Adventure Capital

In Uncategorized on May 1, 2009 at 11:41 am
Michael Pacher's Wolfgang und der Teufel

Michael Pacher's Wolfgang und der Teufel

My wife’s literary hackles were once again raised by my venial twisting of a quote from Hamlet “To be or not to be…” Her view is that all too often the things that are within close reach are not the things that offer us the most favorable or ultimately desirable outcomes. And so once again I will forsake the clever “To raise or not to raise…”  as a title for this post and present the above, which is the end somewhat less pithy but perhaps more cogent.

The desire to raise capital is utterly seductive—what can be better than using OPM (Other People’s Money) to fulfill your dreams?Sounds great, right? However, like so many of life’s great temptations, raising money comes with enormous caveats, particularly for the uninitiated. But if you are aware of the implications, are well prepared, and go in with eyes wide open, it can be an extraordinary way to launch your venture into the stratosphere. Bear in mind, however, that you are almost as likely to get on American Idol as you are to get a business funded—so be prepared for rejection. It’s not personal, and your idea may really have merit and great potential, and yet still not be right for venture capital. But don’t let the odds dissuade you; just be prepared and make sure that you have thought your business out thoroughly. To do this you may need to become “that guy” for awhile, the one that talks about their business to everyone they meet in order to get the story down.

Faustian bargain?

Contrary to what you may hear, venture capitalists are not the devil. Not that there aren’t devils in their ranks, but by and large most VC are genuinely and deeply interested in the businesses and the people they invest in. The trick in business, as in romance, is finding the right match. Easily said, of course, but how do you go about the process, and how do you know when you’ve found the right match, and, even more importantly, how—even if you find the right match—do you make sure the VC you want to work with will want to work with you, the entrepreneur? Well, like any good game there are rules (in this case they are of the thumb variety).

1.) Put yourself in the VC’s shoes (they usually wear pretty nice shoes, so this part should be fun).

These people work hard. They are up early, get home late, and in their day they deal with dozens of complex relationships involving portfolio companies that are in various stages of development. Typically an individual partner champions a candidate company to their partners in the firm and it is usually this partner who takes a seat on the board of the company when it gets funded. This person has a lot to gain, but nine times out of ten has more to lose (often the champion partner, along with committing the firm’s money, has to put up some of his own personal capital into the investment). So in addition to financial risk, partners are taking a risk with their own reputation within the firm, as well as the firm’s reputation to its limited partners (these are the investors who have given their money to the firm to manage and grow), and finally, the firm’s reputation in the industry. Once a partner has decided to bring a company in for consideration (there is, as you can imagine, a fairly sophisticated vetting process to even get to this stage that involves junior associates sorting and reading through hundreds of business plans per week, then contacting the entrepreneurs of the more promising companies and speaking with them and often following up with a meeting to make sure there is real potential for a good match), they invite the entrepreneur/s in to present their business.

2.) Be on your best game.

This is where the magic happens. This meeting is about being on your best game, this is the audition, the job interview, the big moment to shine. But, again, don’t let that intimidate you. Remember that you are presumably the expert with regards to your business idea, and these people are here to listen and learn. Though you may get what seems like a lot of resistance, keep in mind that they are, in part, trying to see how you perform under pressure. If I had to give a single piece of advice, I would say that you should just be natural. Converse in your own style and think of these people as your peers. You are the expert here and they are your students, and as students, they are usually very good, so do your best to be an equally good teacher. They are not testing your ability to have the answer for everything. In fact, most VCs will tell you that one of the most common reasons they decided to work with an entrepreneur is because when the entrepreneur didn’t know something, he or she simply said so. That is a big deal because, if you’ve been around early stage ventures long enough, you know that no matter how well-considered a plan is, it will inevitably fall apart, only to come back recast and stronger as a result. That is the nature of the early-stage game, and recognizing it and honoring it is critical. Other than being natural and genuine, I would say you should be confident and receptive to dissenting opinions.

