Last weekend I participated in the first edition of the Melbourne Startup Camp. What happens when you put twenty five people, who may or may not know each other, in a room, divide them into three teams and tell them to start a company within less than 48 hours? What if you also introduce a couple of ambitious deadlines throughout that weekend and convince everyone their companies might be worth hundreds of thousands of dollars once they are funded by the Venture Capitalist…. this Sunday at 3 pm.
Well, obviously, you end up with a fantastic and completely exhausting weekend. You end up with many lessons learned, many new contacts made and maybe even a surviving startup or two.
During the weekend I was mostly focused on writing code – 26 hours straight – but that didn’t stop me from observing other things. I’ve learned a tremendous amount of things on technology and working in a multidisciplinary team of (mostly) strangers under high pressure, but that’s not what I want to write about here. This post is about culture.
Please take a bit of time to read Duncans post about our project, the other projects, the weekend in general and the lessons he’s learned. The title – The Good, the Bad and the VC – should warm you up and it’s an interesting read.
Assuming you haven’t read it, one the things he discusses is the guest VC, Jordan.
A VC (Venture Capitalist) is, as far as I understand it, basically someone with way too much money looking for even more money. In order to do that he needs to find a bunch of high quality people with a good idea. There is a lot of people out there with ideas and a need for money, so they have to keep it short. The resulting phenomena is known as pitching. It’s simply a more sophisticated and useful alternative to soccer. For an 14 minute introduction to the subject and just to get an impression of their pace, watch this TED talk. It’s a must-see for anyone who needs to give a presentation about anything actually.
So Jordan gave some advice to the groups at Startup Camp about how they present their buisness plans to a VC such as himself. You should not start with how cool your project is. In stead you should first focus on how the VC is going to make a lot of money, only after that you should talk about the “details”.
Duncan didn’t really appreciate this and wrote:
The short version: bullshit and lie, and it’s only about the money.
But I disagree. The short version is: don’t bother a VC unless you have something he wants.
The reason he said you should exaggerate is not because he wants to invest in lies. That would simply not be in his interests. The reason he says that is because he wants you to at least think along these lines. Even if your initial idea won’t achieve that, at least you have the right goal in mind and you’ll find another way.
It is a well known fact that the end result of a starting company is nothing like their initial idea for a product. Coca-Cola doesn’t contain cocaine anymore, need I say more?
The same goes for buisness plans; they change.
The only thing that matters is the team. A great team with a mediocre idea and mediocre buisness plan, will fix both issues in due time. A mediocre team with a fantastic idea and brilliant buisness model is a recipe for disaster. Just lend your brand new car to a 16 year old cocaine prostitute to see my point.
A VC does not want to invest money in a team that doesn’t share his goal of making a lot of money. If they both agree on that and if the team is good, he’ll get his profit. If the team doesn’t agree, e.g. it aims at more conservative buisness models, then he will not get his profit.
It’s not about lying, it’s about thinking the same way. And yes, of course it is all about the money; that’s the difference between a VC and a charity.
Before I continue, I wish to quickly introduce a “new” phenomenon into the mix here: culture shock.
If somebody moves to another country, he finds himself in an unfamiliar environment where all his subconcious daily tricks don’t work anymore. A person usually goes through a number of phases.
- the honeymoon phase: everything is great, new and exiting
- the (what I’ll call) denial phase: “characterized by a hostile and aggressive attitude towards the host country”. Stereotypes are formed, e.g. “Americans always…”
- final adjustment: “visitor accepts the customs of the country as just another way of living. He can operate within the new milieu without a feeling of anxiety although there are moments of strain”
So what does this have to do with anything? Well, Duncan concludes his analysis of our encounter with a Venture Capitalist, by saying that VC’s are:
anything other than nice people, and any rumors they’d heard about VC’s were true
Now I truly enjoyed working with Duncan, but this is, sorry to put it bluntly, a classical case of culture shock, denial phase. That is not something about Duncan in particular, because I read this type of statement a lot. The usual reasoning is that VC’s in Australia should behave more like VC’s in Sillicon Valley, but that is completely missing the point.
There is simply a massive cultural gap between people who have money and people who want money. At least as far as the underground web entrepreneur crowd in Melbourne versus Australian Venture Capitalists is concerned.
There are two ways to deal with culture shock: one is to “leave”, which is basically what Duncan seems to be doing when he says:
And you know what, if I never pitch to a guy like Green again as long as a live, I’ll die out my days as a extremely happy man.
