David talks to me about why he is spending more time in New York and why mobile is finally the “next big thing”.  You can listen to the original audio recording I did on my iPhone on Cinch.

SEAN: So we’re here with David Hornik of August Capital. David , thank you for joining.

DAVID: Sure.

SEAN: So you’re here on the West Coast and I know you’re starting to play a little bit more and more in New York. Right? So tell me a little about, you know, where first of all, like, a little about August, you know and your area of specialty — your sweet spot  in investment…

DAVID: Yep.

SEAN: …and how do you play as a West Coast firm in the New York?

DAVID: Yeah, it’s interesting. I will say that for the longest time I was sort of like “Ah, we’re west coast guys . We sort of only invest in the west coast and maybe we’ll look in Boston or whatever.”  But, man, why would you… (chuckles)

SEAN: (chuckles)

DAVID: I’m a Boston guy, [so] I hate to say it. But, man,  you know, all of the interesting activity right now is in New York. It’s not in Boston.  It’s not in…Well, you know, maybe  there’s still stuff happening in Austin and there’s some stuff happening in Chicago… So, you know August has been around — August and the predecessor firm to August is called TBI — has been around for now going on 25 years. So it’s been a lot of companies we’ve invested, and we tend to be their earliest investors, the earliest professional money into the company. So, my partners, the partners of August have been the earliest investors in Microsoft Sun, Compaq, Intuit, Symantec, Seagate, Zylinx, so a lot of stuff historically. Then more recently, things like Shopping.com and  Atheros and Postini. So, I personally am kind of a software guy. I like to invest in things that I understand how they work. So, I invest in some enterprise stuff — I’m the earliest investor in Splunk, which has been a really interesting product. And then, consumer web stuff like I’m on the board of StumbleUpon, I was on the board of Aardvark, I’m on the board of Six Apart and Video Egg and some others. So, you know, a  pretty broad range of things.

SEAN: Yeah. And what do you think — I mean obviously media in New York is kind of a no-brainer — is that where, when you’re playing in New York, is that where, is that how, is that typically the space that you’re in; online media?

DAVID: Yeah, online media, that’s right. I mean that’s what… and it seems like that’s the stuff that’s happening that’s interesting. On the other hand , you know, is Etsy online media or is it e-commerce?

SEAN: Yeah.

DAVID: I think e-commerce is really interesting right now. I suppose it’s just digital media. I look at it as, you know, future media stuff.  So Video Egg has an office in New York, Six Apart has an office in New York,  so I’m spending more time out there. I’m going to be in a board meeting next week  in  New York. I was at a board meeting a couple [of] weeks ago. But, frankly, just out there more often because there’s more interesting activity. There are… Savvy just had a tech conference. You know, ”Internet Week,”  Disrupt just happened. So I think all of that stuff is going to result in folks like me who are typically sitting here on Sand Hill Road saying, “Let’s get on the…get on a plane and fly out there and spend some time.”

SEAN: Any thought on opening an office in New York?

DAVID: That would be really interesting, right? Because over the last, I’d say,  two decades the direction has been entirely the other way.

SEAN: Yeah, totally.

DAVID: People sitting on the East Coast are saying, “We better open up a  presence on the West.”

SEAN: Yeah.

DAVID: So, I don’t think that August is a firm that will always have people in August and will fly to the things that are interesting. My partner, Howard, invested in this company,  Swoopa , which is in Germany.  And once a quarter, he hops on a plane and flies to Germany, because it’s a really interesting business and it was in Germany. So, I think you just have to recognize that.  Smart, interesting entrepreneurs and companies exist where they exist and, you know, sometimes it makes perfect sense for them to move to the Bay Area. But, if it doesn’t…If you’re building a big interesting business, then great. You know, it’s not like VC’s don’t know how to get on a plane.

SEAN: Yeah — yeah, yeah yeah. So who should approach you? You know, in terms of the “sweet spots” of the sector, stage, unique value proposition? What are the things you look for the most?

DAVID: I mean, August is a little odd in this respect. I mean, I’ve seed-funded companies. I just seed-funded a company called WePay that came out of Y Combinator.

SEAN: Yeah.

DAVID: I put $500,000 into a company called Red Swoosh, which Travis Kalanick started some time ago. On the other hand, I invested $35 million dollars in this company LiveOps that’s in big business, doing interesting stuff, and August, as a firm, invested $130 million into the buyout of Seagate. So, the reality is if you’re doing something interesting in tech that’s compelling, we’d love to hear about it.

SEAN: Yeah, yeah.

DAVID: Now, I’d say that our typical deal is kind of the$ 4 or $6 million dollars that comes in your series AB to go help you figure out how to build a business. I tend to be earlier stage. I tend to like to invest in companies when they’re just getting started building the product, because I think it’s more fun. So of the, I don’t know …I’ve been in the venture [capital] business for a decade and probably invested in two dozen companies and I’d say that maybe a handful of those had a product they were selling when I funded the companies.

SEAN: Yeah.

DAVID: So I definitely like the, “Hey, that’s a great idea,  let’s go see if we can unfold that.”

SEAN: Dream phase…

DAVID: Right! Yeah! It’s great! And when it works it’s amazing. Right?

SEAN: Yeah.

DAVID: To think that you go from, oh, here are three guys doing something really interesting, to now it’s a company with 250 people and profitable and making, you know,  $75 million bucks.  That’s just cool.

SEAN: Yeah. Building stuff from scratch is fun and rewarding, I think, right? Not just financially, but the whole process.

