I interviewed General Partner at Flybridge Capital Partners and author of Mastering The VC Game Jeff Bussgang at TechCrunch Disrupt two weeks ago. I will be posting that interview in a few installments later this week. In the meantime, enjoy my review of the book below.

Mastering The VC Game couldn’t have been more timely or insightful for me. Having launched web-based software company SalesCrunch eight weeks ago, we are knee deep in building the product and raising money. We learned alot despite having raised $33M in my last company from prominent VC’s like Sequoia and Accel.

Being a sales guy at heart, I especially enjoyed “The Pitch” chapter. I have always been astounded how few technology entrepreneurs in Silicon Valley, New York or Boston understand or respect the sales process, which is exactly what raising money is. I have seen entrepreneurs with advanced degrees in quantum physics from Stanford and Harvard look like a deer in headlights when it comes to the sales process. As author Jeff Bussgang points out at the beginning of the chapter “many entrepreneurs are not naturally very good at this process, and many actively hate it.”…..”For the entrepreneur, it [the pitch] is the most critical salient expression of their business and confidence.”

I read “The Pitch” chapter two days before a VC meeting last week and made a few adjustments to our pitch as a result. The biggest change we made was to put in writing a list of potential risks to the business and what we were doing to mitigate those risks. We added this as a page in our business plan and a slide in our presentation. It seems counter-intuitive to show potential investors all your business’s potential weaknesses, but as Jeff points out it’s just the opposite. Before detailing the risks we always felt we were dancing around the elephant on the table or waiting for someone to raise them before we addressed them. But that always put us on the defensive and probably made investors question if we were aware of the risks at all. Acknowledging the risks and explaining how we were managing them had several positive results:

• it showed that we were not only aware of them, but thought alot about how to turn them to our advantage.
• it dispelled any fear that we might be blindsided by them or other risks down the road
• best of all, it put the risks on the table in neutral territory where we could have an intelligent conversation with investors about them together like a team. That resulted in more ideas how to avoid the risks or even turn them into competitive advantages and barriers to entry.

I really liked that Jeff profiled entrepreneurs from different fields to show how this process is pretty much the same across industries. I met one of those entrepreneurs, Dave Balter, right before he started raising money for BzzAgent. I introduced him to a friend who became a client and one of the references for General Catalyst Partners during the investment phase, so I was aware how weary Dave was of raising money. It was great case study to use for the book and I was glad to hear it ended well for Dave. A good friend of mine from business school worked for Gail Goodman at Constant Contact for eight of the ten years profiled in the book. Another great case study, as Gail built that company and raised money against all odds as the economy was failing down around her in the early 2000’s. I remember hearing first hand about the down-round and founder ejection discussed in the book and I can tell you it wasn’t a pretty time for the company. But its inspiring and educational to read how it all played out and how perseverance really does win the day.

The “When The Dog Catches The Bus” chapter about the fine print in venture capital term sheets should make any entrepreneur question the sanity of raising venture capital at all. If you ever heard Jason Fried at 37 Signals rant about all the reasons not to raise money from VC’s and wondered why, this chapter will help you understand. But as Jeff’s points out, the worst of the terms only get triggered when the entrepreneurs are not living up to their promises. Jeff helps you understand the logic behind each of the typical terms, how to navigate the terms and suggests doing so armed with a good lawyer. If nothing else, after reading this book you cannot claim ignorance. If you follow Jeff’s advice and negotiate the best terms possible, set ambitious but realistic expectations and meet or exceed them, you have nothing to worry about. If you don’t, well the VC’s go into preserving the principle mode, which is their job. If you put yourself in the place of one of the limited partners who invests her hard earned money into a VC fund, you would expect nothing less than the kinds of provisions VC’s use in their contracts to keep your money safe.

Happy reading. Thanks to author Jeff Bussgang for bridging the VC/Entrepreneur divide and helping increase the odds that us entrepreneurs realize our dreams and change the world.

Don’t forget boys and girls, New York Tech Meetup is tomorrow and there ain’t many seats left for ya: 

This beer drinking duo seems to be the most popular pic for the “This Week in Silicon Alley” post so far. Should I keep it the same or keep changing it around?

