Venture Capital and how to find, approach and work with VC firms

Panel Participants

Josh Coates, Berkeley Data Systems

Brett Goldberg, Cdigix

Josh James, Omniture

Shawn Nelson, LoveSac (Not in attendance)

David Shappell, Unitus

Tom Stockham, former CEO of MyFamily.com

Devin Thorpe of Thorpe Capital is the sponsor of this session.

Devin Thorpe:  I have been involved with the University  for a number of years.  This is a fabulous educational opportunity for the students and we think that the best and the brightest in the nation are in the room right now.  Thanks for your participation

Josh Coates - Panel Moderator

Tom Stockham

I always wanted to be on the mangement side of technology companies.  I raised money for several companies, including City Search.  Ran Ticketmaster and later wound up running MyFamily as CEO.

David Schappell

I am not the comedian, David Shappell!  First seven years I worked as an accountant, next seven years at Amazon, starting several business within Amazon. Now I work at Unitus.  We work much like a venture fund but for social purposes, using microfinance to alleviate poverty.  I am an amateur podcaster and blogger. 

Brett Goldberg, Cdigix

Our HQ is in Seattle.  I started Cdigix, a digital media company for college company when I was 23.  We just raised some venture capital money several month ago. 

Josh James, Omniture

I started Omniture when I was 22.  Omniture is the largest web analytics company. We tell companies where there traffic is coming from.  We have about 900 high end business customers.  This is about our 4th business model and we have finally figured it out.  $60 million company.  Recurring revenue business, so it takes a while to get the ball rolling, but if you have good retention, it makes it a really nice business.

Josh Coates, Berkeley Data Systems

I did a start up in 99 - we went through 4 CEOs and $60 million until we sold the remaining IP to Intel.  Now running Berkeley Data Systems, an online back up.

Question: What is an entrepreneur?  Do you have be a founder to be an entrepreneur?  Could you be some senior manager and still be an entrepreneur?

Tom Stockham - you can be an entrepreneur in most any postion. They keep being told no, but they believe enough in what they are wanting to build, that they figure the way around the "nos".

Josh James - I am a purist, so I like a more narrow definition of the word.  There has to be a word that embodies the risk and pain of two guys in a garage.  I don't like it being

diluted.

David Shappell - I am impressed with Google at how big they are and how well they are still innovating - I think they have an entrepreneurial spirit.  Amazon, while having an entreprenurial spirit, they are not as innovative.  Yahoo, while similar to Google, is not as innovative.

Question: How come you are not a mid-level manager at WalMart?

Josh James - We kind of fell into what we are doing.  I wouldn't do well where I felt I was stiffled.  I started this in my information services at school and we stumbled into a business.

Brett Goldberg - Entrepreneurs just make it happen.  They are not necessarily the guys who have an idea a day.

Josh Coates - Every single day, someone is saying, "That is a good idea, someone should do that," but then they never do.  Entrepreneurs are people that say, "I think I will do that".

David Shappell - At Amazon, we were brainstorming how we could enhance the online book buying process and looked at the bookstore experience.  Jeff Bezos said, "We can't deliver them coffee, but we can let them browse the book."  A lady in the room protested.  Bezos asked her to leave the room and said for the next hour, I don't want to hear the word no, because the easiest thing for a CEO to do is to say no.

Tom Stockham - MyFamily was a reset - tried to be the next GeoCities and that didn't work out.  In 2001, refocused on subscription services to people that wanted to do research.  I was there for 4 years starting in 2001. 

When I was in school, Steve Jobs spoke and asked, Who here is an entrepreneur?  Everyone raised their hand, Jobs said "Bull----! If you were an entrepreneur, you would be out there right now doing something."  He prodded us to get things done and take a leap.

Too many of us get fixated on if the idea is the great idea.  Getting things done is more important than beautiful ideas.

I was at Ticketmaster and it was new and the business converted into an online business very quickly.  The folks at MyFamily asked me to come on and we took it from a $25 million to north of $150 million business. At the end of a day, getting it done is most important.

Question: What new cool tool are you using to run your business?

Josh Coates - I found myself using a wiki to help my startup and We set up a chat room for my company.

Josh James - We have a lot of freeware.  We raised $70 million in funding and it was mostly spent on servers.  Personally I love X1, allowing me to find old emails and searching all my old attachments.

David Shappell - We have offices and partners around the world and we use Skype to contact them.  We  are using a lot of web services like Salesforce.com.

