There are over a hundred seed accelerators in the world and many more are popping up every year. In New York City, there are going to be 6 more this summer on top of TechStars NYC. The common thread amongst all of these programs is what is now known as "Demo Day", which is a single day (sometimes days) where a number of investors are put in to a room to watch all of the participating companies present for 6-8 minutes. Recently, my company OnSwipe was a part of the inaugural Demo Day in NYC for TechStars. Everyone has been asking me how we prepared and put together our demo day presentation. Without further adieu, here's how. You may want to watch the recording of my presentation below first: Actual Presentation
Put together slides with very few words
You should not have the audience focused on your slides, but your words during the presentation. Bullets are an absolute no-no throughout the presentation. My presentation had one sentence at most per slide with an accent color highlighting what was a really important word for the audience to understand. The slides should set the tone for what you are currently talking about to keep everyone on track. Stay away from transitions or overly flashy slides. They were cool when you were in junior high, but don't add a lot when talking to a large crowd.
Slide Deck (some things might be out of place due to 2 animations)
Make Sure There Is A Screen In Front Of You On Stage
The worst thing you will ever do is look back at the screen. This makes you seem unprepared, especially during demos. It also makes everyone think you didn't prepare with the person, usually your cofounder, that is controlling the slides. You don't want to look down at it too much, but it's there in case shit happens. In a split second you could be on the wrong slide or miss a beat. Instead of turning around to look back confused at the screen, you can properly pause and guide the presentation back to order while looking ahead. It's a small subtle, yet useful prop. Make sure it's there.
Practice, Practice, Practice
I practiced religiously before going on stage. Dave Tisch and Dave Cohen probably wanted to murder me when I skipped the public pitch practices with all the teams, but I was secretly practicing at home or late at night. I look at a presentation a lot like product. It just needs to be broken and tweaked a lot. It isnt' ready for public consumption or scrutiny until you've fine tuned it enough. Make sure you practice until no end. It's what makes you comfortable and confident.
Be bold
This might just be my style, but you need to be bold...very bold. You are going to be presenting with 10+ other companies or even more that day. Investors and press get antsy very fast. When was the last time you could sit through 5 hours of pitches easily? By being bold, you can give a great refreshing jolt to the crowd and pique their interest. It's also great to stand out with a ton of press in the crowd as they will want to do an interview with you afterwards. "Be so good they cannot ignore you."
Speak in tweetable soundbites
People love to tweet live events and demo days are no different. Inside of the room, you will have a great group of influential people that can send your message out to the right people. The thing is, they can't send out the entire presentation, they can only send out 140 characters at a time. In our case, we had 3 tweetable soundbites that became well known afterwards. These weren't by happenstance, but planned well in advance:
- "Apps Are Bullshit"- opening slide that set the tone for presentation.
- "Tap the rocketship"- @fakedavetisch caused this to become some form of sexual inneuendo :)
- "Series Awesome"- We didn't announce that we were raising a Series A, but a Series Awesome.
The "Three Acts"
The best way to do a demo day type presentation is to put the entire delivery into three different acts. Entrepreneurship and delivering a presentation is absolutely no different than theater. You should look at your delivery as a spectacle that enlightens those in the audience, not a typical slide deck pitch.
Act I - The Setup Setup the enemy for the entire presentation, the elevator pitch, and the big vision business. It should be under 90 seconds and even that is something I found difficulty with. The goal here is to give context, hook the audience in, and get to a killer demo.
Act II- The Demo This is what really matters. Too many companies approach demo day as investor day, instead of showing what they've built off in-depth. Screenshots are a no-no and sadly, pre-recorded videos seem to be the way to go due to Wifi. Show off a logical progression of what your product does. Nothing gets someone ready to write a check like a great demo.
Act III- The Execution This is where you talk about what you have accomplished and where you are going. I usually like to talk about a few things: Press, current investors, business development deals, and the team you have been able to attract. This shows where you have been and how you are able to execute as a team. You should also make sure that you talk about what's next. When are you launching? are you raising money? what is the big credo and philosophy behind the company? Tell the world why you exist and why you are going to take over the world.
Get to the demo as fast as possible
This was the biggest lesson we learned through practice. The first version of the presentation took 2:30 to get to the demo. That was an absolute eternity. Even now, I could have shortened things by a good 30 seconds or so. Make sure you get to the demo as fast as you can. The other side of it is, making sure that you give enough context to the audience.
Have an "enemy"
We set out to say app store apps for content publications like the Wall Street Journal and Wired were just complete bullshit. We were very bold in this statement, but we backed it up with undeniable fact. If you are going to make an enemy, make sure you have the weapons to combat them. You have to seem sure when declaring ane enemy and have a logical argument.
Make sure the big long term vision is known
Too many investors and potential partners will think about the present since that is mostly what you are showing. Spend time talking about the big vision in terms of product and in terms of business model. Your product is often different than your business model. ie- Google's product is search, but it really makes money through advertising. Sometimes you may not know what this big vision is, but if you do, make sure that is known. Most people thought our big vision was: be a WordPress plugin that makes things pretty. We made it clear that our goal is to power the advertising in a world where content is consumed with tablets, not point+click devices.
