“Perseverance is important because, in a startup, nothing goes according to plan. Founders live day to day with a sense of uncertainty, isolation, and sometimes lack of progress. Plus, startups, by their nature, are doing new things — and when you do new things, people often reject you.”
“People think startups grow out of some brilliant initial idea like a plant from a seed. But almost all the founders I interviewed changed their ideas as they developed them.”
Max Levchin, Paypal
Don’t patent software. “I didn’t really want to patent it because, for one, I don’t like software patents, and, two, if you patent it, you make it public. Even if you don’t know someone’s infringing, they will still be getting the benefit. Instead, we just chose to keep it a trade secret and not show it to anyone.“
Find a way to be viral. “We built the system to be viral from day one. The idea was: I can send you the money, even if you aren’t a member. If I send you $10, you get an email saying, “You have $10 waiting for you. Sign up, and you can take it.” That’s the most powerful viral driver there is. Free money available to you.”
On VC behaving badly. “We didn’t have a very good lawyer back then. Of course it was touted to us as “We love you so much that we want to have the right to buy the next round. You can go to other people too. But that’s the one that got us. It impeded our ability to go to another VC. What ended up happening was that we could not get a higher valuation because DFJ wanted to put more money in the company themselves. So any time we would talk to another VC, they would talk him out of it: “This is not a good company, don’t worry about it.” So we were really stuck with DFJ for the next round. They put us down to other VC’s. Of course, that was very early on and now everything is all fine and dandy, but at that point in time… we had a term sheet for a much higher valuation. But when we would talk to any other VC, the other VC would call the guys at DFJ and they’d say, “No, don’t invest in them.” Sometimes they don’t play by the rules.”
Don’t basterdize the user experience. “People would ask, “So, how are you going to make money?” And the whole thing about making money was all those pesky ads. Ads were perceived to be kind of a negative. And that’s the reason why, when there used to be 25 search engines, only 2 or 3 have survived. The others have died because they made their front pages look like Las Vegas casinos as opposed to preserving that simple, clean interface that Google has. I think the strategy that Google took was far better. They earned the trust of the end consumer.”
Good corporate behavior. “But it’s that whole thing I was talking about: Hewlettt-Packard, we’re a community. There was a recession in ’73 and Hewlett-Packard had to cut back 10 percent. Instead of laying off 10 percent of the people, they cut everyone’s salary by 10 percent and gave us one day off every two weeks. So basically they said, “nobody goes without a job.” I like that sort of thing.”
Joe Kraus, Excite
On potential competition from incumbent big companies. “We were too young to realize that existing companies’ biggest problem is legacy. Period. They can’t focus on new businesses because they’ve got to manage their old ones. And so when we moved to web search, it was never clear to us that Verity, PLS, and Open Text wouldn’t actually go and do this. But they couldn’t because they were servicing all their existing businesses and could never invest enough in this new kind of business.”
Don’t be scared. “I see way too many people give up in the startup world. They just give up too easily. For example, we had this VP of marketing that I worked to get for about 3 months. He was the former VP of marketing at QVC. He called me literally the day before he was supposed to move out to California and said, “I can’t do it.” I said, “Well, we’re going to have dinner tonight, so I’m coming out to New York.” I got on a plane and went to New York and sat down with him. And I got really lucky: we’re at the restaurant and we were quiet for a second and you could hear people talking about the Net. They were talking Hotmail and AOL and the Internet boom going on. So I said, “Look, these people aren’t talking about home shopping, they’re talking about the Internet. So your choice is, ‘Do you want to be part of the past or do you want to be part of the future?’”
Why adoption maybe slow. “People who saw it, who needed it, got it. Sorry, no — some of the people who needed it got it. You have to be a person who is able to look at a general-purpose tool and be able to think, “How would I use that to solve my problem?” Most people are not that way. They look for a tool that is being used already for something close to their problem and then understand what it is. Many people who saw the spreadsheet with an example, if the example wasn’t in their field, they couldn’t make the leap. Because they’re not programmers in their mind.”
On selling early. “The business is going through the roof; why are you selling now?” And in hindsight, of course, it turned around. Six months, a year later, the business started crashing. They didn’t get the peak, but they came pretty close. There are some people to whom it’s worth taking the risk, because you risk going for the big one, and, in a portfolio, that’s good. But as they say on Wall Street, the bulls make money, the bears make money, but the pigs get slaughtered. In other words, don’t be greedy. Whether you think things are going up or things are going down, you can make money going both ways. But, if you are piggish, are greedy, that’s when you have problems; you’ll be irrational about that.”
Mitchel Kapor, Lotus
On taking the exit when the window is open. “No, it really wasn’t driven by the VCs. There were a bunch of different reasons — and I wasn’t privy to all those conversations. However, there were a couple of considerations. One, IPO windows don’t last forever. Markets get hot and then they don’t. If you go out, you can only go IPO while the market’s hot. Netscape lit the market afire for us. The other consideration was that we say that one of the ways we were going to have to compete was to acquire companies. The best way to do that was to have a currency other than the cash in the bank — to have a stock to pay people for their companies. So, in order to get big fast, which we thought we needed to do, we had to have a public stock.”
Arthur Van Hoff, Marimba
Patents aren’t very valuable. “It was a patent infringement case, without merit. Patents are pretty frivolous overall anyway. But if you’re at the receiving end of a lawsuit, it can make things difficult.”
Paul Graham, Viaweb
Go with a C-corp. “It was a big hassle because VCs want a C-corp ; any sort of investor generally wants a C-corp because that’s what they understand.”
Philip Greenspun, ArsDigita
Don’t give up board control. “But these guys told me that I have no power because they control the board, three to two, and it doesn’t matter what anyone else says.” He said, “Yes, but the shareholders elect the board. Just have a shareholders’ meeting and elect yourself and your cofounders (or whoever else you want) to the board, and these guys will be back to their two board seats, which is what they bargained for. They have a minority investment. They bargained for two board seats and veto power over certain transactions from those board seats, but that’s all they’re entitled to.”
VC’s have poor reputations. “We took no investments because there were so many horror stories about what VCs would do to you. ArsDigita was the most public one, obviously, of kicking out the founders and then mismanaging the company and bringing in the so-called professional management. “
James Currier, Tickle
sammy@blossomstreetventures.com