Tom Stockham - We use quick mockups of services we would like to develop (Adobe Illustrator) before we build them out.

(Editorial comment - ok guys, let's get back to the issue of entrepreneurs)

Josh James - We were not afraid of risk.  The great thing about technology.  Young or old, you can become the expert in that area of the technology because it is so new and just spend a few months at it and you know as much as anyone else in that field.

Brett Golberg - One of the things I am most proud of is that we build a product called cLabs which is a digital distribution sytem for analog video.  We found the niche and it had intrinsic value.  A good technology is one that once you try it, you can't imagine living without it.

Question: How do you deal with the "law of crappy people" which is you start a team and you hire a few people and you get some A players and then some B guys and then the B guys hire C guys and then you wind up seeing your company full of "crappy people"?  How do you fight this problem?

Josh James - We have a no "A**H***" policy".  We try to force our managers to spend a lot of time with a potential recruit.  A recruit will see at least 7 different managers, we bring them in at least 5 times before we hire them.  We spend a lot of time with people in different settings.

Tom Stockham - There are interviewing skills that you need to develop.  There is a difference between getting along with people and being effective.  Know what they are supposed to do and make it clear to them.  You can have real jerks that are incredible contributors to the company.

Brett Golberg - Focus on the great people and get rid of the crappy people.

David Shappell - If I can't say, "This person should be my boss", I probably haven't found the right person to hire.  Amazon tracks who has recommended people and then matches them with that new hire's performance.  Some people are great at bringing in great people and other are not.  The great people are called Bar Raisers.

Q&A from audience

Question: Start ups often hire lots of friends who become the CFO or the COO.  Later when the company grow up, the friends are not qualified to be in their positions and it is hard to let those people go.

Brett Goldberg - I had a similar experience - I put the question to my friend, "How do you think we are doing?" and my friend recognized that he need to go.

Josh James - It is healthy to fire people every now and then.  You lose so much credibility with the good people if you don't fire the bad ones.

Josh Coates - Firing someone is one of the hardest things to do as an entrepreneur, but it is a skill you have to have.  People are everything, more important than technologies or ideas.

Question: Comment on replacing the Founder or keeping the CEO there.

Josh James: I always wanted to be stay as the CEO.  You will not get more passion than from someone who owns half the company.  I always said, I don't think you will find anyone that will do a better job than I am doing.  If you do, I am the first to say that they should run the company.  For most of my team, they have all done it before, so the VCs don't have to bet on them, they are just betting on me.

Brett Goldberg: I wanted to help build a new company, but I didn't have a dream of running a company.  When I met our current CEO and he would do a better job with management and have a better face with the VCs.  I found the guy before going to the VCs so I could control the process.  I made sure that I only report to the CEO and made a clear role for me.

Tom Stockham - I have been a founder that was replaced and I was bitter and angry about it.  I have also been the person replacing the founder.  The biggest mistake people make is companies believe that a new person will come and take it to a new level.  If that new person doesn't have a bigger vision and a better experience of executing, then it is a mistake.

Josh Coates - Hire that new CEO to replace the founder and if he is a dud, he will kill your company.

Question: Several of you started companies when you were quite young.  How did you approach venture capitalists being so young?

Brett Goldberg - We failed.  VCs said, "You haven't proven anything and you have no experience".  We went back and started to build our own revenue and now people are talking to us.

Josh Coates - We think it is easier to get in front of VCs today than back in 1999.  I had to give my presentation 20 times before getting a yes and we raised $5 million.

Josh James - I don't think any VCs are really that interested in seeing a business plan.  They want to see something real, with revenues and then they want to then 10x it.

Josh James - I have been turned down a lot.  We self funded for the first two years with student loans and credit cards.  We got a lot of business advisors and they got a lot of great advice.  We built a lot of credibility with this guy and he was our first Angel.  The next 20 people were all introduced to us by this guy.

Josh Coates - Find a competent attorney that does deals every day to advise you as soon as you have a term sheet.

Tom Stockham - Guard the equity with unbelievable tenacity.  Don't give it out frivolously. 

Everyone has an equity mistake in their background.

Josh James - When you are a million company, you can't attract someone that has worked at a $100 million company.  You need to find someone who has worked at a $6 million company.

Question - In the case of multiple founders, where some put in more energy and some put in more capital, how do you manage that?

Josh James - Alignment of integrity is critical to me to be a partner.  How hard is everyone working?  If both are equally working hard, it is much easier to figure out parity.