DAVID: Yeah, I think the economics are sort of a byproduct. I mean, they’re important for everybody and, obviously, we have investors who we’re supposed to be making money for and all that, but the economic riches are a byproduct of building stuff that’s important or valuable and helpful. And that’s fun part and, you know, it doesn’t suck if you get rich as a byproduct, right?

SEAN: Yeah, absolutely. Is there any last question and is there any kind of big…what do you think the next trend is? If now what we’re in is a rethinking of e-commerce, perhaps, with Groupon and Living Social, and Etsy – to your point – is there something else? Is mobile at a peak [INAUDIBLE]

[CROSSTALK]

SEAN: …or do you think there’s something more interesting coming?

DAVID: No, I mean, mobile;  it has to. You and I were talking a little bit earlier about the iPad. You know I’m sitting here actually looking at my  table wherewe’re talking into your iPhone sitting next to my iPhone which sits next to my iPad which sits next to my laptop which is next to my desktop, right?  Now obviously that’s an extreme, but I do think that the mobile computing is coming, the question is who’s going to make the money, right? That’s the tricky thing. It’s always been… on the one hand, it’s been a timing question, on the other hand is the biggest, most valuable companies are those things that become platforms for other things. And so, right now, the big platforms in mobile happen to be owned by Google and Apple.

SEAN: Yeah.

DAVID: And so that’s not a startup thing.

SEAN: Yeah.

DAVID: But if we can figure out what those next great… Maybe it’s that it’s mobile and it’s geo-location.  And so then , who knows? Maybe if Foursquare is the next big thing, or maybe there’s some other. Maybe it’s, you know, mobile and audio and so Pandora is meaningful. You know, like, Pandora on the computer was fine but it wasn’t a huge business. On the iPhone and now the iPad and whatever, then suddenly it became a huge business. So I think mobile’s going to enable amazing  stuff. And anyone’s who’s sitting building some application that they think is just going to sit on a desktop is crazy.

SEAN: Yeah.

DAVID: That’s just, sort of, ancient history.  So that stuff will be super interesting.

SEAN: So maybe mobile that’s it, finally.

DAVID: Yeah, right. In the next ten years… or so!

SEAN: You have to be right in that window, you can’t be wrong.

DAVID: We invested in a location-based service for mobile in 2002 or something. You know, it was like, “Ok. It’s coming around and we can do geo-location based on the location of the towers and no GPS”…

SEAN: Yeah, yeah.

DAVID: It was obviously super-early. We ended up selling it and be we made like twelve cents and it was fun, but it was the same timing problem. Like, “Yep. That’s not it. Alright, well,  I’ll try again in a decade.”

SEAN: That’s true. It’s Like Dodgeball to Foursquare, it’s all about timing…

DAVID: …totallly.

SEAN: …being too far ahead of your market.

DAVID: …yeah.

SEAN: Very few people get a second chance, though, to come back and do it again [chuckles] which is the amazing thing.

DAVID: It helps to be maniacally focused on that market

SEAN: Yes.

DAVID: Like, “I don’t care! I’m going to do it again!”

SEAN: Yes, yes.

DAVID: That’s awesome.

SEAN: And being willing to work as a waiter in the meantime [laughs].

DAVID: Exactly.

SEAN: David Hornik from August, thank you so much for being here.

DAVID: Sweet, thanks.

In Part 2, Jeff gives advice on what entrepreneurs should and shouldn’t do when pitching their ideas to VC’s and what are the most commonly used.

SEAN: I think you go into something like 40 pages on the pitch itself, and this, kind of, just hits home for me because I… you said in one of the beginning chapters that very few entrepreneurs do it well and almost all of them hate it. Right? And I think that the same can be said for sales. I find that having spent the last five years in the [Silicon] Valley, I find it really surprising being around tons of Stanford people who are just incredibly smart entrepreneurs, technically incredibly savvy, but who either just don’t understand sales or understand that, you know, that there’s a sales process, or have any kind of desire to understand it. Yet, they’re trying to run, you know, a big company. [chuckles]

JEFF: Right.

SEAN: So, in the context of how to pitch for money what are the take-aways from, you know, from your content of your book?

JEFF: I think a couple of things: one is that VC’s blink and in the first ten to fifteen minutes they make a decision about whether they  want to invest the next 30 to 45 minutes.

SEAN: Yep, yeah.

JEFF: So you have to establish credibility in those ten to fifteen minutes.

SEAN: Absolutely.

JEFF: Why are you uniquely able to be effective in pursuing this business?   What’s your unfair advantage in pursuing this? Why can’t five people in the Silicon Valley, five people at Harvard, five people in India do that exact same thing? And then have that sort of summary review but also the depth. I tell a little bit of the story of when I was an entrepreneur pitching [INAUDIBLE], and how mortified I was when pitching the full Kleiner partnership  — and we eventually did get the funding from Kleiner — but John, in particular, was pushing me on the financial model and going five levels deep in his questioning  and I was not fully prepared and I stumbled and my co-founder stumbled and we sort of muscled our way through it. But I, afterward sort of, vowed never to be as unprepared as I was heading into that meeting, that I would know every cell on every spreadsheet that I would show at so many levels so that you would never look unprepared. And I think that’s critical for the entrepreneur.

SEAN: Yeah, absolutely.  So preparedness is huge obviously, and understanding your own business model and business plan and probably anticipating as many hard questions as you can and getting other people to ask them first.

