The NVA Blog

Firefox 2.0 came out recently. It’s got some nice new features, and seems pretty good so far. The thing that I’m most excited about is the integrated spell-checker. This blog is powered by WordPress, which is is great software but has lacked a built-in spell checker. (at least version 2.0.x). There are a number of available plug-in spell checkers for WP, and I’ve tried a few of them. I haven’t really been happy with any of them. They either don’t work at all, are clunky, or simply don’t catch the errors. Cutting and pasting into and out of Word to do the spell check stinks because you lose the links and the formatting of the online editor.

Firefox 2.0 has a spell checker built-in, and it seems to work quite well so far. So now when I write blog articles in FF (as I am right now), the browser handles the spell checking rather than the blog itself. The benefit here, aside from the obvious ones, is that the checker allows you to add words to it’s dictionary. So you get a universal dictionary you can take with you to any web page or blog you may be writing or commenting on. Handy, especially if your work is littered with industry-specific jargon that most spell checkers don’t know off the bat.

Firefox 2.0 is not without it’s issues. Some due to newness (many plugins have not been updated yet), and some bugs. Read up before you install, or run it side-by-side with your existing browser at first. I’ve been waiting for a year WP to add an elegant built-in spell checker to the WYSIWYG writer, but FF 2.0 solves the problem!

Paul Graham (overall smart-guy and Y Combinator partner) has put together a great reference list of the issues that can kill startups. If you are an entrepreneur, print it out and put it on your wall. Or everyone’s desk. The full list is here.

It is better to go into a situation eyes-open than eyes-closed, and a list like this is good to re-read every 2 weeks as a reality-check. Experience counts…and having a spotlight on the punji sticks and craters around you will only help you survive the jungle. (yes, that’s 4 clichés in one sentence!)

An unordered list of some of the most important items;

• Derivative Idea - the “me too” plays rarely work. Find a real problem that is not being solved in an elegant manner. Fix it.
• Raising too much or not enough money - There are two separate entries on this. This is a hot topic and frequently debated. There is a fine line between the two and even “smart” money comes with strings attached
• Having no specific user in mind - I love this one. Great insight here about building a product for a specific target market AND user.
• Launching too slowly or too quickly - two entries here that highlight the challenge of getting your market entry timing right, and making sure all elements of the business are ready to go.

One of the big take-aways from this list of mistakes is that there are errors to be made on both sides of any key decision. Starting a company, raising money, launching a product, etc. is like walking a balance beam. Swing too far to either side and you fall off. Perhaps this helps explain why so many startups fail, and why its so much harder than it may appear to be to actually create a successful business. There is a plethora of data, precedent and metrics out there to look at, but getting it right is still an art form.

In a wonderful instance of irony or serendipity, the YouTube acquisition by Google was announced the same week The New York Times ran a story about the VC model being broken “A Kink in Venture Capital’s Gold Chain“. Daniel Primack’s P.E. Week Wire covered this also (here).

The article talk about the VC model itself being “broken”, and then P.E. Week Wire argues the firms themselves have to change too. For example, Sevin Rosen Funds argues that the available exits for VC backed companies has changed for the worse. They believe tha that this change is fundamental enough to NOT raise another fund until a new model is found. There are the commonly cited reasons; The IPO market has been all but shut-down for VC backed companies due to SOX and impatient hedge funds jumping the gun. Further the high-profile, megadeals such as YouTube are exciting, but insufficient to sustain the industry. Another issue is that there is arguably too much money being deployed in some of the trendy sectors, which makes the likelihood of enough juicy buyouts weak due to volume. (It’s all a numbers game, after all)

The good news is that the industry IS evolving. There has been a growing trend in the last 2 years or so where partners from larger firms have decided to not raise another large fund, left the big firm, and gone on to start another firm focused on early-stage deals with a smaller fund. Some of the Tier 1 VC firms out there today started as early stage firms and got bigger and bigger as they knocked down successful funds in the 90s. Firms like YCombinator, True, and Labrador are a few examples of seed/early-stage firms that roll up the sleeves and are pushing the envelope on ways to fund innovative companies without placing excessive exit demands on them from the get-go in order to satisfy the requirements of big funds.

There is no question that the exit environment is tough, and the “hot” markets get quickly over-populated due to ambitious entrepreneurs, an excess of private equity, and of course greed. The MBA-camp is reworking their formulas, algorithms, and spreadsheets and the operational guys are thinking deeply about how to drive cost out of the model top to bottom. At the end of the day, VCs are for-profit companies that will have to evolve and adapt to market changes and new competitors just like the companies they fund do every day. It is beginning to happen in some circles. As with everything in business the Rogers curve will be followed. There will be firms that are Innovators and Early Adopters, there will be a Majority, and then the Laggards.

The only thing that is for certain, is that the VC model needs to evolve and adapt. Broken or not, this industry fuels massive amounts of innovation and growth in every industry sector (even cars as we previously blogged about here), and we need to see the VC model evolve and survive.

Something tells me that Sequoia Capital doesn’t think the model is broken. They have invested in many of the stars - Apple, Cisco, Oracle, Yahoo, Google, etc. They just made a 43x return on YouTube. We are talking about over $400M in less than 2 years.

Even smaller exits, like Grouper’s sale at $65M to Sony, were profitable to the investors. Grouper had raised 5.25M, so that’s a 12x exit, which is very respectable.

New models will emerge in the next few years, many will be tried. In the meantime, we believe building solid companies that are operationally efficient and provide meaningful value to their target market will be successful. What do you think?

The Colorado-focused CTEK Angels network is hosting an event called “CTEK Angels Live” on October 17th in Denver. CTEK is opening the doors of a real investor meeting to a broader audience so that people can get a glimpse of the thought process, questions, and criteria Angels look at while evaluating a deal. I am a registered CTEK Advisor (different group), and do plan on attending the event. I am curious to see how “real” it ends up being given the circumstances, but regardless I aplaud CTEK for providing this kind of visiblity to a broader audience.

Event details are here.