings were completely empty. What was up with that?

Then I looked at my watch. Holy shit. There were a scant 15 minutes before the meeting was suppose to start, and I hadn't started back yet. How did this happen? I thought I was being very careful with my time.

To my horror, I realized that I had no choice. I had to literally RUN back to the DFJ offices if I was going to be there on time.  I had about a mile and a half to go.

Reality Fusion's tired, red-eyed, knee-aching, shorts-wearing, grumpy, and extremely sweaty CTO arrived at the meeting just in time. I managed to walk the last couple hundred yards - allowing me to catch my breath.

I sat down the far end of the table.  Paul had been joined by two junior partners.  Paul shot me a "glare of death".  I was a bad, bad boy indeed.

It was the same room that I met Steve Jurvetson in a couple years prior. This time, there was no TV news crew and no 42" monitor.

We waited a minute or two, and then we were joined by Tim Draper.  The man Himself.  Tim sat at the opposite end of the table near Paul.  The meeting started with a technology demonstration.  I fired up our TeamView video conferencing software and invited a few people from Santa Cruz to join me.  I gave Tim a quick tour of some features, and quickly turned things over to Paul.

After Paul's presentation, Tim asked me a couple of questions.  Where did I go to school? I told him I dropped out at Northeastern.  College was really boring. At this point, my legs were crossed and I was leaning back in the chair.  I was waiting for Tim to send us on our way. Paul would be pissed, but hey, there would be other VCs.  I'd owe him one, but he'd get over it.

Tim asked a couple questions about the product.  I answered them as best I could.  I told him that it was just software. Anything could be done with software. All the omissions could be addressed, all the bugs would be fixed.  Nothing to worry about! We have a grand and glorious future planned for the company!

I didn't realize it until weeks later, but during that meeting, we successfully hooked one of the biggest fish in Silicon Valley.  It ended up taking several months of research, negotiation and due diligence, but in the end, after one last psychological hurdle, we were funded by DFJ.

The term sheet was signed during a TeamView meeting that included Paul, Tim, and 20 or so Reality Fusion employees.  Tim (left-most window) held the signature up to the camera so we could all see it. 

It was a super-cool meeting.

Tim Draper joined our board.

-------

When the funding finally closed, we had our first board meeting. Paul worked a couple of weeks mapping the new future strategy for the company.   He was careful to consult with the other board members to make sure his new strategy would be well received.  He presented it during the meeting.  He was proud of the presentation, and eager to lead the company forward.

At the very begining of the Paul's presentation, Tim said he wanted to meet with me in the hallway.  He had some news for me.  Paul continued with his presentation.

It turned out that Paul was going to be replaced by a new CEO that John Fisher (the "F" in DFJ) recommended.  Neither Paul nor I saw this coming. Paul was being replaced because he lived in Seattle and didn't want to move closer to the company's headquarters in Santa Cruz.  It was going to be sad to see Paul go.  He worked hard to raise the money.

After Paul finished his presentation, it was my job to give him the news.  I told him while driving him to the airport to catch his flight back to Seattle.

Jimmy and the Lug

The Big Lug was Reality Fusion's first CEO.  He was honest and enthusiastic with a big smile to match.  He was aggressively recommended for the job by the company's lead investor; Joe Costello.  Joe said he was a "marketing machine" - which was exactly what we needed at the time.

His name was Chad.

Chad liked baseball.  In fact, he was once arrested for running onto the field during a World Series game.  For most CEOs this would be a positive thing - a good thing to feature on one's resume.  But, sadly, in the case of this particular Big Lug, it wasn't a positive thing at all... for he was a Dodgers fan. Oh... but I digress.

Chad and I had been making the rounds in Silicon Valley.  We were meeting with VCs.  Our goal was to raise a Series "B" investment. On this particular day, we were meeting with Steve Jurvetson at Draper, Fisher, Jurvetson (DFJ) in Redwood Shores.

I was Reality Fusion's founder and CTO.  My job at investment meetings was (a) demonstrate the software and (b) answer technical questions. Since we didn't actually talk about the underpinnings of the technology, there wasn't much (b).  Beyond that, most would-be investors didn't care how it worked - seeing it work was good enough for them.  Consequently, there wasn't that much pressure on me during these meetings. I was all about vision and excitement.  I had the easy job.

Chad had the hard job.  He had to talk about things that didn't exist yet. Sales channels, marketing programs, partnerships, revenue, financials, etc. He had to convince investors that he could make things happen.

Chad wanted to hit a home run.  He and I practiced the presentation for several weeks.  We had a great board of directors and some awesome advisers. With these guys' help, we were able to instill the presentation with just the right blend of financial conservativeness and technological audacity.

