Ahh, the ironies of life.
When I started talking to investors in New York about SpeakerText––not even trying to raise money at that point, mind you––I offered a grand vision of how the company was going to "change the internet" and revolutionize how people interact with audio and video on the web. The response: Too big. Too ambitious. Make it smaller, safer.
After hearing this enough times, I changed my pitch. SpeakerText stopped being "a new paradigm" and the "next logical step in the evolution of video on the internet," but instead became "an interactive transcript tool for video publishers." Or at least in my pitch. In my mind, we're still out to change the world, but I didn't really talk that part talk up unless people asked.
And then I went to the Valley.
The response: Too small. I don't see how this changes the fabric of the internet.
Fuck me.
But wait, I would explain, there's this whole other part that I didn't tell you about. And I would go on to explain how SpeakerText is going to change the internet. Ohh, they'd say, that is a lot bigger. Hmf. Why didn't you pitch that in the first place?
Now, at first I thought it was just me. But then I met up with another founder who was visiting the Valley as well. I heard his pitch and thought the same thing that people had been saying to me: too small. I told him this and he said the same thing I did: Wait, there's more! And he went on to explain that he had cut out the world-changing ambition part of his pitch after local VCs (he's from Vancouver) had poo-poo'd it in favor of a smaller, safer idea.
Hmm. Sounds like a pattern.
And so I now have a working thesis: There's two kinds of investors in this world. The ones who think big, and the ones who don't; the ones with a Valley mindset, and everyone else.
One of the dangers that first time founders living outside of the Valley (like me) face is that our minds get poisoned and our ambitions shrunk by the parochial leaders. And it's not even that all the locals are small-minded or small timers, but that the ones who really push you to think big––the Chris Dixons & the Fred Wilsons––are so far removed from and inaccessible to the little guys that by the time you get a meeting with them, your thinking and your pitch has already been influenced and shaped by the more numerous and accessible VCs that push you to think smaller and safer.
It creates a weird paradox: to get a meeting with the big time VCs, you first need to talk with and be vetted by the small time VCs. But the feedback you'll get from the two camps will differ radically.
If you listen to the small timers and incorporate their feedback into your pitch, it will kill your chances with the big timers. And by the time you've figured this out on your own, it may be too late.
Fuck me.
And yet such is life. You live, you learn, you stumble, you recover, you pivot and you persist. Besides, it's never too late. Life is an iterated game. You just gotta keep hustling. Always.
As someone reminded me in an email today, it's not like everyone in the Valley wants to change the world either. On this earth, there is no paradise. It's just a matter of degree.
I like your frank talk. See you soon.
I like your frank talk. See you soon.
Wow, this is an extreme example but another great one. I definitely see some truth here even though personal experience is never objective (there’s always confirmation bias). Matt, why are you always giving shout-outs to Chris and Fred? It’s a little over-used. 🙂
I’ve heard NYC-based VCs refer to themselves as more risk averse and heard them compare deals in SV to gambling. Some local VCs used to have offices in the valley but closed them because of this. Definitely some selection bias in our ecosystem. I like this post in the sense that its a call to our investors to step up their game.
Wow, this is an extreme example but another great one. I definitely see some truth here even though personal experience is never objective (there’s always confirmation bias). Matt, why are you always giving shout-outs to Chris and Fred? It’s a little over-used. 🙂
I’ve heard NYC-based VCs refer to themselves as more risk averse and heard them compare deals in SV to gambling. Some local VCs used to have offices in the valley but closed them because of this. Definitely some selection bias in our ecosystem. I like this post in the sense that its a call to our investors to step up their game.
Matt, nice to meet you via your blog post. Being that I am one of those valley guys who looks for the big idea, I thought I’d chime in.
One of the things I always look for in a startup idea is the world domination plan. More on it here: http://ds.ly/6iWdRE and here: http://ds.ly/8xuYz5. While I don’t necessarily think you must have “the plan”, I do think it’s most important to have the right attitude.
I’ve met too many that thought small. They only want to get to a certain point and have no idea about what’s after. This is a danger for us investors. Too many of our startups have gotten to small business size; while I think there should be more small businesses on the internet, the way we’re investing in them is not compatible with how we get our return. When they reach small biz size, they are making great money for everyone in the company, but they are not big enough to attract a lot of M&A attention, so our money is effectively trapped within the company. So we’re still investing in early stage as if they’re going to be the next Google. At some point, we need to look at changing investing structure potentially or some other solution, which is unsolved for the moment.