JEFF: Yeah, one of my partners like to say, “when you have risks and flaws, don’t hide them, feature them.”  I think the thing that most impresses VC’s is when the entrepreneur says, “here are the risks in the business and here’s my plan to mitigate those risks.” You know, just be very direct and honest. When entrepreneurs, sort of,  don’t talk  about the risks, it forces the VC to pull them out and identify them, and then the VC thinks, “well…”

SEAN: …he doesn’t even know…

JEFF: …Yeah! Maybe they don’t even know, and if they don’t know the one I just thought of, what are the three others that I didn’t think of that they don’t know?  I talk about Christoph Westphal pitching John Henry, the owner of the Red Sox, on Sirtris, and he says to John Henry…

SEAN: So the term-sheet is pretty tricky, right?

JEFF: Yeah.

SEAN: There’s  are good sites now like TheFunded.com with lots of sample term-sheets on them and probably more information than there ever has been from entrepreneurs about what to watch out for. But what would you think  are the main… it’s probably hard for you as a VC to say honestly, like, “these are the things you don’t want to sign off on,” because then someone will come to you and use it against you . Right?

JEFF: You know,  it’s funny, I did this in…I did  a whole chapter on term-sheet terms and negotiations. And one phrase that I use, which is very common, is that in many partnerships when entrepreneurs push on price, the partnership says, ” hey, if you loved the deal at 7M pre, you’ll love the deal at 9M pre.”  I mean, if it’s going to be a great success, it get lost in the noise.  So I get teased a little bit by entrepreneurs who throw that back at me.  But, no, I try to be very transparent in revealing all of the elements of control, and all of the tricks that VC’s can play on control, all the elements of price and all the tricks and knobs that you’ve got to worry about on price.

[END]

I caught up with Jeff Bussgang at TechCrunch Disrupt a few weeks and interviewed him about his new book Mastering the VC Game. I will post the interview in two parts. In Part 1, Jeff talks about the genesis of the book, his background as founder of UPromise,  how he made it over to the ” Dark Side” of VC, and how and when entrepreneurs should approach VC’s.

SEAN: Ok. So we’re here with Jeff Bussgang. Did I say that right?

JEFF: You did.

SEAN: …from Flybridge Capital Partners, but more importantly the author of the newly debuted book “Mastering the VC Game.” So  Jeff, thanks for taking the time.

JEFF: Yeah, I’m glad to be here.

SEAN: So you guys are… tell me a little about the genesis of the book.  So maybe talk a little bit about your background because I think it’s interesting. Your not only a partner at Flybridge, which is a fairly new, relatively new venture capital firm, but also an entrepreneur having founded  U-Promise .

JEFF: Yeah, yeah, especially here in New York because U-Promise manages the college savings plans in the state of New York.  So it’s pretty well-known here. So I was an entrepreneur for a number of years. As you said, co-founder and President of U-Promise and about seven or eight years ago, switched over to the other side and became a venture capitalist. I joined a couple friends who had been investors for my previous companies to help start this venture capital firm. And I started blogging about venture capital and entrepreneurship about five years ago. Through having seen the entrepreneur side of the table, going over to the other side, and sort of learning what happens inside the black box of the world of venture capital, I started writing about it. And after five years of blogging about it, someone said turn that into a book.

SEAN: Absolutely.

JEFF: So I thought that sounded like a pretty fun idea; a new project that would challenge me. So I went out and interviewed a dozen VC’s and a dozen entrepreneurs, wove in a little bit of my own experience as an entrepreneur and as a VC and wrote the book.

SEAN: Yeah. So you talk a little bit about… obviously the whole goal here is to figure out ..for the entrepreneur to figure out how to navigate through that space which is incredibly interesting and challenging at the same time. The first chapter is sort of dedicated to the VC game, right? Tell us the cliff notes; what are the key take-aways from what an entrepreneur needs to know after reading that first chapter or two, the most important things.

JEFF: What I try to do in the first chapters, I profile entrepreneurs who I think are great entrepreneurs to help entrepreneurs understand what makes a great entrepreneur, a successful entrepreneur. So I profile Reid Hoffman.

SEAN: What are the one or two most important things that entrepreneurs should know about the “VC game?”

JEFF: Well, I would say the first thing is don’t ever cold call VC’s.

SEAN: (chuckles)

JEFF: It’s amazing to me how many entrepreneurs still think that they have a chance of raising money and getting funding  with a cold call.

SEAN: Yeah.

JEFF: You know, people like to invest in people they know and people they trust.  So finding what it is to network to VC’s to get warm introductions from people who know you… You know, venture capitalists are highly networked individuals they have a, as a job description, are very open and plugged in and linked in and if you can’t find a way to get to the right venture capitalist then it says it reflects poorly on you as an entrepreneur.

SEAN: Yeah.

JEFF: And then the second thing I would say to folks is really do your homework and research on who you’re approaching and find their “sweet spot” is as an investor. Because if you’re approaching someone who is a later stage investor or somebody who, if you’re looking to raise a million dollars and somebody’s typical investment size is ten million dollars, you’re just not going to get a very good audience.  And, that could be a real act in frustration.

SEAN: Someone once told me about your former point, “when you need a friend, it’s too late to make one.”  [BOTH LAUGH] So one bit of advice I always give to entrepreneurs is, you know, while you don’t need anybody, get to know people really well because then your barriers are down and you can just have a conversation about what you have in common.

JEFF: Right.

SEAN: But, yeah, by the time you need money, it’s way too l ate.

JEFF: It’s too late.

SEAN: Because now everybody’s wall’s up, right?

JEFF: Yeah, the other line that I use is “the best time to raise money is when you don’t need to raise money.”

