Usually, it would be offensive to be branded as a cockroach. But in this case, it was awesome. Heidi's exact quote was this:
I really believe this company. Part of the reason is because I believe in Daniel and his team. I’ve been able to watch him for couple of years, now. And I know that he has willed this company to survive through bad times, and landed customers. I have so much respect for entrepreneurs who are just like cockroaches. They just do not die.
So there you have it. Great entrepreneurs are like cockroaches, doing whatever they have to do to survive.
Heidi is one of those rare VCs that has spent a lot of time on both sides of the table, first as an entrepreneur, and then as a VC. She's so good at networking that Harvard Business Review did a case study on "the steps she's taken to build and cultivate a network that is both broad and deep". She also takes the time to share her hard-earned lessons from each side to those who care to learn. She teaches a Stanford class on entrepreneurism. And on this day, she and I were doing a joint breakout session on entrepreneurism at a Stanford Graduate School of Business event keynoted by Vinod Khosla.
The purpose of the breakout session was to dissect my startup, Socialize, from my perspective as the founder as well as Heidi's perspective as the VC (she was an advisor to Socialize, so she had a more in-depth perspective than a typical VC would, especially since DFJ was not an investor in Socialize).
If you're interested in getting a behind-the-scenes peek of what the less glamorous aspects of a startup are like, as well as what VC's are really thinking when entrepreneurs come in to pitch them, then watch the videos below.
I broke the session up into two videos -- the first one features me primarily speaking to the Stanford GSB class from the entrepreneur's perspective, and the second one features Heidi primarily from the VC's perspective.
We also talk about Socialize's successes and challenges in detail in these videos. When I did this breakout session, I was actually deep in the process of selling Socialize to ShareThis, but the deal wasn't public so I couldn't talk about it. Due to that, I couldn't give total in-depth answers to the class like I usually like to do. So when you watch the videos, use that additional piece of intel as a guide.
Lastly, here's to finding and cultivating your own inner cockroach. May we all do whatever it takes to survive. As Paul Graham has said, the key to running a startup is often surviving long enough to become successful.
Video #1: Daniel speaking to Stanford GSB Breakout group, with Heidi contributing:
Video #2: Heidi speaking to Stanford GSB Breakout group, with Daniel contributing:
Thanks to Nicholas Hinrichsen, a Stanford GSB student, for putting this breakout session together. He did quite a bit of work to ensure it was a great experience for all involved.
Good one and to underline your prediction about smartphones-when I was at a large shopping center at the apple store-it was the busiest place while the other high end stores were wanting for business.
Here's a transcript of Video #1
MaleSp: So first of all I would like to say thank you for being here tonight. And being with us. I hope you really enjoyed the keynote speech and the introduction to what we’re going to do today. I’m really excited to have Heidi is here, and Daniel. Daniel who is a real good entrepreneur really inspiring entrepreneurial, good to see that. And he is a big fan of Heidi, we did a case study and everybody who’s from DC is going to be excited to be a part of this.
So what we’re going to do today is we’ll ask Daniel to tell us about his company and the challenges he’d been facing. Some of you or most of you should have got the case study that’s in front of you now. If you had a chance to read it because the company you are in, if not Daniel will walk you through what he is right now. And what the challenges are today he’s facing.
The idea of this breakout is to learn a little bit from Daniel, but to truly put you into his shoes and understand what the challenges are like then think about potential solutions, which implies at some time we might break up into groups. I would suggest this is one group, and we would probably split the middle into two groups. Than you guys and we would probably give you a couple of minutes to think about the problem together and come up with potential solutions.
Then we probably call couple of you and we’ll hear from Daniel how to impress them, the problem whether or not he has solved it, or whether or not he can use the suggestion. So without further due Daniel can I please ask you to take the stage?
Daniel: Hi guys, good to meet all of you. Don’t let me interrupt you’re eating, let’s get the priority straight. Eating first and then whatever we are doing will become second. So, eat your mouthful and, you know, somebody calls and you can just finish it.
So I’m Daniel, I’m one of the breed of entrepreneurs which may even seem crazy, and we will talk a little bit about what that means tonight. Really I’m here for you, so the first thing I’d like to do is to pull that little bit and understand why you guys are here, who you are and see what you want to talk about tonight. I think he gave an agenda that we can follow, we can also choose to be little crazy and throw out to the wind and not do any of this.
MaleSp: That’s what entrepreneurs do, right.
Daniel: Right, that’s what we do. We don’t follow any rules at all. So, we just make our own rules. But before we do that what I really like to do is recognize Heidi is also eating here. Heidi is incredible, I understand if you are in the graduate school, or in case you haven’t heard she is as incredible as I think she said she is. So before we just talk about you guys I just wanted to give Heidi to just introduce yourself very quickly and tell us what you want to get out of tonight. Is there anything specific that you’d like to want me cover.
Heidi: Hi everybody. It’s nice to be back here again. I’m Heidi, and I just thought this was going to be a really fun opportunity, because Daniel I have great respect for Daniel, he’s great entrepreneur. I got to know him last year as an advisor to this company, have been doing some things with him and hopefully we will be more working with him soon.
So, I just thought this was fun because the first time we got something done where we have kind of both the entrepreneur and the deadweight right behind them. So I don’t know, I mean this is kind of new to us as well. I think that one of the fun things that he and I been able to do is have a large conversations about, like the way we work is Daniel will figure out straight work, he puts something together and he is very good about finishing something. And then he’ll say that here is the problem I’m having and then we would dialogue about that and come up brainstorming, cross things of each other and I don’t know sometimes we come up with solutions from… So my goal tonight is I think it will be great if we can somehow mimic that activity and engage everyone coming up with many, you know, if we think of this whole room as being everybody is advise Daniel, how can we help him tackle some of the challenges that he’s facing right now. So, I just think that would be fun.
Daniel: To get room full of advises, that sounds interesting, no pressure guys. Okay great. So it sounds like a lot of back and forth, you got me and Heidi here. Tell me about yourselves, you can just tell me raise your hand if you are in GSP, let’s start there. I think there is lot of people who were in other session.
Okay, how about the people who didn’t raise your hands if you could tell me who are you, why you are here just build a little guiding answer to go through the room. Not everyone all at once please. Okay.
Participant: I am here 21 years. I am into selling and buying.
Daniel: I right align with you, so that’s just great. Yup.
Participant: I’m a grad this year and into product design.
Daniel: Very cool, okay so what type of product design is this like industrial car design or software.
PARTICIPANT: Whole thing in software, I’m working for a software company.
DANIEL: So you’re going to be very much in demand, people try to hire you in May, right, is that correct?
PARTICIPANT: Right now.
DANIEL: Right now, exactly. Okay, very cool. Alright who else.
PARTICIPANT: I was working and ready to start moth cloth.
DANIEL: [could not understand] okay great, awesome. How did you end up here tonight?
PARTICIPANT: [could not understand] trade for GC professor, I was a senior professor author and I am dealing with stuff, I feel I kind of revaluate, right (Laughs)
DANIEL: That’s awesome. Stanford’s in your backyard, why not, awesome great. Anybody else wanted to share more? Yeah.
PARTICIPANT: [could not understand]
DANIEL: So your hope is to never work, right? [could not understand]. Okay, very cool alright. Learned people in the room here, yup.
PARTICIPANT: May name is Greg, I’m a cofounder of a company called Transcribe me. And I’m here by way of one of our investors who are also a professor at the university.
DANIEL: Cool, you should be up here with me. You want to do this with me?
PARTICIPANT: No. (Laughs)
PARTICIPANT: I got my share of [could not understand]
DANIEL: Okay, any moment you want to come up please do so. Are there any other current entrepreneurs in the room? Raise your hand if you are an entrepreneur right now. Okay, how about who wants to be an entrepreneur? Raise your hand if you want to be an entrepreneur. Okay, so here’s my question for you – those of you who ended up in GSP, who want to be an entrepreneurs why did you decide to go back to school versus going to be an entrepreneur? I would like to hear from a couple of you. Raise your hands twice, yeah.
PARTICIPANT: As much as you don’t like to hear this, [could not understand]
DANIEL: And in networking, what industry, what you would like to do?
PARTICIPANT: [could not understand]
DANIEL: Okay. Alright, who else? Yup.
PARTICIPANT: I was an entrepreneur in Brazil, and after couple of years doing this I had this feeling we are always doing things on trial and error and figure out. There must be another smarter way of doing things.
DANIEL: (Speaks in Brazil)
DANIEL: Very cool, awesome. One more person who wants to be an entrepreneur but is in school currently. Is anybody else?
Okay, let me just tell you guys what I think being an entrepreneur is all about? Here is how I would sum it up, just like this. Let me put a dollar on the table. That’s a dollar for anybody that wants it.
PARTICIPANT: Thank you.
DANIEL: Okay, take it take it. Okay that feeling that you just had, should I go up, do I get the dollar, tell me why didn’t anybody else get out of their seats to get that dollar?
Ok you’re waiting; you’re waiting to get it. I’m waiting to get the wallet; okay that’s an interesting one.
Okay okay, alright so now I’m going to put a $100 bill then. See now we succeed. So one time you succeed because there’s no fail. But that feeling that you have when you’re like Oh, do I get up to get that dollar, is what being an entrepreneur all is about. Overcoming that feeling being an entrepreneur is all about. And prioritizing, one person said they were eating, prioritizing well you will always be doing something else. Right, so it’s never convenient, believe me. It’s never convenient in being an entrepreneur. It’s a lot of sacrifice, it gets, you know, there’s a lot of romanticizing in being an entrepreneur but just ask my wife, I’m lucky to even have a wife. Entrepreneurs very unlucky in that area, there’s a lot of sacrifice involved in being an entrepreneur. So, for those of you that want to be entrepreneurs but aren’t, that feeling that you had when you were thinking about getting that dollar that’s what you have to overcome every single time, every day years on end being an entrepreneur.
Because no one’s done what you’re about to do, and back to Paul Graham, who knows Paul Graham? Any of you know Paul Grahams?
Okay, if you don’t know Paul Graham, he’s amazing, he’s the founder of Y Combinator, and you guys know YC? And he also writes essays about having an entrepreneurial life, and he has a Venn diagram which looks something like this. This is in one of his essays. These are bad ideas, and these are billion dollar Ex’es, trick is to be right here. And what he’s saying really is that basically every billion dollar Ex is going to look like a bad idea at the beginning, because it didn’t somebody would already be doing it.
Right, and that means by definition as a VC especially they make some of the Heidi can talk to more as we spend time here tonight by definition you have to deal look past those bad ideas, both as a VC who’s looking to invest as an entrepreneur in order to deal with the billion dollar Exes. Paul Graham, great essays, just Google Paul Graham essays if you want to read more of the stuff like that.
Okay that’s my quick intro just on being an entrepreneur. Now that I understand how you guys want to spend the time tonight you’ve got access to an incredible VC, and a guy that’s crazy enough to be an entrepreneur, along with others in the room here. So do you want to do this case study about our company tonight?
Do you want to do just an hour of Q&A, like how would you guys like to spend next hour together. Just general… so I mean if you guys would like we can just talk about what it’s like to be an entrepreneur, the challenges are we have to overcome. What it’s like to fund companies, I’m sure they are just having Heidi talk for an hour with you, very much worth it. So, does that sound good to you guys?
PARTICIPANT: What about if you could tell us what worrying you most of the times? [could not understand]
DANIEL: Okay, we can talk about what’s worrying me as an entrepreneur. Most let’s put couple of ideas, so you had another one. Who is the person who raised the hand? Yes.
PARTICIPANT: Yeah I want to talk about 2 out of 3 questions that are up there, but I want my 1 and 3 is one question.