DFJ was a top-tier VC firm led by Tim Draper - the grandson of General William H. Draper, Jr. - the father of Venture Capital in Silicon Valley.

Steve Jurvetson, well, is Steve Jurvetson!  He was the founding VC investor in HotMail, Interwoven and Kana. 

Here's a picture of Steve standing behind President George W. Bush.  Steve is the 4th from the left, click to make him bigger.

Steve is the Jimmy Neutron of Venture Capital.  He has brains, confidence, good looks and effervescent directness.

You can read all about Steve on the Internet.  My take on Steve is simple.  If Steve invested in Reality Fusion not only would we have the backing of a top-tier VC firm, but we'd have huge validation that the company was on the right track. Furthermore, Steve would be an awesome resource as we moved forward.

To this day, If I could choose anyone in Silicon Valley to have as a VC investor, it would be Steve Jurvetson.

So the meeting with Steve was big.  Huge even. But beyond the shear hugeness of this meeting, I was totally optimistic. Prior to this meeting, we had very little traction.  Most VCs seemed confused - like they didn't know what to make of us.

I thought that Steve would be smart enough and bold enough to understand the full potential of our technology. Where the other VCs seemed confused, Steve would simply "get it".  In fact, I was cocksure of it.

--------

Chad and I were waiting in a conference room at DFJ's headquarters in Redwood City. Their offices were located near a marina - I assumed that one or more partners made it a habit of sailing at lunch, or after work.  I was impressed that DFJ had rejected the Sand Hill scene for these cool, less-than-plush shore-front digs.

Sitting on the conference room table was our mega-huge 42" demo monitor. It can take 20 minutes or so to unpack the hardware and setup the demo, so we had arrived with plenty of time to spare.

While we waited, the receptionist stopped by to check on us. She told us that Steve was running late, he'd be with us as soon as possible.

People have different ways of killing time before meetings.  My particular methodology involved pacing, organizing the mess-of-wires behind our demo computer and looking out the window.  Chad was calmer, and took the time to focus on his presentation.  While I was looking out the window, I noticed a TV news truck pull into the parking lot and park outside.  4 people piled out of the van.

I love to watch TV news crews in action. The equipment is cool, and the whole "on a mission" thing is cool.  It's like being a firefighter, except you can drink more coffee, shave less often, and risk your life a lot less.  The 2nd floor window gave me a perfect vantage point to watch them unpack cases and assemble their equipment.  These guys looked like they were on a really important mission!

Just then, the receptionist came into the room one more time. She told us that Steve was on his way.  Good.  Finally! I was getting really tired of waiting. I looked out the window, and the news crew was gone - leaving the empty van behind.  With nothing else to watch, I sat down next to Chad and rearranged some wires.

After a couple more minutes, there was a faint knock at the door and then we were joined by Andreas Stavropoulos, a partner at DFJ.  While we were shaking hands with Andreas another man with a t-shirt entered the room.  Unlike Andreas, this man seemed totally out of place.  He looked like a roadie from Def Leppard.  Then, I recognized him. He was one of the men from outside the window. He was from the news crew.

He asked if he could film our meeting with Steve.  Wow!  This was exciting!  Apparently, they had heard about our award winning demo, and wanted to film our first meeting with DFJ.  Maybe they knew something we didn't.  Maybe we were going be funded by DFJ - and they wanted to catch the celebration on film.

We agreed, and then the four men from outside entered the room. They awkwardly hunkered down in the corner of the room - a couple of them sitting on the floor.  Perhaps they were afraid of getting soaked with champagne, or maybe Steve was so huge he could only be filmed from a distance.  Who knew?  The two men that were standing had a camera and a boom microphone, one of the two men on the floor had some sort of battery or recording device, and I guess the roadie-lookin-guy was a director or manager or something.

After the crew was ready, we were finally joined by Steve.

After some quick introductions, Steve sat down across the table.  Steve's hands were neatly folded on top of his notebook - he wasn't a scribbler - it was obvious that we had his full attention.

The first part of the meeting consisted of a technology demonstration. Unlike enterprise software, e-mail packages, web site wizards and other hot technologies of the time, our technology was visually exciting - a perfect demo for a TV spot.  I showed Steve about a half dozen applications - waving my hands like a magician. It was one of the best presentations that I ever gave.  Occasional nods of approval from the TV news crew and Steve's smiling face told me that everything was going great.

Then it was Chad's turn to talk about the business.  He was going to tell Steve how we were going to make tons and tons of money. Chad loaded up his Powerpoint presentation so he could deliver his pitch.