The other way is to stick around and keep interacting until you figure out a way to use the situation in your advantage. At that point you’ve extended your comfort zone and you will earn buckets of money at the same time. I’m opting for the second solution in this case.
Your choice should depend on the question whether you think you need VC money or not; personally, I would like to at least keep that option open (I’m talking in general here, nothing to do with any pluck).
My impression was that Jordan (the VC) was actually really curious about us (all groups, the whole startup camp idea), but you could easily see he was not in familiar territory. He made a few remarks about presentation style, but quickly stopped doing that after he sensed the response. Trust me, if I was given carte blanche to criticize the three presentations, everyone would have left the building in tears. He was mild, if not soft. Not that the presentations were not great, or that I would have done any better, but they didn’t stand a chance to win capital.
Next camp: more ugly!
What I’m trying to say here is that we should involve VC’s (and other sources of capital such as the B-word: banks) much more closely in the next Startup Camp. They should be right on top of us during the ideation phase, forcing us to think more in their terms.
That exposure will in turn make them understand “us” a bit better as well.
But make no mistake: there is plenty of places to invest money, not plenty of places for us to get money, so we are the ones that need to adapt, like it or not.
thoughtful post mate.
Good write up Sjors.
I agree with your analysis of the culture shock with VCs, but I can only say: LEAVE, for the love of God!
I don’t want you to spend the rest of your life wearing a suit, telling lies and getting rich as a side effect.
Don’t worry, that’s not my plan. I will do the best I can here for the next 6 months and then I’m off to The Netherlands (where there is even less venture capital b.t.w.).
I have no intention of wearing a suit and telling lies; there are better ways to achieve what I want.
Also, I’m not looking for venture capital myself; I don’t need it (yet). I just want to make myself useful in the Melbourne “underground” tech community.
Interesting stuff. Have you seen DHH’s talk called “The Secret to Making Money Online”? (Yes, that’s the guy that created Ruby on Rails and works at 37signals.) He argues that you really don’t need any venture capital to become a millionaire. Of course, that probably depends on what you want to achieve. Still, an interesting talk: http://www.37signals.com/svn/posts/981-the-secret-to-making-money-online
It is refreshing to me to see that not everyone got things as wrong as Duncan. I am glad to see that you found value in the whole event and, even, perhaps, in my contributions.
On behalf of the VC community a point of clarification. When you say a VC is “someone with way too much money looking for even more money” it is important to understand that a VC usually is investing someone else’s money – a superannuation fund for example – to deliver a return to that someone else. It is not always, or even often, appropriate to look upon VCs as the source of the funds. They are men and women doing a job and one will get a much better response from them with that in mind than by approaching them with innate envy. Would you invest money you control in someone who treats you with contempt?
I certainly agree that the opportunity for an investor to be more involved earlier in the event might help everyone get more out of it – we’ll see what we can organise. Your link to the David Rose piece is spot on. David is a good guy whom I have had the pleasure of meeting several times and his message is very clear and to the point.
Not quite sure why you felt I was “not in familiar territory” but, I accept that it must have been my fault for not making myself clear and will endeavour to do better next time. I say that because I found it very familiar territory. I first organised a “boot camp” similar to this event in the 1980’s and have been involved in such activities to a greater or lesser extent ever since. Then again, I am no longer the guy on the keyboard cutting the code so perhaps I don’t make enough of an effort to bridge that gap so thank you, I will try harder in the future.
You are absolutely on the money to be looking at the culture gap issues. I lived in the Netherlands, Silicon Valley and elsewhere and that does teach one, if one is willing to learn, that culture gaps are not just between countries and ethnic groups but, also between other groupings of people. If we want something from someone else then it is up to us to understand the other person and approach them on their terms, not ours.
Wish you every success in your endeavours.
@breun: Indeed VC is not necessary. If you have a good idea, determination, and skill, you can build your killer web app on your home network of a couple of old leftover computers. The successful language technology firm where I did an internship last year started with no capital, in the middle of the dot-com burst, doing 100-hour work-weeks. Now they have tens of employees.
I also read about an interesting research result that spin-off companies from universities that support spin-offs (like UTwente in the Netherlands) do no better than spin-offs from universities that don’t (like our Universiteit Utrecht). It all seems to suggest that too much luxury isn’t beneficial to a startup.