PARTICIPANT: How to acquire customers and how to modify social, it’s interesting but how to monetize so that you’re making more money than you can park in your car, customers I think is the most interesting one.
DANIEL: Okay, so we are talking about customer acquisition and monetization. You mean mobile specially or just in general?
PARTICIPANT: Mobile specifically.
PARTICIPANT: Generally is fine.
D1; It has an easy answer, the answer is there’s no answer, I know it doesn’t great, but yeah we’ll talk about it. Customer acquisition and monetization in mobile. If you guys can read what I’m writing, Q&A.
What else is there, anything else, yeah?
PARTICIPANT: It will be interesting to see a [could not understand] about joint venture.
DANIEL: Okay, role play with the VC, tries not to be kicked out of her office, okay. Role plays with Daniel, alright.
PARTICIPANT: Is Heidi is your VC on the board?
H1: That was particularly funny by the way.
DANIEL: She’s not the VC on our board, us actually only taken angel investments, and us ever… Okay, so we’ll talk about fundraising in general. Okay, alright fundraising. We’re going to have to stay for couple of hours if we have to discuss through all this, right.
PARTICIPANT: I’m curious about the that dynamic with angel and VC and what would a VC have to show you and tell you [could not understand] like what VC deserve [could not understand] evaluation [could not understand]
H1: Knowing your story, I think it’s a story about give them a timeline for you got the idea, person or money than what is in your ups and downs in the past and what did you learn through taking money that you did?
DANIEL: Okay, alright. Let’s do two more, you had something sir?
PARTICIPANT: So different business philosophies, specifically a premium model where you have high growth in terms of customers versus a high margin model where work might be slower, and is it goes to VCs, and they prefer having more customers come into the door or they have a margin?
DANIEL: Okay, here’s what I’m going to do, I’m just going to kind of lock all these together, there’s kind of like questions with Heidi, right. VC related questions. Go head.
PARTICIPANT: Can you give couple of examples where you had to be using [could not understand] story or [could not understand] where you had to be flexible in your captions? Where you come up with the point how I can use… where you came up really challenge you got to make [could not understand] which way you chose and why? Okay, some examples of that.
DANIEL: So no shame in using the word Pivot, throw it out there. You, last one.
PARTICIPANT: I think it’s a more matter of where you see the mobile industry heading and how you position your startup to take advantage of trends that are happening now and trends that you think that are going to happen 5, 10 years down the road.
DANIEL: Okay, alright I think this; I think we have a plan forming. So, here’s what I would propose tell me what you guys think about this. We’ve got almost exactly an hour.
MaleSp: We actually got twice that time.
DANIEL: Sweet, alright so we can do even more than I thought, alright. So why don’t we start with the general view of the mobile industry seems like some of you in the room are interested in mobile specifically I think that’s why you decided to come to this session versus like Dropbox that’s the name that ever heard of those guys, right. So, we’ll talk a little bit about mobile and where mobile’s going. We can include in that like customer acquisition, monetization and mobile so we hit that first. As we do that I can talk about what keeps me awake at night and pivots that we had to make to go from where we are today. And then we’ll do that like for the first 15, 20 minutes or so; may be half hour and we’ll spend the rest of the time doing VC related stuff, fundraising within the conversation, which we can have with Heidi. Does that sound like a plan? You guys down with that? Okay.
So, let me do this. Let me start at the beginning. I have a blog, I blog a lot. While people think that blogging is hard, but it’s not hard it’s just takes prioritization. And one of the blogs that I wrote was specifically about mobile. So, let me see if I can find that blogs I can show you some stats about it. I think I can, okay here it is. So just to talk a little bit about where mobile’s going. Some stats to get, you know, if you are in business school you know how these things kind of charts and things. You know, there’s a lot of growth this is been happening in mobile, but how many of you seen Python? The old Python movie? Where there’s a guy running across the field.
And there’s a guy guarding a castle and there’s guy who’s running across the field and the guard is looking across the field because the guy never gets any closer and like, they had like three takes and the guy never gets any closer, and all of a sudden he stabs the guard in the chest ‘cause he’s like right there, well that’s where mobile is today. For the last 10 years mobile is been like right around the corner, right but now it’s here, it’s taken a lot people by surprise.
In fact I wrote another blog about why CEOs of fortune 1000 companies need to be thinking about mobile, let me see if I am actually find that link for you guys real fast. So if you want to read this just go to my blog and you can look for it. Just Google fortune 1000 or something like that.
MaleSp: We can send that link later.
DANIEL: Yeah, great. So there’s a great quote by marketing consultant CEO [could not understand] said I wish I could have gone all in and made a bigger commitment on mobile earlier, yes. That’s a little bit of an understatement. Here’s that scene that I was talking about. So in any way I’ve got a lot of text and in other quote is from Eran, the CEO of Boss, he says mobile devices with their small screens portability omnipresence our lives represents the biggest challenge for teaming is for. And there is probably if it doesn’t involve opening a word document and trying to read it, right text according to show us Mike has a question, I can answer it while I was standing in line in a store in 30 seconds.
Now, this is a great example because there’s inherently mobile about boxing companies. The great Dropbox enterprise, there’s nothing specifically mobile about it. And yet everything about it is mobile. And that’s why mobile is horizontal, it’s not vertical. It’s the way that we are going to access our lives. You know, this phone that I carry in my pocket is not just a phone, it’s my access to all of humanity knowledge and it is my digital persona that I’m carrying with me. So for fortune 1000 CEOs don’t get that I actually think that they’ll end up being fired, because mobile is going to be part of us. So that’s a great point about that.
Heidi: I just want to throw just one thing here; this is what I get to do. I get to interrupt while he keeps talking. While I was in a board meeting this morning for a very large news site and we were talking about the fact that, and we were looking at the stats and I just joined this board about 6 months ago. But the CEO was saying that few years ago he said 5 to 10 years from now I bet you mobile are going to be half our business. And this morning the number is, and he said may be year and half ago, mobile is 44% already, right. And so when we think about that, and I know me kind of old school, I still think about browsers and sitting at my computer reading. But even I, you know, get up in the morning and I’ve changed my behavior to using tablets. And so again one more thing to throw in here, mobile to me is two very different things. Its phones and its tablets. And the usage is very very different. But yet if you take those two things in combination, we are seating at least in terms of new sites and things like that that we’re already at, we’re about to pass that 50% point. And so it has dramatic impact on those kinds of businesses.
DANIEL: And one of the great thing about tablets, here I can talk about this stuff all day, stop me if you don’t want me to go deep in this, but one great example of why the tablet is a very big deal is it’s commoditized hardware. You know, the UPS guy used to carry around a Symbol device, you know, very expensive device made by Cymbal to be able to scan packages. Now anybody with a $500 I Pad is cheaper and a square card can process a credit card payment. So, you know, we’ve thinking about mobile in terms of how does commoditize hardware changes and two what extent. Just another example how this is their killer ecommerce devices. Right, so the ability to, you know, purchase on a tablet lot of people feel great comfortable doing that.
Sorry, were you going to say something? I thought you raised your hand for saying something.
Okay, so just some more stats for you guys up here. This is internet access, you can see just the mobile is taking off, one very interesting thing if you draw, I don’t know if you know about this, if you draw like basically if you plot a chart based on the speeds on the iPhone, it went to edge, then it went to 3G, now it’s on 4G. The iPhone is now faster than many people’s home internet connections. Right, you can get very easily 20 MBS per second down, and Comcast in your house, you know might be that fast. And it’s actually an exponential curve from edge to 3G I mean literally exponential curve in terms of speeds for mobiles.
Well that takes away one of the big barriers for us interacting with all humans knowledge on our mobile devices which is that no longer slow. So that’s another reason that it is just popping like crazy.
This is a little bit more about tablets and smartphones if we are saying into PCs, some problems in mobile, CPMs are much lower so for those of you who are in ad spaces CPM cost per thousand, the way to adjectively monetize cost per thousand views. So, you know, 75 cents CPM versus 360 cents on desktop. This is a big problem.
PARTICIPANT: This is still uncertain though, isn’t? All of that is just the how you know to evaluate that.
DANIEL: So it’s actually a lot of it is that it’s much harder to track. And it’s also that the form factor of the mobile devices is much smaller. So there’s an argument that the ad is not as valuable on a as it is on a desktop computer. Conversely CTR is a click through rates, 23 times higher than mobile devices. That might be because people are accidentally pressing on the banner which they don’t know. So it’s very early in this phase.
Right, just in terms of mobile ad forecast, you know, this is we are actually here now. So this is just specifically local, you know, local is always been a big deal. Geo targeting is always been a big deal if you been in mobile you heard about how everyone’s always talking on your, you walk by the Starbucks you get an ad latte as you walk by, that’s geo targeting that’s going to be a big thing in mobile from 5 years ago. The really is now it’s possible with these possible to do things like that, that type of thing is coming and is here.
Little bit more, when we talk about mobile we have to define what we need. So mobile means a couple of different things. There’s what I call this pyramid where at the bottom of the pyramid you’ve got SMS. Everyone kind of discuss SMS right now because it is a simple technology but it allows you… if you have x axis you have distribution, and if along the y axis you have richness of experience SMS has the broadest base. And everybody can receive text messages via SMSes. And then right above that you’ve got web, most phones, and almost all smartphones have very good web browsers, so you got a mobile web experience.
And then at the top of the pyramid you’ve got Apps. Apps are compiled software, all of that debatable. But you know you always hear about apps with the iPhone popularized apps. Apps are hard to make, they are expensive to make, and that’s actually how we got our start by making apps. We made the Washington Post iPhone app. We made iPad apps for Disney and news readers, and we made for Cars.com app. These were $500,000 consulting projects that we were making. This was back in 2008 when people thought apps were just a fact. Now there’s just a Wall street journal about how that is a 25 billion dollar business.
So, you know, there’s a question of in mobile where do you focus your time and effort. Is it mobile web, is it apps, it is SMS? You get a lot more usage and engagement from apps than the web because the experience is better. Does anybody know why the experience is better in app versus mobile web?
PARTICIPANT: [could not understand]
DANIEL: Apps access to the embedded features of the phone which also equals to more speed, right. And App is a compiled piece of software. By app what I mean is, just like Microsoft word is a compiled piece of software on your desktop, an app is actually living and running on the phone. Because it’s living and running on the phone it can access the phone’s camera for example. It can access things that the browser traditionally couldn’t. That’s changing but still apps tend to lead to much more sophisticated and pleasurable experiences for users.
PARTICIPANT: You can trust it with the HTML5 apps.
DANIEL: Sure HTML5 apps use a little bit of mixture of terms. But everybody’ saying that right now. Right and the idea is that in a browser you’re browsing. I will go to a web page and I browse. Well, you know, one argument for apps is that, you know, just like container ships were to wait to move product originally, now an app is a way to package and move digital content. Apps are more monetizable, so I can download an app and pay for it. The big problem that the media companies have been having is with mobile web it’s very hard to monetize. So, now there’s this idea with HTML5 to which is the newest version of HTML, you can approximately experience of native apps on the phone. And in some times you very well can. HTML5 has the ability to, for example access the GPS on the phone so that the HTML5 web page or app knows where the person is. That’s only reserved to only primitive apps. So, not to go too deep into this but first understand when you say mobile you could actually mean a lot of different things is not necessarily even for what these things are.
Like I actually found out today as a very simple user experience that always just works. It’s not about the underlying technology, how software reach HTML5, it’s just that I want to get somewhere I open the maps app. I want to call somebody I open the phone app. I want to email somebody I open the email app. So there is this idea that may be we don’t use the internet in the future which is we just use apps. Yeah.
