A Year in the Life of Seeking Venture Capital

The following comment is from some who spent a year recently unsuccessfully seeking venture capital. It was directed at my post about changes in the venture industry, but it was useful enough that I decided it should be a post itself:

I recently went spent a year seeking funding for an Enterprise Security Software Start Up.

We had a compelling idea. We met with the usual suspects: USVP, Venrock, TPG, Sequoia Capital and a half dozen others.

We had top advisors, Mike Pliner who started Sytek and Verity, and Bill Yundt who founded BARRnet and was CIO of WebTV, and Walter Lowenstern, one of the founders of ROLM.

However, after all of the meetings it became apparent that we were not the “A” team. Our other drawback was that although we had a brilliant founder, he didn’t have the pedigree of someone who has been delivering papers at the RSA conference for the last ten years.

My conclusion is that the VC community is extremely risk averse, unless they are not the first one in the pool. Then no one wants to be left out.

If you want to do a software start up, boot strap it and then go after money once you have got a product. Active Ink which markets a forms product to PC Tablet Users is one such company.

Everyone needs a Mike Markulla or a Bob Noyce on their team. Look even Steve Jobs got funded. By the way, Markulla invested $250k. Arther Rock said he wouldn’t have invested if Mike wasn’t running the show at Apple, whose total initial funding was about $600k.

All in all, this was a good idea that lost the window of opportunity.

By the way I thought the VC community was honest and fair with us. During the dot.com boom, I was waiting for the VC’s to return to sanity which took far too long.

Related posts:

  1. Flexibility in Venture Capital
  2. Geography-Free Venture Capital
  3. Shotguns, Rifles, & the Death of Geography in Venture Capital
  4. Venture Capital? We Don’t Need No Venture Capital !
  5. Is Venture Capital Worth It?

Comments

  1. I have conversations with these failed entrepreneurs every week. Some have lost 6 months chasing capital. Some have lost 12 months. Others lost 18 months or more. The record is 11 years. People just refuse to accept that others won’t give them money for an idea and a business plan.

  2. Mike says:

    Man did this sound familiar. I’ve succesfully gone down “compelling idea unable to raise money” path now six times. The problem is when you’re not independently wealthy or if you are over the age of 25 with a family to support it’s near to impossible to “boot strap” and do a good job at both. Some days I wonder how many great tech ideas that would meet the needs of 30-45 year olds that never, ever get funded. Maybe that’s why we have products that largely (still) require a hobbiest to keep going — and why a product like Blackberry is so successful. Something to think about…

  3. Mike says:

    Oh and I almost forget. “We invest in quality” teams is complete BS. It seems in my petri dish the ones that get funded are PT Barnum-types who believe they are bullet proof. If you’re honest, thoughful and can quickly identify the potential problems in your plan you’re viewed as weak. It would seem one thing a VC would want more than anything is someone they could trust. Oh well.

  4. Chris Marino says:

    My one question for Stan is: What were your ‘Top Advisors’ telling you all this time?
    Were they telling you to stick to it, or give it up? What lessons can be learned from all this? Bootstrap? I think there’s more to it than that. Since I don’t know any of the specifics, I can’t comment on this particular situation.
    However, I can share some of my own experience as an entrepreneur and an advisor.
    When I started Resonate, I faced a similar situation as Stan. Nobody was interested. No one. I was trying everything and nothing seemed to work. Worse yet, I lured a good friend to leave his job and work full time without pay. He was on an work visa and if the company folded, there was a risk he’d have to leave the US.
    On many occasions (at least 10) I thought I had done everything and was ready to give up. I’d go to sleep at night knowing that in the morning, I would have to fold the tent. But, when I woke up refreshed, and in the light of day, I’d realize that there was something I hadn’t done, and I’d continue for another day.
    Well, one of those days I finally cracked the code and got someone who would commit to an investment. On any of those occasions, if I did pack it in, we never would have gotten off the ground.
    So, I’m a strong believer in persistence.
    But it wasn’t only persistence. With each rejection we learned something. Every day we got smarter; about the customer, the technology and the competition. We learned and adapted. That was key.
    Now let me contradict myself with my own advice to an entrepreneur I know. He was in a similar situation as Stan. I told him to quit. You’re done. STOP!
    He was busting his pick on the deal and couldn’t (wouldn’t) recognize that it wasn’t going to succeed in its current form, and none of the alternative paths seemed any better.
    He didn’t want to believe there are some companies that never are going to get funding.
    Like most entrepreneurs, he’s stubborn. He hasn’t taken my advice.

  5. Chris,
    All good questions and excellent comments. Our advisors were skeptical at first. But since I was able to stir up interest with get meetings with partners at USVP, Venrock, and a host of other VC’s with backgrounds in security and with legal help from Orrick Herrington, things looked pretty sweet for a while. We brought in a CEO, Bob Perle, who had been with PlanetAll and got acquired by Amazon. Bob agreed to no pay until the company made a profit.
    We didn’t run into the problem of not having our plan looked at. We got meetings quickly once I had an angel committment from a very well known CEO in the valley. Unfortunately, he backed out about two weeks later.
    I think our inventor will continue.
    I had to evaluate the market. According to the person we spoke with at TPG, there is over $4 Billion invested in over 600 companies in the security field.
    I hope he is successful as I still have an equity interest in the company.

  6. pwb says:

    Stan’s best line is “If you want to do a software start up, boot strap it and then go after money once you have got a product.”
    If I were a VC, I wouldn’t talk to anyone who hadn’t boot-strapped the product yet. This shows that that the entreprenuer probably has talked a few other people into sinking themselves into the product. Shows what the entrepreneur can do with limited resources. Shows that the entreprenuer has been able to raise money from friends and family. Shows that the entrepreneur can create and market a product.

  7. Andrew Fife says:

    I believe the key is knowing how to adapt a vision based on objections from customers, advisors, VCs, and employees. As Chris Marino wrote, the trick is to learn something from each objection. I’ve written a blog on entrepreneurship and stubborness here:
    http://andrewbfife.blogspot.com/2006/01/are-great-entrepreneurs-stubborn.html
    Also worth considering is whether or not you were speaking with the right VCs. You mention some of the top VCs in the valley and I bet they all have security companies in their current portfolios. Did you do your homework to confirm that none of thier investments were competitive? Also, if you were bootstrapping did you have a sellable product? With the exception of rock star management teams, VCs invest in seed stage companies much less fequently than series a. I wonder if a VC like LeapFrog or an angel group such as Band of Angels or Sand Hill Angels would have been more receptive.
    As an entrepreneur I’m really sorry that it didn’t work out and I wish you the best of luck in your next endevor.