However, for the lack of such a solution, we are forced to shoot for the moon every time. This is in hopes of getting outsized returns on as many as possible, because at early stage we know we’re going to lose on so many more (like 1 in 30 , or 1 in 40 or worse).
If the entrepreneur isn’t shooting for the moon, then there is added risk that the project won’t get there because the entrepreneur didn’t have the right vision in the first place. If he doesn’t at the beginning when we meet them, then we may never know if he’ll get it later; he might never get it!
Now some investors might think that it’s ok for the quick small flip in a short time to make a quick buck. I’ll tell you that I’ve been involved in a few lower sales and there is substantial risk that investors may not make anything back. This will be the subject of a future blog post, but I’ve seen cases where a startup is forced to take a deal where the buyer wants all available cash doled out to the staff only, where investors don’t get any, or barely any; certainly not to the level as dictated by stock ownership! Add to that the fact that M&A isn’t as easy as it looks as the competition for that market is so hot right now as well.
So to me, hedging against all sorts of risk, we need to bet on entrepreneurs who at least have the right attitude towards creating a world dominating company because we know a great many will fail, and small flips may return less than we’d like. They may not have the world dominating perfect idea at the beginning – better if they have something plausible of course – but the right attitude at least sets the project off on the right path.
Also, remember that it takes about the same effort to work on one thing versus another; why work on something just as hard to get it to a small place where you could have put that effort into building the next Google?
So there you have it; one valley guy’s opinion on shooting for the moon.
Matt, nice to meet you via your blog post. Being that I am one of those valley guys who looks for the big idea, I thought I’d chime in.
One of the things I always look for in a startup idea is the world domination plan. More on it here: http://ds.ly/6iWdRE and here: http://ds.ly/8xuYz5. While I don’t necessarily think you must have “the plan”, I do think it’s most important to have the right attitude.
I’ve met too many that thought small. They only want to get to a certain point and have no idea about what’s after. This is a danger for us investors. Too many of our startups have gotten to small business size; while I think there should be more small businesses on the internet, the way we’re investing in them is not compatible with how we get our return. When they reach small biz size, they are making great money for everyone in the company, but they are not big enough to attract a lot of M&A attention, so our money is effectively trapped within the company. So we’re still investing in early stage as if they’re going to be the next Google. At some point, we need to look at changing investing structure potentially or some other solution, which is unsolved for the moment.
However, for the lack of such a solution, we are forced to shoot for the moon every time. This is in hopes of getting outsized returns on as many as possible, because at early stage we know we’re going to lose on so many more (like 1 in 30 , or 1 in 40 or worse).
If the entrepreneur isn’t shooting for the moon, then there is added risk that the project won’t get there because the entrepreneur didn’t have the right vision in the first place. If he doesn’t at the beginning when we meet them, then we may never know if he’ll get it later; he might never get it!
Now some investors might think that it’s ok for the quick small flip in a short time to make a quick buck. I’ll tell you that I’ve been involved in a few lower sales and there is substantial risk that investors may not make anything back. This will be the subject of a future blog post, but I’ve seen cases where a startup is forced to take a deal where the buyer wants all available cash doled out to the staff only, where investors don’t get any, or barely any; certainly not to the level as dictated by stock ownership! Add to that the fact that M&A isn’t as easy as it looks as the competition for that market is so hot right now as well.
So to me, hedging against all sorts of risk, we need to bet on entrepreneurs who at least have the right attitude towards creating a world dominating company because we know a great many will fail, and small flips may return less than we’d like. They may not have the world dominating perfect idea at the beginning – better if they have something plausible of course – but the right attitude at least sets the project off on the right path.
Also, remember that it takes about the same effort to work on one thing versus another; why work on something just as hard to get it to a small place where you could have put that effort into building the next Google?
So there you have it; one valley guy’s opinion on shooting for the moon.
Good point by Michael Martin…
Good point by Michael Martin…
Matt, Very provocative post. Your insight about not adjusting a pitch based on feedback from bad investors is spot on. There are certainly more good investors in the valley than in NYC, largely just because there are a lot more experienced tech investors in the valley. (NYC has other advantages that make up for the dearth of good local investors. Not to mention that a lot of valley-based investors are doing deals in NYC, thanks in part to $230 round-trip Virgin wifi-enabled flights.)
