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Talking Economy with Forbes’ Kym McNicholas

I was at David Kirkpatrick’s Techonomy conference in Tucson a few weeks ago, and was fortunate to spend time with Kym McNicholas (interview) and Steve Case (over lunch) talking about our economy.

View the video of my interview with Kym here.

I had not ever met Steve before, but he’s one of the most outspoken and visible leaders in the US trying to promote change in our economy (for more, subscribe to his Twitter feed @stevecase). He’s the Chairman of the newly formed Startup America Partnership and is an active venture investor (in companies like LivingSocial and Exclusive Resorts).  If you read up on Startup America, it’s focused on doing what I talk about in my interview with Kym – leveraging the models and programs that have worked in Silicon Valley to help build and grow companies throughout the country (in places like Des Moines, New Orleans and Burlington).

The bottom line – emphasized to Kym by both Steve and myself – helping create, grow and finance companies is the most important thing we can do to create long-term jobs and a healthy economy in the US.  It’s the model that has worked unbelievably well for decades in Silicon Valley, and we need to get the model working elsewhere in the US.  Let’s get moving!


Music for Nothing and the Fans for Free

Great article by my Partner Hany Nada and our Associate Adam Altman on AllThingsD: “Music for Nothing and the Fans for Free.”

I am biased, but this is the best synopsis I’ve seen of the massive transformation taking place in the music industry.  It will be fun to watch which players get on board with the “new models,” and which do not.  My bet is those that do will also reap the rewards in massive markets like China where consumers have almost no history of paying for recorded music.

VC Tips: Sell Burgers to Meat Eaters

One of the most common pieces of advice I give to early stage entrepreneurs is to “sell burgers to meat eaters.”

I, like many Californians, believe In N Out Burger is one of the great restaurant concepts of our time (it’s also a compelling entrepreneurial story: read the history of In N Out).  The company’s menu is ridiculously basic – you can order a variation on the same three things – burger, fries, drink.  That’s it.  In N Out really knows its customer, and they don’t worry about catering to “everyone” (you can get a burger with no meat, but it’s still a “burger”).  In N Out delivers a really simple value proposition to a very simple core audience – people who love burgers.

So how does this apply to raising money from VC’s?

If you are pitching your company to a VC, make sure the Partner you are meeting with knows something (ideally, a lot…) about the space you are focused on.  Look up his/her track record.  Ask the person who referred you.  Do some research online.  What are his/her successful companies in the sector?  If he/she doesn’t have any experience in the sector, ask yourself (and him/her) if it’s worth meeting – you don’t want to waste his/her time or yours.

The corollary of this is to not get upset when a VC declines a meeting with you for this reason.  The best VC’s I know will politely tell an entrepreneur something to the effect of “That’s not my area of focus,” “Our firm is not investing in that space,” or “That’s not my area of focus, but I would be happy to introduce you to my Partner who is focused on that area.”  As an entrepreneur, this VC is doing you a massive favor.  The most valuable commodity you have is your time.

Sell burgers to meat eaters.

In this case, meat eaters are venture capitalists who are pre-disposed to like your concept.  They know the market (to the extent that they might even say you can skip the Market slides in your presentation).  They get the business model, no matter how unique it may be.  They understand the financial implications of a successful business in your space (things like high CAPEX, customer acquisition models, bookings to revenue conversion, etc.).  They know executives at relevant larger companies and can make introductions, even if they don’t invest.  In short, a meeting with a qualified meat eater can be worth your time if you leave with nothing more than some valuable feedback, a few pieces of advice, and an introduction or two.

Should you turn down a meeting with someone who doesn’t know your space?  Yes.  Do it in a polite way, but at least probe a bit via email as the meeting is getting scheduled. It might lead the Partner to do a bit of homework and invite a colleague who might be deeper in the space.

This sounds like Sales & Marketing 101 (and also applies to how and to whom you sell your product), but at least once a day I have a conversation with an entrepreneur who tells me about a disappointing meeting at a good venture firm.  When I dig a bit, I often come to the conclusion that he/she met with the wrong Partner.  Had he met with the right Partner, the meeting might have gone really well.  Which leads me to say:

“You gotta sell burgers to meat eaters, my man!”


2011 YTD IPO Data

I did a bit of research on the US and Chinese IPO markets before my interview with Emily Chang on BloombergTV last week, and thought I would share the data here.  Special thanks to Mike Barker and my friends at investment bank Morgan Keegan for reviewing and fact-checking the data for me.  All data is accurate as of October 24th, 2011.

  1. The value of IPOs increased 14% to $114B in the first half of this year.  However, volume dropped considerably in Q3, with only $27.6B raised, putting us at 8% below last year’s total YTD.
  2. The average US market IPO is down 8% for the year, and 2/3 of listings are below their issue price.  Some are down as much as 60%.  (NOTE: many tech IPOs experienced a strong October, especially towards the end of the month, and the bulk of these companies are also beating analyst estimates handily)
  3. There were 178 IPOs in the US in 2010.  38, or roughly 21% of these, were by Chinese companies.
  4. The Chinese domestic market saw 345 IPOs in 2010, raising $71B.  There have been 232 YTD 2011.
  5. Chinese companies (by nationality, not exchange) have accounted for 31% of global IPO value this year, vs 21% for the US.
  6. As of the beginning of October, there were 166 companies on file in the US.  78 deals have been pulled or delayed YTD.
  7. Pre-Internet bubble (late 90’s), there were on average 300-500 IPOs per year in the US.  Post (2001-2009), we’ve seen on average 125 per year.
  8. VC investment in China hit $3.4B in Q3 2011, a record.  By contrast, US VC investment for the quarter was $8.4B.  1/3 of the VC funding in China went to Internet companies, vs 1/6 in the US.



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