PARTICIPANT: I’m curious about next generation form factors, namely where you watch in glass or any of the other stuff out there.
DANIEL: Can anybody get me access to like Google glasses? We would love to utilize that. We should have bought one at the conference, we didn’t. Oh man, yeah we are very fascinated and you guys heard about, who hasn’t heard about glass?
Let’s just take a second to show a video about what glass is going to be. Let’s just see what we find, hopefully we may find something out there. Here we go, so I don’t know if we are going to get any audio here, we’ll try but this is what the experience of using Google glass is. For example… cool it’s a video.
So that guy is wearing a pair of Google glasses and according and flying, right. Right we’ll just watch a little more of it. Okay, so you guys get the idea, right. I think it was artificially called it here it is just unevenly distributed, right so literally I think this summer or definitely by Christmas people are going to be wearing this and they are going to be interacting with their surroundings with an extra kind of metal layer, a digital layer where they can do things like things on this video. So yeah we are very fascinated by it and I really believe that one of the things it sets mobile apart from that’s not is that a computer really hasn’t changed that much in the last 30 years, right. The screen and it’s a keyboard. But phones are changing every 6 months, and that’s why when people have this HTML versus Apps debate which you might have heard about it if you are into mobile, where now we say is problem is that we don’t know where the form factor is going to be in a year or in 2 years. And that’s one reason that compels on of course are important so apps are a fact is because the apps are still changing very quickly.
So an HTML is a trailing standard. Yeah.
PARTICIPANT: So you imagine the way you see apps is the kind of the way in the future. I kind of feel like apps are an innovation am contrary to each other because users using and such that any given vertical [could not understand] access through apps on their phone. [could not understand] especially you can try Google play or apple [could not understand]. Is one company trying to work with other app developers [could not understand]
DANIEL: Actually I actually would think the opposite is that there is tremendous opportunity right now and that’s because if I know how to code, I don’t know if you saw when I first pulled up this blog it said managers learn how to code. Because really in this tech industry at least know how to do hello world in some language. But if I know how to let’s say code, you know, just me myself and I can make an app, and I can create something that then could be packaged and distributed to everybody who has an iPhone or an Android device whatever it might be.
Now, yeah sure, like in any industry there’s going to be dominant players and you really have to innovate to get past them. And they might just buy you or let be at your own game if you are not great at it. But that’s not any different, you know, for mobile or apps versus any other industry. So, you know, maybe we can talk more about why you feel that way and I would love to give you, tell me why I’m wrong, because I’m wrong a lot. It’s not a [could not understand] basically.
So but I would have a different perspective. So going off of our agenda just in terms of finishing up the first part which is mobile industry really right now it’s all about Apple and Android, Android is on fire; if you didn’t realize it before just look at the numbers it’s huge internationally. What’s interesting is Apple owns the entire ecosystem so it tends to be a lot friendlier for users so Apple still has a large share of the actual usage. But in terms of handsets Android is just killing it. And, you know, Google’s approach is to fail fast early and often, you know, the earlier versions of Android were not nearly as good as they are now. So I think we are getting to a point now where you don’t have to be kind of a geeky nerd to use an Adroid device. A lot of regular people have started to use an Android phones.
We have blackberries coming out with somewhat interesting BlackBerry time zones. Does anybody here have a blackberry? It’s okay; don’t be ashamed to if you are having it.
I will give you a hug later, I mean its fine. Right, so, you know, blackberry used to be the dominant phone at least some of my peer group 5 years ago. And now it’s iOS and Android. Windows is remarkably absent as incredible Microsoft used to buy industries just like they did it with the browser. But they are having a hard time doing that here which is very interesting. I’d say that they are a dark horse there, but they will have passion to figure it out.
Heidi: Does anyone have a Windows Phone in the room? Anybody?
DANIEL: Okay, that’s impressive. Wow, okay.
Heidi: I just have to say my daughter has a windows phone, and I asked her why, you know? I know why she has it, but she’s talking to the operator well this phone is a... So I said so why do you like it so much?
She shows Mom I just really liked it to support the underdog. And the concept is now Apple is the dominant thing, and now Windows Phone is the underdog and I was like oh my God.
DANIEL: Who would have thought that’s possible? Okay so that’s kind of the industry I lands. Question?
PARTICIPANT: [could not understand] other and what market did those kinds of emerging markets and where is the other?
DANIEL: Well other typically phones like Symbian phones like, nokia phones for example we got feature phones or brick phones that are not smartphones, they are rapidly shrinking, you know, especially in emerging markets lot of times the phone or the smartphone device is the primary digital connection that a person or a family has to the internet. Other people have the smartphone or a tablet. So I expect to see that to continue to shrink. Yes.
PARTICIPANT: What do you think happens [could not understand] that is glass or it’s Apple’s watch or anything. It seems like mobile apps would be a more efficient way that will [could not understand] multiple systems.
DANIEL: I think so, I’ve no idea. I don’t know, I mean glass is such a wild card, it’s going to be Interesting, I don’t even know what it’s going to be to have a lot of apps for that.
PARTICIPANT: You know where it’s very [could not understand].
DANIEL: I don’t, I don’t know I love to know if anybody knows a lot about glass, I just think it’s a super interesting thing to me. So let’s talk a little bit about just point #2 and 3, pivots and what keeps me up at night. So like, you know, I believed in early in 2008 with mobile expecting a sea change, iPhone has just come in 2007 and we started by building apps. And that’s what I had just mentioned to you guys, we built these expensive apps. But then what we realized that not everybody could afford to spend $500,000 making an app, I definitely couldn’t afford $500,000 making an app. You know we built them through for brands that could.
So we create app maker, this is my first product. I’m just curious, has anybody heard about AppMaker? Wouldn’t so you think so. I thought it’s pretty cool, alright. Good, so AppMaker was launched in 2010, we were originally in Washington D.C., and this is what brought us out to SanFrancisco. We got a lot of traction with AppMaker, it’s a way for non-developers to build, you can use it today, and you can use it if you want to make an app on iOS or anything. If you are not a developer you can build it with AppMaker. So it’s a very simple drag and drop process think Dreamweaver from Mobile apps and something like that.
What we found though in building these expensive custom apps and then building tens of thousands of apps for anyone, was an engagement was pretty low. By engagement what I mean is people actually opening the apps up. So what we thought was how we can improve the engagement on the mobile device. And at first we’re going to just fix this by AppMaker, but then we realized we’re trying to fix the engagement problem for everybody. And we sold the consulting firm and we created socialize.
So socialize is a drop in social platform that anybody, any app developer can drop into their app to make it more social. So why would you want to do this? Well, think about it this way. Those of you who got smartphones which I assume are the majority of you is that true, does anybody not a smartphone, who doesn’t have a smartphone? Again don’t be afraid to raise your hands, just curious to know.
Is anybody not, this is amazing by the way. Just think everybody in this room has computational power more than Apollo went to the moon with in a pocket, it’s pretty amazing. So, yeah…
PARTICIPANT: The [could not understand] your first year at smartphone surpassed the [could not understand]
DANIEL: Yeah, I think it passed 50%, we’ll check to make sure if it’s right. Yeah yeah exactly. It was 25% when we first started. And…
PARTICIPANT: That’s only an hour ago.
DANIEL: Yeah, so the engagement problem. Right, how many apps do you have on your phone you never open? Happens to all of us, beautifully like you download this app and then you never open it. And that sucks for the person that made the app, or the company that made the app. So what we realized was every single app, let’s say an app has a million users those people will never want to be friends with each other. But right now they don’t even know who the people are. It’s like a million people sitting in the room with the lights off. Do you know who the other people are that downloaded the same app as you have? Typically you don’t, not unless it’s a social app like a Facebook app or something like that.
So what we realized we could do was turn the lights on in the room and let everyone just downloaded the same app socialize with each other inside of the app. Now, this is not a social app, right. You never want to be friends with everyone who’s downloaded an app about sailing for example. If you love to sail you sure are interested all of those people. And so what we did was we created this drop in framework where we could wrap social app actions around pieces of content to form an interest graph. And by interest graph what I mean is like Amazon comments, like if you make a comment on this product on Amazon.com I might not know who you are, but because I also care about this product you’ve influenced my buying behavior, I might buy this product because of your comment.
Or if you say that a hotel a supervisor has bed bugs I might not stay there even though I don’t know who you are. So that’s an interest graph, I’m not going to be friends with guys per say, but as long as we’re talking about something we both care about then we want to socialize around that product. So what we realized was the content inside of an app is something where everybody cares about if you allow them to all socialize together then we could get people to use more often. And so we created socialize.
So socialize now has been downloaded and used by over 60 million people. It’s in almost a thousand offices and almost 840 apps right now, and you know, it basically allows any app developer to create what instagram did on their own, right. Instagram wrapped social actions around photos; well we are wrapping social actions around any piece of content. So that’s socialize.
So in terms of what keeps me up at night. Honestly when Niki called and he said hey these guys want to do a case study to help you figure business out those are the things that keeps me up at night. So, it’s all the things on this list. How do I acquire customers? I mean developers, because I’m not selling to you or you, I’m selling to the developer that’s actually creating the app.
And this concept of STK fatigue when developers are always getting people like me kind of convince them to put something else into their app that might break it or rendering it useless, so there’s a lot of fatigue and I don’t know if we can call it cynicism but just gives me very, very good, you know, developer to put me into their app. How as a company to be recruiting and maintain talent, this town is impossible for retaining talent. So that’s a really big problem and also very expensive. So that’s the problem number 2 and problem number 3 which was also by the way high growth versus high margin, in a heavily monetize project that we’ve made.
So those are really the things that keep me up at night. Those are the top 3 things that keep me up at night.
PARTICIPANT: Are there any monetizing to the table?
DANIEL: We are, I actually will show you what this looks like. So we have a couple of different pricing plans. We just launched this recently and we also just got our first enterprise customer. Warner Brothers is our first enterprise customer, they are putting socialize into their apps. Socialize just went live in Ellen app, which is pretty cool this week, and it’s going live in TMZ and others. So, yes we have decided and this also comes back to fundraising because honestly I really believe in focus that gives like cops to everything. So when I spend my time doing something over here, I’m not going to do whatever it is over here very well.
And what I really believed in the beginning was that the way to win was to just get market orders. Right, be in every single app, get socialize into as many apps as possibly could and have access to as much data that users could have. And then figure out the monetization piece out later. And do fundraising to be able to help me continue to do that. But VCs are not super hard on that approach, and so as a backup plan as a pivot we decided to start charging.
Now what I do again differently, I think a lot of it has to do with the VC planet, that’s easy for me to say that because Heidi takes off the entire burden off of me as an entrepreneur, right. But, you know, there’s definitely cycles where VCs are just very very very hard on the high growth piece and they pull back and they really want to see monetization and I’m sure Heidi can talk a lot more of that. So I’ll let her do that in a minute.
Heidi: Just when I met you and little bit part of this, and this was kind of hard conversations it’s all about is that balance between, you know, it’s the everybody knows the Google myth, right we didn’t know how we are going to monetize as we just figured out we got lot of users we figured out, you know, we figured that out. And I think the reality was why they already have some monetization strategy it’s pretty early in that. But people love this and particularly entrepreneur as well, you sort of thing well I love this idea, and everybody, it’s going to be really useful, and I’ll get somebody to use it and I’ll figure out how to monetize it later.
We’ll let me tell you that don’t always work. Things just don’t monetize and you don’t want to be that, you don’t want to be that. And so I think what happened with Daniel is he got some great early angels in there, but actually I think he was speaking clearly a little bit dinged by the fact that they were forcing signaling risk because the angles didn’t double down on him. Right, they didn’t and whether that was because they personally, you know, they were distracted or they didn’t have enough funding or they just didn’t, they kind of weren’t seeing, you know, they bet on it and when he started getting some volume and in fact anyway the more volume you got the harder it because his angels will say, well you got all that volume, why can’t you monetize it, right? What the hell is wrong with you, you know?
