Mike Moritz of Sequoia Capital

It was a very neat afternoon today.  Silicon Valley Bank hosted a special luncheon with Mike Moritz of Sequoia Capital.  He spoke about his book the Return of the Little Kingdom.

You can find information about Moritz here and here.  Although you can simply define Moritz’s success by some of the companies he has invested in.  These company names are all that is needed to be said: Yahoo, PayPal, Google, YouTube, Pure Digital (FlipCam), Zappos.  Yes, this is a sic list of companies, Wow!  He is considered to be on of the top VCs in the history of the venture capital industry.

Below is recap of some of Moritz comments/thoughts that are paraphrased and also includes some of my thoughts as well.

One of the members in the audience asked about the deals that he regrets not investing in.  He named several, but the most recent and relevant company he “passed” on was Netflix.  Moritz regrets not investing in this company as they have revolutionized the way movies are distributed.  He indicated that he invested in a similar type company that addresses a different market, GameFly, the Netflix for video games.

Moritz compares Sony to Apple, meaning that at one point Sony was THE consumer electronics company in the world and they lost their position when their Founder/CEO Akio Morita stepped down.  Moritz indicated the biggest challenge for Apple is going to be the day when the Founder/CEO Steve Jobs steps down.  He also indicated that the person who eventually replace Jobs, can’t be effective if he/she ask themselves “what would have Steve done” when tough decisions need to be made.  The person who replaces Jobs will need to have their own persona and unique ideas about how to run Apple.

Mortiz highlights the fact that the market cap of Apple at one time was $1B and that it is now nearing a market cap of $250B ($217B as of April 6, 2010).  The company has had a historic turnaround, look at the increase in stock price over the last ~13 years, $3.24 on December 23, 1997 and $239.54 on April 6, 2010.

Moritz is amazed by the level of detail that Jobs focuses on.  When Moritz spent time with Jobs, when preparing to write his book, Jobs was involved in the very little details and continues to do so today even though they are a much larger company compared to their early days in the 1980’s.

Apple creates products that their employees would use.  They don’t create products based on user groups/feedback.  The geeks at Apple want to best devices and are the ones who know what the market needs.  After Jobs returned back to Apple, after being fired, Jobs took a look at all the products that Apple was working and decided that Apple needed to focus on creating a few great products, now a bunch of products that were similiar to their competitors.

Remember the Think Different ads by Apple?  Mortiz believes that the ad was geared towards Apple employees and not consumers.  He believes that Jobs used this as a “calling card” for his employees.

Moritz indicates that one of the reasons that Jobs is so successful is that he is able to see the future before it happens.  The point is that you don’t create products on what is currently happening, you need to project what the market will need in a few years.  He is a visionary, which is a word that is really overused.  Jobs is a real visionary.

Mortiz commented that not many people could have led a company on the brink of bankruptcy in the late 1990’s to leading a remarkable turnaround.  Moritz indicated that Jobs tough experiences allowed him to have the mindset to persevere; Moritz indicated that we need to remember that Jobs was kicked out of Apple, the company HE created.  This must have been an embarrassing situation to say the least, but provided a tough life lesson that was useful to Jobs.

One of the audience members asked a question about the evolution of the media sector and if Moritz has seen an influx of companies founded by ex-traditional media professionals.  Moritz essentially said that most traditional media professionals do not get technology and therefore have a challenge in creating new evolving companies in new media.  He did indicate that if you’re a programmer with the sensibilities of someone from the traditional media, the world is your oyster.  One of the earlier comments of Moritz is that three companies are revolutionizing or revolutionized traditional media: Apple, Netflix, YouTube (Google).

Moritz was kind enough to stay after his talk and Q&A and sign his book for the 80+ CEOs/Founders who attended the event.  I had my book signed as well and am looking forward to reading it.

Venturebeat wrote a blog post on this luncheon, read it here.  In addition, Drue Kataoka wrote a blog post, read it here.

For those who attended the luncheon, please comment on any other insightful Moritz comments that I likely have missed.