I'm not sure how far Chad got before Steve spoke up, but I don't think he got too far.  Steve apologized, interrupted and asked about 4 questions.  Steve wanted raw numbers. How many people will buy your thing? How much will they pay? Etc.

Steve did a quick multiplication in his head and said, "So, based on that, your company could be a $250M business - if all goes according to plan. Correct? "

I could tell that Chad was taken a little off guard. He wanted to give the presentation, it wasn't yet time for Q&A. None-the-less, Chad replied in the affirmative.  I think he said, "Well, yes..."

With that answer in hand, Steve said, "We're not interested in $250M opportunities - we want $1B opportunities".  And with that, Steve stood up and walked out.

---------

Andreas was left behind to deal with the carnage.  He wasn't going to rebut Steve's response, but rather, it appeared his job was to politely and respectfully explain the meaning of the word "no".  Then, he spoke about DFJ, their funds and whatnot.  I think we asked a couple of questions.  I don't know why. At this point the whole conversation was just words.  The words were used to spackle over the enormous crater that, only a few minutes earlier, was our brilliant presentation.

After a little while, Andreas left and the news crew scampered out the door dragging wires behind them.

I didn't watch the news that night.  I had a strong feeling that the whole deal was planned in advance - an ambush that would make an exciting TV spot. "Brilliant, but Ruthless VC plays Hardball with Rookie Entreprenreurs - details after Baywatch".

Afterall, DFJ knew what we were presenting - they had already seen our business plan and the financials.  Like most VCs, they had either heard of our demo, or had seen it at a conference.  They knew it was visual enough for TV. They knew what we were up to.  Would the news crew be there for a maybe?  Would they be there for a "hmm, interesting"?  Would a VC ever say "yes" on TV?  Nah.  None of these things. 

We were there so Steve could say "no" on TV.

--------

Many years later, with different technology, a different CEO, and after a completely different type of meeting, we actually did receive Series B financing from DFJ.  Tim Draper, not Steve Jurvetson, joined our board.

Corsage for Moritz

Finding a VC for your startup is like finding a date for a prom.

In case it isn't obvious from the killer hair-wave in my high school picture, I had no problem finding a date for my prom.  In fact, somehow I ended up with the awkward one-extra-date problem.  I was hoping that one of the two would notice my plaid pants and dickie and dump me first - but sadly, I ended up doing the dumping, with only a couple of days to go.

Later in life, I learned that my paisley charm could help me raise venture capital for my company.

Here is some important advice.

Don't be Pathetic. Remember that you represent an awesome investment opportunity.  You are looking for a financial partner who wants to profit off your imminent success. There are no guarantees, of course, but don't let that dampen your boyish (or girlish) charms.

Don't ask Just Anyone.  Be picky.  Do your research and find a top-tier firm that you'd like to be funded by.  Look for a good match.  For example, if your startup has a hot new virtualization technology, look for a firm that has invested in virtualization.  Then, look at the profiles of the partners and find THE partner that you need to talk to.  VCs usually take board level positions in their portfolio companies.  Find a partner who is on the board of a related company. This person is the person you want to talk to.

Pickiness helps you in many ways.  First, you'll waste less time - both yours and VCs.  Second, the fact that you aren't wasting their time will earn you points with the VC.  Third, your intensity-per-meeting will be maximized.  Finally, if you get a "no", perhaps you'll get a referral to a second or third tier firm. It's easier to work your way down, than work your way up.  So, start at the top!

It's surprising the number times I've met with VCs who agreed to the meeting with no intention of investing.  Sometimes this was my fault, sometimes it was the VC's fault. Remember to keep your targets in mind.

Here are some meetings to avoid:

• Some VCs take meetings as a favor to someone else.  These VCs will listen to whatever you say, and respond with something like, "That's fantastic". Then, you'll be sent on your way.  Not a good meeting.
• If you have cutting edge technology, some VCs will talk to you simply because they are curious.  They don't have any intention of investing.  Like Researchers in Fortune 500's, they can't really help you.
• If you plead with someone for a meeting, surprisingly, you might get a meeting as a favor to you - maybe you twisted their arm in some way.  Again, not a good meeting.
• Sometimes it's just a bad match.  Either the VC didn't screen properly, or you didn't give them enough info to make a wise decision.
• I even suspect that some VCs take meetings simply to increase their deal flow.

Don't be a Loser.  If you want to talk to Mike Moritz, get an introduction and make it happen.  Don't settle for a lesser, ostensibly more approachable source of funds.  Find people who know Mike - maybe they have board seats on the same company.  Meet with these people first.  Sometimes you'll find that your target firm has led investments, and other firms have followed. It's fine to meet with these other "follower firms" as a step towards meeting with your target.  Also, remember that a maybe isn't a no.  In particular, if a VC asks you to do something - like put together a list of competitors, DO IT.

