More Venture Guys: Two Books Give Timely Advice

SAN FRANCISCO (07/12/2000) - There's a pattern to books I review for this column. A topic becomes hot, enters the public consciousness and becomes part of the zeitgeist, then several months later a mass-market book about it appears. It would be an interesting exercise to compute the average time between a topic becoming hot (say, the date on which it makes the cover of Time or Newsweek) and the date the first book about it is published.

Timing is everything. The venture capital world has been a hot topic, especially during the days of the Internet stock bubble. The first two mass-market books on venture capital hit the shelves in May 2000, just after the bubble burst. In last month's column, I reviewed one of those two books:

Randall Stross' eBoys, an inside look at Benchmark Capital, one of the most respected venture firms in Silicon Valley. EBoys is in danger of irrelevance if, as predicted, the post-crash environment makes VCs the cultural relics that '80s bond traders are now. But the other book, Confessions of a Venture Capitalist: Inside the High-Stakes World of Start-up Financing, by Ruthann Quindlen, is aimed at entrepreneurs trying to procure venture funding for their startups. Quindlen is a partner at Institutional Venture Partners (IVP), another respected Sand Hill Road venture firm whose investments have included Excite Inc., Seagate, and Clarify Inc.

For CEOs of startups that didn't get funded before the market crash, the timing of Confessions of a Venture Capitalist could not be better, as venture funding is now supposedly becoming scarcer. The same is true of Zero Gravity: Riding Venture Capital from High-Tech Startup to Breakout IPO, by Steve Harmon, a noted Internet stock analyst. (Zero Gravity was published last fall, but it doesn't count as mass-market: the publisher was the book division of Bloomberg, the business-media empire.) Both of those books contain descriptions of the process that venture capitalists use to decide which businesses to invest in. It's pretty straightforward. You write a business plan with a killer executive summary, one that is short and succinct, and that describes a huge market opportunity without using hype. It's always a good idea to back up your plan pro forma financials and other numbers, but VCs will generally decide whether they want to see you based on that executive summary.

Then, to get a top VC to read your business plan, you must get a referral.

Either you know someone yourself, or you hire a consultant who, like a lobbyist in Washington, connects you with the powers that be.

According to these books, even after following those steps, it can be difficult to get a VC to see you. That may be true for the top tier of venture firms. But in reality, your chances of getting an audience with a VC depend on brand-name status -- both yours and the VC's. There's a wide gap between the name brands and the nonname brands. Nonname-brand VCs seek great investment opportunities the way entrepreneurs seek funding. And name-brand entrepreneurs are as picky about which VCs they will allow to fund them as the top VCs are about which businesses they will fund.

As an extreme example, Jim Clark (as we saw in Michael Lewis' The New New Thing, reviewed in Bill's Bookshelf, February 2000) has the cream of Sand Hill Road begging him to fund his latest idea, based on his successes with Silicon Graphics, Netscape, and Healtheon. More typically, someone who either has started a successful Internet business or has succeeded as an executive at a large technology company -- a Sun, Oracle, or Cisco -- would find a more receptive audience than a first-time entrepreneur with no track record.

Conversely, unknown VCs need to find brand-name ideas to invest in. Because there's so much capital chasing Internet businesses, VCs must now market themselves almost as much as entrepreneurs do. (I was at a conference held by a respectable, yet not name-brand, regional venture firm, and someone brought up the idea of marketing. Half of the people in the room thought that it was a ridiculous idea, while the other half thought it was the most obvious thing on earth.) VCs must now bring more than money to the table: they must also help entrepreneurs refine their business plans, build management teams, find strategic partners, and so on. If you read venture firms' ads in magazines such as Red Herring and The Industry Standard, you will see that some venture firms are beginning to take marketing quite seriously.

Both Confessions and Zero Gravity stress that a venture firm must be a partner, not just a source of funding. There must be a good match between entrepreneur and VC. The venture firm must not only be interested in funding the entrepreneur but also understand his specific market and have a network of contacts to help him. Personal chemistry between the entrepreneur and the venture partner must be good as well. Both books recommend that entrepreneurs do serious research before sending proposals to venture firms.