What the hell is wrong with this? And so what happened is, and the other thing that happened on this, well ripping on this part is, he didn’t stay in very close contact with his investors, right and I think this was a little bit of just being new to the valley and being new to entrepreneurship like, okay these great guys gave me some money, now I’ll just leave them alone until I need more. And the problem with that is they hadn’t really gotten to know him very well and so they didn’t end up being good references. They weren’t bad; they weren’t walk around saying he’s a bad guy. But they were just like, yeah I don’t really know him, I don’t really know what’s going on they hadn’t really figured out how to monetize it, so I’m just going to wait and see.
So this is a very typical activity, right the angels start to say well may be I was kind of dumb to put that money in. I think I’ll wait and see what really these things do, and the reality is like angels aren’t really supporting you that must be coming as a problem, so it’s called signaling risk, right particularly if a well-known angel or a venture fund throws a little money at, and they are not spitting more money. And everyone sitting there and they know something that new investors don’t know if there is causing them to not put money in, which is usually not actually true. Right, it’s usually just that they don’t know. But it ends up I think a quick [could not understand] put this weird position and there was also weird position, I don’t know if they were intercepted you got to be kidding me, but this is my problem right here. You raised a little too much to be an angel around but a little too little to be a real around.
So now the problem is that you got a little too much money in for somebody come in and sort of own the next phase. But you don’t have enough money in for you to actually go somewhere to get meaningful. And so you would think, I mean how stupid and weird is that, but that would actually prevent you everywhere and any of this I talked about the actual business, nowhere in any of this except that the fundamental problem is you put enough monetization then you don’t have that, you know, to me there is one thing that prompts everything else, which is when a customer votes for dollars it’s meaningful.
Right, and so at the end of the day if you as an entrepreneur walking to a venture capitalist and he say here look at my revenue line, and my revenue line it’s going up really really rapidly that is I’; Vet never seen that not being meaningful. I never saw that not being meaningful, right. Every other thing, even if it’s going up and can be meaningless, it can be meaningful. But I think it’s been one of those interesting thing about you is part of it was just timing, and part of it was just the players and the personalities. And part of it was innovation; you were finally victim of your own success. Because as you started building these numbers because you couldn’t initially monetize it, people said well therefore volume must be meaningless in this space and therefore you got a problem.
DANIEL: And talking about what Vinod said, like it’s a lonely thing, like you learn must heard this quote the saying being an entrepreneur is like staring into the abyss through a broken glass. I mean imagine what it feels like we can have all of this growth like literally 16 million devices that are using our product. And just like Heidi is saying because that shows not to focus on monetization at the beginning, because I believed that what was right for the business and for the product was getting a large footprint I had a very hard time raising an A. So in terms of pivoting what it is I need to do is to go back and create a SAS pricing model, get some enterprises on board and then go back to do a series. So that’s what I’ve been doing, right now Warner Brothers is our first enterprise client and there are others like Turner, they are close as well. So my goal now is to get two to three of these enterprise SAS, very safe and predictable revenue customers in and then go back to do a series A after that.
So I think that’s a really awesome example of, you know, prioritizing in a way that works for your business that, you know, may or may not achieves specific goals in knowing which goals are most important to you. Because I wasn’t able to raise a series A when I first tried, I ended up doing a lot of angel, we raised just under 2 million dollars of angel, and I got really good at that. And so I wrote a ton of blogs about what it’s like to raise money on things like angel list. Who’s heard of angel list? You guys know angel list, oh awesome. That’s fantastic.
So for example I’ve got a blog there’s this thing called the angel list bible that is usually 50 bucks, I’m giving away for free. Thanks to the [could not understand], [could not understand] angel list. Oxford guy, Brendan did a profile that how to raise money on angel list. I called it an anatomy of a seed, and other things as well. So if you really want to dig into angel fundraising I did a blog on passively fundraising through angel list which you can also see well you can talk about that, not tonight, but I got really good at raising angel, which I would not recommend you doing that way. Like that’s not what I would propose you to do. That’s what I had to do to survive, right.
Okay, there were some questions. Yeah.
PARTICIPANT: One thing that these larger companies decided to do simply oh yeah [could not understand]
DANIEL: So by larger companies, do you mean like publishers like the app publishers?
PARTICIPANT: I mean Warner Brothers; I assume it’s their app.
DANIEL: Yes, it is their app. And that’s a good question like well there are few parts to your question, like when do you mean that they are OEMing like wide labeling our code, whether they are just building it themselves? I assume you mean why don’t they just build it themselves, right everybody go buy decision.
PARTICIPANT: [could not understand] embedded and if they got as opposed to paying this SAS fee this regular thing whether there can be a onetime license and just be done with it.
DANIEL: Right, well there’s, I mean there is lot to be talk around different pricing models and… To me that’s just a different licensing model. Wide labeling their OEMing and they are just paying, you know, once for it versus us charging, you know, an annual or monthly license for it. I mean we can talk more about specifically licensing. But I thought you were asking, this isn’t what you were asking but I want to mention anyway is that I really believe that most publishers have hard time understanding social.
You know there’s like the 5% of, you know, mobile app developers that really get it, there’s these companies like socialcan, Instagram, Facebook and others. And then there is the majority of publishers out there they don’t really understand how to leverage social. And then that’s the market that we are going after is socialize. We really believe it that we want to, yeah.
PARTICIPANT: When you mentioned that you actually target market as a development, developer community? And that’s what I was interested in how you could differentiate between the publishers and the development. Sometimes many times it happens they think that most people don’t do in-house development. So the community, the developer community might not be interested in marketing community, the publisher may vaguely interested in. So I mean how we are targeting?
DANIEL: So that’s a great question, and it’s a very valid question. And what we decided to do as a small startup was to start with Indie developers. So like we were saying earlier these two people that maybe it’s just a guy, that’s Raj that codes in xCode. Because by starting with them we could iterate on the product quickly. They would implement it quickly; they would have a long sales cycle. We get to learn what worked and what didn’t. And so we started with kind of the long tail of developers and then we shifted our focus to the larger publishers, and literally that shift happened, you know, in the last 3 to 4 months when I was having a hard time raising an A and I thought I’m going to have to figure out how to monetize, it’s time for us to go after these larger publishers and have a, you know, a pricing plan that will allow us to then grow through enterprise contracts. Yup.
Hey by the way guys, how about this, don’t even raise your hands just shout out your questions. Who shouts the loudest wins?
PARTICIPANT: [could not understand] I read a blog about that.
DANIEL: I’ll show you real fast we did all sorts of things to get this first, to get these first ones in. So here are some examples of the things that we did. We held a contest to see who implement could socialize the fastest. And we gave him $2500, because one of the things we wanted to show was that you could implement socialize really quickly. You know we are doing months and months of work so that you can only spend 5 minutes to make your app more social. So we had a contest, that’s one of the things that we did. We also made the SDK open source. I’m using these jargons; you guys know what an SDK is, ‘because I got an awesome analogy for those of you who don’t.
Okay, alright you wait, I’ll tell you. So the difference between an API and an SDK, these are in our worlds because these are in mobile is as follows. If you are baking a cake, an API is a set of instructions; you have to bring all of your ingredients. You get all your instructions to bake the cake, and you are bringing the ingredients to make the cake. An SDK is like the cake mix, it’s already kind of pre made it for you, all you to have bring is old and water. And so what we did was we created these SDK – software developer kits that allow developers to just drop social into their app, just like that cake mix so they can very quickly make their app social.
So one of the things we did was we made it open source so it’ll be easy for people to modify, that was another thing that we did. A lot of talking on panels, a lot of SMEs – subject matter expertise was another thing that we did. I always capture content. So I’m actually capturing this session right now. I got my camera in the back; everyone looks at me strangely when I’m setting it up. But here’s what I figure, like this is a great session but there’s only 50 or 60 of us in the room. There’s, you know, 10000 people who would love to experience what you guys are experiencing tonight. By capturing and putting it on my blog it will be like other to benefit from this one premium knowledge sharing environment on that blog where we can put together any conversations.
Heidi: By the way I just want to say this site Daniel has been amazing at the use of creative video to explain and post, you know, almost anything. I think what you guys are seeing this I think that everyone knows why he get up here and speak anything, he said he’s gotten to point to and all of that. And a lot of times I was like when he was trying to explain something to me, he’d say okay here take 2 minutes watch this. And he would have already captured him explaining it to someone else or being in a conference doing, I mean I was just blown away by that, I’ve never seen anybody who does that as well as you do. And so it’s an amazing tool because for a lot of people’s, I mean it’s so much easier for somebody to see explain something when he’s got a visual or a demo or something and just how hard is it to do that if you are not prepared, but if you got a video it’s just, it’s really remarkable thing.
And you did that also when you were pitching, you know, when you say to me like can you give me a connection at Disney or something and he put together a 2 minute mockup of his pitch by putting in the Logo or doing the, you know, making it the example extremely specific and that goes such a long way for getting the people to have the imagination or people in the lack of the imagination to have the imagination about how they would influence when they see their logo on something like that, they already sort of identify, I already feel like it’s done. Right and it makes a big difference in the perception.
DANIEL: Just one other card on blogging guys, like when somebody asks me a question over email, I always try to answer it on my blog. The reason is I figure I can spend 15 minutes answering it every email multiple times every time I get the question. I can spend 3 hours or 1 hour one time answering it on my blog with a much better answer than I will ever give a 1000 times over email. So whenever I get a question especially if I get it more than once it will go up my blog, doesn’t matter anybody if ever reads it. So next time I get the question I just shoot up a link to the blog. That’s an example of how I use blogging. Yup.
PARTICIPANT: It seems like you are very open and transparent guy here kind of using the blogs etc., you communicate with investors, so I don’t really get at the beginning how would you at that time said everything about this may be its communication or [could not understand] investors. If they could see all of this like where you are pointing out to that, and if not is it if you guys repeat the experience, what would you try to do better really?
DANIEL: Let me actually use that as an opportunity to transition to how I may be the main person talking here, so I answer your question quickly and then maybe you can add more detail. We are right at the time where we wanted to switch over to second half of the day. So just to finish this up real fast, you know, we went to meet up with socialize branded beer where that’s my key, and we gave them socialize branded beer. We had dev. workshops at our office, we made these huge cheques like the first developers to actually who implement socialize we made a big deal out of it when we gave them these cheques.
So we did a lot of stuff like that. We crashed hackathon where we wouldn’t actually sponsor the hackathon where we brought these cards and we said, if you could implement our SDK in this hackathon you are doing we will give you 500 bucks. So just lots of stuff like that.
So that’s how we marketed to developers at start. Now to answer your question about what we would do differently and what climate was like and all of that sort of topic, you know, a lot of this is that – like a bad idea looks like a bad idea until it’s not, until it’s a billion dollar exit. I’m pretty passionate about mobile, I really believe that, you know, I don’t know if you saw there was a an iceberg in one of my blog, it’s like this is what we think mobile is, but it’s actually all of this. I think that CEO’s are going to get fired if they are not thinking about mobile today; it’s a pretty extreme view. Like I’m drinking the cool aid about mobile, right. And so, you know, I’m pretty uncompromising about what I believe.
And one of the things that I know is that there’s going to be an engagement process. I just really really believe that as we are going from 2 billion downloads in 200 to 98 billion downloads in 2015. Everybody is going to try to be getting people to A) Download their app onto their phone, but then B) once they realize that’s not enough. Get people to actually open and engage with that app. And I believe that the way that solves that problem is through social.