Primp. Dress the part. For those of you who know me, this probably doesn't sound very Barry-like.  But I've seen the error of my ways.  You'll have 15 minutes to make an awesome impression - don't distract the audience with your Hawaiian shirt - just because you're so freaking cocky.

If you consider yourself a non-mainstream CEO, then find some nice non-mainstream clothes.  Wear a funny tie or something.  Tim Draper does.

Be Direct.  Even if your dream-girl had a fax machine, it probably wouldn't be a good idea to fax your "will-you-be-my-date" question to her. Similarly, don't fax your business plan, presentation, executive summary, resume or anything else for that matter to a VC's fax machine.

Every fax machine on Sand Hill Road is either out of paper, out of ink, or conveniently located over a trash can.

Also, don't use e-mail to start a relationship. Once you've met with a VC, it's okay to use e-mail to for due diligence - but don't use it for anything important.

Push for an Answer. Avoid situations where you have to wait for a reply. Sometimes VCs have a hard time saying no. They are sensitive enough to realize that you don't want to hear a no - but not sensitive enough to give you a straight answer.

If you get a no, ask for a reason.  Don't leave until you understand the reason.  Usually they'll say, "it's just not a good fit". Sometimes you might get a real answer though.

If you get a yes, be very suspicious. In my experience, 98% of all first meeting yes's were actually No's in disguise. In fact, the vast majority of immediate yes's resulted in no further communication from the VC.

Maybes are the best answer. This means that your VC is afraid of making a mistake. There are two types of maybes. If he's leaning in the "no" direction, he'll look for someone else to corroborate his "no" - after-all he doesn't want to overlook a Skype-in-the-making. You'll probably end up in a second meeting with one or two other peer-level partners.

If he's leaning towards "yes", he'll either ask for more info, or he will setup a meeting with a junior level "research partner".  He'll look for evidence that he's right before he sticks his neck out in front of the rest of the firm.

Don't give up. Read my story of a "no" that turned into a yes. Remember that homework is one of the the best signs you can get. Be persistent and try to get more than one VC interested in your company.   If all goes well, you'll get a term sheet.

A term sheet is a written acceptance of your prom invitation.  It's non-binding - which means that you can't become a total seedy slouch as soon as you get one.  Continue with your winning ways right up until the closing.   

Afterward, you can start wearing your Hawaiian shirt again.   But don't wear it with a dickie.

Watch out for Lucy!

You have an amazing new idea for a business. But you can't sit in your garage forever, you need to get out there and spread the love!

But who can you trust?

As an entrepreneur, TRUST is one of the most complex issues that you'll face. You need to find investors, partners, employees, in fact DOZENS of people with whom strong personal relationships are paramount.  But really, who can you trust?

Once upon a time, a person who I admired (danger!) once said, "Barry, you can trust me. (danger!) Once the company is funded (danger!), you'll get 8% equity (danger!)". And then, when the company was funded (partially because I elected stayed with the company), the person said that he changed his mind - and that I'd be receiving 1% equity.  When I freaked out, this person said I shouldn't have trusted him in the first place.  He said it was my mistake.

Of course, he was right. Despite his words "trust me", I should never have trusted him. In fact, if you ever hear those words, "TRUST ME" - that's a sure sign that the person is trying to get you to do something that you shouldn't do.  It's a sure sign that you shouldn't trust the person at all.

-----

Lessons in trust can be harsh lessons indeed.  You will look long and hard for people that you can trust. People to be on your side. When you find one, it's a great thing.  You'll feel more relaxed and more confident. You'll feel a sudden surge of momentum - like your startup just took a little leap forward.  But if this person then betrays your trust, you could lose far more ground than you gained.

Not only will you lose your trusted colleague, but you'll lose other things as well. You might wonder if you're a good judge of character.  You might suspect other people as well.  You might reconsider things.  If the betrayer helped with a decision, is that decision still a good one?  If the betrayer worked on something, is that work any good? Are there co-conspirators?  Maybe you slow your forward momentum by seeking justice.  Or worse, maybe you look for revenge.

My advice is simple. Don't get betrayed. Don't be a victim.  Don't set yourself up for failure. Sure Barry, easier said than done. How do I do that?

Here's what you do; Learn about people, and have reasonable expectations.

Are some people trustworthy while others are not?  Well, maybe some people are simply fundamentally trustworthy, but aside from Gandhi or Patrick Star, I think these people are rare.  Instead, I think that trust is a function of people and situations, and each instance can have a different result. After all, people are people.  Situations involving Money, Business, Fame, Success, or Power are true tests for anyone's moral fiber.