3.) Do your research.

Despite the notion that business is highly competitive, the VC world is very small and they speak with one another frequently. When you think about the fact that a typical VC firm gets thousands of business plans a year, it’s clear to see why they wouldn’t worry too much about competitors taking their deals. Couple that with the fact that they are very risk-averse, and you end up with a situation where they would prefer to share an opportunity with another strategically aligned firm rather than try to keep it to themselves.  This is great, and it is how other industries should work, because in the case of the VC world this practice has given them better deal flow and a reduction in risk by spreading it around more broadly. And so it is vital that you are selective about to whom you send your plan; if you blanket the entire field, you will just end up having wasted your time. This is not a numbers game. So go to websites such as TradeVibes, do some studying on who has funded what, when, and for how much, and then create a target list of a handful of firms and go after them with laser focus.

4.) Get yourself out there in the spotlight.

Nothing is more conducive to getting capital for a good idea than hanging out with VCs. Put yourself in situations where you are visible and credible. Speak at conferences, do as much PR work as you can, find ways to help other entrepreneurs. Cooperation and generosity are good, basic human traits and, particularly with entrepreneurs, what comes around goes around. Essentially it comes down to this: build your brand as an entrepreneur.

5.) Don’t hold on too tightly.

If you are going out to raise money from VC, don’t think of your company as your baby, because no investor wants to pour capital into someone else’s baby. Instead, think of your business as a mini public company, and run it like one. This is one of those compromises that feels Faustian because you are selling a part of your company and as a result, a new voice (that of the VC) is being added to management dialogue. It will likely be a quiet voice, unless something starts to go wrong, and then VC investors will clamp down quickly and very hard. If things do start to go south for any reason at all, it is likely you will be fired and replaced. You will generally get a fair severance and still own your vested equity in the company, but you will likely have little or no authority in the business you started. So be prepared for that potential reality.

6.) It is a symbiotic relationship.

A company’s relationship with a venture investor is a complex one—mostly good, but the tough times can be really taxing. Many entrepreneurs make the big mistake of assuming that sharing the economic goal of a big exit with their venture investor means everyone will always see eye-to-eye. This is simply not true. VCs base many of their decisions on their IRR (Internal Rate of Return) and so even if your business is growing, there will be many issues on which you and your VC will differ, and their IRR across their entire portfolio may affect your company in ways that have little or nothing to do with your business. They are smart people, and they want your company to succeed, but they also have a responsibility to manage the capital entrusted to them, and so they keep their eye on macro conditions that affect their entire portfolio—not just your company.

7.) Just do it.

If your company is at an early or conceptual stage, just keep going: keep running and growing the business and don’t get distracted by the potential to raise a bunch of money. It is a huge and time-consuming undertaking and will take you and a good portion of your senior management away from your business. Instead of moving the venture forward, you will be caught up in a3-to-9-month, nearly full-time cycle of fundraising. This is one of the big contradictions in the VC-to-venture relationship. While you’re out raising money, your business will suffer, but while you’re asking people for money they want to see the business preforming. In part, the extraordinary amount of time it takes to go from first meeting to closing is built into the due diligence process by its complex nature, but it also serves to give the investors time to watch and get a more intimate reading of the company over the course of the process. So performance during that time is critical.

8.) Keep it simple.

This is my opinion and others will likely disagree, but I believe that a business plan should be between 5 to 15 pages max, without financials. If you can’t say it in 15 pages, it probably has too many moving parts to scale or you are not articulating clearly enough. Writing a business plan is an art that takes practice and experience; a cookie-cutter approach won’t do. From your plan you should be able to extract an executive summary of 3 to 5 pages, and you will also need a comprehensive set of current financials (Balance Sheet, Income Statement, P&L), and usually  projections looking forward 3 to 5 years. You will also need some way to clearly present the business in a meeting. I’m not a big lover of Powerpoint, but it or Apple’s Keynote are often really great ways to get a complex or abstract idea across. Finally, you should be prepared to take a call and be able to answer deeper questions about the business.