I don’t know how you arrived at this line though: “to get a meeting with the big time VCs, you first need to talk with and be vetted by the small time VCs”. I don’t know of any big time VC who waits for small time VCs to vet their deals (by definition, they wouldn’t be a very good VC if they did). To the contrary, good VCs usually want to see a deal before other VCs.
Matt, Very provocative post. Your insight about not adjusting a pitch based on feedback from bad investors is spot on. There are certainly more good investors in the valley than in NYC, largely just because there are a lot more experienced tech investors in the valley. (NYC has other advantages that make up for the dearth of good local investors. Not to mention that a lot of valley-based investors are doing deals in NYC, thanks in part to $230 round-trip Virgin wifi-enabled flights.)
I don’t know how you arrived at this line though: “to get a meeting with the big time VCs, you first need to talk with and be vetted by the small time VCs”. I don’t know of any big time VC who waits for small time VCs to vet their deals (by definition, they wouldn’t be a very good VC if they did). To the contrary, good VCs usually want to see a deal before other VCs.
Personally, I like it when investors’ interests are more closely aligned with my own.
If you want an investor to veto a $50 million acquisition that would make you a very wealthy guy, go ahead and pitch the big vision and take the responsibilities that go along with it. But realize that you are not just signing up for an *opportunity* to create a massive, world-changing company, but the *obligation* to do so.
Personally, I like it when investors’ interests are more closely aligned with my own.
If you want an investor to veto a $50 million acquisition that would make you a very wealthy guy, go ahead and pitch the big vision and take the responsibilities that go along with it. But realize that you are not just signing up for an *opportunity* to create a massive, world-changing company, but the *obligation* to do so.
The two approaches both have value. The “world-changing” mentality may be grandiose and unmoored from reality.
The details-oriented mindset can keep the investor in business by protecting them from the grand narratives of overly-zealous entrepreneurs and promoters.
Naturally, long-term successful investors will have elements of both in their personalities. The grandiose liars can make a killing off of dumb money (and immolate their reputations), while the bean-counters can easily miss growth opportunities.
Venture capital has a tarnished reputation for very good reasons. Many people were hurt by the late 90s IPO boom. The NASDAQ still hasn’t recovered. It’ll take a long time for VC to rebuild its reputation. The best thing that I think anyone can say for the field is that its reputation is less filthy than that of ibanking and the hedgies.
The new trend of ultra-transparency is promising.
The two approaches both have value. The “world-changing” mentality may be grandiose and unmoored from reality.
The details-oriented mindset can keep the investor in business by protecting them from the grand narratives of overly-zealous entrepreneurs and promoters.
Naturally, long-term successful investors will have elements of both in their personalities. The grandiose liars can make a killing off of dumb money (and immolate their reputations), while the bean-counters can easily miss growth opportunities.
Venture capital has a tarnished reputation for very good reasons. Many people were hurt by the late 90s IPO boom. The NASDAQ still hasn’t recovered. It’ll take a long time for VC to rebuild its reputation. The best thing that I think anyone can say for the field is that its reputation is less filthy than that of ibanking and the hedgies.
The new trend of ultra-transparency is promising.
I think this kind of “ratcheting up” paradigm is fairly common in the funding process.
Besides the case you mention which I found to some degree as well, it’s sometimes necessary or good to meet with and vet your pitch with investors who are not your #1 pick up front, so that when you get to your top picks you’ve figured out the holes and worked through them. But similarly, the feedback you get may or may not be something you want to incorporate.
I think this kind of “ratcheting up” paradigm is fairly common in the funding process.
Besides the case you mention which I found to some degree as well, it’s sometimes necessary or good to meet with and vet your pitch with investors who are not your #1 pick up front, so that when you get to your top picks you’ve figured out the holes and worked through them. But similarly, the feedback you get may or may not be something you want to incorporate.
For what it’s worth, I agree that it makes sense to think big when investing venture capital. But it doesn’t hurt that the Silicon Valley VCs generally have a lot more of other peoples’ money to play with either. ;D
For what it’s worth, I agree that it makes sense to think big when investing venture capital. But it doesn’t hurt that the Silicon Valley VCs generally have a lot more of other peoples’ money to play with either. ;D
Obviously, the world does not revolve around investors. Just want to make that clear.
Obviously, the world does not revolve around investors. Just want to make that clear.