Be fashionable
I'm an outlier here, but the pink shirt went over well. It made me hard to ignore and ended up color coordinating the presentation. Trivia: The onswipe pink colors come from that shirt, not the other way around. Make yourself memorable with appearance. People will remember your ability to command an audience and that can often be done through how you dress. Once again, demos and presentations are not pitches, but theater.
Have an "ask"
Most companies go into a demo day with an intention of raising money. It might be something direct with an exact dollar amount or it might just be an announcement that you're playing around in the waters. Either way, make sure you have an ask that lets the world know your fundraising plans. The biggest problem in entrepreneurship is the fact, that most entrepreneurs just don't ask. If you have existing fundraising commits, let the world know who is in and for how much if possible. My buddies at
thinknear did this by letting the world know IA Ventures was in for 400k of a 1.2 million round.
Show Off Social Proof
Social proof is one of the best things that you can portray during a presentation. Do not be arrogant or cocky, but certainly be confident. Show the world who is behind you and what you have accomplished. Nothing gets an investor more excited than tangible traction, social proof from their peers, and the ability to execute.
Things that didn't work along the way
- We spent a lot of time getting to the demo. We originally had a lot of social proof and big vision talk before the demo. That got people antsy. Let the demo be your proving ground and then
- Don't try to practice in full run throughs at first. Go act by act, screwing up along the way.
- Do not use anything from your investor slide deck. Even though we have never used a slide deck to raise money, we still sort of have one. I dusted it off from the Series Seed and tried to insert some slides. It just doesn't work for demo day. Demo day pitches should be looked at a lot differently than your traditional investor pitch at the end of the day. Demo day pitches really appeal to three broad crowds, with some companies focusing in on one more than the other: press, investors, and potential partners.
In short, this was the most important day of my life and a huge success. The only downside, is that it meant TechStars is officially over. You should apply to the program , and if you get in, hopefully this post will be of use.
Have you presented at a "Demo Day" before? Any tips of your own that you'd like to share?
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Disclosure: SVAngel is an investor in my startup, Onswipe, a platform for insanely easy tablet publishing.
There is a ton of fervor and talk over SV Angel/Yuri Milner investing 150k into every YCombinator startup going forward. The problem with all the fervor and talk, is the lack of analysis of why this does or doesn't make sense. The pundits tend to focus on the pageview factor of why this might be a bubble or something silly. Not only is this a brilliant move, but this is a great look into how one wins in angel+early stage investing. This article is purely looking at this move from an investment lens as I haven't fully had time to think about its impact on startups.
Very early stage investing is won on speed
The best investors move fast and get into the best deals by using their gut instinct. Due diligence is key, but as you will see below, social proof is often the way that an investment decision gets done. There's no logical way that you can fully de-risk a company at such an early stage. Instead, you need to go with your gut. That gut can usually judge people, the overall market trends, and the demo they've prepared well. SV Angel/Yuri Milner just got a first mover advantage on over 40 deals total, a good % of which will be hot deals in a couple of months.
Speed can happen with a simple test of social proof
Even though it is hard to fully de-risk an investment, there has to be some barrier to entry or criteria for making an investment at such a fast speed. Some factors include: a great product, a strong team, great traction, and a slew of others. The most important factor is one that YCombinator provided to SV Angel/Yuri Milner in this case: social proof. 1,000+ applicants applied to YCombinator and only a handful were accepted. Being accepted by YC is a good enough of a signaling point for SV Angel/Yuri Milner. The deal put forth by SV Angel/Yuri Milner is almost like a new type of loan in the form of convertible debt that converts to a more valuable currency of risk. With the SBA, other tests such as credit, revenue history, vendor history,etc. are used to give a business working capital. In the world of technology startups, those tests simply cannot be passed by the vast majority of good startups looking for early stage capital.
You invest in the smartest founders possible.
The angel investing game is all about investing in the smartest people possible. SVAngel/Yuri Milner did not even know the companies in this YC batch and their ideas. Many of those ideas will probably change, but the people won't. SVAngel/Yuri Milner did know that YC selects companies based upon people and can be certain that they are getting the top tier of founders.
They are letting the other investors do the heavy lifting on negotiating
Yuri Milner is renowned for investing large sums of money with very easy terms that do not even require taking a board seat. They do this not only to move at a faster pace to win deals, but also to let other investors do the heavy lifting. This strategy has now been adapted to the early stage investing game. Instead of taking the time to lead a round or set the terms for the round, they let the other parties at the table set the terms. At the time of this writing, 39 of the YC startups have already taken the deal from SV Angel/Yuri Milner. Many are also saying: "Other investors won't be able to match the terms of the deal since it is an uncapped note"... the thing is, they don't need to. The other investors can set whatever valuation they want and the 150k note will still convert. The clincher is, the economics will work themselves out. Odds are the range of valuations will be within reason that SV Angel/Yuri Milner would have invested anyway. The uncapped note just makes life a lot easier for them.