9.) Be prepared to step aside.

Sometimes VCs love an idea, see the potential in the market, and like the team. At the same time, they may view the founder as a great visionary or guide but as not a manager who can scale a business. In these cases, they tread lightly but probe to see if you recognize the same issue and are prepared to find a CEO, President, etc., who can take the reins and drive the business forward. This is not necessarily a bad thing; stepping aside from a management role does not mean you will lose your business—it often means you will be able to focus more on what you love and let someone else do some of the heavy lifting.

10.) Relax and enjoy the ride.

Pitching can be a tedious and emotionally draining process. At the same time, it is a really exciting opportunity. I found pitching for the first time to be romantic, the second time exhilarating, and anything beyond that a comfortable opportunity to talk with smart people about something you enjoy and believe in.

In the end, my view is that venture capital has a very real and important role in our economy, and as an entrepreneur it is important to respect that. At the same time, what you’re doing is creating—while they are your patrons, you are their da Vinci. So enjoy the adventure and feel free to contact me if you have any questions or thoughts.

Elevating the masses

In Uncategorized on April 28, 2009 at 11:51 pm

The Boathouse at Smith College

We all have so much in common; certainly in our basic needs we share a singular set of common traits and desires. This is an excerpt from


from Psychology – The Search for Understanding

by Janet A. Simons, Donald B. Irwin and Beverly A. Drinnien

West Publishing Company, New York, 1987

Physiological Needs

These are biological needs. They consist of needs for oxygen, food, water, and a relatively constant body temperature. They are the strongest needs because if a person were deprived of all needs, the physiological ones would come first in the person’s search for satisfaction.

Safety Needs

When all physiological needs are satisfied and are no longer controlling thoughts and behaviors, the needs for security can become active. Adults have little awareness of their security needs except in times of emergency or periods of disorganization in the social structure (such as widespread rioting). Children often display the signs of insecurity and the need to be safe.

Needs of Love, Affection and Belongingness

When the needs for safety and for physiological well-being are satisfied, the next class of needs for love, affection and belongingness can emerge. Maslow states that people seek to overcome feelings of loneliness and alienation. This involves both giving and receiving love, affection and the sense of belonging.

Needs for Esteem

When the first three classes of needs are satisfied, the needs for esteem can become dominant. These involve needs for both self-esteem and for the esteem a person gets from others. Humans have a need for a stable, firmly based, high level of self-respect, and respect from others. When these needs are satisfied, the person feels self-confident and valuable as a person in the world. When these needs are frustrated, the person feels inferior, weak, helpless and worthless.

Needs for Self-Actualization

When all of the foregoing needs are satisfied, then and only then are the needs for self-actualization activated. Maslow describes self-actualization as a person’s need to be and do that which the person was “born to do.” “A musician must make music, an artist must paint, and a poet must write.” These needs make themselves felt in signs of restlessness. The person feels on edge, tense, lacking something, in short, restless. If a person is hungry, unsafe, not loved or accepted, or lacking self-esteem, it is very easy to know what the person is restless about. It is not always clear what a person wants when there is a need for self-actualization.

I think Maslow has it right and I believe that understanding these needs can illuminate so much of what we do and why. But what is striking to me is that once we go beyond or rather allow ourselves to dive into these needs we step into such a rich world of imagination and intention. It’s here that we in the developed world have the luxury to play and explore and it’s here that we ought to look for inspiration and growth.

As an Untrepreneur, my heart quickens when I think about the possibilities afforded to me when I get the chance to work with people whose work and ideas I respect. My mind races with images of world-changing developments. I go into a state of blissful engagement where work ceases to be “work” and my mind is so fertile that all ideas are one small step away from reality. In those moments there exists in me a visceral sense of truth and an expansive sense of possibility. I believe that in those times it is critical to create a record, but to do so with the least possible drag on the process of creation. It is important to understand that in these fleeting moments Heisenberg’s uncertainty principle is at work and that to measure and record affects that which is being measured or recorded. My approach is to trust my subconscious mind’s ability to retain and process the most relevant aspects of the exchange and to use written notes and audio/video as a backup. But most importantly I just stay in the moment and let the experience and the associated feelings sink in.

