Tim Marman's Loosely Coupled

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• Why you SHOULDN’T start a tech company in Silicon Valley

  There’s been a bit of back and forth on what the best place to start a technology company is these days. The conventional wisdom these days is that the place to start and run a technology company is Silicon Valley. The key reasons put forth to justify this is money, talent, and expertise. If you’re initially choosing where to move and start a company, Silicon Valley seems to be the right choice based on the confluence of these factors – but I would argue that in some cases these advantages are not that strong and there are just as good reasons to start it elsewhere. Money Most of the time when people are talking about money in the context of startups, they’re talking about access to capital, particularly in the early stages of a company. Menlo Park has perhaps the highest concentration of VCs around, at least those focused on technology companies, but for the most part they don’t limit investments based on geography. Sequioa says it is "helpful" if... Posted Jul 08 2008, 09:00 AM by Tim with | with 2 comment(s) Filed under: Rants, Business, Entrepreneurship, NYC, Startup, Venture Capital, NextNY, Notches

• Serial Entrepreneurs and High Valuations

  I wrote in the past that sometimes you can take too much money - doing so creates certain expectations for an exit that might not be achievable and limits your flexibility. In the context of the discussion last week, I think it's important to highlight that these economics are not always the fault of the venture capitalist. For example, Jason Calacanis said you should take as much money as you can get and Marc Andresseen said “ in general, [you should raise] as much as you can ”. Billions or Bust Another one of my favorite recent examples is Slide, founded by Max Levchin of PayPal fame. Slide recently raised $50M from T-Rowe Price and Fidelity - giving up 9% for a pre-money valuation of roughly $500M. Granted, T-Rowe Price and Fidelity probably aren't quite expecting the same kind of returns over the same time frame as a VC, but it still sets a ridiculous high floor for an exit. That is, in part, the plan. As Sarah Lacy put it , "Levchin, who co-founded and later sold PayPal... Posted Jun 09 2008, 09:06 AM by Tim with | with no comments Filed under: Web 2.0, Business, Entrepreneurship, Startup, Venture Capital, NextNY

• Simultaneous Discovery and its impact on stealth mode

  We’ve talked a lot about the anti-stealth movement here and on the nextNY list, and the topic has resurfaced again recently thanks to Brad Burnham’s post about the advantages of being open . I noticed that, at least anecdotally, there was a correlation between how open entrepreneurs were with us and their ultimate success. Simply put the entrepreneurs who are aggressively open in describing their plans seem to do better than the ones who are cagey. There is absolutely no data underneath this observation. It is just my sense after meeting hundreds of entrepreneurs over 15 years as a VC. If it is true, it could be for lots of reasons. The more experienced an entrepreneur, the more likely they are to understand that ideas are rarely unique, but the ability to assemble a team and execute against that idea is rare. Perhaps they are just more confident, and it is confidence that is correlated with success. But recently, I have started to think that there might be something more going... Posted Jun 08 2008, 09:49 PM by Tim with | with no comments Filed under: Intellectual Property, Rants, Patent, Innovation, Business, Entrepreneurship, Startup, Social Behavior, NextNY, Notches

• Innovation, Disruption and The Economics of Free

  Hank Williams managed to stir up quite the controversy with his recent post lamenting the rise of free and blaming the VCs . His assertion is that the venture capitalists have made free, ad-supported businesses the norm and effectively "ruined it for everyone else" (my words). I believe it should be possible to start a small business and to have a small number of profitable customers, and to earn a living. From there, it should be possible to work hard, and to grow your business into something substantial. Until recently, this was the American way, and it applied to technology as much as to any other business. But no more. In today’s “free” world, in most online business categories, it is inherently impossible to start a small self-sustaining business and to grow it. This is because in the digital world, advertising, the only real revenue stream, cannot support a small digital business. If businesses were based on the idea that people paid for services then small... Posted Apr 08 2008, 10:41 PM by Tim with | with 4 comment(s) Filed under: Rants, Innovation, Business, Entrepreneurship, Startup, Venture Capital, NextNY, Notches

• TheFunded brings more transparency to raising venture capital

  Asymmetry of information plays a major role in negotiations, and it is often said that venture capital investments are made under extreme information asymmetry. On one side of the table, the limited partners don't know much about the company, the VCs know a little (relatively speaking), and companies know everything. This is one reason VC investments are made in stages - it serves as an incentive to keep the company on track and a way to minimize the risk. When it comes to funding, though, the VCs also typically have an advantage in the sense that they do a lot of deals and know the landscape of the business better than an entrepreneur, particularly a first-time entrepreneur. TheFunded started as a site to review VCs. Like in the investment banking world, a VC's reputation is everything because he relies on repeat business. In theory, transparency in these dealings is a good thing, but the question was whether the data was actually worthwhile. As Charlie put it , TheFunded is "1... Posted Jan 27 2008, 04:16 PM by Tim with | with no comments Filed under: Business, Law, Entrepreneurship, Startup, Venture Capital