And I just really think that’s true. And so to the extent that in not everyone buys into that vision because it’s a very extreme vision and you may, you know, I haven’t been super compromising about it. May be I could’ve been a little less uncomprimizing about it to, you know, monetize sooner or to, you know, do things that would’ve helped me to get investment. But, you know, I was pretty passionate about it, so I may be wrong and you may fail spectacularly like that could definitely happen. I don’t think I am, and I’m using to keep, yelling from the top of the mountain. So people listen.
Right, so I guess that’s the best answer that I can give. I mean you definitely touching me at a point where, you know, we had to kind of pull back a little bit and do enterprise pricing, I’m not sure how I feel about that, but it’s working. We’ll see if it hopes if it gets the series A done that would be good. But at the same time it’s not what my kind of original decision was. So, you know, I keep staying up at night. Yeah.
PARTICIPANT: One of the objections we’ve got from developers was like you’re using someone else’ SDK then you’re at their mercy. So anytime you update your SDK I need features they need to go then. Update their app and all the users had to go down bring your app. After there’s this huge friction point which is where kind of the build versus buy. Comes in guess where do you see I guess how does your objection handle the now that you see any new developments in the future to kind of minimize that [could not understand]
DANIEL: So just for those here who are like as deeply involved in mobile like as you are which is awesome, by the way it’s great thing you even started talking about these things, fantastic like I wish everybody was. But the problem is she recon seeing is that, you know, as a developer I’m kind of holding to these petty product cake mix SDKs that are being dropped into my apps. So when he changed something on me, you know, A) it might break my app; B) I have to create an update of my app, you know, C) I get users I have to test it for my app specifically to make sure that it works with my each of the new functionality. It’s definitely a big problem, I mean so the question is valid.
I think at, you know, at the highest level, we just have to be providing a lot more value than the pain of in putting together SDK. I mean another day that’s really what it is. We have to have created a product that’s so good that the developer thinks; okay I could spend 6 months building this and still wouldn’t be as good as just dropping up this thing in just 5 minutes.
Okay so what do you say, do you want to get up or you want to…
Heidi: Yeah, no I think it’s been a long day.
PARTICIPANT: Are you doing anything at the backend to track what’s going on, means social interactions?
DANIEL: Yes, I wrote a blog about that as well.
Nice post Daniel. Your killin it!
Thx Jason, hope all is well in DC.
Daniel - even if our companies die, we (the crazy, whirlwind spirits who give them life) must never.
If you wanna build something, you gotta be a cockroach. No choice.
It's with the cockroach spirit we're building SafeApp. SafeApp's like a privacy "nutrition label" for Android apps. We make it dead simple for end-users to see what data the app is accessing, how it's accessing it, why, and what 3rd parties get to see it. The kicker is, we're more than just a "nutrition label," SafeApp's been proven to actually increase installation, 24-hour and 7-day retention rates.
Here's what I'm wondering: not sure how active you still are with AppMakr, but we're thinking SafeApp might be a great value-add for "developers" using your platform. We could quickly and easily help them mitigate the rising legal risks associated with mobile privacy while also helping them boost retention.
Does that sound like something you guys would be interested in chatting about? Would love to connect.
Zeb, first off, I like your passion level to tell me about SafeApp while responding to a post. The sign of an entrepreneur!
SafeApp looks like a TRUSTe for apps. Cool idea. Might be hard to get distribution though. Does the developer have to include an SDK or is it all running client side on the Android phone?
Passion? Inherently. We're on our grind, Daniel. You know.
Sure thing - we're like TRUSTe, but born on mobile with the ability to positively move the needle. It's a lightweight SDK installation.
You've nailed the distribution challenge. We have Mocospace on board (25 million users strong). They're seeing tangible improvements in retention with SafeApp. But generally, going right to app publishers is like selling chili in July at the beach.
Strategic partners are another distribution channel. App stores are much more interested in us. We're exploring app development platforms, like AppMakr, as possibilities, too.
Give us some guidance when you have a few - what're you thinking?
Yeah distribution is a bitch in mobile.
I had some back & forth re: SDK marketing here: http://danielodio.com/uid/30709
Maybe that'll be helpful.
Good analogy re: hot chili in summer! Gotta figure out how to create a cold beer :)
Here's a transcript of Video #2
FemaleSp: Oh man so much we could talk about. But let me start, I’ll go back to the questions and I will answer sort of them. But this is so great, why doesn’t we get funding? Or is, kind of what goes on? What goes on in the venture capitalists mind when we look at things like this?
It’s a well-worn expression and you see that venture capitalists are just sort of swaying between fear and grief. And that’s kind of how we live our lives. And people think of venture capitalists being big risk takers, but really we are always looking out for ways for taking risk out of the equation.
To link to what Vinod said earlier I thought it was really amazing way when he said ‘I invest in things where 90% of the time I’m going to lose my money!’ Doesn’t that sound like an awful bet? But then he said, the 10% bet that I’m betting investing in big things so that 10% of the time I can change the world doesn’t sound the way it should be.
So this is challenge that we have particularly when you are early stage. So I know a lot of guys have said that BC business models are going to give you everything that you need to know about BC and 67s. BCs are a hit business, more than 60% of all deals never return capital, but it’s those outliers that return the capital.
But in order to have an outlier deal return the fund which is what every BC is looking for which is usually you’d invest somewhere between a 50 and a 20th on a deal. Each deal you want to have is an opportunity to return the fund and more. And all successful BCs have those kinds of deals in their portfolio.
When you are doing stuff like that, here’s what you need to do. You need to own a lot of stock and you need to audit very inexpensively. Okay, there’s two mistakes people make right now. Number 1) they buy little bits of inexpensive stock. Right, which is the highly syndicated deal, I have a name for it, it’s a very nice name I can’t remember it right now. But it has a bad name and its like when 20 BCs each put in like 50K, okay that sound quite big for you. It owned a lot of something you paid very little money for. So #1) doesn’t buy just a little bit. #2) but it cheap.
Right, so people say ‘Yes once in a while we have all read about that people made money buying Facebook on the way up, the guys who got into instagram and 3 days later it was sold, they double their money although interestingly the stock went down and who knows whether they doubled their money or not. Now believe me I’d love to have that something like instagram in my portfolio. So, I’m not dinging it but I’m saying you do not return the fund by doing those sorts of things.
So if yo go back to the thing you got to buy big pieces of really cheap things, well things are really cheap and they are very risky and you can’t actually figure out how they are going to make money. But there’s a big idea out there in the future. So that’s kind of what we are looking around for all the time.
So I think, you know, if I were to sort of like analyze the situation, the problem was didn’t just didn’t know how to gauge it, right. First of all I think that the idea of making mobile apps social which now already feels like, well da, everything’s social. But even about 3 years ago that was a revolutionary idea. Right, why would I want to have an app that’s sailing that I’m talking to other people has to say back about selling, but why would I do that.
I think that again today there’s monetization strategies are very different. If you, it’s one of my favorite lines I use in my class. If you are not paying for the product, you are the product. So the idea that, you know, people are trying new and things are happening and other people are paying to the right to access you in every more personal way all that is a business model that is now accepted. But even 3 years ago that model wasn’t even accepted.
So there’s one of the things I’m thinking about right now a lot about as we invest, so one of things to think about is early steps, so you’re going to invest a lot of money to buy big pieces of things. Those things are going to take a while to get somewhere. And as Daniel said they seem like that at the beginning because they were good ideas other people would have done them.
So we look at a lot of bad ideas by crazy people, and we try to decide like is it there something like we – is our crystal ball a little better tuned than everyone else. So that we can think about what – like what’s going to happen 5 years down the line. And I think that with this one this one is the case where people just for whatever reason that combination of what the Daniel and his team was doing. And in a way he kind of almost getting dinged for the fact that it kind of got traction but it wasn’t really, you know that I don’t know that there was the bigger vision, right that goes past this.
But I would still say that I don’t know that we’ve articulated, right. I think you have a better sense of it today, but I don’t think you’ve necessarily articulated that bigger vision. I really believe this company, part of the reason I believe in this company is because I believe he and his team. And I’ve been able to watch him for couple of years, now year and a half I think it’s been. And I know that he has, you know, like willed this company to survive from really through bad times, landed customers I mean I have so much respect for entrepreneurs who are just like, you know, they are like cockroaches, right they just do not die.
And so that’s a compliment.
Participant: You know this is a great example.
FemaleSp: Yeah exactly. So, you know, I think that this BC mentality is really difficult as I go back to the common hear and greed. We sit down a lot of times, again if it looks like a good deal if it’s so obvious that it’s a good deal it’s going to either be an overfunded segment like Vinod said, or the entrepreneurs are going to get, you’re going to pay up. Right and neither of those are really great strategies for making money.
So the trick is like when we go from fear to grief. When do we have that moment when we say this is scary, this is scary, this is stupid, this is stupid, I got to get there first. Right, and this is also why you see so many like, you don’t get trump sheet, you don’t get trump sheet, you don’t get trump sheet all of a sudden you get three. Right, and the answer right now is the company we couldn’t get funded, we couldn’t get funded, we couldn’t get funded, we finally got a trump sheet and now we are oversubscribed.
Right, now we have to actually cap it around 30 million dollars, now we have people trying to cram their money in and those was already in the deal like, no we don’t want the delusion, because we can’t right, because things get diluted if more money comes in. Even if there’s a higher evaluation there’s a certain point where I don’t want that money coming in, because I don’t want to give up my share of the company.
So it is, BC mentality is a very strange thing. And if you are going out there and you’re looking at and I would argue that if you, if somebody was always more right than everyone else their funds would have different dynamics, and I think it’s very interesting that sort of these big ask gets kind of distributed out among very many different funds and sometimes funds have a run where I would argue part of the reason they run is because, if you are a hot entrepreneur, you’re going to take your deal to the hottest BC because they are sort of known as the king they are going to open doors and do things like that.
And so I didn’t, you know, having now lived in this ecosystem for a very longtime, having raised money myself very long time ago and now being at DFJ I also watching some of the other firms it’s fascinating how sort of firms are in, and firms are out and now it’s great to go this firm but it’s not okay to go to that firm. Those guys must be great because they got all the great deals and then all of a sudden those guys don’t have, you know, people say oh bummer they miss the whole consumer internet, well sort of not.
Well this is Amazon, and they did do Google, so I think we give them credit for that, but, you know, but the consumer the e-commerce, you know, whatever I mean though people would say oh these guys missed this or these guys missed that I always personally very pleased that the guys I talked about evon muss, spacex and TESLA, you didn’t mention solar city, but because ELon did those all three deals are the okay deals.
Right so we at DFJ we worry about like oh we is not popular right now. Oh you know, people think DFJ isn’t as popular as some of the other funds. And then we give this more like SpaceX has a 4 billion dollar backlog, right we haven’t even monetized that investment yet. So we kind of come there and say well we’re going to be popular in few more years and everybody will be like say Space Deals.
You know, we are going to have, but so the thing I just, the reason I’ve gone on and on and on about this is the following point. Just because 50 BC is turned you down it doesn’t mean that you have a bad idea. It just means that 50 BC didn’t see that tradeoff between fear and greed, but we are little too crazy, has something else they’re focused on, had a bad day, saw somebody they liked better than you, whatever the reason is, right they just didn’t, they didn’t get you.
And that’s kind of what you have to expect when you go out there and go to raise money. I would argue that, I mean again the Lord is oh I walked in they’re not a napkin, you know, it’s the Google store. Right, Andreas wrote the 100k check and we didn’t have a company name. We had to come up with a name, so that we can write it on the check.