SEAN: Exactly. Absolutely right. And to your latter point about, you know, I think everyone just takes this spaghetti approach, right? Throw it against the wall and see– you know, just pitch everybody and see what sticks.

JEFF: Right.

SEAN: Well, I think ultimately you waste a lot of time, waste a lot of other people’s time, and you just look like an idiot because you don’t know who your target audience is.

JEFF: Yeah. I mean, I think when an entrepreneur comes in, they’ve done research on the firm, they’ve done’ research on the partner and their history . They just impress you…

SEAN: Yeah.

JEFF: …                  and their odds go up. I mean, it’s a long odds game.  You know, we see, like many other venture capital firms, thousands of businesses every year and we may  only invest in six to ten at Flybridge Captial.

SEAN: Wow.

JEFF: So the odds are one in three hundred, one in four hundred.

SEAN: Wow.

JEFF: And that’s pretty typical. So people really need to think carefully about targeting as much as they can, tailoring as much as they can of their pitch to the individual they’re pitching.

SEAN: Yeah, absolutely. Is there — and I’m sure this is circumstantial — is there a best time and a worst time to raise money? We just talked about the best time is when you don’t need it, right?…

JEFF: Yeah.

SEAN: … which is a kind of unusual position to be in as an entrepreneur. [chuckles]

JEFF: You know it’s funny I talk a little bit about this in the book and in a blog post I did recently in my blog “Seeing Both Sides,” which is a blog on the industry. And you know there’s a myth out there that VC’s take the summer off…

SEAN: Yes, yes.

JEFF: …and I looked at the data and, at least at Flybridge, we’ve done… looked through the deals by month over our seven or eight years of history, and we’ve done more deals in August than any other month.

SEAN: Wow.

SEAN: So talk a little bit about the backend. I mentioned today that you had this incredible hotel in Venice, another one in Mexico and the site looked amazing. You know, how do you guys go about finding these deals and what’s the process?

DREW: You know I think it has really to do with relationships and experience in the industry. I’ve been at this now for a decade. We have a team of folks who have similar backgrounds.  There’s a woman named [INAUDIBLE] that leads our team and she comes from Orbitz and before that National Leisure Group. We’ve got folks from AmEx, and Leading Hotels. So, yeah, it mostly turns on having been around the industry and having the taste and judgment and relationships to know where we want to focus. And, again, it speaks to the core of our model, which is about taste and judgment and editorial focus. And it requires some human who has experience, who has a perspective to put together those ideas.

SEAN: Yeah. So what’s, kind of, the end goal for JetSetter?

DREW: You know, at the moment we’re just focused on trying to keep up with growth, trying to see where this thing goes and just how big it can be.  It seems clear to me that consumers need help, especially around high-end vacations. Right? There’s an overwhelming amount of information. And service that has authority, that has taste, that has taste, that points then in the right direction, that’s willing to invest in their service, that stands behind the kinds of things that they sell, I think that puts us in a very different place than the vast majority of players in this category.  Expedia, Travelocity, Orbitz, all of them, Priceline, all have great businesses and [INAUDIBLE] but I think that when you think of the needs of the leisure consumer, particularly, the top-end, they’re not particularly well-served.  You know, if you look at all those sites, they all kind of look the same. It’s  a search forum, it’s if you’re looking for a flight, a hotel, a car, a cruise and tell me where and when you want to travel. And when it comes to vacation planning , vacation travel websites [INAUDIBLE] for most consumers.

SEAN: Does the high-end, typically, using a travel agent versus the mass market using the web.

[CROSSTALK]

DREW: I think there’s more presence of travel agents in our category than in other places.

SEAN: Yeah.

DREW: I think one of the realities is consumers between, call it 25 and 50 are just much more fluent, much more comfortable in an online environment than they would be , you know, looking for a travel agent  going inside and asking someone to look at a brochure [INAUDIBLE]  I think consumers [INAUDIBLE] think about decision-making and discovery and research.

SEAN: Yeah. So, JetSetter is a great name. Was it your first choice and was it hard to get?

DREW: You know, well once we hit upon it and found we could get the URL it fell on the right answer.  And [INAUDIBLE] brainstorm all the good ideas, and in this day and age getting url’s is always a challenge, but the stars kind of lined up.

SEAN: Who were the runners-up?

DREW: Uh, they were not as good as JetSetter.

SEAN: [laughs] Give us one, give us one good one…

DREW: Oh, God…

SEAN: What was the silliest one?

DREW: We played around with “Valise,” which is the French word for “luggage,” it had, sort of, a whole set of connotations that were unpleasant.

SEAN: Yeah, I had an online car site in 1999 and one of the names I came up with was “Sacarat,” which I don’t even know what it meant but somebody said, “It sounds like “Sack of Rats.” [laughs] I said, “Yeah, we’re going to check that one off.” [laughs] But it’s unusual to have such a great aspirational name…

DREW: Someone asked if Valise needed penicillin or something

SEAN: Oh, Geez… yeah that’s [INAUDIBLE]

DREW: I didn’t need it anymore anyway. [chuckles]

SEAN: So you have a team of, it looks like, 15 or 16 people already?

DREW: We’re up to 25.

SEAN: Wow! That’s incredible.  So you’re hiding a lot of them on your website. You only show selected people…[chuckles]

DREW: I think we’re focused on getting sales up. [INAUDIBLE]

SEAN: That’s great.  Are you sharing office space with Gilt.

DREW: Yep.

SEAN: Oh you are that’s great. So you’ve got another synergy-to-be [INAUDIBLE]

DREW: Exactly.