Angel investing requires a large portfolio to work well
Along with speed, angel investing requires a large number of investments in order to really work well. Ron knows this as he is one of the world's most prolific angel investor.
The YC portfolio has done quite well from what we can see publicly according to pg. By making the blanket investment to YC, SV Angel/Yuri Milner has solved for the following problems will be using the fairly obvious success of YC as an almost guarantee that the investments will do well. Since they are investing at an early enough level, they are going to provide returns at a level nearly on par with YC, which has been a success.
At the impossible low end, this is just one huge finders fee to Yuri Milner
A YC company may eventually be a monster company on par with Groupon, Zynga, and Facebook, which Yuri Milner invests in. In the recent Groupon financing of $950 million there was a
finders fee of $75 million. If Yuri Milner/SVAngel invests in 4 years of YC companies, that's 320 companies x 150k, for a total of: $48,000,000. Even if all of those investments failed (impossible), except for one that became a Groupon level Yuri Milner deal, that's still a smaller finders fee than the Groupon deal.
Most of these companies would have raised money anyway
In today's climate and the power behind programs like TechStars and YCombinator, most of these companies would have raised money anyway. It's just that now all of these companies are raising money from at least Yuri Milner/SVAngel and other funds that come in to lead the deal. This is almost the reverse of how investing is done. Normally entrepreneurs go out to seek the best investors possible, but in this case the investors have gone to seek out the best entrepreneurs possible.
The companies will do better as fundraising is now less of a time sink
Fundraising is a huge time sink, especially when you are only a team of 2 or 3. It slows down everything else and it's something you cannot avoid. Many companies will be able to make money, but to really conquer a high growth market, they will need a large amount of capital that they just could not make fast enough through revenue. It's either fundraise or die. With the 150k from SVAngel/Yuri Milner, the YC companies will now be able to concentrate more on the 3 month YC program and for at least another 3 months afterwards. That is a huge difference that has a big impact. The early stages of a startup are very important and being able to move faster and crank out a better product without the intense worry of immediately raising money has already increased the potential returns from the YC companies SVAngel/Yuri Milner just invested in.
I don't know what happens next from here. This is certainly a big move and has already had an impact on the startup landscape. Will others follow suit? I don't know.
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I just got back from Y Combinator Demo Day, Summer 2008. For a startup
fanatic like me, it’s hard to imagine a more fun use of a few hours. I got to
watch 20 back-to-back, rapid-fire startup demos. 
Here are some of my initial reactions and thoughts on the newest cohort of YC
startups. Note: Like most OnStartups articles, this article focused on the
entrepreneurial perspective (not the investor perspective). The folks that
should (hopefully) get the most out of this are the YC startup founders
themselves.
Notes From The Y Combinator Summer 2008 Demo Day
1. Best Cohort Yet: Overall, in my (highly subjective)
opinion, this is the best batch of YC startups yet. I think I have a bias
(which has been tempered over time) for startups that have demonstrated some
thinking around things like monetization and revenue, and that might be
influencing my thinking. The current cohort, on average, seemed to have a
stronger emphasis on not just making something people want, but something that
will yield revenue, and (gasp!) profits. Good stuff.
2. Presentations were better than what I’ve seen in the
past. More fluid, more polished, more effective. My hat’s off to all
the YC startup founders that presented today. You guys did a great job! Having
said that, it’s not a totally fair comparison. You guys do have the advantage
of many more YC founders before you that you can learn from. I’m guessing that
Paul, Jessica and the rest of the YC crew are also getting better and better at
nudging you in the right direction when it comes to Demo Day presentations.
3. Tip: Use your precious minutes: The Y Combinator team
did a great job keeping things moving, and I think the format of Demo Day works
well (6 minutes per presentation, no audience questions). One quick tip for the
presenting team: If you are doing the presenting, you should begin with your
message even while your team member is setting up. Don’t wait for the
slide deck to come up on the screen. Don’t shift the focus to your buddy who is
switching out the cabtes and stuff. Don’t wait. Just start delivering
your message. In your preparation, come up with introductory
remarks that don’t rely on your first slide being up yet. When you only have a
precious few minutes, 30 seconds counts.
4. Don’t use gender stereotypes: This one’s going to be a
little touchy. A few of the startups today used examples and screenshots that
were um, a little too “gender-stereotypical” (that’s a semi-polite way of saying
they were too far down the spectrum towards being sexist). I can understand and
appreciate that most of the YC founders are young males in their 20s. But, my
advice would be to resist the temptation to use scantily clad women in
demos. It’s both inappropriate and sub-optimal.
