

EventVue’s Next Event: Deadpool. Co-Founder Shares Mistakes. - chris123
http://www.techcrunch.com/2010/02/05/eventvue-deadpool

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chris123
Taking that VC money is a root cause of most/all of the "Deadly Mistakes" Rob
and Josh made.

Take "tried to build a sales effort too early," for instance:

Pumping money into a sales effort is what VCs do! No bootstrapping startup
would or could do that so early. Why? Because (1) they can't, and (2) it's not
rational, at least if you even halfway consider yourself a "data-driven"
startup.

1) Dollars are data. 2) Customer acquisition costs are data. 3) Customer
lifetime values are data. 4) ROI is the intersection of those two numbers,
adjusted for your fixed costs plus your marginal costs.

So what the f are you (not Rob and Josh, I mean any of us) doing if you're
either ignoring the data or throwing money down a rat hole of upside down
financial metrics? That's a reason why hackers and web startups need a
competent "business/marketing/finance/ops guy" on their team (I don't need to
explain why business guys need competent hackers on their team, that is
obvious).

Thinking that a VC is competent is a leap of faith (some are, most not so
much). Thinking that a VC is "on your team" is plain wrong. The VC is on _his_
team. You need someone on _your_ team or else you [insert favorite analogy
here] "are like a lamb in lion's den" or "just brought a knife to a gun
fight."

Sure, Joe VC wants to make money off you, but he is on your team about as much
as a gangster is on one of his fighting pit bull's team. Sure, we wants it to
win it's fight, but he's got plenty of other dogs. So does the VC. Ok, I'm
exaggerating for effect, but it's more fun that way. Also, yes, through the
magic of liquidity preferences, Joe VC will take 100% of the money if the exit
price is less than the price at which your shares become worth anything, which
is pretty high. You might want to calculate that number and run some
scenarios. The graph looks like that of a call option, with your payoff not
turning positive unless/until the asset price rises above a break-even point.
The lines look something like this: <http://twitpic.com/11nsw0> .

If you take VC money, they will force you, I mean "advise" you, in all kinds
of ways, most of them involving cranking up your burn rate, going for broke.
Why? Because VCs need you to either hit or home run or strike out and they
need you to do it fast. There will be no singles or doubles (early exits for
$10-$30 million). "Hit 'us' a home run our go the fuck home, thanks for
playing," is what have planned for you. That's one reason why bootstrapping is
best for many/most web startups.

Do your customer development, figure out your product and customers, your
value proposition, get some customers, get your customer acquisition cost and
lifetime value metrics quantified, or at least do enough real-money hypothesis
testing and funnel optimization to have a high degree of confidence that if
you invest $i into customer acquisition you will net q paying customers who
each have an average lifetime value of $r.

If $r is greater than $i (the more the better, obviously), then you have (1) a
rational reason to raise and invest capital in sales and marketing, and (2)
negotiating leverage, or "hand," as Seinfeld calls it.

If you raise money to build a sales team before you know what $r and $i are
and before you have some rational, quantifiable reason to believe that $r is
greater than $i, then, yes, you have made a deadly mistake, you have committed
startup suicide. Ok, if a VC is involved, and by definition they have to be
involved if you raised money to build a sales team, then I guess it's better
called murder/suicide. They put the gun in the toddler's hand. Ok, there's a
1% chance that it'll work and we've got the next Twitter, but when you run the
numbers and probabilities, the expected value is negative, congratulations, we
got the next Shitter.

"Never" "negotiate" with a VC unless you have hand. If you don't have hand,
you will be _ss f_ cked six way from Sunday. Sorry to be so blunt, but
sometimes a firm slap in the face is what we need.

Lastly, why does this kind of blowout so often happen to people in their 20s?
On reason is discussed in Chris OBrien's "The Innovation Age Bias At Sequoia
Capital" and its comments: [http://www.siliconbeat.com/2010/01/05/the-
innovation-age-bia...](http://www.siliconbeat.com/2010/01/05/the-innovation-
age-bias-at-sequoia-capital/#comment-8867). That link is direct link to my
first comment, which is followed by Vivek Wadhwa's perspective (Vivek is a
guest author on TechCrunch and a visiting Scholar at UC-Berkeley and has ties
to Duke and Harvard).