Fundraising 101

Over the past few weeks I have met several startups who haven’t spend adequate time thinking about the process of raising VC funding.  When I asked some of the questions below, the company executives really didn’t have the right answers.  If you are dependent on VC funding, then you need to put as much effort in your fundraising as you do on closing deals/customers.  As a startup you should know whether customers want/need your product/service, you also need to think about whether VCs want/need to invest in the product/service that you are providing.  If your business will be dependent of VC funding, you should be spending time on this topic before you even start working on your product/service.  Below are questions you need to have answered before you start your new company:

1) Do you need to raise capital for your company to get to profitability? – If this is no, then you are don’t need to read the rest of this blog post.  If you are startup that doesn’t want to raise vc funding, see this good interview with the executive at 37Signals, a company that is profitable and has not raised VC funding.

2) How much money will you need to raise from VCs to get to profitability? – this is a critical question, as it will determine what type of investors you need to meet to get your funding.  If the answer is $1M or $5M or $10M or more, then there are different investors you should be approaching based on the answer.  If you don’t know which investors to approach based on the numbers stated above, then see the answer to question #3 below.

3) Are VCs investing in your sector? – If VCs are not investing in your sector, then how do will get funding?  Well, how do you know? You need to speaking with investors in your sector, CEOs in your sector who have recently closed on VC funding, and service providers who spend time in your sector.

4) Are you at point where you have made enough made progress to get VC funding? – A lot of times, companies approach VCs when they are too “early”, which means the company has not made enough progress to get funding.  Again you need to know at what stage VCs invest in your particular sector.  Refer to question #3 above.

5) How do you plan to reach VCs? – This is one of the biggest challenges in the fundraising process.  Some believe the funding just happens serendipitously, really?  You need to develop a network of VCs before you start raising capital.  How do you do this? Well, you need to be at relevant events where VCs are present.  You can also need to network with companies that have received VC funding, this will provide an opportunity to get an introduction from the particular portfolio company to the respective VCs.  You need to leverage your service providers.  If your lawyer, banker (disclosure: I work at SVB), accountant, advisers are not connected to VCs, then you need to think about why that is.  If these particular people are not in the VC ecosystem, then you might need to find a replacement.  Read point #7 below.

6) What sort of exit expectations do you have? – If as a company, you are satisfied with a $50M exit (acquisition/IPO), then a large VC fund ($300M+) is not likely to be a good fit for you.  You and your investors should be well aligned on exit expectations, otherwise this can lead a terrible situation down the road, where you get an offer for an acquisition that is deemed to “small” by your investor but is satisfactory for you, awkward to say the least!  Read this blog post, some VCs would not have been satisfied with Mint.com, which was acquired for $170M.

7) How many VCs do you need to meet with to get funding? – on average, companies need to connect with 30 VCs to get to situation where they receive several term sheets.  If you only have access to 5 VCs, then you really need to be scrappy and figure out how to find a lot of other relevant VCs.   You could raise funding after approaching 5 VCs, but this rarely happens, and you need to have more VCs to connect with.  Read point #5.

8) How much time to you want to spend raising capital? – On average, companies spend 6 months raising VC funding.  The 6 month span, starts with your very first meeting with a VC to time the money is in the bank.  Once you meet the right VC for you, the process of closing on a round with that particular VC should be about two months long.  Part of fundraising process is to develop a relationship with the prospective VCs.  So ideally, you have already met some VCs prior to the time when you need to be fundraising.  One way of doing this is to meet with VCs on an informal basis, where you are looking for guidance from the VCs.  This means that you are not pitching the VC, but are asking them questions about got-to-market options, pricing, etc.  Sometimes, you are too early for VC funding, you need to determine this very quickly.  If after meeting 10 VCs, they all say you are too early, you are either talking to the wrong VC firms (see point #3 and #6) or you are indeed too early so make some progress with your company or your team could be lacking in some areas.  Sometimes, when VCs say you are “too early”, it is a code for saying, “we don’t like you” or “we don’t think you are fundable”, etc.

9) Tools/sites that can help you be more successful when fundraising – TheFunded, VentureHacks, SiliconTap, ChubbyBrain, Both Sides of the Table, Ask the VC, Crunchbase

10) Ready to pitch VCs? – see my blog post on creating a presentation for pitching VCs.  You can also visit the sites above, some of them have tips on raising VC money.  In addition, see a dashboard that I created the should be used to organize your fundraising process, this is similar to a sales pipeline, so use a similar process.

