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.

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.

Nate is a Co-founder of Anyclip.com, organizer of New York Tech Meetup and Advisor to Flybridge Venture Partners.

In Part 3 of 3 Nate talks about:

• what he’s doing for Flybridge Captial in his role as their New York advisor
• how to get involved in the New York tech community that helped him go from a mostly unknown to one of the more recognized people in the community
• the goal and future of the New York  Tech Meetup, that now stands at 12,677 members and over 800 attendees per month and growing.

Sean: There seems to be a lot more activity in New York from venture capitalists. There’s a first round coming from Philadelphia opening offices…

Nate: Flybridge…

Sean: …Flybridge hired you

Nate: Polaris….

Sean: …. So talk about what you are doing for Flybridge.

Nate: … for Flybridge? Well, I’m technically an advisor to Flybridge, and what that means is, for the most part is, when it comes to New York investments, I’m both helping them source deals as well as due diligence o n deals and then on their investments, help make connections. You know I think that it’s really something that, you know… I put, at the last New York Tech MeetUp, I put DreamIt Ventures up on stage to announce their new fund. I don’t think we should be, you know… I’ve been accused before of being a bit “chest-pounding” about the New York tech scene…

Sean: mmm-hmm

Nate: But at the same time, I don’t think it’s bad to have competition or more investors in New York looking at New York companies and focusing here. In fact, I think it’s a really good thing for the ecosystem, with the full disclaimer that I’m being paid to say that. Right? (chuckle) We’re not paid, but obviously I have skin in the game here.  But…

Sean: But at the same time, the reason the [Silicon] Valley is so successful is because there’s, you know, an ecosystem, and the idea behind a community here is get, build the same kind of ecosystem and you’ve got to support it…

Nate: Here’s the thing… part of the ecosystem is diversity. And the thing that really excited me at first, besides once I met with the Flybridge guys, they’re all just top-tier guys. They are just great, great people. Everybody involved in the firm. And I vetted them with Tengen. I made sure to talk to, you know, Union Square Ventures to talk to them about their co-investment with them and I made sure to talk to Dwight Merriman and a number of the Flybridge guys were at Greylock, which backed DoubleClick, so I vetted them. Something that excited me, beside the fact of who they were as people was the fact that they were doing investments outside of New York that don’t look like New York investments, in that they… As a Boston VC firm, versus a New York VC firm their investing in medical devices, they are still doing semiconductors – there’s still innovation in semiconductors – there’s all these technologies that New York isn’t necessarily strong in, and therefore New York-centric VC’s aren’t focused in. Where if you … When you plug in a VC from outside of the area, you’re getting all sorts of, intellectual capital that you wouldn’t have in this ecosystem anyway. So, you know, First Round Capital goes the same for them. They are more plugged into what’s happening in the [Silicon] Valley than any other, I think, VC firm that’s operating in New York City.  And so they are they’re bringing in all sorts of intellectual capital from Josh [Kopelman] and Chris’s [Fralic] and Howard’s [Morgan] experiences outside of New York and we’re better off for it. So that diversity, those outside agents, these agents that operate primarily in other ecosystems with different components in them are hugely, I think, adding to what we do. Having them here is really good.

Sean: So the whole Idea here is to promote the ecosystem.

Nate: mmm-hmm

Sean:  So for those who are outside of the community who are wanting to break in and get involved, what would your advice be?