Take yourself for example. If you found a sack of money;  $10M in small unmarked bills in a bag plainly labeled "Property of Exxon/Mobil" - what would you do? Would you return it?  How many of your friends would return it? Maybe you'd keep some of it and give some to an environmental charity? Hmmm....  Surely a $9.9M windfall for Greenpeace justifies keeping $100K for yourself! That's pretty honest, isn't it?

Like I said, it's all about people and situations. You should be especially careful dishing out heaping portions of unconditional trust. Here is some HARSH ADVICE from the Chronicles of Reality Fusion.

• Don't trust someone simply because they hold you in high regard.  Listen to their words closely, what do they really want?
• Do not trust someone simply because they offered to take care of you in some way.  It's nice to be taken care of, but don't take the offer itself as an indication of trust.  Be responsible for yourself.
• Do not trust that a beaten path is the right path.
• Don't trust people that you admire, unless you know them really well.  Admiration can get you in big trouble.
• Don't trust people simply because you are indebted to them.
• Don't trust people simply because they appear to be smarter, stronger, older, younger, richer, or somehow better than you.  None of these qualities have any bearing on their trustworthiness.
• Don't trust people who betray other people's trust.  Your time is coming.
• Don't ignore the warning signs.
• Don't let someone shame you into trusting them.  "What - you don't trust me?  What did I do that was untrustworthy?  I've always done what's best for you.  I can't believe that you don't trust me.  Why are you so suspicious?" This is also known as the Charlie Brown Place-kicker syndrome.
• Don't trust out of convenience.  If someone offers to do something for you, it might be genuine generosity, or perhaps you just don't understand their true motivations.  It's far easier to trust someone, than to not trust someone.  Too bad about that.
• Don't expect justice.  No one's keeping score.
• Don't trust out of optimism. Don't even think of using the words "fellow-man".  There are no "fellow-men" - only "other-men" (and women).  Each of them is different than you.
• Don't believe in "free".  The bill is in the mail.
• Don't think you're being "nice" by choosing to trust someone.  Find other ways to be nice.  Send balloons or something.  Sure, Mean people suck, but you don't want to be too nice either - cause you'll get screwed and end up being mean...  and then you'll suck too.
• Don't ignore the man behind the curtain.

Okay, I admit it, that's a lot of "Don't"s. In fact, I have many more "Don't"s that I could share, but I think these are the major ones.

So, what do you do instead?  If you were a super-hero that had awesome telepathic powers, you'd be able to read people's minds and understand what they were all about.  You wouldn't need to trust.  But you're not a super-hero. You're just uninformed. So....

• Learn about people.  Find out what makes them tick.  Find out what drives them.  Set your expectations wisely.
• Learn the game of venture capital.  Learn the whole game.  Read stories of entrepreneurs.  Look for stories of both success and failure.  Understand that investors, board members, advisers all work in predictable ways.  Read the paperwork.  If you don't understand something, don't trust that it's unimportant.
• If you don't truly know someone, you may have to perform a "trust experiment". But pay attention to the result.  After all, "Fool me once, shame on you.  Fool me twice, shame on me".
• Money introduces its own set of challenges.  Keep your eye on the money, closely.  If you can't understand your CFO's financial statement - or if there are accompanying "explanations" - beware!
• Remember that everyone is selling something.
  • If you pay someone for advice, they'll tell you that you need more advice.
  • If you pay someone for legal services, they'll tell you that you need more legal services.
  • If you pay a patent attorney, they'll tell you that all your ideas are patent-worthy.
  • If you pay a dentist, he'll tell you your teeth suck.
  • If you pay a doctor, he'll either (a) tell you that you need more medical care or (b) tell you that home remedies are best - depending on your insurance.

I'm not trying to suggest that you live under a rock.  In fact, by understanding other people's agendas and having reasonable expectations you should be able to work with almost anyone -- even people that you don't necessarily trust.

Trust is like love.  Beyond the feeling is a responsibility. With love it's a responsibility to someone else.  With trust it's a responsibility to yourself.  Can you really trust someone without taking steps see if they are worthy of your trust?

Now get out there and play ball!

Dancing Guy

Please make the dancing man stop!  I just can't take it anymore.  I blame Steve Jobs for this - if it wasn't for those iPod ads, this never would have happened.

Thank you for listening.

Knockers

There are two schools of thought on the 60 hour hyper-productive work week. The first says; wake up insanely early because you do your best work in the morning.  The second says; work super late until you are just too tired to continue.  Then, make up for it by sleeping late in the morning.

While I normally prefer the "get-up-early-approach", the exciting early days of Reality Fusion kept me working later and later at night.  As a result, I'd often find myself waking up after the kids had gone off to school.