“Editors Note: This piece was originally published by Brad Hargreaves on March 28, 2010. I wish I had time to do this type of cool data crunching, but since I don’t I’m reblogging it with his permission here.”

Lots of you enjoyed my post a few weeks ago on buzz and fund size among NYC venture firms. But why not take it further? Why not use all the data in Crunchbase of financings of NYC companies over the past five years?

So that’s what we did. And we got data for 814 venture financings since March 2005 worth a total of $3.1 billion. We were careful to exclude angel and strategic investors, since data around those deals are poor and would make the results harder to parse.

To start, let’s look at all venture firms that have completed over 7 financings of NYC-based companies in the past 5 years. Here, you can see how they stack up based on number of deals done:

Keep in mind that there’s a long tail here — this chart represents 300 total financing events, only 37% of all the venture financings of NYC-based companies in Crunchbase. The rest of financings were done by other firms.

But this is just parsed by the number of financings — with no thought given to the size of the deals. Thus, let’s look at the (relative) deal size by the firms listed above when investing in NYC companies:

You’ll probably notice that there aren’t any labels on the Y-axis. In brief, I don’t trust the absolute data here. It’s often impossible to distinguish the relative contributions of investors in a syndicated deal. For example, if Union Square does a $1 MM seed deal, there isn’t any ambiguity there. But if the company’s next round is a $10 MM round syndicated among two growth capital firms and Union Square, there’s no way to really know how much each firm invested. However, it is probably safe to say that the growth capital firms do bigger deals than Union Square, since they first joined the syndicate at a later (bigger) round. Thus, the relative data is accurate, but the absolute numbers are highly questionable.

Since we selected these financings based on the zip code of the funded company’s headquarters, we can drill down a bit further and draw some really interesting conclusions. Specifically, where are funded companies? The following map looks at two factors: the number of financings in the zip code (the color of the dot) and the total amount of venture money invested in the zip code (the size of the dot):

There are certainly some surprising things here, at least to me. This entire map seems to be shifted a bit further north than I expected; are there really that many well-funded startups in Murray Hill? I also expected to see a bigger presence in TriBeCa.

There’s a lot of data here, and I’m sure there will be follow-up posts — especially as we dive into the data on the types of companies that are receiving this financing.

Brad’s original writing can be found here.

The Bootstrapper Summit on Thursday costs $300-$500!  Would that qualify as an oxymoron?

http://newyork.garysguide.org/events/business/tech+media

http://newyork.garysguide.org/events/business/tech+media

http://newyork.garysguide.org/events/business/tech+media

Looking at all the events on Garysguide this week I can’t help but think of the late 90’s in Boston when there were between 2 and 10 events every night to chose from. It’s was overwhelming then and its overwhelming now – in a good way!  It just proves that the New York Tech scene is on fire!

The trick is to pick and chose and pace yourself.  This week I am going to attend Feedback Forum at New Work City tonight and What Do Investors Look For In Startups at Fordham on Thursday.

By the way, I spent 9 hours yesterday working from the Ace Hotel lobby. It was the best non-event I have been to in the Alley. If you haven’t been, the lobby is like a giant coffee shop/bar full of the coolest, trendiest folks in the Alley! The vibe was great, the conversation was all about tech and startups, the people fashionable and many quite beautiful in a Revenge of the Nerds kind of way and the live music at night was amazing. Check it out.

Here’s the link to the Tech + Media events in NYC on Garysguide

On the heels of posting part 2 of my interview with Charlie O’Donnell of First Round Capital about why New York is a great place to start a technology company The New York Times published an article in today’s Technology section about the very subject.

Yesterday I interviewed Nate Westheimer, the Executive Director of the New York Tech Meetup, co-founder of Anyclip and advisory to Flybridge Capital. In that interview, which will be published here later this week, Nate also talks about why New York is the best place to start a technology company.

In the meantime, here are my favorite excerpts from today’s NY Times story:

Of course, services can be developed anywhere. But because so many industries now grappling with the Internet are based in New York, the city is finding surer footing among its peers as a thriving tech hub.