SEAN: And you guys are in Chelsea?

DREW: [INAUDIBLE] We’re at Park and 32nd now.

SEAN: Ok. You’re not far from… you’re a little above 14th street, the alley crossline. Right, you’re pretty close.

DREW: But it’s still walking distance [INAUDIBLE]

SEAN: Right. And you’ve got lots of great restaurants. And before at Kayak[.com] you were commuting to Connecticut.  Right? From Manhattan?

DREW: By that comparison, it’s the best.

SEAN: [laughs] Yeah. You don’t have to get on the train any more.  Just do the opposite commute, I think, of what most people normally do.

DREW: Yeah.

SEAN: So you got to stay in Manhattan, which is great.  So, looking out, you have a bunch of people watching this video who will want to come work for you, what kind of people in the next 12 months do you think you’ll need?

DREW: You know, I think the most important test is cultural fit. You know, people who are excited by and comfortable with a pretty entrepreneurial environment. I think we’re going to need some help in engineering, we’re going to need help in marketing, we’re going to need help in product development, [INAUDIBLE], but also the thing that’s most important to me is people who can get the team ethos and understand what we’re trying to get done and feel comfortable in that environment.

SEAN: Any sort of tips? Any big learnings, I guess? So it’s been about a year since you left Kayak[.com] and started developing this thing, right?

DREW: Mmm hmm.

SEAN: … and launched it? Any big learnings from being inside, you know, you worked in Kayak[.com] pretty early so you saw that ramp and that growth. Anything surprising  being in a different role?

DREW: Uh…

SEAN: …being in the lead role?

DREW: You always have new challenges in a new job. You know, I think It’s been gratifying, satisfying to be the CEO and, sort of,  try to point the organization in the right direction. Big surprises and learnings? Gosh.  I think the most rewarding piece is having a great team and enjoying the people you see every day. If you like being around them, you’re more likely to spend time with them, you’re more likely to be effective, you get better conversations, you get better answers.

SEAN: Have you had a really bad day in the last 12 months?

DREW: There have been some bad days.

SEAN: [chuckles] Anything you want to share?

DREW: No, probably not.

SEAN: [laughs] What was the best day in the last 12 months? Launching?

DREW: Launching, yeah, was a very good day. That was a very good day.

SEAN: How long were you developing before you launched?

DREW: Gosh. We, I mean,  I started working in April of last year. We did our first, kind of, alpha internal sales in August and then pushed it out at the end of October last year.

SEAN: That’s great. That’s fast. Agile development; you guys are doing, you know, sprints, sprints, sprints. That’s great.

DREW: Yeah [INAUDIBLE], the other piece is, you know, you don’t have to be right, you just have to be fast.

SEAN: [INADUIBLE] right?

DREW: Yep.

SEAN: So it’s great, thanks for coming. We’re excited to see the progress and it looks like you’re off to a really good start, being a nice addition to the New York Tech scene.

DREW: Hopefully we continue to grow [INAUDIBLE] and continue to flourish.

SEAN: Good. Thanks for coming.

[CROSSTALK]

SEAN: Cheers.

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.

You can find part one of our interview here.

In Part 2 of 3, Drew talks about:
- the reinvention of ecommerce resulting from the explosion of new email commerce sites like Groupon, LivingSocial and Jetsetter.
- the synergies JetSetter is able to leverage from Gilt.com, from which JetSetter was spun.

SEAN: And I can’t help but think of Groupon, and obviously there’s some big differences, but how do you guys think about the sort of explosion, I guess, of those types that seem similar in a lot of ways.

DREW: I think at some high levels there are similarities, but I supposed the similarities are a part of this reinvention of e-commerce. And I think it’s interesting to look across the models and to see how people are thinking about e-commerce totally differently today than they have in the past, probably, decade. I don’t know that they’re all that similar. I think there are a lot of ways, there are a lot of critical ways in which what we do is different from what Groupon does, or what many of these kind of member-based triggered events. You know, I think, at least what we’ve tried to do is focus very specifically on the way consumers think about purchasing high-end, leisure vacations, and thought process, and the discovery process that goes on around that as opposed to something like Groupon which is, you know, in my estimation is very powerful for global services and things that are quite impulsive, but not necessarily well-suited to the category we play in.

SEAN: Sure, yeah. No, I was thinking more like the infrastructure of the model itself as opposed to the specifics. It’s like, you have, this small business that’s very local oriented, but this idea you have this one-day opportunity, you know, to act upon something. They, just almost like curate it, but to a less, much less extent. I agree.

DREW: Well, I mean, yeah, to that degree, to that extent I agree that there are similarities in that the idea of e-commerce players should be having a conversation with the consumer. That’s a different sort of frame of reference when people are thinking about e-commerce than, you know, Ebay, you know, Orbitz, Expedia, on down the line.  I mean, these sort of traditional e-commerce players, I think, didn’t really view themselves in dialogue, or having some kind of ongoing relationship with consumers.  It was much more purely transactional. I think, as you say, Groupon, JetSetter, Gilt, on down the line are much more about the relationship that they have with their members.

SEAN: Yeah. So, between, you know, besides the basic model being very similar and a spin-off from Gilt, what other synergies are you able to leverage? Are you able to float that user base in automatic?

DREW: You know, we will market some of our offers to the Gilt membership base so that’s one of the ways that they’ve helped us [coughs] excuse me… build an audience and gain scale pretty quickly.

SEAN: Yeah. So is the other main way from, sort of,  your background being…you were head of internet marketing at Kayak[.com], right? So it was all more about going out to the web and, you know, the search engines is that sort of, kind of, how you see finding people that you’re looking for? Is that what you have been doing?