One extremely bright October morning, I was woken by someone knocking at my front door.  I waited for Paula to get it.  More knocking.  I kept waiting.  More knocking.  Then, I was faced with the awful realization that Paula wasn't home and I'd actually have to get out of bed and answer the door myself.

Strange and mysterious things happen to the middle age male body when it's asleep.  Fluids shift from here to there.  Eyes get puffy.  Hair stands on end.  Facial muscles go "off line" causing speech to become slurred and drooly.  Personally, I find it comforting to close one eye for a while - because my eyes don't actually line up for 10 minutes or so. 

As you can see, suddenly waking a middle age male body can have terrible consequences.  In addition to the undesirable physical consequences, there is also the horrible "bad clothing choice" syndrome.  This is where you quickly combine some subset of wrinkly yesterday's clothes (usually from the floor) with maybe a bathrobe, or a smock, or an apron, or all of the above.

(mug shots of Nick Nolte and Rip Torn courtesy of various law enforcement agencies)

Katherine Jen was the Founder and Managing Partner of AsiaTech Ventures.  She and her two impeccably dressed colleagues were so excited about Reality Fusion that they decided to arrive a wee bit earlier than scheduled. Our meeting was scheduled for 10am.  She had arrived at 9:15.  My alarm had been set for 9:30.

Of course, I had no idea who could possibly be banging on my door at 9:15 -- I assumed it was a solicitor of some sort, or maybe it was a package. So I Quasimodo-ed my way to the front door.  I was ready to defend the house from solicitors armed with nothing but a bad case of morning breath. I opened the door.  With my one-open-eye I was able to see that I was probably not going to be receiving investment from AsiaTech Ventures.

But Katherine was a good sport, and she waited with her partners on the couch in the garage, while I took a shower and "got right" for the meeting.

The meeting was pretty quick - about 20 to 30 minutes was all it took.  I remember the 3 of them sitting on the couch in front of the workbench -- next to the band-saw.  (This couch and the coffee table in front of it would later become the workplace for one of my employees - but for now, it was my executive meeting room). Wires ran along the ceiling and floor.  I don't know if I gave her a demo or not, but Katherine seemed very impressed with our technology, the garage/office, and the few early risers that she met that morning. It turned out that Reality Fusion received an investment from AsiaTech within 24 hours. And not a small investment either.

A year later, when the company had moved into an old mansion on Mission Street in Santa Cruz, we would receive another on-site visit from another potential investor. Again, he was early.  Again, he invested. And once again, years later, this happened a third time.

This leads me to draw some some important generalizations.

First, on-site visits from potential investors are sincere signs of enthusiasm.  In fact, I think that on-site visits may even constitute a final formality for some investors.  Perhaps they've done all they can do from the safety of their Aeron chair, and now they need to go out and see for themselves.

Second, I believe that investors are swayed by REAL THINGS as much as by PowerPoint presentations and business plans.  If they can see what they are investing in, shake some hands, drink your coffee - they are much more inclined to invest.

Finally, the whole "early" deal might be a way of catching you with your defenses down. It's a way to get a behind-the-scenes view.  They want to know how you handle unexpected circumstances.  I've seen this before, in other circumstances.  So, you should try to be equally early when possible.

Remember, it's important to appeal to both the right and left halves of an investor's brain.  The left half needs to see a good solid plan and lots of detailed financials.  The right half needs to see and feel the opportunity, and believe in the overall vision.

Here's a handy diagram that I made. Feel free to print it out and tape it to the side of your monitor - or put it on your fridge.

   

Mission to Atherton

I was probably 20 something before I realized that UPS drivers weren't actually affiliated with the armed forces.  It was confusing though. After all, they wore uniforms.  They sat up high in big brown military looking trucks.  UPS actually contains the letters "US" - and I had seen the letters "US" on my G.I. Joe stuff when I was a kid.

Today, I was involved in a an important mission - and a UPS driver was about to play a key role in my operational plan.  The target?  Guy Kawaski's gate.  I was parked out in front of his beautiful home in Atherton.  Max and I had learned of his address, and we drove the 45 minutes from my "HQ" in Santa Cruz to get there.

I had just heard from John Meyer that Guy was starting a groovy new company named Garage.com.  Garage had an amazing team, including Craig Johnson, Bill Reichert, Bill Joos, and others.  Their idea was to connect qualified angel investors with prescreened new startup ventures.  As an entrepreneur, this sounded exactly like what I was looking for.  Hence, our mission to Atherton.