“Book publishing, advertising, media and even the fashion industry are all located in New York. These are the main industries that are being reshaped and redefined by technology and the Internet,” says AnnaLee Saxenian, a professor at the University of California, Berkeley, who studies regional economics and technology entrepreneurship.

To get a vivid snapshot of this new generation of Web innovation, one needs to look no further than the portfolio of Fred Wilson, co-founder of Union Square Ventures and a force within the New York start-up scene. Run through a list of Web darlings here — Boxee, software that pipes video from the Internet to a television; Tumblr, a microblogging platform; and Foursquare, a mobile social network — and Union Square is an investor.

“The software business has morphed into the Internet business,” Mr. Wilson says. “Ten years ago, maybe 80 percent of software was being built for enterprise. Now, it’s being written for consumers and is more media-centric than ever. And, historically, those have been New York’s strongest sectors.”

Champions for New York’s continued evolution as a hotbed for digital innovation say that the proximity to industries ripe for innovation helps draw companies in those fields.

Kevin Ryan, former chief executive of the ad company DoubleClick and founder of Gilt Groupe, a Web site that offers discounted luxury goods, knows the importance of having prospective customers in his backyard. “We need to be here because the people we’re hiring are coming from Saks and Dolce & Gabbana, and they are all in New York,” he said.

…………..

HELPING to cultivate New York’s revival, entrepreneurs and investors say, is the proliferation of early-stage investment firms, start-up incubators and the cadre of successful serial entrepreneurs choosing to set up shop within the five boroughs of the city.

Ben Lerer, a co-founder of Thrillist, a popular daily e-mail newsletter aimed at hip urban men, recently raised $7 million for an investment firm he runs with his father, Kenneth. The two men plan to make as many as 25 investments in tech start-ups this year, 80 percent of which will be in New York, they say.

The elder Mr. Lerer is a co-founder of The Huffington Post. He also is an investor in Betaworks, an incubator housed in the meatpacking district that has helped nurture roughly 25 companies since it started in 2007, including the online tools Bit.ly and Tweetdeck.

Adding to the momentum are cash infusions from noted venture capitalists based elsewhere. Ron Conway, a San Francisco financier who was one of the earliest investors in Google, Twitter, Facebook and Zappos, says his fund has 25 investments in New York that account for roughly 20 percent of his portfolio.

“Just a year ago, it was less than half that,” he said in an e-mail message. “New York has become a hotbed of innovation,” he said. “Many start-ups there have as much promise as the best start-ups here in Silicon Valley. And the ecosystem of entrepreneurs, engineers, investors and other players is growing at a pace similar to Silicon Valley when it first got started.”

Read the full story on the New York Times here

A very reliable source tells me that LinkedIn is moving its New York office from TechSpace in the West Village (and the heart of Silicon Alley) to the Empire State Building in Midtown.  What are they thinking? The Empire State Building is just about one of the most depressing, tourist ridden buildings in New York City.  Is LinkedIn trying to suck the life out of its people?

Yes, I know the Empire State Building is a New York City icon, but it is also the epitome of the old-boy corporate culture with its marble lobby, mural ceilings, four feet thick walls and midtown location. After the Chrysler Building, it is just about the largest phallic symbol in Manhattan making it the perfect personification of the bankers and other egocentric Robber Barrons that ruled the early part of the 19th Century.  And please don’t let the $500M renovation the building is undergoing fool you, as the money is being spent to “restore the old glory“.  If there were an antonym for Silicon Alley and Internet culture it could very well be the Empire State Building.

But if the building itself isn’t depressing enough with tourists literally climbing up and down it all day everyday, the neighborhood will surely make you want to leap from the top. The area is full of nothing but those little shops selling Chotchkies (Urban Dictionary definition: A small piece of worthless crap, a decorative knick knack with little or no purpose) to tourists.  The only thing to eat within a 5-10 minute walk is Wendy’s.

Is this what happens when startups grow up? I know LinkedIn has over 500 employees and is gearing itself up for an IPO, but does that mean it has to give up a big part of the coolness that made it what it is today in the process? If so, what a bummer!