DREW: I think we play a little bit of a different game, you know. In some of the same ways things like Kayak are very mass market and they’re very focused around, sort of, to find any customer at the right price. You know for us the audience that we’re going after is critically important. And one of the nice things about, sort of, the social aspects of our business is that you keep getting… the social graph, in a sense, ensures that you get customers that are like one another. Like, when I invite you I’m much more likely to get people who are like you. So we start from the same core audience of sophisticated, affluent, interesting consumer base.

SEAN: I see, I’m sure you guys see things like FaceBook as just another to… I’m sure somebody’s booking a great vacation on it to Venice, Italy, which was one of the sales today, and puts it on their FaceBook account. I’m sure all their friends are going, “Oh. That sounds really interesting.”

DREW: Yeah, absolutely. I think it’s interesting we’ve gotten really great dialogue on our FaceBook page where members are writing in with questions or asking for more information or suggesting things we might want to think about. So it’s become a pretty vibrant community, and I think there’s a way in which what we do is a very social experience and as you say, I invited many of my friends to become members and I say I want to hear where they’re going and share what I’m doing with them.

SEAN: So if you think about, I don’t know, now as compared to two to three years from now, what would your top three sources of users? Would it be referrals, social networks, and something else?

DREW: You know, one of the other things we’ve done is put together some partnerships that have been pretty powerful.  We have a relationship with Conde Nast Traveler, for example, where their publisher has put together some of the sales and one of the ideas that we had is we curate the sales. We, you know, introduce the travelers to things that might be interesting. They have contacted us about curating some of our sales and also introducing their readership to what we’re doing.  So partnerships like that where we’ve got strong, great affinity, where the voice and interests match up well is a good way for us to expand our audience.

TechCrunch Disrupt opened up with Charlie Rose interviewing infamous venture capitalist John Doerr from Kleiner Perkins Caufield & Byers about tectonic shifts in technology, Steve Jobs’ stance on Adobe Acrobat,  the future of social gaming and lots more. You can see my pics and the full interview complements of Livestream below:

Robert Scoble from Scobleizer doing his thing from the front row:

You can find the transcript for the interview below the video:

In part of 1 of our interview, Drew talks about:

• where the idea for JetSetter came from
• how JetSetter is different from Priceline, TripAdvisor and Kayak.com, where Drew headed up online marketing for a number of years

Transcription:

SEAN: So we’re here with Drew Patterson, founder and CEO of JetSetter. So, Drew, thanks for coming.

DREW: Thanks for having me.

SEAN: So tell us a little bit about you and your background and, you know, how JetSetter came to be.

DREW: Sure, I created JetSetter having spent five years at Kayak.com, and before that spent a bit of time at Starwood Hotels. That kind of company is really born out of the success of the Gilt Groupe. Gilt, sort of, taking off last year and it was clear that this kind of ecommerce model had something to it and it’s particularly interesting for discretionary lifestyle businesses where taste and fashion sensibility is critical to the consumer.  And travel seemed like an extension consumer on Gilt by be interested in travel.

SEAN: And for someone who doesn’t know what Gilt is, it’s flash sales for consumer brands. Is that a good way to put it?

DREW: I would, uh, luxury brands…

SEAN: Luxury brands…

DREW: …better…

SEAN: …luxury brands, better than flashy brands. Consumer …

DREW: It’s not a NASCAR race.

SEAN: So what Gilt is.. you’re a member, after you’re a member you get an email everyday and it’s a limit to the things you’ll get an opportunity to purchase.. luxury brands for a period of time and in inventory, I guess.

DREW: Yeah, that’s right. The channel as a whole is a great marketing resource, that’s why they positioned it that way. It’s a way for consumers to discover or get access to things that they otherwise wouldn’t see.

SEAN: Yeah.

DREW: So in our case, we’ll have a mid-number of sales, typically 10-15 every week and we’ll have a finite amount of inventory. So off-road channels where you have practically unlimited access to whatever the products happen to be. We’ve got a finite amount of rooms, we’ve got a finite number of hotels that we’re selling or travel experiences that we’re selling.  The mass consumer you’re constantly exposed to new things. We spend a fair amount of time and energy and money in telling stories and helping to explain the uniqueness [INAUDIBLE] value for consumers is the discovering new things.  Of course there’s the ability to get access these things at prices that otherwise wouldn’t be available.

SEAN: Since, again, you were at Kayak for a really long time, I imagine you saw all kinds of really interesting travel opportunities, which, you know, it’s very perishable right.. so if a room doesn’t get filled that’s it, it’s off the market. I imagine there’s a lot of hunger on the other side for the luxury  travel market to fill these rooms. How about first class, you know, airlines? Does it work as well?

DREW: Definitely something we’ve looked at. You know air has its own complexities — totally different than other forms of travel. I think there’s two ways to look at the business that we’ve put together. One is, of course, you know we help suppliers liquidate inventory. Like, these homes are distressed that otherwise wouldn’t get sold. I think the second, more interesting way to think about what we’re doing is really the marketing channel. It helps in customer acquisition. You think about Priceline, for example. It’s a distribution channel.  Right?  And it’s a way for its top suppliers to get access to a different slice of the demand curve that they otherwise wouldn’t see. You can segment out the highly price-elastic customer who otherwise didn’t exist. What we’re doing, I think, is very different. What we’re doing is we’re introducing suppliers, and more than that, consumers to an experience that they haven’t, previously, seen before.  And so, we have heavily editorialized emails, we have very rich, photographic display. You know, spent a lot of money on primary research and making sure that we’re telling consumers a sort of true-to- life story and sort of helping them appreciate, whether it’s insider knowledge, or access, or experiences that they wouldn’t have otherwise seen.