5. Answer the question you know people are asking
themselves: Once you start doing presentations a lot, you begin to
realize that there’s a “pattern” to the kinds of quesitons people have in their
heads. The same themes recur. Do what you can to make it as difficult
as possible for people to dismiss you because they’ve got that one big
“obvious” question/objection/whatever. For example, I thought the Fliggo team did a smart thing by closing with
this nugget: “I know you’re asking yourself, how are these guys going to make
money…I’m glad you asked…”. You don’t necessarily have to answer the “how do
you make money” question (though that’s not a bad thing), and you don’t even
have to frame it as a quesiton. Just try and address the most obvious things
people are likely to wonder about.
6. Tip: If you’ve got traction, share it earlier in the
presentation: There were several startups that had pretty impressive
early traction (like users and revenues). They didn’t talk about this until
later in the presentation. I’d suggest possibly getting this message out
earlier in the presentation, because it will grab people’s attention
and cause them to listen more intently to the rest of your story. Imagine an
opening sentence that is something like this: “Hi, we’re XYZ. We launched just
a few weeks ago and we’re getting some encouraging early evidence that we’ve
built something people want…Here’s what we’ve learned from our 14,000 users…”.
I’m not suggesitng you use that exact sentence, just a thought. When dealing
with investor types, remember that folks have short attention spans and you’re
best served by grabbing them as early as possible with
something they care about.
7. Memorable sound-bites are not just for TV: I’m
generally not a big fan of over-preparing for presentations (more often than
not, sounding natural is more important than sounding polished). Having said
that, some clever, funny, well-crafted sound-bites thought of in advance and
added to the presentation are a good thing. They’re particularly good for
bloggers and media types that might cover you. For example, the PopCuts folks had this great snippet: “The
only way to get famous on BitTorrent is to get arrested.” Simply
brilliant.
8. Audience participation/engagement works: A couple of
the startups were able to work their demo such that the audience was “involved”
in the demo itself. Although this is hard to do, it’s valuable. It also helps a
lot when you get audience members to do something (instead of just sit
there and listen).
That’s all I have for public consumption. However, I have notes from each of the
presentations. If you were one of the startups that presented today and want
my quick thoughts or feedback, feel free to email me.
I just noticed a great summary write-up of today’s event on Scott Kirsner’s
Innovation
Economy blog. If you’re not yet reading Scott’s blog, you should be.
Best wishes to all the Y Combinator startups. It was great to see you all
and chat with many of you at the close of the event. Knock ‘em dead next
week. In the meantime, some closing advice: Get some sleep!
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I have been tracking Y Combinator (a
new kind of venture firm for early, early stage startups) for several years.
They have a distinctive approach to the early-stage funding process and have
funded some interesting companies. YC is in the news again because of Google's
recent acquisition of Omnisio, a YC investment.
Thinking back on several years of YC history, I dervied the below list of
companies that I would have funded had I had the opportunity to do so. I tried not to cloud my judgement with hindsight (that is, I'm not just picking the ones that ended up being successful). Also,
note that these are not what I think to be the best YC companies — just
the ones that I’ve thought about in the past.
1. Reddit: I remember the day I first
encountered Reddit. They were presenting the product at one of the early Web
Innovators Group meetings. I was still a grad student at MIT at the time, and
went to the meetup with a few of my classmates (we were working on a paper about “Web
2.0” for one of our classes). Interestingly, Kiko (remember them?) was one of
the other companies presenting that evening. I’ll be honest and admit that on
the first evening, I didn’t quite “get reddit” (the category of social news was very
new at the time). But, reddit showed up on my radar pretty quickly a little while later. I
noticed a bunch of traffic coming to OnStartups.com (this blog) through
reddit.com. It caused me to take a second look, and I’ve been following them
ever since. I don’t know Steve Huffman that well (he might actually be even
quieter than I am), but Alexis is about as nice a guy as you can find and has a
weird, quirky creativity that is magnetic. To build a successful startup, it
helps a lot if people actually like you.
2. Xobni: I met Adam Smith for lunch at a
Thai place in Coolidge Corner (Brookline) a long, long time ago. Long enough
that it was before the exceptionally talented Matt Brezina joined as
co-founder. Even back then, I liked Xobni for one simple reason. It complies
with my notion of “the problem you solve should be ugly, the solution should be
beautiful.” There are few things less fun to develop these days than desktop
applications for Windows. It’s ugly. What’s even uglier is developing desktop
software that has to integrate as a plug-in to something else — like
Outlook. That’s one ugly problem. Further, the fact that millions of
people still use Outlook made it in an interesting commercial opportunity.
Plus, I really like Adam. He’s super-smart and listens. [Matt, I like you a
lot too, but I didn’t know you back then and I’m trying to talk about my early,
early thoughts on the company].
3. Pairwise: I saw the pairwise guys
present at the YC Demo Day (the big day following months of furious coding
that is the core of the YC experience). Of all the companies in that cohort
that presented, I liked Pairwise the most. It appealed to my data-driven nature
and they had something that I felt had commercial opportunity. More
importantly, unlike many startups, it seemed they were actually
thinking about the “how do we make money” part very early in the
process. I haven’t kept up with Pairwise much since then, and they haven’t
written on their blog since November, 2007 — so I’m guessing things didn’t take
off like they had hoped. Regardless, I thought the guys were great and the idea
was a good one.
