Introduction
“Don’t worry about people stealing your ideas. If your ideas are any good, you’ll have to ram them down people’s throats.”
Watch what’s growing. “Fraud was not that big of a problem. It was less than 1 percent — it was really low. But then, if you looked at the rate of growth of fraud, you could see that, if you don’t stop it, it would become 5 percent, 10 percent of the system, which would have been prohibitive.”
On the trade off between safety and dropoff rate. “There are tools to just say, “Give me your social security number, give me your address and your mother’s maiden name, and we send you a physical piece of paper and you sign it and send it back to us.” By the time that’s all accomplished, you are a very safe user. But by then you are also not a user, because for every step you have to take, the dropoff rate is probably 30 percent. If you take the time you’re done with the fourth step.”
Cofounders are good. “Try to have a good cofounder. I think it’s all about people, and, if you are doing it completely alone, it’s really hard. It’s not impossible, in particular if you are a loner and introverted type, but it’s still really hard.”
Sabeer Bhatia, Hotmail
On participating preferred. “This came at a very expensive valuation with certain rights that should not have come with it — like participating preferred, which is they first get their money out and then they participate in the rest, which was OK for the earlier rounds, but not for the later ones.”
Business plans are good. “The general piece of advice, which is fairly mundane and oft repeated, is: make sure you write a business plan because it will crystallize your thoughts to communicate your ideas with somebody else. Second is, don’t try to change user behavior dramatically. “
Steve Wozniak, Apple
Don’t adopt the prior medium. “The second was that nobody knew what the business model was going to be. In fact, Excite really never got the business model right at all. We fell into the classic problem of how, when a new medium comes out, it adopts the practices, the content, the business models of the old medium — which fails, and then the more appropriate models get figured out. For example, all the television programming its early days looked like radio. It was literally the same guys reading the radio program on television, and it was extraordinarily boring. And advertising was radio advertising — the announcer reading the ad. We too adopted the business model of the prior medium, which was print. Cost per thousand impression (cpm) based advertising was how we made money in search, and that was wrong. We never figured out the cost-per-click piece of it. We got too buried in our legacy of cpm based advertising and that’s how we died. Or at least that’s how the Excite piece of business wasn’t as much as it could have been.”
Vinod Khosla is the man. “We had $1 million in the bank and we didn’t know what we were going to bid. We sat down in my office, all on the floor. Vinod said we should bid $3 million. I was like, “How do we bid $3 million? We only have $1 million in the bank.” And he said, “Well, if we win, I’m pretty sure we can raise it, but if we don’t win, I don’t know how we’re going to raise.” And so I thought, “OK, this is really scary.” If you are 22 and trying to make these big decisions, it’s great to have a very active guy like Vinod helping you out. And I mean active. I was talking to Vinod twice a day easily. He’s one of the senior partners at Kleiner Perkins and he’s spending multiple hours a day on my business, which you just don’t get. But that’s Vinod’s style.
Teams over idea. “Venture capitalists, with the exception of people like Don Valentine, would tell you that they’d rather fund a great team than a great idea. The reason is that if they have a bad idea, great teams can figure out a better one. Mediocre people even with a great idea can screw it up in its execution. Or if they have a bad idea, then they aren’t going to be in a position to think about how to change it. They’re just going to pursue it blindly.”
Dan Bricklin, Software Arts
Hitting the right audience. “But, if you showed it to somebody where it clicked, either because they understood the general-purpose nature and could apply it to their own needs, or you showed them an example, like financial forecasting or something that they did, and they knew the other tools in the world, they got very excited. If you showed it to a computer person who didn’t have those needs, they’d say, “That’s kind of cool, but what’s so special about that? I could just do it in Basic.” Now, there were those that hadn’t seen as interactive a computer before, weren’t as aware of word processing and some of the other things, and, when they saw it, it really opened up their minds to what you could do interactively with computers.”
VC are shady. “If the VCs were more transparent and disclosed stuff so that entrepreneurs could make it a choice, that would be better. They wouldn’t have to change the terms, just disclose them and explain what they mean, and what’s likely to happen. But they don’t do that. They see it as a negotiation in which having information that the other side doesn’t have gives you an advantage. It gives an advantage in terms of that individual negotiation, but if you’re trying to form a genuine partnership where you have repeat encounters and you withhold critical information in the first and most important one, you’re undermining long-term collaboration.”
Tim Brady, Yahoo
Fire fast. “We did a first release of the software, which was a really important thing. We hired some executives and lots of great people. We hired some really bad people too — we had to fire somebody in the first year. We had our first lawsuit filed.”
Deals blow up more often than they get done. “So many things can go wrong with deals, and they all do. Before we ultimately got bought by Yahoo, we probably had nine or ten different acquirers that we were talking to, and things always went wrong for one reason or another.”
Mark Fletcher, ONElist
Ask who will be on your board. “So I let them decide, and they chose Greylock and General Atlantic. Which might have been OK, except that senior partners in those firms were so rich that they didn’t want to spend any time sitting on the boards of companies they were investing in. Why should they? They had six houses each and Gulfstream jets to get among all their houses. They were going to the World Economic Forum in Davos. Why would they want to sit at my board meeting? I used to sit at my board meetings, and I would think to myself, “This is my own company and I’m bored out of my skull.” The VCs delegated very junior people to sit on our board.”
Lawsuits. “Then Jin and I went off to California for some reason, on a guy’s road trip to California and having a great time. When we got back to Boston, we discovered that we’d been sued. Me, Eve, and Tracy got sued in Delaware Chancery Court. I thought, “God damn that lawyer, Sam, he lied to me; he told me we wouldn’t get sued!” And I later realized that Sam had been right and wrong. They still had control of the company checkbook. Even after he’d been voted CEO to write a $1 million check from the company checking account to their lawyers so that they could have this shareholder lawsuit without paying for it. This was an unauthorized looting of the company on behalf of one set of shareholders. It was probably illegal, but in Massachusetts it could take years to recover that kind of money. And they figured it’s not going to be a big deal because we’ll still have control of the company; we’ll impoverish this guy with an onerous lawsuit. He’ll never have enough money or staying power to come after us in Massachusetts for looting, and maybe he’ll never find out.”
Joel Spolsky, Fog Creek Software
On fluffing your numbers to attract dumb VC. “I remember saying to them, “Look, in 4 years, we’ll be doing $18 million in revenue with $4.5 million of profit. After that the sky’s the limit. I’m an ex-venture guy; I’m telling you the truth. We can get to $18 million in year 4, and 30 times $4 million is a $120 million valuation for the company at that time. You’ll get 20 times your money. They all told me $18 million wasn’t interesting. And I’d say, “But most people will tell you $50 million, and you know they’re lying. I’m already discounting it because I’m a venture guy just like you are.” And they’d say, “Yeah, but $18 million just isn’t interesting.” So I changed my spreadsheet to say $50 million. And they said, “OK, that’s pretty interesting.”
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