But something had gone awry; it was raining!  We were pinned down in Max's truck outside the gate near the shrubs.  The rain threatened to ruin the package that we had put together for Guy.  A business plan, some press material, and Polaroid pictures of my garage - just for effect.  It was then that I spotted the UPS truck.  Max held our position while I made for the truck.  I pleaded with the driver, "Need... Plastic.. Bag.  Quick. - PLEASE!"

With the bag in hand, I made my way back to the Max's truck.

Then, we carefully tied the waterproof package to Guy's gate.  As we made our retreat back to HQ, I nodded to my new buddy - the UPS driver.

-----------

A few days later I met with Guy in the Garage.com offices in downtown Palo Alto.  I was a little nervous - I had a huge amount of respect for Guy and his work at Apple.  I had read a couple of Guy's early books, and had them perpetually open on my desk next to my monitor.

At some point, you could read about the Fujitsu monitor that I had been using to demo my software.  Suffice to say, it was BIG.  In fact, it was way too big to carry up to the third floor of the garage.com offices.  And, of course as luck would have it, there was no elevator.

This forced me to do something you never want to do with Guy. Not 10 seconds after meeting with him, I asked for a monitor that would work with a "PC".  A "Microsoft-style" PC.

I have a vague memory of Guy wincing slightly, and then asking someone else, who asked someone else, who then produced a dusty old 13" VGA monitor from the corner of the office.  The thing was a "beater".

Once I had everything set up - I gave Guy a demo.  Despite the dusty little monitor, the software looked great. In fact, Guy said, "That's the best demo I've ever seen in my life".

In subsequent days I met with the other partners.  I worked with Craig Johnson the most.  Craig was the founder of Venture Law Group.

In October of 1998 Reality Fusion became the first company funded through Garage.com.

Mission Accomplished.

Get Your Freak On

As a founder of a startup company, you should take advantage of opportunities to step outside your definition of "normal". There are at least three good reasons for this.

First, it's fun.  Just the thought of to wearing a "Fund my Startup" sandwich board while walking up and down Sand Hill Road makes me feel all-happy-inside. 

Second it will get you noticed.  And believe me, getting noticed is really what it's all about.  When you are alone in your garage, and you expect that the mere existence of your super-cool idea will cause people to knock your door down, you'll understand what I mean.

Finally, you will find yourself with precious few opportunities in your life to really get out there and get your freak on. So, be freaky today, because tomorrow you might be working for Microsoft.

-------

If you work at a Venture Capital firm, chance are, we've met. You may not remember my face, or my name, but you're sure to remember my monitor. It was really big.

In 1997 Fujitsu had just introduced an awesome new product - it was a 42" Plasma Display.  Resolution?  480x840.  Weight?  About 100 lbs.  Price?  $15,000.

For a startup company $15,000 is a lot of money. In fact $15K for a monitor is just plain expensive no matter who you are.  (with some exceptions, of course) But I really needed one, and beyond that, I really wanted one!

The need part was straightforward.  I needed to demonstrate my software in dozens of meeting rooms for would-be investors and potential partners.  The software used a webcam, and lights had to be turned on for the webcam to work well.  Most meeting rooms, however, were setup with projectors - and of course, you had to turn the lights down so that you could see the presentation.

Of course, I could have brought a small CRT with me - or maybe a laptop. But a dozen people all crowded around a tiny monitor is an ugly scene (especially from behind) - and I wanted my demo to be beautiful!

So, I was faced with a logistical dilemma. I needed some sort of portable mega-display.  So, I called Fujitsu. I managed to get a meeting with the product manager for the plasma displays. After a quick demo, I offered to show off his new super monitor to hundreds of people, if he sold it to me real cheap.

I don't remember the man's name.  But he was one of the nicest people in the entire world! A few days later I had my mega-display.  I think I ended up paying about $5K for it. Less than half retail.  Not bad.

After getting a custom-built 6 foot long giant wheeled trade show case for the display, I was in business. I had insanely cool software on a brand-new state-of-the-art plasma display.

Rounding out our traveling road show was another big case that held a desktop computer.  This whole deal just barely fit in the back of my LandCruiser.

When we arrived for meetings, it was like the circus was coming to town. We would setup the whole deal - usually with one or more curious onlookers waiting outside.  We were especially good at getting the attention of administrative assistants who all wanted to play with the monitor and our super-cool video software.

This monitor was a hugely successful extravagance.  It ended up traveling to dozens of investment meetings, trade shows, partner meetings, customer meetings, etc.  It has been driven, rolled and flown around the country.  Once, I recall my good friend Jeremy, rolling the monitor around downtown San Francisco - across busy intersections, along sidewalks, over curbs, etc.. It was quite a spectacle, indeed!

If I had it to do again, I'd get a couple of giant stickers with the company logo and stick them to the sides of the case.  That way, we'd get free advertising too.