4. Wufoo: I’ve been dealing with the
frustration of web-based forms for a long, long time. It’s a common enough
problem that lots of people try to solve it by creating a “form builder” of some
sort. It’s an appealing problem to try and solve (unlike what Xobni is doing,
it’s a fun problem to work on). We even built one as a part of our landing page application at HubSpot (not
because it is fun, but because it is a necessary part of what we do). Back to
Wufoo. The thing I like about them is that they are exceptionally good
at the UI/UX thing. I’m not a designer myself, and don’t play one on TV, but I
know great design when I see it. I also know how hard it is to do
right and how rare it is to find people that have that gift. What’s even rarer
is the notion of great UI/UX design talent intersected with a strong business
sense — which the Wufoo folks seem to have.
5. Disqus: Of all the startups from YC
that I’ve seen, I feel like I understand Disqus the best. Having been a blogger
myself for some time, I get the notion of centralized comments and the
tradeoffs therein. This is why I met with Daniel Ha — coincidentally, at the
same Thai restaurant in Coolidge Corner where I met Adam Smith. (Yes, I’m a
creature of convenience and the place is 2 minutes from where I live). Daniel’s
one of those entrepreneurs that makes a great early impression. He’s clearly
smart, but also recognizes there’s stuff he needs to learn that’s going to
increase his odds of success. I like the general notion of Disqus (always have)
and even back then, there was some early evidence that folks were going to use
it. Disqus is also one of those companies that likely benefits most from an
association with YC and Paul Graham.
6. RescueTime: Tony Wright (the
founder of RescueTime) probably doesn’t even recall this, but he and I first had
online contact years ago. He reached out to me way back then as a
reader of my blog and reported a problem with the commenting system. Since
then, Tony and I interact sporadically (mostly through each other’s blogs).
Tony’s one of those guys that I’d bet on simply because he has an uncanny knack
for how the startup game is played. Intersect that with an interesting idea
that could get massive appeal, and you have a great startup.
So, there you have it. 6 Y Combinator startups that I probably should have
been more aggressive about investing in. But, that’s not my style.
My best wishes to all the Y Combinator founders. Particularly those that are
working away furiously on their products in preparation for demo day coming up
soon. I hope to see/meet many of you there.
By the way, if you're not in YC, but you're a superstar web developer (take 5 minute quiz) and looking for a fantastically fun startup gig, I'm recruiting for HubSpot. Just drop me an email. I'm easy to find.
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The following is a guest article by Philip Crissman.
OnStartups partially sponsored Philip's trip to Startup School 2008 in exchange for sharing some of key lessions for those of us that could not make it. -Dharmesh
---
David Heinemeier Hansson's Startup School talk was probably one of the most
popular, and the most out of sync with the rest of the day's talks.
Where most speakers took for granted that the entrepreneur would be
seeking VC funding, David took the opposite approach; he wanted to talk
about how you could start making money on your own, growing your
company without needing to go look for funding.
David opened with the canonical "business model joke", made famous on Slashdot:
1. Brilliant Product
2. ???
3. Profit!
His answer to this, was:
1. Brilliant Product.
2. Price.
3. Profit!
He
went on to argue against the Venture Capital model, in general, in
favor of simply building a business by the somewhat revolutionary idea
of just charging money for your products.
Ironically,
he was immediately preceded by Greg McAdoo of Sequoia Capital. McAdoo,
naturally, was telling the audience what VCs were looking for and how
to build a presentation or a company which would get their attention.
Following this, Hansson's message seemed nearly the opposite.
I enjoyed both talks, and thought that they were simply talking about two very different ideas.
McAdoo
is a venture capitalist, so a large slant of his perspective is going
to lean towards the investors. This is not to say that Sequoia or other
VCs are not interested in the entrepreneur's best interest --
obviously, VCs need entrepreneurs in order to do what they do. However, they also need to represent
their investors. Without capital, they would simply be business
consultants, whose attention and advice the entrepreneur would need to
pay for. Since their beholden to their investors, it's well known that
they are looking not just to double or triple their investment, but
quadruple or quintuple their initial investment.
Heinemeier
Hansson, on the other hand, is thinking about the developer. He's
asking: wouldn't you rather simply run a profitable company with a
product you enjoy? Why do you need to be a billion dollar company when
you can more easily be a million dollar company?
From
where I sat, they were both saying some of the same things. Both acknowledged
the same odds -- how relatively few startups would be those huge
winners, the billion dollar ideas.
The difference is,
- McAdoo and the
VCs are specifically, on purpose, looking for those top few percent;
that's their role. That is what they do.
- Heinemeier Hansson is looking
at all the other successful-but-not-necessarily-world-changing
businesses you could start, and asking "Why not just build something like this?"
