I met with Dave Williams today, founder and Chief Strategist of 360i. Dave’s a very nice guy – I can’t believe I haven’t met him before today. We’ve both been doing the “Internet” thing since it was first commercially viable (I actually go back before that a bit). We also seem to know a lot of the same people. Funny comment that he made that I can definitely relate – he mentioned he’d spent the last several years building his company and traveling a good bit and hadn’t had as much time to do a lot of local networking.
Dave’s got some interesting ideas — ideas that Nolan and I have been exploring — and similar to what Wayt King, Sanjay Parekh and some of the other Big Thinkrs have been also tossing around. Wayt King keeps saying it publicly — and I’ll echo it again here: We need a local Y-Combinator. Or, at least, something that’s modeled in a similar way to that concept.
Atlanta has a lot of entrepreneurial talent – lots of people that have done reasonably well (OK, we’re no Silicon Valley and our biggest wins are pale compared to Google and Yahoo) and are ready to continue to play in the game further. There’s a lot of experience around – and a lot of interesting ideas floating around.
It’s no secret the local angel and professional VC market in Atlanta is in dire straights. The last few years have really been terrible for local angels getting crammed on follow-on rounds by the “last money in”. Well, for the local VCs, they’re almost extinct and what’s left — tired money. Don’t get me wrong, we have a lot of nice people that have wonderful intentions. We need a new game plan. We’re not silicon valley and we’ll never probably be that.
A local Y-Combinator is something that would be interesting. We need a micro-fund that can invest anywhere between $50-$250K in deals — but also invest smart money, time and experience. Time well spent helping build the business with seasoned experts in various areas such as technology, strategy, marketing, legal, PR, etc. The cost of entry for a lot of online businesses is so much lower – there’s really no reason if you put the right pieces together that you can’t launch (or relaunch) a business with this range of money. Sure, follow-on dollars will likely be needed. Or not…. I know a number of cash flow businesses that have less than a handful of people generating >$2-3M per year. All were bootstrapped.
A number of years ago I had the opportunity to launch a business that was not to different than this model – although our results were poor. I was part of the founding management team at eHatchery – Jeff Levy’s venture after taking Media Metrix public in 1999. We modeled eHatchery after Bill Gross’ idealab – which has done rather good and is still in existence today. We tried some things different than what Bill did – which was a result of spending time with him and his team. However, during the dot com bubble, anyone with decent credentials and a half-assed plan could raise money – and lot’s of it. Our approach to fund raising was somewhat draconian – we took between 40-50% equity for $250K plus services. We had a physical facility the companies moved into (and it was sweet, the old Southern Dairies building off North Ave) and we had a variety of services like technology, legal, finance, marketing, etc. We also had incredible parties (all paid for by others) and during the boom – it was the place to be. We called it “Thursday at the Hatch”.
What happened and why did it fail? Well, a number of things:
First, adverse selection. We unknowingly got plans and pitches from entrepreneurs that couldn’t raise dough. The one’s that could that liked us and wanted our cache – well, they couldn’t stomach our term sheets and walked. The others, well, sure – they signed up – they couldn’t raise money anyway.
Second, we wanted entrepreneurs to follow “our model”. We developed a really slick (and at the time, patent pending) process called eCeleration. It was mostly the brainchild of Mike Dickerson – my partner at Vocalocity. Mike had been brought in as entrepreneur-in-residence. At the time, Mike was a successful business person that had recently sold majority interest in his successful apparel manufacturer and was itching to get into technology investing. We had plenty of deals he could play with – especially Figleaves – the famed first portfolio company that had famous parties with NY models. What was both brilliant and destructive about eCeleration was itself. It was a carefully thought out way to build a business – with experience from an assortment of successful entrepreneurs with different experience sets. It was really a guide to making it work – the eHatchery way. Entrepreneurs classically hated it – it was unnatural since it required them to think “inside the box”. Entrepreneurs don’t want to follow a plan – they want to chart new territory – blaze a new path – do something bold and different. If they wanted a model and process, they would have stayed at their day jobs. Yea, makes sense now – huh?
Third, well – the classic Jeff Levy quote that just about killed everyone and was a leading indicator of the times: “You can always get more money, you can never get more time.” Funny enough, after all these years – it was both wrong and right at the same time. Classically a sign of the times, everyone (out)spent money like it grew on trees. The faster you went, the more you spent – and the cycle caused the whole crazy dream to come crashing down. I remember talking with a high-end finance person at the time and we were talking about “how it just seemed crazy how much money was available” and we both concluded at the time: “the world has just changed”. Well, not really – it did, for a brief time, until we all woke up from a drunken stupor and realized we were living in a dream world. Course correction. Today, more than ever, after so many years and several ventures later — I realize that time and speed are important. But, longevity and cash are still king. And, if you have something – you can make it work – even if it takes more time. The vetting process is still important and in some cases, the time-based vetting process separates the “wheat from the chaff”. What I now like to say about the speed issue: “Fail fast”. If you can figure how what not to do and what doesn’t work and adapt quickly – you’ll have much better chance to succeed.
What’s different about Y-Combinator? You need to create value. Capital is still one of the most important parts to getting a business and sustaining one. However, you gotta find ways to create value. Value is different, depending on the composition of the founders. Second, you gotta create a different driver for results. Flashy parties and cool chairs are fun to have – but really unnecessary in smaller companies. Revenue is king. You have to create a mechanism for results – which focuses on revenue first. Creating value, which creates customers, which pay you money – is the single most important part of creating a business in my opinion. The product, technology and team is only important in that context. In other words, if you aren’t always thinking in the context of “how can I create something of value that someone will pay me for (at a profit)” – you don’t have a business – no matter how cool the technology is and how great the resumes of the team are. Results – at the end of every day – is how everyone measures success.
We’ve looked recently at investing in a couple of startups locally. We ended up passing. Mainly because there wasn’t a relentless pursuit of how the company would create value through customer-based revenue. In both cases, it was a “build it and they’ll come and we’ll figure out how it could make money later.” Geez… haven’t we learned anything at all?
So, I’m predicting now – we’ll have something like a Y-Combinator getting going by the year-end. I’m hoping I can be involved at some level — I think it would be fun applying the learning both from eHatchery/idealab and ATDC, but also from the eight companies I’ve started over the years. But, then again, only time will tell.
technorati tags: entrepreneur, atlanta, startup, ehatchery, idealab, ycombinator, venture
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