First Time Experience at SXSW Interactive

I have heard great things about previous SXSW conferences, so I decided this year to check it out for a few days and see what all the commotion was about.

The great thing about the location of the conference, in Austin, Texas, is that it is in the central portion of the U.S., which provides a great opportunity for a diverse geographic mix of companies/people to get together.  I met folks from Seattle, Portland, Bay Area, Austin, Dallas, Nashville, Boston, New York, Chicago, Philadelphia, Los Angeles.  There were a lot of people from the Bay Area, which is interesting as it begs the question as to why Bay Area people fly to Austin to hang out with a lot of Bay Area people they already know, which is what I observed.  My theory is that when Bay Area residents sign up for a local conference, they become distracted with a lot of things and are not fully engaged in the conference and therefore there is less networking.  By flying out-of-town to Austin, you minimize the distractions and therefore allow for a more engaged experience.  The ironic thing is that I met a lot of high-profile Bay Area people who I normally don’t interact with in the Bay Area.  After attending many major conferences across the U.S., this is certainly one of the best, especially for web-based companies.  I will attend the conference next year and hope to plan one of the better evening events, one that will be geared toward startups and VCs.

I’ve highlighted a few keys areas that are important for having a successful SXSW and also indicated what I would do different next year.

Lodging: I booked my place 10 days before the start of SXSW, which I knew was going to be challenging as I heard that all the Austin downtown hotels were sold out.  I checked out Kayak.com and it was true, every single room in the downtown area was taken.  Luckily there is a startup that provides alternatives to hotels, I used AirBnB.com.  I found a loft that was 2 miles away from the convention center, the cost was $125/per night.  The loft was great, it had 2 bedrooms, kitchen, living room, etc.  The challenge with being out of a short walking distance is that you have to rely on taxis, which are in high demand during SXSW, so staying somewhere that is in walking distance is highly recommended.  The cost of the taxi ride from the loft to the convention center was about $10 each way, not too bad.  The best place to stay, assuming cost is not an issue is the downtown Hilton, which is located across the street from the Austin Convention Center.  The Hilton also hosts several of the official SXSW panels and there were a lot of great networking opportunities in the lobby area.  Next year, I hope to stay at the Hilton and will book my accommodations as soon as SXSW announces their 2011 plans.

Networking:  The best part about the conference for me was not the content, panels, keynotes.  Networking with people who I’ve met before and also meeting new people was the high point of the trip.  You need to bring a lot of business cards as I was exchanging cards constantly (or you can use Bump mobile application, very useful).  My networking started before arriving to Austin, I met several good contacts at my departing airport in Oakland.  I spent a few minutes with a well-known angel investor, Chris Sacca and also sat next to Gareth Hornberger who runs the social media strategies for Levi’s.  You can meet great people everywhere; airports, lines, restaurants, bars, sessions, streets, etc.  Most of the people who I interacted with were relevant to what I do and plan to follow-up with many of them.  A key for maximizing the networking opportunities is to follow-up immediately with people you have met at the conference.  If you wait too long, the person might forget who you are or the context of the conversation you had with them.

Attire: If you are representing a brand, startup, corporation, I would highly recommend getting some t-shirts printed with your logo and tag line.  I had several SVB shirts created for SXSW and it was worked out well.  People were asking about my company and what we do.  I also had clients of SVB come up to me and they were excited to see someone from SVB in the crowd.  As soon as I arrived in Austin, I went immediately to 6th Street to check out the downtown area.  I found a really cool store that specialized in selling hats.  I bought a neat looking straw hat and wore it the entire time during the conference.  When I was trying to connect with people who I’ve never met before, I would just say “look for the tall guy with the straw hat”, it made things a lot easier as it is really challenging to connect with people as the crowds are so large.  The conference is really casual, so jeans, t-shirt, sneakers are fine.  People were also wearing shorts as the weather was very nice at certain times.