We
do want to be realistic; it's important to acknowledge the risk we
might be getting ourselves into. It may be that, like Hansson suggests,
we'd rather take a 1:10 chance of making a million versus a 1:10,000
chance of making a billion.
What seemed to
have been skipped is that the nature of the idea will have a lot to do
with which path you decide to pursue. It's difficult to see how a
business idea like Google, for example, could have succeeded without
seed capital. It's hard to imagine Google starting and succeeding with
a 37Signals-style subscription model; especially in the time when
Google launched, having to "pay" for the privilege of searching the web
would likely have been a recipe for failure.
On
the other hand, it's just as hard to see Basecamp as a ubiquitous piece
of software that simply everyone uses -- not everyone needs to manage
projects. There's a much smaller pool of people who would need to do
that, but they are much more likely to pay for a good way to do it.
What
I took from the contrast between Heinemeier Hansson's talk, and the
majority of the other talks, was the importance of having a healthy
dose of realism.
Some
ideas might well have that billion-dollar potential, and may need that
VC funding to get going. A lot more ideas really can be put together in
10 hours per week (as Hansson mentioned Basecamp was built), and then
run as a profitable business. The
important thing is having the ability to tell one sort of idea
from the other.
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The following is a guest article by Philip Crissman.
OnStartups partially sponsored Philip's trip to Startup School (hosted by Y
Combinator) in exchange for capturing some key insights from the session to
share with those of us that could not make it. -Dharmesh
Startup School Takeaways
This is
my attempt at a broad overview of the whole day; what I took away from each
speaker. You'll notice that some of the takeaway's may contradict each other.
Well, a few of the speakers seemed to contradict each other, which is a topic
for another post. Here's a very broad summary of the
day.
David Lawee, VP
Corporate Development, Google; founder, XFire.
Main take-away: Hurry Up. David emphasized the role of speed in a startup,
and how the modern timetable is considerably shorter than a more traditional "2
years until product launch" strategy. Your ability to turn on a dime and do
things quickly is highlighted as a major advantage for the startup.
Sam Altman, Founder, Loopt.
Main take-away: If you can avoid having to raise money,
then don't do it. If you do need to raise money, get it out of the
way and get back to work; many startups have been sidetracked by the
money-raising process, even fizzling out along the way.
Jack Sheridan, Lawyer, Wilson Sonsini.
Main take-away: Some legal decisions that you may make
early on never go away; pay close attention to these sorts of issues.
Know:
- Who owns the company
- Who owns the technology (IP)
- Who controls the company
- Who gets what in a liquidity event (sale, IPO, etc.)
Paul Graham; Founder, ViaWeb,
YCombinator.
Main take-away: Build something people
want + Don't worry too much about money = Non-profit. Doing "good" is
a strategy. The "Tamagotchi" effect -- making
something that attracts users and a community gives you something to take care
of; this can be a powerful motivator.
Greg McAdoo, Partner, Sequoia Capital.
Main
take-away: Greg's wave & surfer metaphor. It takes a great surfer
(entrepreneur) to ride a great wave (business/social/technology trend). The surfer has to pick the wave, but can't control the
wave.
Know your market; as
much about it as possible.
Have a market "whose hair is on fire" --
who needs your product badly, now.
David
Heinemeier Hansson, creator, Ruby on Rails, partner, 37Signals:
Main take-away: Your odds are better to not try to be the next Facebook/YouTube/billion
dollar acquisition. You can do very well just creating a great
product and charging money (gasp!) for that product.
Don't be in such a hurry, don't try to be so big, don't look for a wave.
Paul Buchheit:
creator, Gmail, founder, FriendFeed.
Main take-away: On listening to
users; listen != obey. Listening to your users, you
don't necessarily do exactly what they tell you they want; interpret their feedback to try to determine what the real problem
is. Then find a solution to that problem.
Jeff Bezos, Amazon.
Main
take-away: Cloud computing will be increasingly important, and doesn't need to be an industry with a single winner.
Unfortunately, aside from this, his talk was largely a commercial for Amazon Web
Services. The insight into why cloud computing could be important
was more interesting than the commercial; would have been nice to have more of
that, or more practical entrepreneurial advice.
Mike Arrington, blogger, TechCrunch.
Main
take-away: Getting press for your startup: have a compelling
story. Stand out; stand out in a different way than other people have
stood out (used Seth Godin's purple cow analogy).
Marc Andreesson, Founder, Netscape, Ning, etc.
Main take-away: Be so good they can't ignore
you (via Steve Martin).
Be prepared for everything to
look like it will fail... and nearly doing so. Don't quit.
Have a
business model that doesn't depend on a great economy (especially right now).
Peter Norvig, Director of
research, Google.
Main take-away: Start small, go fast, iterate
rapidly. Leverage data; especially other people's
data. A challenge: anyone can go out onto the web and get 1.7 billion words. Go
get them and do something (analysis, algorithms, searching, etc.) with them.
Of course, there was much more in each talk. But
those were the highlights, the main points, from where I sat. Full recorded
talks can also be found at Omnisio.