Next startup, I need software cool enough to justify getting one of these.

Demo Yourself

"I'm sorry guys, we didn't find out until you were already on your way. It was a hard decision for them, but the partners decided to pass."

Holy Crap.

Paul and I were in the conference room at Draper Fisher Jurvetson.  This was our fourth meeting. The first meeting was a "get-to-know-you".  The second meeting was a presentation to a few partners. Our third meeting was a Monday partner's meeting (a good sign).

...and we thought we were really, really, really close to getting a term sheet too.

The glum messengers were a couple of interns, each had spent many hours performing due diligence; calling references, competitive analysis, and so on. They seemed to be as disheartened by the whole deal as we were.

When you start a software company, you get used to rejection.  Baseball players are pretty happy with a .280 average. Entrepreneurs should be happy with a .050 average.  Actually, anything better than zero is fine.

Although I had heard "no" before, this is the first time that I had ever been to a meeting where the actual agenda was rejection.  I had received rejection letters a few times.  (Rejection letters are very OLD SCHOOL).  I also had a few VCs simply say, no -- that isn't the kind of thing we invest in, or -- no, we don't see a market.  But most VCs turn you down by simply not getting back to you, or not following through in some way, or they just keep putting you off.

Sometimes it took me a long time to gauge a VC's interest.  Some VCs said, "YES! We'll put a term sheet together early next week" - so naturally I got all excited.  Then, when I called them the following week -- they struggled to remember who I was.

VCs never want to say no, because they never want to cut themselves out of opportunities.

I've grown to appreciate a nice blunt "No -- it's not going to happen.". It saves a lot of time and emotional wear and tear.

This particular rejection was a little strange though.  It didn't have that, "oh -- who were you again?" quality that most other rejections had. This was very personal.  It was very deflating, and it was right there in their offices.

I understood the story about receiving the news a little late and I guess I bought it at the time.

In an awkward situation like this, you don't want to overstay your welcome -- that could make things even more awkward.  But...  I needed to know WHY they were rejecting us. So, I asked.

My company's product was a video conferencing product. They liked it, but said that our "latency" was too high. (Latency is the delay between when you say something, and when the other person hears it). They said that anything over 50ms would make normal conversation impossible. Our latency, at the time, was in the neighborhood of 150ms.  Furthermore, we had been working very hard for many months to reduce our latency to 150ms. I was quite confident that we wouldn't be getting to 50ms anytime soon.

We said our goodbyes, shook hands, and left the meeting. I was pretty angry. They had already known what our latency was, and it hadn't been an issue until now.

Anyhow, after a couple hours, I decided to be "Mr. Annoying Man" and push on this latency issue with them. I was sure that 50ms was a totally unreasonable expectation, and I was determined to prove it to them.

So, I had my engineering team take measurements.  We measured normal telephone lines as well as cell phones. It turned out that cell phones (we tried a few different networks) had latency anywhere from 120ms to 280ms!  This was great news!

We pushed hard for another meeting and got one. I told them about our findings. I also gave them a list of strategies that we could use for further reducing our latency.

Within a couple months, we had our funding.

Looking back on it, I don't buy the we-don't-like-your-latency story.  I think they wanted to see how we'd handle rejection. They wanted to see if we'd succumb, or if we'd battle back.

So... my advice is this. When working with VCs, look for opportunities to demonstrate all your best qualities. Demonstrate persistence, ingenuity, integrity, and attention to detail in the way you act, and in the things that you do. Don't just say that you are an awesome entrepreneur -- BE an awesome entrepreneur!

Important Considerations

Here is a calculation that I perform every now and then just to see how long I've been a computer geek.   I bought my first computer in 1979.  It was a Heathkit H-8.   I spent about $650 for 48K of memory.    The computer I'm using right now has 1GB of memory.

1GB of memory at 1979 prices would cost $14,199,467.

Here's another one.   Back when a computer screen was 24x80 characters, people used "listings" alot.   A listing, for those of you who don't know, is a text file printed on a single sheet of extremely long fan-fold paper.  Staples, for example, doesn't sell fan-fold paper anymore.

Anyhow, printers would typically print 6 lines per inch of fan-fold paper.

I would then figure out, if my computer was a car, how quickly it would go if it were processing assembly language instructions at 6 per inch.

My H-8 had a clock speed of 2Mhz.   An "H-8-Mobile" would then go 32 miles per second.  That's Maine to California in about a minute and a half.

The computer on my desk?   It would go 47,385 miles per second.   Or about 1/4th the speed of light.

--

Photo courtesy of University of Washington - Earth and Space Sciences.   Click here to go there.