SEAN: I think I like the way you said it. The contrast between Kayak which is, you know, breadth. You want to be able to discover everything in one place rather than look for it. JetSetter is contrasting in that you’re selective; hand-picking the partners with whom you want to create these opportunities. Right?

DREW: Yeah, absolutely. I think editorial or curatorial (that seems to be a word in favor these days) is a part of a lot of these new models. You know, and I think, what you’ve seen is, on the one hand, there’s so much information out there — Google, Kayak, TripAdvisor, Trulia, and a range of very powerful search engines that are premised on the idea that consumers know what they want and put together queries that help them discover that information.  And then you go to the other end of the spectrum – which is where we fall – is for certain kinds of lifestyle categories. What consumers want is a guide that also discovers things that are important, things that are new, things that they’re going to care about. In a sense, breaking the news in that category. I think as you look across categories, you’ll see JetSetter’s certainly in the travel space. You’ll also see things like Thrillist, UrbanDaddy, DailyCandy, TastingTable.  A range of these kinds of newsletters…DailyBeast, HuffingtonPost.. all sort of focused on giving you a very narrow set of things. A “short list,” in fact, that matters in that area.

Don’t miss part part 2, where Drew talks about

• the explosion of new email commerce sites like Groupon and how JetSetter is different
• what synergies JetSetter is able to leverage from Gilt.com, from which JetSetter was spun.

Having only launched SalesCrunch 34 days ago, I am still busy herding cats (aka investors) and collecting checks. In the meantime, I am financing the company out of my own pocket – as it should be. So I am extra special frugal right now.  I never lost the bootstrapping mentality during the nearly five years growing Trulia from 5 to 110 people, even after we raised $33M and were generating millions in revenue. I spent a week in San Francisco every six weeks when at Trulia and I stayed at the same $99 per night hotel the last time I was there two months ago as I did five years ago when we had very little money in the bank.

But there are levels of frugality and the word takes on a whole new meaning when you are paying for everything out of your own savings. So when I was planning a trip to Boston to meet with potential investors I wanted to spend as little as possible. Here’s how I managed to keep it at $200:

1. BoltBus – I am a big fan of Amtrak when traveling between New York and Boston and used it often when meeting with clients for Trulia, but it costs $200 round trip on average. In the last few years a bunch of bus companies popped up that do the trip much cheaper, BoltBus is one of the more interesting ones.  For as little as $1 one way you can get from New York to Boston in the same amount of time as Amtrak. The buses are luxury liners with plush leather seats, extended legroom, plugs for your laptop and free Wi-Fi to keep you productive the entire trip. In fact, I am writing this post from one of those plush leather seats as we speak! I booked my trip two weeks ago and paid $15 each way. I am not sure what you have to do to get the $1 fare, but a few friends have gotten it a few times. Still, $15 each way is super cheap. In fact, I saved an impressive $170 compared to a round trip on Amtrak!

2. Priceline – I have followed Priceline as a (successful internet) company since the late 90’s and I always like the idea of the service, but I could never muster the guts to blindly bid on a hotel room or plane ticket without seeing the actual hotel or the flight route. Well, after 11 years of kicking the tires my current frugality forced me to take the plunge and wow! I started bidding $99 on 4 star rooms in the Newton-Waltham suburbs of Boston a week ago, but my bid got rejected several times. I figured I would take the chance and wait till the day before when hotels where a little more motivated to fill rooms. Last night my $99 bid was accepted by the super seek, super mod Hyatt in Watham. So basically I got a $300/night room for $99.

3. Zipcar – Living in Manhattan, I am a big fan of car-sharing service Zipcar, which lets you rent a car when and where you need one for as little as 30 minutes at a time. Zipcar was founded in Boston, so they have cars parked all over the city and the surrounding areas. I managed to get a little Mazda for $70 for 22 hours! That includes gas and tolls, as there is a gas card and EZPass in every car. The car is parked across the street from South Station, where the BoltBus drops you off and picks you up, so all I need to do it cross the street, use my Zipcar key card or iPhone app to unlock the car and off I go.

So now you too can do Bean Town for two days for less than $200.  Have fun!

Have some bootstrapping tips? Share them in the comments section.

Eloise Bune is the founder of Gracious Eloise, a social software company whose patent-pending QuillTech™ handwriting replication software will power new forms of social expression for individuals and businesses.

Eloise talks about the Gracious Eloise, how the idea for a software company came to her as a then owner of an interior design firm, the pain and agony of the (angel) fund raising process, and her highest-highs and lowest-lows as an entrepreneur. She also gives some great advice how you can avoid some of that pain.

Sean:  So we’re here with Eloise Bune of Gracious Eloise. Tell us a little bit about you.  And what  is Gracious Eloise?

Eloise:  Gracious Eloise is an idea that I came up with about two and a half years ago. As I was writing my wedding thank you notes I realized that there just had to be a better way to write these notes. And I really wanted to do it in my handwriting online. And as I looked online to try to find some handwriting replication software, I realized what was out there wasn’t very strong. So, I set out to write a really great piece of software.  So, what Gracious Eloise does is it’s a technology company  that allows — with a technology call QuillTech — which allows people to fill out a handwriting sample and we run it through our software and it looks exactly like your handwriting when online or when printed.  And so, that hasn’t been done.  It really mimics all the nuances of your handwriting. So with that, it has a couple of different applications. So the first one is going to be the corporate market that we go after. So there’s the luxury market, for instance, writes thank you notes after every purchase. So instead of, you know, employees sitting down and writing these notes, they’re going to use our technology to be able to do that.