• Passion and its role in evaluating new product ideas

  Evan Williams has an absolutely wonderful post up about evaluating a new product idea . I think Marc is spot on - the "personally compelling" criteria is the one that stands out. Last on the list, but probably the first question I ask myself is: How important to me is it that this product exists in the world? If I were evaluating a startup, I'd ask this of the founders. . . . In theory, you can get around this with lots of user research. (It's pretty clear neither Slide nor Rockyou 's founders are creating widgets based on their own needs and desires.) But you're more likely to get it wrong that way. When I've gone sideways, it's when I wasn't listening to my gut on this issue. Specifically, Blogger and Twitter were personally compelling, while Odeo wasn't. Clearly, you're better suited to build a best-of-breed product if you're intimately familiar with the space and "scratching your own itch". But perhaps more importantly, I think... Posted Dec 26 2007, 01:01 PM by Tim with | with no comments Filed under: Technology, Software Development, Personal, Business, Entrepreneurship, Startup, NextNY, Notches

• Why Notches isn't "Anti-Stealth"

  There's been a lot of discussion about being anti-stealth . A stealth startup is one that isn't telling anyone what they're building and being very protective about the idea. Anti-stealth is the polar opposite - broadcasting everything, from your long-term vision, project status, and even financials. Anti-stealth is, in its purest form, about complete transparency in the business. Being "stealth mode" was in part about protecting the idea, but also gives the impression that the idea itself is revolutionary. In a sense, it's At one point this might have worked, but we realized more and more that many of these companies in "stealth mode" had average ideas at best. Being "anti-stealth" has its own pros and cons. The real value in broadcasting your message is that you'll get feedback and opportunities that would otherwise go undiscovered, as Charlie discovered . There are many benefits I can see being completely transparent. Of course, you actually... Posted Nov 26 2007, 11:08 AM by Tim with | with 4 comment(s) Filed under: Intellectual Property, Business, Entrepreneurship, NYC, Startup, NextNY, Notches

• How do you get started raising venture capital?

  Alex commented on my previous post about raising too much venture capital. This is great. However, some of us are really puzzled by the whole VC process to begin with. It would be nice to get some "semi instructional" slash "story of my life" about making a transition from the basement to the boardroom. With Notches, we're very early in the process. We've had a number of meetings with VCs to sort of introduce the idea, but we're definitely before the stage where we're looking to raise Series A funding. I'd love to, and probably will, talk more about the lessons learned once we are further along in the process. A good place to get started to understand the whole process is Get Venture , a blog recently started by Mark Davis at DFJ Gotham. He just recently started blogging, but man he has generated a lot of great content in a short time. Check out the Entrepreneur's Guide to Raising Venture Capital . AskTheVC , run by Brad Feld and Jason Mendelson... Posted Sep 13 2007, 06:10 AM by Tim with | with no comments Filed under: Business, Entrepreneurship, Startup, Venture Capital

• More about raising too much venture capital

  I recently wrote about the dangers of "taking as much as you can get" in a series A. Shortly after that, Dick Costolo wrote an absolutely amazing post about raising too much money. Nonetheless, I don’t think it makes sense for most entrepreneurs to raise big A rounds, because you don’t want to price yourself out of interesting opportunities in the first year or two. By raising too much money, you force your hand on the kind of company that you have to build, whether you want to or not. That was exactly my point. It creates certain expectations for an exit, and you're making that commitment very early in the life of the company. This may not be as big of a deal for a seasoned (and well-off) entrepreneur like Jason or Marc, but it can be a big deal for the rest of us. Let’s look at two scenarios for a very promising startup with technology that may be of strategic interest to several profitable public companies: Scenario 1: You raise 1 on 3 pre in an A round, so you’ve sold... Posted Aug 24 2007, 11:49 AM by Tim with | with 1 comment(s) Filed under: Business, Law, Entrepreneurship, Startup, Venture Capital

• Distinguishing between a platform and a destination

  Charlie says that "the whole idea that you have a main site is dead". I couldn't agree more - I strongly believe that platforms are the future of the Internet. One clarification I'd like to make in this whole discussion is Facebook is both a destination and a platform. It's important to understand that these are discrete things - something can be a platform without being a destination and vice versa. Clearly, Facebook offers a nice API for integrating your code into theirs, but this to me is not what makes Facebook a platform. MySpace, iGoogle, and a plethora of Web 2.0 portals allow you to "embed" your code - Facebook just allows you to do it more seamlessly. If anything, these are all simply platforms - or rather, vehicles - for traffic. Of course, as Charlie and myself and countless others have said, traffic does not give you a business model. On the other hand, Facebook is getting flak for not being open enough with their data . As Fred says, being open... Posted Aug 21 2007, 06:15 AM by Tim with | with 2 comment(s) Filed under: Software Development, Web 2.0, Business, Blogging, Entrepreneurship, Startup, NextNY, Notches