Well people win the lottery too, but you know this just not going to happen that often. And so I don’t know, I mean we want to talk a little bit about fundraising; you guys want to ask questions, you want to what do you want to do the rest of 20 minutes? Yeah.
Participant: I would like to ask my question. High growth or high margin?
FemaleSp: Pardon me, high growth or high margin.
FemaleSp: Okay, the answer is yes.
So, you know, I mean I think that the all I answer it generically and Daniel can answer it conceptualized. I would say that generically the tradeoff is going to be what is your ultimate end game and what kind of money you need to get there, and how do you manufacture that money? If you can convince somebody that you would be better off having high growth, therefore they will fund your losses while you’re doing high growth.
Right, then that’s a strategy and that might work. And that’s what’s most people in here that’s always our first, what would I call it that’s the standard in silicon valley and the reason it’s a standard in silicon valley is about 10 minutes from here is the world epicenter of venture capital, right. There’s more risk capital sitting 10 minutes from here than anywhere else in the world.
So entrepreneurially was that basically that dilution, I can get my dilution, I can get my high growth I can prove that I can really grow very fast and I can raise more money or turn on the monetization switch and take less dilution. Because the other thing entrepreneurs have to think about is, it isn’t the solution you’ve taken in the first ground, its how much dilution you have taken across all the entire life cycle of your company.
So I would argue that the old faster way to do this is before all that money was sitting up there on Santali road was actually the care about margin. Right, because high growth didn’t matter if you couldn’t keep the lights on long enough to ever monetize that high growth. So back in the stone ages when I ran a software company what we decided to do is we went out there and we looked out there in the world places we could monetize immediately. And do interesting things with markets we want to get to anyway, right. So I mean it’s easier to do it by example.
We are a spreadsheet company, we talk and handle through by code a lot of these spreadsheet companies didn’t handle it by code. We said jeez to buy code. Now Asian countries used to buy code, so we could go over there, we were a tiny little company, we couldn’t afford to open offices and do all that. But what it is we find an OEM in each of Taiwan, Japan and Korea and we sold them like country wide licenses for like a half a million dollars each piece.
Because we thought left to our own when we can open over there and open up in Taiwan or Korea or Japan. Right, we couldn’t the other half a million dollars is so valuable to us because, you know, you sell it once and forget it. We didn’t care that we were sort of mortgaging something down the road, because we could bring in a capital making money the old fashioned way, right, we were earning it.
So here’s why I like things like developer licenses, NREs, NREs – non recurring engineers is what they come and install and we buy something from you, a little company and went there into their company and use it. It’s revenue; improve in customer values as non-diluted. So I love that much better than I love taking betterment. So to me that tradeoff in general is it’s the balance of taking that investment capital and what’s your dilution’s going to be versus building your value proposition in earning money on your own.
I have an old school belief, so my summary on this is I’m the old school about this. I had rather see you make money and earn it, right, because you also control your destiny. So it’s little bit of being an entrepreneur, you start by selling of pieces of the company and selling off preferred shares and coming out, and doing things like that. You immediately don’t control your destiny. I tried raise money when I had a business school and I failed, and I am really glad I did because if I have succeeded then foremost things they would have done is fire me because I am obviously not qualified CEO of the company.
Because we didn’t raise any money we had to do make it the old fashioned way that I have to earn it by selling software to customers, well no one could fire me because there wasn’t any shareholders kind of holding senior positions than me. So this is kind of one of those backward things that sort of thing it was sad and venture kind of happiness.
So I don’t know, but I think there is a real trade off there and I think that this current school of thought is going get that money. But I would argue you can control your destiny if you can figure out how to get customers undiluted way which actually company better off around.
P1: I’m curious about that 0 0 three times around and you’re term sheet #3.
P1: Before you go into that meeting what questions you are asking yourself and what you are trying to connect with to the other side whether #3 versus #1 and other things… and how do you make that pitch because curiously the other side of the table where BC is in cell mode.
FEMALESP: So you know there’s multiple ways, you know that lot of people are interested in this.
P1: If I know…
FEMALESP: If you are only making the pitch is to why you are the best when you’re delivering the term sheet, you probably already lost the battle. Right, it’s the same in the other direction, right you want to be helpful to the entrepreneur, you want to have been responsive, you want to answer their emails, your phone calls without bullshit them.
And you want to have to introduce, introductions so perhaps they could have sense already of your value. What kind of, are you mature or not. And your reputation is so important. It’s not price although I would tell you that I think sometimes entrepreneurs somebody told to me when I was trying to rise money is that the valuation is like the grade of the top of the paper. And if you want you can soon, you should actually be paying attention to the material that we wrote in the margins. But you are only just looking at the grade.
And it’s one of the, again it’s another important lesson which is I can tell you time and time and time again that entrepreneurs make a mistake of they put us on the valuation and they kind of get us focus on the terms, and in most outcome scenarios the terms are much equal than the value of the operation. But try to calling that to an entrepreneur who has 48 hours in his side and term sheet at 8th grade and term sheet at 12th grade.
And so sometimes you have to say, okay I’ll match it, you know, you got your own map and decide what is that we are working here. I mean interesting thing from our perspective is a lot of times, you know, I’m the one pay attendees as probably 400 million or something. I want to own 30% of your company whether I pay you 2 million dollars or 3 million dollars, actually in a way it doesn’t matter but it would be much better if the price goes up I can hold the percentage that’s more important to me than holding the price. Because it’s not like I only have 2 million dollars and I can’t give you more. We have plenty of money it’s just about how do we going to give you at what percentage.
So, yeah we can follow on, but I follow on anything you’re going to buy even more in generally if the company is doing really well you will never own more than the, you may be able to keep buying prorate, but you usually cannot get more, you know, it’s going well, you know, you’re not going to be able to buy more. Now, interest rates anyway is one of the great, you know, somebody is successful when the company goes through dip and you believe, and you keep buying and you sometimes buyout are punitive to the other investors who no longer believe, you can make a killing on deals like that.
And it’s good for the entrepreneur too; I mean if you think you are not doing punitive to the entrepreneur, you are being punitive to the other people who no longer want to be around. But you don’t often count those opportunities to do that. Before we lose because I think that question high margin or high growth, you want to get the socializing aspect on it Daniel?
Daniel: The only thing that I can really say is that for every person this is one thing, for somebody else this is going to be other, this is just was happening with groupon. Getting social right now where really it’s also about losing money when everyone thinking about the volume as it was. And that was, you know, great when the category was needed but now he was looking very doubtful compared that against Facebook which margin bloom which has won, by, you know, creating that footprint and there’s not going be another Facebook. You know, really fun thing is something that as far as Facebook very strong transition now and now they’re figuring out how to monetize that.
So for every example you’re going to find something that caters to that. They really believe that as the entrepreneur you just have to decide what’s best for your business and then mitigate as necessary. So as we’re experiencing tonight, you know, I’m going to mitigation though and start to monetize. So, it’s not what I wanted to do but I’m going to do whatever Mike and …. Had done.
FEMALESP: One thing he just said that was really important is that in high margin or high growth argument if you are in business that really relies on network effect, right then you’re into high growth, right it can all do it. So that is one of those things where if you really must be the winner and there’s only a V1 or V2 winners then you really cannot forward to sort of duke it over time. But, yeah.
P1: Imagine that BC is valuating personality and profile person who is supposed to get evaluated. What are some of the info? Related more so things that scared the crap out of you. Or there are red flags that person…..
FEMALESP: Scared the crap is sort of easier, elegance and actually answering the questions that they don’t know the answer to. Honestly for me, for those who have read my case studies are not surprised by this, but if they’re impolite, if they are, you know I mean if they are kind of jerks. Now the funny thing is I think for example I think Sequoia has made a fortune investing in jerks. So I’m not saying that my strategy is the best one, but I just felt like working with jerks.
So I wouldn’t invest in them. I think that, you know, and again this is the in the view of the entrepreneurs eyes the meeting should go like this. You have the meeting, the BC loves the idea and they were ready to chat. In the view of the BC’s eyes they are meeting 10 of you every day. There are an infinite number of people who want to take money away from BC, so they’re going to be a whole bunch. So how are they going to decide they like you better than everyone else? They’re going to see how you react to things, they’re going to ask you what you’re going to do in the next month and they’re going to wait and see if you’re actually going to do it.
Because that’s how they’re figuring out if they want to work with you because any idea you’re going to be most brilliant idea in the world. The scary part with brilliant ideas too is there are probably ton of those. Right, there’s probably, well we had this discussion, there’s, you know, lots of different people are trying to attack at the same issue or the same problem or the same market. And so we don’t know that you’re going to be the best one even if you have some interesting corks to your thing and to your product or to your plan or to your whatever. We’re going to decide to choose the best one by figuring out like, how do you respond to challenge, how do you make a commitment, how do you – Vinod said this too in his speech and I totally agree with him – he said, plans are worthless only reason, you know, I would say the only thing we would know about your plan is we guarantee they’ll be wrong. We just don’t know in which direction.
So plans are kind of worthless, but watching how entrepreneur thinks through a plan is really really really important. So, it’s that’s what, you know, that’s what I do. And sometimes you just, there’s a weird thing, there’s entrepreneurial chemistry. Sometimes you gravitate with an entrepreneur you know you work with them. Sometimes you are sure to go if you want to be in a room with this guy for 5 years, you know, I don’t know, I don’t think so. And then other people, you like those things, I mean that’s why BC is very often form partnerships, because you might want to work in one way and somebody else wants to work in a different way, and bring that collective knowledge and diversity into a fund and it ends up being a fund, so…
Other questions about… yeah.
P1: I looked at this and you said that people to try and like the same thing. In terms of professor all over he was talking about the business model differentiation.
P1: Do you touch base on, how do you see – what are the most important factors in depreciation, even talk about kind of socializing strategy on if there were other competitors and how do they differentiate now?
FEMALESP: So, you know, the thing I think that was really interesting about what you were saying in there is that the mentality – particularly the mentality in Stanford – particularly among the Stan students is all the innovation is in the product. Right, and they put all their energy in innovating their product and they kind of don’t think about anything else. And I would argue if you think about innovating, you know, if you think about what has become successful recently, you know, a lot of these innovation around the challenge, innovation around customer support, innovation around marketing, innovation around, well you know, the business models in a way those work. Innovation around all sorts of packaging in some things, in physical product, right for those of you who got ETL last year you see how method soap gave his speech and it was a brilliant speech.
And I mean when you really think about it, yeah he has passionate about his product, but a lot of why that product succeeded because he understood that people and women particularly buying soap that sits on your counter needs to look really cool and that was packaging and that was a big part of the reason why people would be willing to buy these environmentally friendly soaps. Because most environmentally friendly soaps actually came with really ugly packaging and people who are at higher income levels, who were willing to buy environmentally friendly, except one when I thoughts… So, you know, I think sometimes the innovation comes in very different ways and I think that some of the most successful companies can get creative around all of those things.
Which is why I also love about what Vinod said, you know, you can apply creativity to anything. I think it’s harder though that the argument that I would make, and he looks at me and said - may be you are going to agree with this or disagree, is “that used to be that we used to believe that the only thing that was really worth investing in was a company that had secret sauce. Right, that had a technologically patentable defendable or whatever thing.”
Okay, I can go out there and show you a million examples why that’s wrong. Right, if you look at some of the biggest pieces of today, yes some of them have some proprietary things but interestingly they usually ever made their money by defending properties of it, they just use it to keep ahead and get ahead.
And so I think that today you can look at all sorts of reasons why you’re going to invest, and one of them isn’t around the propieteriness of the product. But I do think that it is a barrier to entry. Right, if you have a secret sauce in your product and you’ve invented a way of doing something that no one else can actually do then you get little bit more breathing room to then build your whole market and do that.