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This week (Monday, April 2nd) was
the deadline for startup founders to apply to be selected for the upcoming batch
of startup companies to join Paul Graham's Y Combinator group. If this year is
like past years, YC will likely have received lots of applications (which means
Paul's going to be a busy guy for at least a week). And, if this year is like
years past, then not all great hacker-entrepreneurs will get
selected.
If you applied, and didn't get
selected, this could be because of one or more of the following
reasons:
1. You lack a co-founder: YC leans
heavily towards startups with at least two co-founders. It's possible you tried
to find a co-founder, but couldn't. Or that you found one, but it didn't work
out. Or that you just don't believe in co-founders just
yet.
2. The idea doesn't fit the
profile: YC seems to lean towards consumer internet ideas, or ideas for which
an early user community can be built quickly and monetization can be done
later. If your idea is to develop enterprise software for the steel industry,
chances are, you're not going to get picked.
3. Your application didn't stand
out: Paul's an awfully smart guy, but he's still not clairvoyant. If your
brilliance and passion didn't come through in the application, it's possible he
just fundamentally missed it. It happens.
4. You really don't have what it
takes: It's possible that you simply are not particularly suited for a startup
at this time and the smart folks at YC were able to figure this
out.
Lets assume for a minute that you
didn't make the cut at YC for reasons #1, #2, or #3. So, what
now?
I'm going to make you an interesting
offer: A chance to show off your hackepreneur
skills.
Basically, what I'd like to do is
find exceptional individuals that are really committed to building cool
technology and are determined not to go work for "the man" and want to do
something entrepreneurial (if you applied for YC in the first place, chances
are, you fit this profile).
Here's a high-level look at what I
have in mind:
1. You don't necessarily have to
have a co-founder.
2. You'd still have to be move to
Cambridge (or
already be in the vicinity).
3. I'll give you $15k to work for
the summer and impress me with your talent.
4. You have to be willing to work
on an idea that is not your own (we have a few laying around).
It's basically an opportunity to
join a small, highly entrepreneurial group working right on the MIT
campus and work on an interesting project -- and get paid a bit of money for
it. After the summer is done, either we talk each other into doing something
more permanent, you talk me into funding your original idea or we part ways as
friends and hopefully had a shared positive
experience.
If you're intrigued and think you
might fit the profile, send a detailed email to hackepreneur (at) onstartups.com. Ideally, you'd send me the same kind of information you sent in for your YC application (you can get an old YC form here, if you need it). If you're worried about revealing your idea, leave that part out. I've got the capacity to accept three or four of
you (assuming there is enough interest and we can work out a deal), but chances
are, I'll only pick one or two. I've got really high standards too.
Hope to hear from some of you. But
in the meantime, I wish you the best of luck with your Y Combinator application.
It would be great if you are one of the select few that make it in to Paul Graham's Gang For The Gifted. But if not,
perhaps I can provide an interesting "Plan
B".
Void where prohibited, no purchase
necessary, your mileage will vary and all the other usual
disclaimers.
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I am one of the many thousands of raving Paul Graham fans
out there. I’ve read most of his content (Paul doesn’t write
blog articles, he writes
essays). He
is clearly a very gifted writer. He is also very, very smart (and I
rarely use two verys). But, at least on one point, I humbly submit that
he is very wrong.
In the most recent essay, titled “
The 18 Mistakes That Kill
Startups”, Paul identifies (as you might expect from the title) the
common causes of startup failure.
I’d like to focus on point is #17: Choosing The
Wrong Platform
I agree with Paul that picking a wrong platform can indeed sometimes
kill a startup, but I’m not yet convinced that this is always the case. History
is replete with startups that picked what were widely considered to be the “wrong”
platform and still survived to tell the story (and make a ton of money in the
process). One example would be MySpace and their use of ColdFusion (not
that Cold Fusion is a
bad
platform, but most hacker-types – and particularly those that follow
Paul, would likely categorize it as a sub-optimal platform). There are other
examples of startups that succeeded (some modestly, some spectacularly),
despite having chosen the “wrong” platform. One additional example
that comes to mind is eBay’s early use of Microsoft’s platform
(ISAPI DLL written on top of IIS).
But, this is not my primary point of contention with the
article. Little harm is done by identifying wrong platform selection as a
potential mistake that startups should try and avoid (in fact, I think it helps
to raise awareness of the importance of this decision). My issue is with
how Paul advises startup founders go about actually
picking a platform.
Paul Graham: “How do you
pick the right platforms? The usual way is to hire good programmers and let
them choose. But there is a trick you could use if you're not a programmer:
visit a top computer science department and see what they use in research
projects.”
I agree with the first half. A great way to pick a
platform (if you’re not a programmer yourself) is to hire great
programmers (not just good ones) and let them choose. But, I don’t
think visiting a computer science department and seeing what they use in
research projects is an effective strategy. Here are my issues with this
particular approach:
- Being a prior computer science student
myself, I have a bit of a feel for how platforms get picked for research
projects. Rarely do these coincide with how startups in the real
world work. People in academic research projects are often solving
for a very different problem with very different motivations than a startup.