Sean: So is this a Neiman Marcus or Bergdorf Goodman…

Eloise:  It’s a high-end…

Sean: …high-end retail?

Eloise: …High-end retail.

Sean: Got it.

Eloise: Absolutely.

Sean: Got it.

Eloise: So…

Sean: And there’s multiple applications?

Eloise: So, yeah, there’s multiple applications. The luxury market is what we’re going to tap first, just  because that’s where my contacts lie. But obviously the bridal market is enormous.  That’s a, you know, a 55 billion dollar market in this country. So I think the plan is to go for that next.

Sean: Yep. So you’re  in the process now, you’ve developed the software. You’ve raised some angel money and are in the process of raising more.

Eloise: Yep.

Sean: How’s that going?

Eloise: It’s good. It’s been a rough year. Fundraising has not been easy, but I have raised 65 thousand, five hundred dollars to date.  I’m looking to get to 250 thousand. I think I’m going to do that in the next two weeks. I hope to close on that money.

Sean: This is the second tranche. You raised a half a million previously, right?

Eloise: I did. I raised a half a million two years ago. That allowed me to build the software and spend some money on branding. I don’t recommend spending money on branding — completely waste of money.  And just don’t rent an office space until you have your product ready, 100 percent — wasted some money there, too.  But, anyway, lessons learned.

Sean: Was there any big surprises along the way in terms of, you know,  raising the money or building the product?

Eloise: Things just take longer than you expect them to.  You know, you set a timeline, you have a bunch of money, you think is it’s going to last you X amount of time. Things go, you know,  off track, so you’ve  really got to bootstrap it.

Sean: I think the rule of thumb is “twice as much, three times as long?”

Eloise: Yeah.

Sean: Wait… “twice as…” I don’t know. One way or the other, yeah, it always takes longer.

Eloise: … takes longer.

Sean: It’s always more expensive than you thought it was going to be.

Eloise: Yeah. So my only advice would be just  ”bootstrap it, bootstrap it, bootstrap it.”

Sean: So you’ve been at it for two years?

Eloise: Two years full-time.

Sean: So there’s lots of highs and lows in those  two years.

Eloise: Yeah.

Sean:  What’s the lowest low, and we’ll end with the highest high so that you come out of here on a high note. Lowest low?…

Eloise: Lowest low is… Oh. I don’t know if I’ve had a really low, low.

Sean: Ohhh (giggles)…

Eloise: This past six months of fundraising has been brutal. I’ve had so many doors closed in my face, and I never, you know I had a product, so I just never anticipated it to take so long. So, you know, “No. No. No.”  day in and day out is just brutal on your self esteem.

Sean: Yeah.

Eloise: So that for me has just been an amazing learning experience, extremely humbling.  So that to me has been low.

Sean: So it wasn’t like a big thud, I guess, an event that was a low, low. It was more like collective…

Eloise: … the collective…

Sean: …just collective grind of it, you know, right?

Eloise: The grind. Just everyday waking up and knowing you’ve got to get out there and ask people for money, and just finding the strength  within you to keep going at it, keep going at it.

Sean: Yeah.

Eloise: That, for me, personally,  is the hardest part.

Sean: And your best day in the last two years. Your highest high or absolute best day.

Eloise: When a very, very  large client said that they wanted to come on and start using Gracious Eloise. I can’t reveal the name here today, but an enormously famous brand.

Sean: Validates the product…[inaudible], right?

Eloise: Validates the product, yeah.

Sean: So if you had an audience, which you do, of a bunch of other people like you, what would the, I don’t know, the one piece of advice that you  learned over the past  two years that you would want someone not to have to relearn?

Eloise: First of all, I think if you have a good idea, I think, you know, test your friends, test the market, make sure that, you know, it resonates well with people, and if it does, then go for it. You know, really, don’t quit your job, don’t quit your day-job.

Sean: (laughs)

Eloise: That would be one thing:  I quit my day-job too early.

Sean: Yeah.

Eloise: But go for it. Really, really go for it. What was the second part of your question?

Sean: Just, you know,  the one piece of advice that you would give, which I think was…that’s a good one. You know, if you’ve got an idea, go for it and maybe test it out at nights and weekends before you, before you start to…

Eloise: Yeah, I would definitely recommend that. Test it out before you really commit to it full-time.

Sean: And your background, you’re not … Well I would say you’re not the typical entrepreneur, but maybe there isn’t a typical entrepreneur, but you’re not from the startup space, you’re not necessarily from the technology space.

Eloise: No.

Sean: What is your background?

Eloise: My background is…I was an interior designer. I had a firm here in the city, and that went extremely well. But, I had, you know, no prior experience in technology whatsoever, and all about interior design, and I had my Master’s [degree] in fine art.

Sean: Yep.

Eloise: So that’s what I know about. I know paintings. I know furniture. I do not know technology, but I…

Sean: …So would you have or, you know, assuming you were still in the interior design business, would you use this product to….?

Eloise: Absolutely.

Sean: … to [inaudible] your customers?

Eloise: Absolutely.

Sean: So you’re selling the dog food and eating it, too?

Eloise: Exactly. Exactly.

Sean: That’s great. Well always, good luck and thank you for being here today.

Eloise: Thank you for having me.

Sean: See. That was easy.

END