Nate: Of course, I tell people to come to the New York Tech MeetUp every month, but I actually tell them that that should be… that’s sort of your staple. That’s your daily vitamin, I guess, but you’ve got to do more than that. … There was a time, not too long ago, that I knew nobody in this industry, and where I found the most amount of value were all of the niche, smaller events that are going on. The smaller groups; the more focused ones. Those were the places where I would go and I’d meet one or two people in these smaller setting where it was easier to do so. So that when I did show up at the New York Tech MeetUp, I could leverage those connections. That was the best way to leverage a crowd of (at the time) 400, 200 to 300. Right? Walking into a room that size is pretty intimidating, even for some outgoing people like most entrepreneurs. I suggest people go to Garysguide.org, subscribe to Startup Digest or Charlie O’Donell’s weekly email blast. You know, pick out some of the smaller MeetUps, whether it’s the Video 2.0  MeetUp, if you’re into video,  or the Fashion 2.0, or the Gaming 2.0 MeetUp, or TechAviv if you are into Israeli startups. Just like there is a Boston…  a different profile for Boston MeetUps, there’s a different profile for Israeli companies that operate in NewYork City. Right? Where we are more interested in, sort of, computer vision and advanced algorithms than amazing interfaces.  So I would just think about the different niches that you’re most interested in. Or you might find that it’s sort of like dating, right? You want to hang out at the bars and the cafes where you think you’re going to meet the most compatible person. And then come to the New York Tech MeetUp and you’ll feel like you’re more at home and you can better enjoy the, sort of, grand scale of the New York Tech Meet Up.

Sean: Last question, what’s the goal for the MeetUp? Do you want to grow it?…

Nate: Yeah.

Sean: …Is it getting bigger? Is there anybody that can house it? (chuckle)

Nate: Yeah. Certainly we’re grow[ing]. It’s a hard thing to balance. Strike a balance, right? I think that the goal of the New York Tech MeetUp is to advance the New York technology industry for its people and the world. The goal of the New York Tech MeetUp is not to have more members or explicitly to provide more programs. One of the beauties of the organization, I think, is that everybody involved is doing it on an entirely pro bono basis. And I think everybody involved is doing it from a pretty legitimately good spot in their heart where they really care about this industry and they find that this is a good way to put that into action. So, how do we advance the New York technology industry?   Well I think that one ways is to play, sort of, partner to all the other people who do have ongoing initiatives. Outside of the monthly event, which we’ll continue to do, and we’re actually going to move to, this summer we’re going to move to the Skirball Theater at NYU, because they are right down the street from here, which will now host over 850 people (chuckle), and after that, I think it’s Madison Square Garden.  Right?

Sean: Nice!

Nate: No, no… I think we’ll be fine at Skirball. It’s a beautiful theater.  So, I don’t even know if you want to even have… you want to always accommodate everybody. You hate to turn people away, but at the same time it gets very big. So, what we are going to do in the background is we are going to leverage the community to fulfill, to support niche communities. So, for instance, the education space is really important to me right now and other members of the organization. We feel like there is something that we can do to help be, sort of, the connective tissue among all of the people in the university system as well as the startup ecosystem. Columbia and NYU already have an amazing infrastructure for doing that, whether it’s the Columbia Venture Network or… they sort of compliment that at NYU. But, there’s still a lot of things going on at Pace, and stuff that was going on at Apollo which is now slowly getting wrapped into NYU. Stuff at Fordham, you know, Stevens even. Even Yale – I ran into a student from Yale that was just at the Tech MeetUp because it’s just close enough.  And so I think that we can provide… we can, sort of, fill in gaps where other people aren’t providing services or aren’t actively getting startups into research labs or students internships into startups. One thing I’d really like to explore is providing a scholarship to come and study at universities in New York City and be a part of this community while they are in school. That’s sort of a long-term dream. I think that New York Tech MeetUp, because of its scale and because of the passion in its community, is better suited…and again, nobody… everyone involved, their only platform is to advance the community. It doesn’t write checks for anybody, and so that means that we can really play this sort of dispassionate middle for all of the different people involved in the community. So that’s really the goal is to leverage this to move the needle in the areas like education research that New York could use.

Sean: That’s great. Man, we could go on forever…

Nate: Yeah.

Sean: … I’ll have to bring you back some other time. Thanks for coming. I appreciate it.

Nate: Thank You.

[END]

Nate is a Co-founder of Anyclip.com, organizer of New York Tech Meetup and Advisor to Flybridge Venture Partners.