Events:  The best part of the conference is the evening events.  This was one of the most challenging aspects of the conference as there many events occurring at the same time and some were much better than others.  Some of the hyped parties, had very long lines to get into, which was not fun at all.  I tried finding events that were not as hyped up.  There are great people everywhere, so you don’t have to go to the “hot” party to have good networking.  Finding the right parties take some preparation, so I would recommend talking to your contacts and creating a game plan before each evening, otherwise it is overwhelming (use Plancast to make life easier).  If you just want to hang out with people you already know, then there is not much advance planning needed as you can find a lot of bars to hang out and listen to music, dance, play games, chill out, etc.  The best evening event for me was the First Round Capital bus trip to Salt Lick, a famous BBQ joint outside of Austin.  Everyone on the bus seemed to be of high-caliber and met several new people that I will be following up with.  Luckily I was able to get an invite to the bus trip as I ran into Rob Hayes (a Partner at First Round) the night before and he invited me, so was very fortunate.

Planning:  Several weeks ahead of time, figure out who is going and who you want to spend time with.  I would suggest going with a friend as it is not too fun to hang out on your own, although you can meet people everywhere.  I didn’t go to SXSW with anyone in particular, but I knew a lot of people who were attending and made plans to hang out with them several days before arriving.  I would suggest making plans at least a few before the trip as people to book their dinner/lunch/breakfast plans well a head of time.

technology/Tools: I would recommend several mobile applications to make your experience much better: Foursquare, Gowalla, Plancast, Yelp, TripIt, Echofon, Bump, Evernote.  I used Foursquare, Plancast and Echofon the most and all severed as way to coordinate which events to attend based on where your contacts are currently located or places they plan to go to.  People were using both Foursquare and Gowalla to “check-in” but next year, we need to have a mobile application that aggregates all the “check-ins” so you don’t need to go back and forth on multiple applications.  Given that using a smartphone is critical for a good networking experience, you are going to run your battery down very quickly, so would suggest bringing a charger with you at all times and even an extra battery pack, which are available as add-ons.

Length of Stay: Two days during the Interactive portion of SXSW was sufficient for me.  Next year, I will plan two days for the Interactive portion, but would like to stay an additional two days for the Music portion of SXSW. I spoke to several people were at SXSW for three, four, five days and most said they were pretty exhausted.  Attending the conference for two days allowed me to have sufficient energy to go to many events without being worn down, which can make you less efficient.

VCs and Angels and Incubators: I wasn’t sure how many investors would be attending, but I ran into or saw many firms/individuals: Accel, First Round, CMEA, Sierra, Canaan, Benchmark, Bessemer, Shasta, Emergence, Founders Fund, SV Angel, Baseline, Dave McClure, Chris Sacca, Dan Martell, Dharmesh Shah, Alsop Louie, DFJ, Norwest, Rembrandt, Techstars, YCombinator, CapitalFactory, Bootup Labs, Venture Hacks.  A lot of them tend to hang out with each other, so the trick is finding a few of them and then you will meet some of their buddies who are also investors.  There were also several events that were VC sponsored, I already mentioned First Round and Canaan Partners had a good event as well.

Tight budget: find other people who are attending SXSW and split the cost of a local hotel that is walking distance to the convention center, that way you don’t spend money on taxis.  You can easily have four people to a room and you are not going to spend much time in your hotel, so no need to get your own bed, bring a sleeping bag and crash on the floor.  If you are on a tight budget, you don’t necessarily need to buy a pass for SXSW as I found that the most of networking opportunities takes place away outside the conference.  You can hang out in the lobby of the Hilton, hang out near the convention entrance and attend a lot of the parties as many of them don’t require a badge.  A lot of the parties that require a conference badge, provided free food and drinks, so it is certainly worth to get a pass solely for this purpose. I can’t speak to the content of the entire conference as I only attended two panel sessions and one keynote address, so I only spend a total of three hours at the actual conference.  There were not any major takeaways from the content sessions that I attended, but I’m sure there were some great sessions that were worthwhile.  I didn’t buy a pass this year as I wasn’t planning on attending any of the sessions, as I was focusing on getting work (emails/calls) done during the day and networking in the evening.  Fortunately, a contact of mine who was only there for a few days was leaving the day I arrived and allowed me to use their badge.  Next year, I will buy a pass and spend more time attending the content portion of the conference and will have a better perspective on the quality of the content.  Lastly, book you airfare well in advance as the flights get taken quickly and prices go up as you get close to the event date.  If you plan correctly, you can spend less than $750 (airfare, food, and lodging) for a meaningful SXSW experience.