So what does this have to do with business and how can it make you wealthy beyond your wildest dreams? Well, the answer to that is simple: It has everything and nothing to do with business, and if by wealthy you mean living a deeper, more satisfying life the result of which will give you the greatest opportunity for financial riches as a bonus, this thinking is the very core of business itself. The beautiful thing about it is that it’s like yoga—anyone can practice it; those who have the desire can put their imagination to work and share those views with people they respect in a collaborative way and build whatever they conceive.

There is no monopoly on brilliance

I recently participated in a conversation about genius—what it is, what it means, who is a genius, and who will never be one, and I was astounded by the opinions I heard. I heard thinking that elevated genius to a rare few, and in the tone of the conversation I heard such reverence for those anointed few that it made me think that no one—no living creature—could be so brilliant that it/she/he could have singlehandedly had such an impact as these souls are reputed to have had on the shape of our world. Instead, I assert that genius is not the solitary function of an single individual but rather the catalytic reaction of an individual when placed in an environment where their make-up can flourish. My belief is somewhat akin to Malcolm Gladwell‘s in his book Outliers: The Story of Success. In essence, I believe that genius, like success, is an innate human trait and that physical, social, and behavioral factors determine the course of each of our lives and the impact we have on the world around us. So if that’s true, let’s put it to use. Let’s start a catalytic reaction, let’s sit down with someone whose talents we respect, let’s engage our inner Untrepreneur and let each of us create something new, something that changes our world, and let’s start today.

I have a proposition to make, or maybe it’s more of a challenge. I challenge you to take some time this week to think through and outline in your mind something that you feel you would love to see accomplished in the world. In your outline, think through some of the details, bring some color to it, let it fill you with the essence of what it is, envision how it might look and feel, imagine it as real. Then think about what it would take to make it real, whose help might you need, what resources it will take to build and operate (in this, be creative and don’t put forth artificial limits. In the future I will talk more about approaches to making just about anything happen). Then, once you have a fair sketch in your mind, I urge you to reach out to five people (whether you know them personally or not) and articulate your idea. Then, ask them for their guidance and, if you’re really feeling brave, ask them to participate in helping you build it. Take an open source approach to building your idea into a tangible thing. A good model for this (and, granted, music lends itself well to collaboration) is Indaba Music. Indaba is a company that provides all the basic tools for collaboration, it provides a central place where a community can form around the craft of creating music, and it allows for a free flow of ideas that generate an incredibly rich pool of creative value. There is no reason that people—regular, average people—can’t build and create anything that they can imagine. The primary thing that holds people back is the mythology around what it takes to build anything of value and the notion that the business world has it all figured out. The truth is that no one has it all figured out and everyone is on a constant lookout for better solutions. So get up and get out and make part of your conception a reality, starting today.

After all, it is each person’s responsibility to effect change in the world in a manner that is consistent with his or her vision.

Some wonderful resources for finding smart people to collaborate with are:

Co-working NYC (this is NYC only. There are other co-working groups around the world.)



No one cares unless you do.

In Uncategorized on April 25, 2009 at 9:35 pm
Union Square Farmers' Market

Union Square Farmers' Market

I was originally going to title this first post “Putting the U in Untrepreneur” but my wife, (who happens be one of the most brilliant people I have ever met) chided me in the loving way that only someone so intimately connected can, about how if I were anyone else cliche might be ok… Then she gave me the look that said stretch and dig just a little bit deeper, which leads me to my subject.