In Part 2 of 3 Nate talks about what we all learned from the bursting of the bubble in early 2000’s, the infamous “RIP Good Times” meeting that Sequoia Capital organized for its portfolio companies back in 2008  and why the come back of Internet startups is sustainable this time around.

Sean: There was a famous, board meeting that Sequoia organized for all its…

Nate: Yeah.

Sean:  …for all its portfolio companies, of which we are one, that got quote/unquote “leaked.” It said “R.I.P. Good Times.”  This was October…

Nate: Yeah.

Sean: …November of 2008

Nate: Yep, yep. It was immediately after.

Sean: Basically saying that everybody needs to cut the fat, this looks a lot like 1999, however, what’s different is there’s a lot of companies creating a lot of value.  Buckle down.

Nate: That’s exactly… and I think that people paid attention along the entire chain. I think start-ups paid attention. I think that VC’s got more disciplined with their investments.  For instance, during that period of time, I was at Rose Tech Ventures, and we basically decided to only invest in companies which could be cash-flow positive with a million dollars or less. Which is a, filter that not many people were thinking about putting on their investments, because a part of the… This industry is attractive for many reasons, one of which is the, you know, the speculation that’s involved and the idea that you might need to take the ten million dollars of investments, or more, the fifty million dollar investment before you’re producing  a lot of cash. And so to think about this industry and the lens of getting cash-flow positive with a million bucks,  is just a type of discipline and a type of thinking that that scenario forced people into; both entrepreneurs and investors, whether it was that specific role or not.  And I think that produced just smarter companies and I think we’re better off for it.

Sean: I agree, but what do you think about the ‘Twitters’ and the ‘Facebooks’ who…

Nate: Well listen…

Sean: …probably want to miss those, right?

Nate: But, of course, Twitter didn’t take investment until it had… outside of the founders… I mean, it’s up to the founder’s prerogative. I think that if you’re sort of Evan Williams, you’ve made your money, and you can afford to buy back oddeo or Odeo, and reinvest in this concept that you really believe in, that’s sort of an entrepreneur’s prerogative.  It would have been, you know… could I speak for Chris Sacca for putting in the angel money at what point, you know, I’m not sure. But they had a prototype out there; they had some sort of adoption indication that this was interesting. I don’t necessarily think that… And then by the time they took serious venture capital money the growth curve was, was predicting this sort of, or you could at least imagine, this sort of scale. So, and again like Foursquare is a great example of that, too, where they, you know, Dennis [Crowley] had a success and he and Nuveen [Investments] were able to be very responsible, almost too cau[tious ]…  I mean, they could have raised money much before. So I think the investment community was almost, was… they probably would have passed their sniff-test too early, if they have even pushed it. I think, they were very smart to get it out there, see it ramp. And, sure, those two companies are examples of companies that aren’t looking, or aren’t monetizing, heavily monetizing right now. They likely won’t be cash-flow positive, or… Twitter certainly wasn’t on its first VC investment, Foursquare might not either. But these are like, again, these companies have growth curves that, I think, allow you to justify, sort of, other types of investments.  The rule that I like to remind people of is that we’re not all Foursquare and we’re not all Twitter, and that’s not the only way that value is created on the internet.  And people, I think, sort of forget that.

Sean: Yeah. What I think is unfortunate is that those are the ones that people…  Those are the exceptions and people hold on to those, because that’s the ones they find out about…