If your only defensibility is sort of, you don’t have defensibility, right, and your BC says well how are you going to prevent competition and you say we’re just going to do it better and run like hell. That’s actually an Okay answer if you have to be the best person doing this. And so the only we can know you are the only best person doing it, is we have to go and talk to everyone else doing it. Which is what not you want us to do, right?
So it is a very, you know, it is a very complicated thing and that’s why, you know, the more and more time I spend in this industry the more and more I, the thing I wish I would demand when I was an entrepreneur is how completely random this is, Right, and how like, you think how this goes back to the Nordstrom feature machines is because if you hear when someone else is the first, then the first thing you think is oh my god I know they are secretly smarter than I am.
And so I [could not understand] too. Because they’re smart so I’m going to do it too. That’s kind of ridiculous and I’m over, you know, I’m overstating it but it’s…
P1: How do you hear that they issue their terms, how do you know?
FEMALESP: Because funding it is to the entrepreneur’s advantage like funding a very poorly…
P1: Do they notify?
FEMALESP: No. I think that would be rude, but they will have their friend tell their friend, they say, you know, I think they got, they’ll tell their angel investor, you know, you better tell her that we just got so and so and so. Yes, I mean yeah.
Daniel: I’m sure we will talk about this later. But…
FEMALESP: Yeah yeah.
Daniel: I now invite the two of you and all of you to address a little closing note in the other office which is over on top of the selex where the cooledge was. We have a little closing out with some drinks waiting for us.
FEMALESP: Okay, I cannot stay I have to go at 9 which is in 2 minutes, but I am at [email protected]. I teach here every winter, come to my class if you ever want to come to my class, and if you ever want to sit in or those of you who are going to be here for another year come and take it. And thank you so much.
Daniel: Thank you and just one thing I want to share with you. I hate conferences, conferences are boring because there are some talks and people fell asleep. So we run a risk, we were very entrepreneurial and we relay with this confidence and courage and experience entrepreneurship. And we came up with the idea to, we case studied you guys. Luckily we did a little pivot and this is our customers and ended up in a fascinating two day session. I would love to express a thank you for the two of you for taking the time and coming. Thank you very much.
Please do me one favor, walk across the board…
I just sat down with Shai Goldman, a Director at Silicon Valley Bank. My interview with Shai is the second in a series of interviews I'm doing to help entrepreneurs raise funds in the Valley. (The first one was with Naval Ravikant of AngelList) As someone who's new to the valley myself, I've found the experience to be interesting, engaging and yet complicated in very subtle ways. I'm hoping to help others who have the will and desire navigate Valley politics and culture more quickly and effectively through these blog posts. Consider it a "pulling back of the curtain" so to speak, to the extent I'm able to do so.
Having a chance to capture some content with Shai was great - he has been a phenomenal resource for us. We were lucky to have chosen Silicon Valley Bank as our bank (on the recommendation of our lawyer, Mike Lincoln of Cooley Godward), so we had a pre-existing relationship with SVB. That came in handy when we opened our San Francisco office of AppMakr and I was able to contact Shai through the existing SVB relationship.
Although Shai hasn't announced this to many people yet, he'll be moving to NYC in January for a while, so if you're looking to get connected, you only have a few months left to do so!
Here's the video:
I just sat down with Shai Goldman, a Director at Silicon Valley Bank. My interview with Shai is the second in a series of interviews I'm doing to help entrepreneurs raise funds in the Valley. (The first one was with Naval Ravikant of AngelList) As someone who's new to the valley myself, I've found the experience to be interesting, engaging and yet complicated in very subtle ways. I'm hoping to help others who have the will and desire navigate Valley politics and culture more quickly and effectively through these blog posts. Consider it a "pulling back of the curtain" so to speak, to the extent I'm able to do so. Having a chance to capture some content with Shai was great - he has been a phenomenal resource for us. We were lucky to have chosen Silicon Valley Bank as our bank (on the recommendation of our lawyer, Mike Lincoln of Cooley Godward), so we had a pre-existing relationship with SVB. That came in handy when we opened our San Francisco office of AppMakr and I was able to contact Shai through the existing SVB relationship. Although Shai hasn't announced this to many people yet, he'll be moving to NYC in January for a while, so if you're looking to get connected, you only have a few months left to do so! Here's the video: Here's a transcript of the video: (learn how & why I do this) Shai Goldman of Silicon Valley Bank re: Entrepreneurism in the Valley Daniel- I am here with Shai Goldman of Silicon Valley Bank, who is awesome by the way. You've been a real asset to our company and we are much appreciative and glad to be a Silicon Valley Bank clients. Can you just tell us a little bit about what you do at SVB. It seems like you've got a pretty awesome role there. Shai- Yeah, I probably have one of the better jobs in the community. Essentially part of my job is to create a community of entrepreneurs and to really foster that community. We are a commercial bank so we are providing banking services for start-ups, what we are trying to do is create a community around that and try to add value along the way. Some of the value that we do is connect start-ups to investors and also bring other like minded start-ups together to share war stories and talk about the challenges about their particular sector. We do a lot of those things, we also do match making and also events just for start-ups. Some of those things are educational and it's really just a free value at a service and we feel that if you give back to the community that they will stick with us for the long run. We really want to establish long term relationships with start-ups. I cover the anything essentially anything web based- mobile, consumer Internet, gaming, digital media, software as a service- as long as the start-up is in that sector, I try and help them with all the things that I have mentioned. I have colleagues that cover the other sectors clean tech, life science, hard ware infrastructure and enterprise software. Daniel- So your job is basically to know everybody in Silicon Valley? Shai- Yes, I go to a lot of the conferences and events. To an extent I am the face of the organization at the early stage the at the pre-venture back stage. The goal is that people know who I am and that I represent SVB and if they have anything they can get a hold of me. Daniel- That's cool. You put on a lot of events, you are doing something in a couple of weeks, a panel. I know you just did a panel the other day. Are these for knowledge transfer and learning or what goals do you have when you do these things? Shai- It's a combination of things. We will do 25 events in the bay area just for start-ups. It's all free so there is no charge. It's a mix of things, we will do pitch events where start-ups can present to VC's. We just had one of those last week, we had 40 companies presenting to about 140 VC's. Daniel- Do those pitch events actually work? Let's just be completely honest here. Do the VC's who go are they actively investing? We didn't do any pitch events, the only similar thing that we did was AngelList which I think is different. What do you think about the pitch events? Shai- There are a few different variations of pitch events. The goal of our event is to get start-ups to meet 3 or 4 quality investors that they didn't know before. That is the goal, it's hard to say you are going to pitch at this event and you will get funding. What I will say is- there are quality entrepreneurs in the room, there will be quality VC's in the room and that we hope that something happens out of that. The goal is for the VC's if they can meet 1 or 2 quality companies. If the entrepreneur can meet 3 or 4 quality VC's then those are a success for us. We have had clients close on funding from that event. I wouldn't say that it is a very high % but I would say that its maybe 5% of the companies who have presented and met their VC at the table. Daniel- It's like an awareness. Shai- Yes, and we also have a lot of clients from across the country that come to the Bay Area that do not have access to Bay Area VC's. If you are a Bay Area start-up you will have easier access to Bay Area VC's. If you are from Seattle, Philly or Boston etc they may not be as successful out there but if you come here and meet those VC's, that is a good win win for them. Also, a lot of things happen if you meet a VC and they like what you are doing, they may pass on that company but say hey I have three other VC buddies who I think this will be a fit. So they are actually helping to make other introductions, it's almost like a multiplier effect. That actually happens, sometimes it is hard to track because the company may not be pitching for money right now, they are pitching for money 6-9 months down the road. Daniel- Do they pitch at these events, even though they are not actively looking for funding at that moment? Shai- Yes. There is a lot of blog posting around this sort of you want to create a relationship with a VC before you are out there pitching. You want to start building that relationship and build that trust. You also want to show that you can hit some milestones that you say you are going to. They get to know you along the way. That happens a lot of times, you don't want to do that with too many investors but you can cherry pick 4 or 5 folks that you want to maintain those relationships. Once you are ready the VC is up to speed, the trust is already established and they are ready to pull the trigger. People use the dating analogy and a sort of that is true. Maybe not at much so on those seed stage, if you raise money through AngelList or maybe a smaller round it comes together pretty quickly. At least I have found. Daniel- What is pretty quickly, days, weeks, months? Shai- If you can close on funding from the time you pitch your first VC or Angel investor until the money is in the bank, the whole round is in the bank, legal docs and everything, I think 3 months is pretty quick. You don't see that very often. Especially if you are raising a smaller seed round, we have a lot of investors who are trying to corral other folks, different buyers and if you do prefer notes its easier and its less legal documentation. If its a full blown round it is a lot more process. Daniel- What do you think about convertible note verses A rounds, actual equity rounds, do you have any thoughts? There seems like there is a lot of talk about the pros and cons of those. Do you see companies doing one or the other and do you think they shouldn't be doing that and doing something else? Shai- Personally or as an organization for us it doesn't really matter if its convertible notes or a price round. Because we are looking to broaden the banking services so it doesn't really change that prospective. The trend that I am seeing on the seed stage or that million dollar round the majority are convertible notes. It all depends on what sort of investor you are going after. the larger VC funds that are 200million and larger, from what I have seen from our clients those are usually prices rounds. Sometimes you get more of the hybrid you get a larger VC to do 500k and then it is augmented by Angels. That can be a convertible note. It seems to me that on many occasions the entrepreneur decides which direction they want to go and which way they are more comfortable with. If they say I am going to do a convertible note, its either you like it or you don't. It depends on how much leverage you have it depend on how hot the deal is sometimes you cant make that call as an entrepreneur. You see all the blog post that say oh the round came together in 3 days and we decided the evaluation and we decided who is in and who's out. That's not the norm, most rounds don't come together like that. The blog posts say that and entrepreneurs see them and think a round came together quickly it sets the wrong expectation for them. If you look at the average entrepreneur that is not the process. It is much more complicated, its a much longer process, its not that easy most of the time. Daniel- It was a very eye opening experience for us the first time out here in the Valley and it took us 14 weeks, about 3 months. Shai- And that's good because you are a company that was coming from out of town. If you are an established entrepreneur and you are part of the circuit and you have these circles of entrepreneurs, different sectors, it's almost clubby, cliquish as well. That definitely happens in the Valley. When you come from out of town and no one knows who you are really its much more challenging to raise a round. For you to come from out of town and you guys were more established you had more revenue and more traction which is good. Typically its much more complicated and a lot harder process to come here, get established, create your own brand and then raise that round of financing. Daniel- Lets talk about that for a second because you were nice enough to meet with me when I was first here in town. I think that was a big reason of why we were able to get into those circles and get to know those people. What do you recommend for companies that aren't in the Bay Area but are thinking of coming. Should they contact you, get an account with SVB, are there other people like you that people who don't know anyone should come and meet? Do you usually meet with companies that you don't know? What should someone do who is new to The Valley? Shai- I think it depends on what sector you are in. There are small circles of entrepreneurs and VC's that depend on what sector you are in. They all sort of get to know each other so depending on what sub-sect you are in you have to figure out who that small circle of people is in the Bay Area. Try and break into that circle somehow. You have a lot of those facilities like the one we are in today SOMACentral. This is a great place to get plugged in to other entrepreneurs. I am sure plenty of VC's come up here and hang out because you have quality companies. You have Dogpatch and Kicklabs, NextSpace you have a bunch of co-working places where entrepreneurs can meet other folks and get plugged in pretty quickly. Especially in San Francisco, the whole SOMA area has so much activity in it. I always suggest for entrepreneurs that come from out of town and they are in the consumer Internet mobile digital media space even SASS companies to come into to SF hang out in SOMA. You can meet tons of people that way. I think the co-working facilities are a great way way to go. Then you have just a plug for one our clients- Start-up Digest, you get a lot of traction. There are so many events that take place in the Bay Area that make it every unique. Every night are 4 or 5 events that you can go to. If you are an entrepreneur and you only