The books also address what to do and what not to do when you finally get your hour in the conference room. Some common (and fairly obvious) themes recur: show deep passion and commitment to your idea -- quit your day job to pursue it. Go after an opportunity that's huge and transformational, not incremental.

Know your competition and be paranoid about them. Understand your market but avoid the arrogance of thinking you can't learn anything, and be prepared to accept the VC's suggested changes to your business plan. Put together a professional-looking PowerPoint presentation and show a working demo. And so on.

In general, I would not characterize the advice that these books offer would-be entrepreneurs as deep or insightful. Most of it applies to any situation where you're trying to sell someone on something big. For example, salespeople at big technology companies use many of the same techniques when selling computers, ERP or CRM software, or system integration services to large corporate customers.

Nevertheless, the books are worthwhile in their own ways. Quindlen's book, the more serious and more personal of the two, is a companion piece to Stross' eBoys: it gives another insider's look at life in a venture firm but from a venture partner's perspective. She discusses her previous life as a mainstream investment banker and explains how and why she migrated her career to the higher-risk and more stimulating world of venture capital. While Quindlen discusses her life on the other side of the VC conference table mostly in business terms, there's an underlying theme of "VCs are people, too" that should be somewhat comforting to the nervous entrepreneur making his sales pitch. She also includes advice for startup businesses after they have obtained funding.

Steve Harmon's book is an outsider's view of the VC process, as someone who has followed many startup businesses from beginning to boom or bust. His writing style is loose and somewhat breathless, and he often falls into the trap of treating well-known VCs and entrepreneurs like celebrities. The book has a number of sidebar interviews with big-name people like Jerry Yang of Yahoo, Marc Andreessen of Netscape (now of LoudCloud), and John Doerr of Kleiner Perkins (who also wrote the book's Foreword), which are the shallow equivalent of interviews with movie stars in People magazine. At the same time, Harmon's advice on writing business plans goes deeper than Quindlen's.

Zero Gravity has a great deal of useful information, but it more resembles a long magazine or newsletter piece than a book. Much of the hard data is contained in tables that go on for pages, but some of the information is already out of date. Nevertheless -- and despite the book's strange juxtaposition of VC-as-celebrity golly-goshing alongside the useful facts -- Zero Gravity is a handy guide for entrepreneurs who are serious about procuring venture funding.

If venture funding really does dry up, as most people now predict, then these two books will be quite popular among entrepreneurs. That's lucky timing. The same cannot be said of The Cluetrain Manifesto: The End of Business as Usual, a 1996 book written in 1999 and published just a few months ago.

The Cluetrain Manifesto is a screed written by four authors: Rick Levine, one of the prime movers behind Java at Sun, and three others -- Christopher Locke, Doc Searls, and David Weinberger -- all of whom are a combination of consultant, speechmaker, and e-zine ideologue. Cluetrain has jacket quotes from all of the right people, including Burn Rate author Michael Wolff, Don Peppers of One-to-One Marketing fame, Eric Raymond, and Esther Dyson.

It amazes me that those relatively unknown authors were able to get such a star-studded list of people to logroll this annoying and irrelevant book. It's a series of articles about how the Web is transforming business. The core message, repeated ad nauseam, is "Businesses should use the Internet to have real dialog with customers, not just one-way marketing messages." Wow, how original.

The articles are written in the type of sensationalist, self-important, verbose, and semi-informed tone familiar to anyone who has spent too much time in Usenet newsgroups, which is where the content for this book probably originated and belongs. The book is supposed to be a last-ditch wake-up call to those corporate executives who still don't get it, but its tone will probably do nothing but turn most of them off permanently.

I can think of two reasons why so many people express support for The Cluetrain Manifesto -- not just the net-celebrities mentioned above, but the hundreds of signatories on the www.cluetrain.com Website. Many of the signatories are consultants or corporate types who have been frustrated in trying to get their clients or management clued in about the Web and its transformative powers.

Maybe they're just happy to see something in official (i.e., printed) form that expresses their frustrations. Or maybe they see Cluetrain as a marketing tool that can succeed where they have failed and then position themselves as moderates against its strident messages. In either case, I find it hard to fathom how this book could possibly preach to anyone other than the choir.

Bill Rosenblatt is the vice president of technology for Fathom.com in New York City.

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