Nate: Well that’s a part of “the Dream,” you know. It’s like, when you go into this world you sign up for “the Dream,” and, you know, it just so happens that “the Dream” comes in all sorts of sizes, but like the default, sort of,” the Dream,”  the one that you read  most about is, again, that one model.  So you never read about, or you rarely read about “the Dream” which is the AnyClip model. And If we are successful we’re going to be, sort of, much more like, let’s say,  Zappos. Right? Zappos is a great example, where here is an existing sort of struggling company and, you know, which was then taken over by really smart, innovative entrepreneurs.  They didn’t hang out in any garage to sort of get Zappos up and running, but they are the fou[nders]…they would be considered founders and certainly any catalyst for its success. So I think that the more you become, I think, a dispassionate observer, of the industry, you sort of see that there’s lots of stories, there’s lots of ways. There’s people who work on an idea but don’t quit their job for two years, then all of a sudden it’s the right time. I think Yipit is a great sort of example of something that where you know, Jim [Moran] and Vinny [Vacanti] have been like super-patient with it. And I really think that it’s going to come into its own.  It’s a great… I think their building … I don’t know much about their traffic, but it seems to me, I just feel like that they must be doing well right now. And it took them some time to figure out exactly what that meant and I don’t think they over-invested in the company before that happened, which makes them smart and makes this industry, you know, all the better for it.

Nate is a Co-founder of Anyclip.com, organizer of New York Tech Meetup and Advisor to Flybridge Venture Partners. In Part 1, he talks about AnyClip, why New York is a great place to be an entrepreneur and the reality vs hype of what is going on in Silicon Alley.

Update – A transcript can now be found directly below the video. Thanks for your patience.

Sean: So we’re here with Nate Westheimer.  The… a lot of titles:  co-founder of AnyClip[.com], organizer of  the New York Tech MeetUps, and the newly appointed advisor to Flybridge Capital.

Nate: Yep.

Sean: You’re a busy guy so thanks for stopping by.

Nate: My pleasure, yeah.

Sean: (Laughter) So, let’s talk about the New York Tech community, in general, but as probably a good specific example maybe you could tell us a little bit about “AnyClip.” Maybe just like the elevator pitch…

Nate: Yeah, that elevator pitch that I give for “AnyClip” is  the only one I’ve ever given that gets a round of applause…But, it’s the index of the world’s films so people can search for and find any moment from any film ever made, instantly.

Sean: Oh, so that favorite food fight from Animal House?

Nate: Food fight, Animal House,”BAM! Gas station scene, Zoolander, “Roll on Shabbos,” “Make him an offer he can’t refuse.”

Sean: That’s awesome.

Nate: Yeah, it’s… the movies as a medium are just an, incredible force. I mean it’s almost the most democratic form of culture and of art. And so working with films is just a delight.

Sean: So you have an office in New York?

Nate: Yep.

Sean: And Jerusalem?

Nate: Yep.

Sean: Uh, And we were talking a little bit about the story behind how that came to be and I think it is a really good and interesting story that entrepreneurs would enjoy.  So maybe you can tell us a little bit about your background.

Nate: Yeah. I think, you know, what entrepreneurs can take away from the “AnyClip” story is that it’s not the traditional “two guys and a bowl of Ramen, in a garage” story that I think has been, sort of, canonized. You know, it is the “Google” story, and it is down to the “Foursquare” story, and it’s the “Tumblr” story. And that’s amazing for a number of reasons – those types of stories that’s;  capital efficiency, sort of being or having all of the skills in-house,  all of those things that help small ideas, or big ideas start small and then grow to be big. But “AnyClip” is a different story that people say an existing company that had tried something in the movie space, and knew wasn’t working with their current idea, with their current management, but, they had assembled a great team and the investors wanted to keep going. The investors, themselves, were quite passionate about the space for a number of reasons.  And so they were actively recruiting new management and they got around to my friend and co-founder, Aaron Cohen, who… he and I sort of talked about that opportunity.  We were sharing different opportunities. I was on my way out of Rose Tech Ventures. My term as EIR was coming to a close. He had been out of Menu Pages, he was the CEO of Menu Pages [inaudible] with New York Magazine. He had been out of that for about six months, sort of thinking about his next thing. We started talking about ideas. We took a look at this company together and decided that, you know, we had an Idea – the idea of “AnyClip” – that would be really, really compelling and that we would enjoy working on. So we took that back to the investors and they decided to hire Aaron and including myself to come in and, turn it around and, that was almost a year ago in a couple of weeks.

Sean: And, what happens in New York and what happens in Jerusalem?