events, it can be over whelming. You think well which one do I go to, do I go to the crappy ones or the high quality ones. I think guys that started Digest help you weave through that list of all the events. I think as an entrepreneur you should be going to events every night of the week. I think it is good to be plugged in but you also want to be working doing your coding, building your product, hiring that sort of thing. Sometimes you hear of these guys that are going to every event out there and some investors might be thinking well why are these guys at every event, doesn't he have stuff to do? You sort of have to be careful around that, pick and choose what events. Your time is valuable. Of course at SVB we do a lot of of our own events we are pointing to that eco-system so if you try to connect to certain investors or certain entrepreneurs we can probably help out with some introductions and get you situated. We can let you know who the good core facilities, here are the events that I go to that I think are a good fit, here's our events that you can check out for free. I think its some what easy to get plugged in to the Bay Area as long as you make a concentrated effort to do that and to ask people. I think people in the Bay Area are really friendly its true. Not in other geographies but here I think most entrepreneurs are really friendly and they want to help you , make sure you succeed and will open doors for you. Daniel- Speaking of that, you see a lot of start-ups in all stages from the very beginning I can imagine through funding. What are some things that you see start-ups not doing well, what kind of mistakes do you see them making? Are there trends, things that you wish that start-ups would do differently to make it more successful. Shai- Some of these are more simplistic. Put them together a pitch deck or how to fund raise. If you are a first timer you don't really know what the processes of fund raising are. There are a lot of blog posts around it so you can get a little more educated. Actually once you are going though that process yourself it's a lot different than reading a blog post. Figuring out the fund raising process is challenging because there are some investors that will take meetings but are not actively investing. Part of what I try to do for my clients is tell them the investors that I know are active and that are a fit for them. Let them know they should prioritize those investors. Create that tiered approach of which folks to go to first, you can actually narrow down the fund raising process by knowing who is actively investing in your sector and your stage. I see a lot of investors that just take meetings with anyone and entrepreneurs taking meetings with investors that aren't really fit. Then you are just spinning your wheels because you spend in hour in the meeting, prep time, drive time you are basically spending 3 hours in one meeting. Then you have all the follow up stuff. I think the fund raising process can be more simplified by just talking to different resources around there. Also, a lot of folks go out and try and raise a round too early so they are not really ready. You have to gauge and talk to people, other entrepreneurs and maybe service providers who know know what VC's are looking for. If you are raising that 1M dollar round of financing, you've got to be at certain milestones. I see some entrepreneurs go out to market too early. Thinking of yeah I can raise 1M dollars, then spend three months trying to pitch and then they figure out they are too early. I then I have told them that I thought they were too early, you should probably get a few more milestones so you have to gauge where you are as a company. Daniel- It also seems that it has a lot to do with who you if you've done if you've had an exit before, then it seems like investors would be much more likely to believe in you the person with an idea versus having to show traction. Shai- If you have a good background a sort of pedigree it's not even a necessary exit or other start-ups you've worked on but it's if you're at Google, Facebook or Twitter and you are a certain level than that has to cloud around that. It's a mix of that and also what start-ups you've worked on but sometimes you have a lot of first time entrepreneurs who raise the majority of rounds financing there at a seed stage, there first time entrepreneurs. It's not like they have a huge track record but they get to know who you are and whether you're credible and people are always judging you. Anytime you're meeting with an investor or even another entrepreneur or they don't really know you in the first 30 seconds they start judging, ok is this guy legit, should I spend more time with him. Daniel- It does seem like it happens in the first like you are saying in the first 30 seconds that I've heard of investors say that they know within the first minute whether they are going to invest in the deal or not. Shai- Yes, part of it is just your presence. It's your presence, your personality.... Daniel- So what should an entrepreneur do to have a better presence? Is it self confidence, is it being passionate? Shai- I think its a combination of those two things. Having that self confidence and being passionate. I go through a lot of pitches with entrepreneurs just coaching them and giving them feedback about you should change this slide or you want to maybe not say those certain things. Some entrepreneurs I meet with are just not passionate, if you are working on this start-up everyday, every minute of your life, you should be pretty excited about it. You should be leading forward in the meeting and be really passionate, maybe standing up going to the white board and sometimes I don't see that. Also, people have different personalities, maybe its geared more towards engineers but some engineers are not really out going. Maybe not just the engineers but some folks are more technical and maybe not the most outgoing. For the CEO you have to get over that, part of just going to events and getting comfortable with who you are, getting comfortable talking to people and just being out there. Some people have it and some people don't but I think you can work on it even though you may not be the most personable person. I think you can be calm and still have a good presence and you can come off as really educated and an expert in that particular field. Some folks just lack that sort of confidence and its critical. Daniel- So work on putting yourself out there, speaking in front of others, being passionate about what you do. Shai- When I started at SVB, I was right out of college, I was 22 years old. I started consciously going to mixer events. I was outgoing to a certain extent but I wasn't outgoing in those sort of situations. I just forced myself to go to a lot of different events and just getting more comfortable talking to people, saying the right things and gaging if someone was interested in what you're talking about or just moving onto the next conversation. I even did Toast Masters, I hate public speaking. Daniel- Would you recommend Toast Masters? Shai- Yes, I thought it was great. Now I feel a lot more confident in doing public speaking, it's not just talking in front of a room of 200 people it could be 5 people. If you're pitching to a VC it could be a partnership and if you don't have the confidence level and you're not projecting appropriately. It just makes you look bad. You gotta work on that if you are self conscience and you don't have the skills you can build those skills. Daniel- I've also been involved in Toast Masters in the past, not out here though. I assume there are some great Toast Masters groups out here in the Valley. Shai- There are everywhere. You have to find the one that is sort of a fit for you because they have different personalities some are more sector focused. There are different geographies, I thought it was a good resource. Daniel- So for anybody who hasn't been to Toast Masters it's a public speaking organization where you can practice public speaking. Shai- Yep. Daniel- What are some of your favorite blogs? You've mentioned blogs a bunch of times , do you have ones that you read on a regular basis? Shai- I do yes, Mark Susters Both Sides of The Table, I read that frequently. I thought he has some really good posts. Dave McClure he posts not as frequently but he has some interesting things. Daniel- Some fiery ones when he does. Shai- It's entertaining but they are also some good points there. Brad Felt and Fred Wilson, and then some of the regular media ones like Tech Crunch, Venture Beats, Gigam, I read those things. Daniel- Anything else that you want to convey, things that you see entrepreneurs doing that they shouldn't be, any other thoughts, things that are important? Shai- I think one thing that's really important a lot of folks are talking about is sort of founder issues. Ive seen a couple of start-ups in the past year where the marriage, divorce essentially there are two co-founders and they split up at the really early stage, as they raise that seed round or series A round. I'm not saying it happens frequently, but it is happening and folks don't talk about that in the blog posts. If you re one of the co-founders you probably don't want to talk about it in public but its happening. In part is knowing who you are going into business with a lot of the time this split happens when the company is pivoting, you both agree on where you're going initially and then it doesn't work out. Everyone is talking about leaving the start-up and pivoting, trying and testing that sort of thing. A lot of times they are going in different directions and then the founders disagree on which direction to go. Either go left or go right, so its hard to walk through that unless you are in that situation. People do split up in that really early stage. A couple of other start-ups that I know the founders broke up because one didn't have the necessary skill set to scale the business potentially. I am not sure if that was the other co-founders choice or if that was the investors decision or influence. That sort of thing happens somewhat frequently or they do happen but folks just don't talk about it. I am not sure what the answer is but I think folks who have done business together, you see a lot of companies where there's two engineers they've worked together for two or three years and they have gone through different integrations of the product at Google and they've worked at very stressful situations together in the same group. They know how each one works or they went to school together and they worked on projects together. Daniel- Like junior or senior year. Shai- Yes, I think those folks- it seems like its less challenging because they have gone through that. Suppose you find co-founders that they met maybe 12 months ago through a friend of a friend or at another event, I am not saying they cant be successful, maybe they just will be faced with more challenges. I think having a long history together is important. I think investors look at that as well, investors look at the team and how long they've worked together, what the track record is working together. Daniel- I think we got that question in every single pitch we went to. How did you guys meet, how long have you known each other, it seems like its on an investors minds. Shai- But you had you and your brother. Daniel- Well yeah, my brother Sam is out here is well but the co-founders we've been together for 3 years now. We've worked a lot of those kinds of things out and I can totally imagine how it can be an issue when you are just meeting somebody. I totally get that. I wish there was some kind of a group or a place that frustrated co-founders could go to and try and get support but I don't know of anything. Shai- I have thought about doing private dinners around but it doesn't matter. Folks who have gone through that process of breaking up being willing to talk about it in a somewhat public open setting maybe 10-12 people, if anyone would be interested in doing that. Daniel- Contact Shai if you are in that situation and maybe if you are interested you can set it up. You are going to New York so we are going to lose you out in the Valley for at least a while right? Shai- Yes, I am going to New York in January. Daniel- Alright, so if you're watching this before January and you want to talk to Shai, you better get on it because we only have a few months. Shai- I will be back though. I will be building that bridge between the Bay Area and New York for start-ups. Daniel- That's cool. So there is a lot happening in New York it seems like. Shai- There is. The level of productivity in the last 18 months has really increased and there are questions about whether or not it is sustainable or not because I think New York has gone through these fluctuations of where you get a lot of start-ups and then it sort of dissolves and it gets really quiet for a while. They haven't really had a period where its 5 or 10 years of sustainable growing number of start-ups but in the last 18 months that's taken place its still not 4 or 5 years but there are things around New York that are happening that I think will enable that 4 or 5 year period to take place. That will create some exits, those exits create wealth for the founders who will then invest in other start-ups, who will then create another start-ups because now the second time CEO or founder so its on top of each other and part of it is just the funding that is available now in New York where a couple of years ago there was a reduced amount of funding available. We have the New York firms and then you have the Boston firms that are coming into New York and are very aggressive. Then you have the Bay Area firms and then you have the up and down the Eastern corridor folks in the DC area that are flying to New York so you have a lot of interest of the VC prospective to do deals in New York and those are being done. We have the capital that's a critical ingredient. Daniel- It's interesting to kind of watch a Silicon Valley type of environment try to be jump started in a forum that seems like New York has a good, I mean there must be a trend in your are getting shipped out to New York. Something must be happening out there. Shai- Yes, I think it speaks to what is happening in New York. Me moving out there is not an East Coast, West Coast thing or New York is better than Boston or better than the Bay Area or Seattle whatever it is just that things are happening there. We need to have increased presence in New York and it is really exciting, I think the city still needs that sort of major exit. If you are looking at what is happened to the Bay Area over the last 20-30 years there is always these huge exits. Which then create other entrepreneurs, other investors, engineering talent, most recent one was Google back in 2004-2005 I think that was when IPO was. IPO has really supported this eco-system the last 5 years . Daniel- Its a retro-cycle. Shai- We have all these super Angels, Angels actively investing this pool of engineers that now Facebook has taped into that Twitter has taped into and a bunch of other start-ups have taped into. It seems like New York still needs a huge exit which will create more wealth, more entrepreneurs. Daniel- Well good luck out there. I am sure it will go well and thanks for spending the time to help educate other entrepreneurs. It's a little passion of mine so I really appreciate you spending the time. Shai- Thanks, I really appreciate it. Daniel- Alright, cool. .
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