Startup companies that we review often give us product roadmap and targets that are so outlandish and almost too-good-to-be-true. It is no surprise that in investing, you are somewhat trying to predict the future. “Can this company do it?”
One Managing Director I work with summarizes it best, he usually thought about this for a second, and then shrugs, “Who the fuck knows?” Then he continued, “We will take what we know today, make sure there is enough value in the current business to cover our investment, and then write these AIDS-curing ideas as an upside.”
Who the fuck knows - there is no point in thinking too much. Take what you have today, make the best decision you can, and move on.
This is an approach that also rings true for the other side of the table: entrepreneurs. In creating a startup, you are experimenting with products and business models. Proving that the product is valuable, and somebody is willing to pay for it, is more important than refining it over and over and over again, which is one mistake many founders make. Andrew Mason, Lesson from Groupon:
Shit that you read all the time. The biggest mistake we made with the point was being completely encumbered by this vision of what I wanted it to be and taking 10 months to build the product, all the while making assumptions on what people want that we then spent the next 10 months backtracking on instead of focusing on the one piece of the product that people actually liked. You’re way too dumb to figure out if your idea is good. It’s up to the masses. So build that very small thing and get it out there and keep on trying different things and eventually you’ll get it right.
Central Desktop for Mobile just launched -
One of our portfolio companies that I manage, Central Desktop, just launched its mobile app. It is yet another validation that mobile is becoming more relevant to businesses. Also interesting to note how Central Desktop takes a pragmatic approach in releasing both native and HTML5 apps. I cannot wait to play around with this for the next few days!
I was advising a couple founders who are building an e-commerce business. One of their worries is the classic “chicken and egg” problem of building a critical mass of sellers before the service becomes valuable for the buyers, and vice versa. Typical. They are building a full-blown business plan. Typical.
My advice was, “Chuck it, get on it. You already have the chickens.”
The “chicken and egg” metaphor sounds so metaphysical that, hyperbolizing the problem, and forcing you to think about a solution, not take action. Let’s face it, you are building Web 2.0, not creating Chicken 2.0. In fact, you already have the chickens (buyers and sellers), you just have to make them party at your place.
The metaphor also introduces a false notion that once you have one part of the equation, the rest would be “automatic” - once you have the egg, then you will have chickens, then you will have more eggs, then… And it undermines the incentive and momentum aspect of the whole process.
Starting a “snowball fight” is a better analogy, because it forces you to take action. Starting a snowball fight is easy. You throw a snowball at one of your buddies, he fights back. You get another person to tag team on him, taunt and laugh at him - it provides him incentive to get more people on his side. And it provides you more incentive to grow the size of your team… and so on…
The takeaway is that there is some value in planning, but not much value in too much planning. It’s better to get started and test whether your plan works. Once your user base grows, most of the time your acquisition strategy will change anyways.
So get on it.
Reply! Acquires MerchantCircle for $60M -
The deal is finally done! It is tough to process at first, but makes sense in the end. Here is a snapshot from Architect Partners:
“Reply! generates revenues by identifying customers who have a desire to purchase local goods and services and selling those leads to businesses with an interest in that customer. Currently, Reply! generates a large proportion of those leads by purchasing search terms or by placing (purchasing) ads on various websites in an effort to attract these consumers. In other words Reply! has to find these consumers at a lower cost than it can sell the leads to interested merchants.
MerchantCircle is strategic to Reply! as it brings 25mm monthly unique consumers who are actively seeking goods and services from local merchants. It also brings 1.6mm merchant relationships who are keenly interested in attracting and retaining customers. Reply! gets both 1) consumers who are qualified leads AND 2) new merchants to buy these qualified leads.”
We went public (PayPal) just before Sarbanes-Oxely and it was very onerous. Once you go public it is a big distraction to staff, they are checking their stock price all the time. If it is down, they are depressed and when it is up, nothing can touch you.
On the day of Tesla’s IPO, I thought that its strongly prohibiting employee from checking the stock price was just Elon’s antique. Turns out not everyone can resist. Moreover:
When you go public your organization is probably working at half productivity. Going public slows you down, you should make sure you get most of your innovation done first. You should make sure, as Meg Whitman once said, that monkeys can run the train, then it doesn’t matter that your productivity is down.
China’s real advantage lies in the ability of solar panel companies to form partnerships with local governments and then obtain loans at very low interest rates from state-owned banks.
Evergreen borrowed two-thirds of the cost of its Wuhan factory from two Chinese banks, at an interest rate that under certain conditions could go as low as 4.8 percent. Best of all, no principal payments or interest payments will be due until the end of the loan in 2015.
By contrast, a $21 million grant from Massachusetts covered 5 percent of the cost of the Devens factory, and the company had to borrow the rest from banks. Banks in the United States were reluctant to provide the rest of the money even at double-digit interest rates.