Nate: In Jerusalem, the two main functions of everybody in Jerusalem is engineering and data engineering: so software engineering and data engineering.  When we say indexing the films, there are some things that we do logarithmically, but there is actually a huge manual component to that.  And then from an engineering perspective, we have sort of three teams, people on the core data, API and search teams, and then people on the web and product teams, and some on the Flash and development, which happens in both camps. In the [United] States, it’s more on the product side. So, I run product and technology for the company as a whole and Gabby Moore, our lead designer, sits next to me in New York.  So she is the main interface between, sort of, product and code because she is a developer, a former developer. Then in terms of business functions:  Aaron, our CEO, our head of licensing is in New York. And actually our head of business development is in L.A., so we kind of have an office in L.A.  And then we have a number of support staff here in New York as well. So we’re about 20 people – about half New York and Jerusalem.

Sean: Yeah. What do you think about building an engineering team here in New York?  What’s kind of the pros and cons?

Nate: Well the pros are… I adore my team in Israel and I couldn’t see doing this project without them. Of course it has its difficulties – to be so far away – and so I think that most people should and would be wise to look for building their team locally. And I think that in terms of – and not always, but in a lot of cases – start lean. Lean start-ups  can really… it might be cheaper in other places. Certainly that’s not a reason to be in Israel , but in other places in the world– it’s cheaper than New York. But you lose a lot in just that, sort of, having zero-latency in getting feedback, and brainstorming, and all that. So New York is the place where I think you’d want to be building your engineering team. And the question is, “Can you?” and I think, “Absolutely!”  It’s not that… There is no reservoir of engineers, nor should there be. Right? Engineers are highly skilled individuals and so it’s going to be tough, no matter where you are to find the right set of skills for your start-up.  I don’t think anywhere else in the world there is this reservoir that you can just dip into.  And so what you have to do is, just like any other place, you have to convince people to work for your company where you are. Well I can’t speak for your company, you know, but in terms of New York, it’s been increasingly easy to convince people that New York is a pretty awesome place to do work. And the quality of life here – what I put in a recent blog post and sort of made myself chuckle was– “where else can you live a life of such luxury and have a smaller carbon-footprint  than anyone else in the country?”

[laughter]

Sean: Yeah. You can live in box and have the best life ever.

Nate: Yeah, it’s true. That’s one of the appeals of living in New York. You, both, can take public transportation everywhere and you‘re actually living well and doing good at the same time. The lifestyle is just hard to beat. Outside of just business, right,… the MoMa, the entire city. So it’s easy to recruit people to come here and then a lot of those people are here anyway. I don’t think you generally have to hire somebody, convince somebody to come in from Chicago or Atlanta or San Francisco to move here. A lot of those people have decided that New York is going to be their home anyway. And so New York is a great, you know, a great feeder itself for talent.

Sean: So what do you think, about what’s happening with the New York, sort of, tech scene in general? We were just talking about how in 2006 we would go to these MeetUps,  New York Tech MeetUps, with about 100 people give or take.  Now there’re 800 people – you’re organizing them.

Nate: Yeah.

Sean: What do you think is going on?

Nate: I think a number of factors.  I think even in that 3-year period of time, or 3 ½ -year period of time that I’ve been involved, just the things that I’ve seen happen are… we had a sort of a bubble, we had a fever-pitch, I think, of you know like a year ago where… I’m always sensitive to the amount of publicity or attention given versus how much is deserved.  And I think it’s ok to have, sort of, one the formerly the later. Right? It’s ok a little bit more attention but not too much.  And I feel like we were, maybe 2007, things were getting a little out of control because of Tumblr and Digipop and started… I think they were the main two; the main brands that people were recognizing that were coming up in consumer internet. And consumer internet drives a lot of the perceived hype and awareness of the industry.  I think what’s changed between you know’06 and then ‘07 and sort of now is that everyone sort of is doubled, sort of reinvested the attention that they got, reinvested in really creating value.  People, I think, go to less parties because they are working harder, and that’s really healthy.