Lately I’ve heard the word authenticity being thrown around like snowballs in a schoolyard during the first snowfall (believe me, the parallel is remarkable because the look of satisfaction and joy on people’s faces when either is thrown is the same). Authenticity  is a powerful word, especially so if we subscribe to the belief, as I do, that says: all things have intrinsic power and releasing that power is conceptually as easy as stripping something down to an atomic simplicity (bringing something to its most primitive and authentic state) and setting it free to catalyze a reaction. But that, of course, like everything worth doing, takes focus, energy, and a great deal of attention to detail.

So what’s the deal with authenticity, why has it become so prevalent?

To answer this question I went to the arguable source of authenticity in New York City: The Farmers’ Market in Union Square. It was beautiful Saturday afternoon, the sun was shining, the air was crisp, and the market was filled with throngs of people. A farmer’s market is an age old tradition dating back thousands of years; it is one of the most basic hallmarks of civilization and in that moment I felt the connection to those thousands of years of human history and it felt good. For some reason my experience felt more real, more grounded, and somehow more natural than any visit to even the most conscientious supermarket.

I spend so much of my day in offices, on phone calls, or with my eyes fixed on pixels spread across varying array of glass surfaces, my fingers or thumbs twitching to generate written language (incidentally, another great hallmark of civilization). I am a contemporary man of business and these are the tools and environments that make up my world; virtual as it may be, it is the world in which I interact and get things done, it is the world in which I have huge levers made of electrons that I power by minute, graceful gestures and subtle variations of my voice. I have power previously only imagined and I still have a long way to go. But before I go too far, let me take a step back to the middle of the industrial age, to a time that brought about the advent of better, more reliable, and quicker transportation. To a time where dreams and necessity brought about refrigeration, an invention that has allowed for the development of a food distribution system that no longer required produce to be brought for consumption on a daily basis. This was most certainly progress because food could now be frozen, packed, and shipped across great distances and across vastly different climates. I swoon with the tremendous economic and culinary opportunities that this opened up — a quick visit to the grocer to gather a feast of mangos, bananas and blueberries on a wintery New England day. What a perfect expression of Say’s Law and yet what a recipe primed for micro-economic manipulation. And so it was…

By the the middle of the 1970’s farmers markets in America had all but disappeared with only about 100 markets operating across the entire United States. This inevitably led to a consolidation in the production, packaging and distribution of agricultural products by a handful of operators, which, in turn led to an increase in pre-packaged consumables and a dramatic reduction in product quality and an increase in price over a short period of time. Seeing the need to continue to foster local farming, the United States passed the Farmer-to-Consumer Direct Marketing Act of 1976. However by this point, suburban expansion had gotten out of control and the reliance on large distributors became even more important as more and more Americans fled the cities to live out their lives in the suburbs. Then, by the middle of the 1990’s, cities started to become safer, and jobs more plentiful so the pendulum began to swing again and populations started flowing back into cities. This migration of more affluent, quality-conscious individuals and families set the foundation for a movement towards more healthful living. As a result, over the next decade a slow increase in the number of farmers’ markets began to take hold and by 2004 the number had increased to over 3,700 and today there are over 4,600 operating throughout the United States.  A new culture has emerged, a culture more focused on thoughtful consideration of a range of factors that determine quality of life. And so today in our world of technical wonder the simplest cultural institution, the farmers’ market, is playing an increasingly central role in the lives of people who have thought about and care about the details that make up their lives. For me walking through that farmers’ market made me feel that same connection to the beauty in the details that make up my life. And that is exactly what authenticity is about. It is about doing what we feel is right, good and enriching. And in this case the miraculous side benefit of this is that it makes for a more environmentally and economically sustainable existence.

So thank you to all the local farmers for their passion and for their diligent efforts, against enormous odds, to bring us nourishment and sustenance that not only is good for us but tastes good and is friendlier to our ecological environment and often to our wallets as well.

For more information on local farming and to find a farmer’s market near you check out:

The U.S. Department of Agriculture’s Agricultural Marketing Service

Local Harvest

The National Sustainable Agriculture Information Service

The Organic Consumers Association


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