Lots of research projects are a learning
exercise. Most startups are a building
exercise. The desired outcomes are often vastly different.
- The platform selection process
is sometimes domain and/or user specific. For example, though Python
is a cool language (and I’m sure there are many academics that like
it), if you are seeking to build the next big killer desktop application
to run on Windows, it will likely prove to be a fatal choice. The
reason is simple. From a user’s perspective, they expect a
Windows application to look and feel like a Windows application. Chances
are, your Python desktop app won’t quite feel “just right”
(the user’s dog will bark at it). This is a case where the
users do care about the
platform choice because it actually impacts what they experience. Similar
arguments can be made for other target areas like mobile applications.
- There may be other dependencies
(i.e. integration points) that influence your decision. As a
startup, if you are building an application that will be an extension of
an existing application (or consume its services somehow), it often helps
to pick a platform that is conducive to that integration. For
example, if you’re building an Outlook plug-in, you probably don’t
want to use Ruby for that (even though it might support COM).
Basically, it seems that Paul thinks that all startups are
going after “change the world” strategies and don’t need to
concern themselves with user preferences, business domains or the need for
integration with existing systems. Though it would be great if this were
true, it’s really not.
What do you think? Am I off-base here? Are all
of you writing world-changing software applications that need to use the higher-end
languages and platforms from computer science research groups? Or, are at
least a few of you taking a less glamorous (but practical) approach?
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I came across this article on Dead 2.0 this morning:
YCombinator Says YProfit? Besides the clever title, and I’m a fan of clever titles, I think some of the points were dead-on. This gave me the needed push to write an article that I’ve been mulling about in my brain for some time now.
Web 2.0 Revenues: Not An Oxymoron My background is primarily technical. I’ve been developing commercial software products for all of my professional career.
In the software development world, many of us have discovered the value of the “release early, release often” approach. This is based on the experience that given the choice between trying to write detailed specs and requirements and
then building a product around it (often months or years later), the odds of actual success go up if you can get
something out there early, determine what your users have to say and then adjust your product accordingly. The beauty of this approach is that you end up investing in features that people actually use and care about (and hence complain about). I’m a big fan of this approach, for one simple reason. It works.
I think too many Web 2.0 businesses decide to “aggregate users now, worry about making money later”. With all due respect to Paul Graham, who advocates this to startups (and who I have a lot of respect for), I don’t think this is the right idea in most cases. Like a software product and it’s features, I would argue that a business model and its execution also needs to be “experimented” with and adjusted. The sooner you can get your business model “out there” the sooner you can figure out what works and what doesn’t (and do something about it).
For the same reason you shouldn’t keep your product away from the market for too long, as the feedback is crucial, you should not keep your business model to yourself too long either. Simply relying on the “we’ll make money on advertising” is not enough. What
kind of advertising will work? Will you invest in finding individual advertisers – or go with one of the larger platforms? Do you need something more exclusive – or will one of the large platforms like AdSense work for you? What’s the CPC/CPM or other metric going to be? How much traffic will you need (based on
your users) to make any kind of money? The point is that even advertising has its nuances (and this is coming from a layperson that knows almost nothing about advertising-based revenue models).
My advice to Web 2.0 startups: Charge early, charge often Don’t let the fear of scaring your early users away (because of things like advertising). If 95% of your users are not willing to stay on your site if you put ads on it, that should tell you something.
The most common counter-argument I expect to get is: “But we need to build up a certain critical mass. It’s easier/smarter to do this by not charging anything, and not putting any ads up.” We can
then figure out the best way to monetize after we hit this critical mass”. I’ll concede on that point. If you’re smart enough to be doing this as a
strategy and you have at least some knowledge of how all this works, more power to you. But, I’m guessing that most Web 2.0 startups are deferring discussions of business models and revenue simply because they’re clueless or it’s convenient to do so and they are working under the misguided belief that it’s not necessary. It is. Always has been.
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For those of you that have been watching the auctioning process, the results are in. Kiko sold its assets on eBay for what seems to be $258,100.
Candidly, this is much higher than I thought it was going to be. I was actually a bit doubtful that even the minimum bid of $50,000 would be reached. I'm not so sure this outcome can be considered a "failure" at this point Just a relatively low price-point exit. If you weight this against the time and money invested in the project, it's not really that bad.
In the final lap, it looks like there were about five active bidders in the final stages. Not much else to write about, the original auction was terminated by eBay (so it had to be restarted). If you’re curious to see the details, you can look here:
http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&ssPageName=ADME:L:LCA:US:11&item=120024164593 At this price point, my guess is that the investors likely made some money and the founders did OK too. I’m happy to see that there was a positive outcome here. My congrats go out to the Kiko guys. My guess is that they’ll likely “double-down” and be using the proceeds to work on their new idea.
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