Unicorns Without The Magic

I got the following email recently, titled “Unicorns Without The Magic.”

“With the rise in venture capitalism it’s hard to say the word “start up” and not be offered an abundance of accelerator programmes, free office space, free apartments & a free bible of connections. I myself have felt the pressures of the world of start up wonders & the prospects of investment. Whilst finishing my finals at university, I created my own algorithm for a business model to achieve a sustainable competitive advantage in a digital space. Through this I’m now building my first digital ecosystem, but along with it I’ve been offered numerous places in accelerator programmes, numerous loans and a wave of unicorn magic dust that seems to be collecting in my inbox. I’m not complaining, but what happens if the purpose of a business is greater than ones own self interest and certainly greater than a VCs interest? Our purpose is to give other people the tools to create their own opportunities, which is not necessarily in line with most VCs sentiments. I know in the next five years my company will make a lot of money, but what I don’t know is how as a 23 year old entrepreneur to says yes to the right VC and no to all the magic dust.”

My short answer was:

“My advice is simple – if it doesn’t feel good / right, say no. Keep focusing on building your business. Don’t avoid the interactions, but use your filter – which seems well tuned and appropriate – to make sure you are only spending time with people who you want to spend time with.”

I was reminded of this by Fred Wilson’s post this morning Go East Young Man (or Woman). He tells Henry Ward’s story of the financing for eShares.

“We were 0 for 21 with Silicon Valley VCs. I never got close. Most of the big firms wouldn’t even meet. A few had an associate do a Skype call even though we were 20 minutes away.

After 21 meetings in SV, I took a Hail Mary trip to the east coast and met with 3 funds. All 3 invested.”

We see this all the time. Founders who are entranced with Silicon Valley VCs. They pursue them with no focus on anyone outside of the bay area, get rejected right and left, often by associates, and end up feeling like they’ve failed. Fred’s post – and Henry’s at eShares Series A – has a great punch line that reinforces the importance of a founder having an effective filter.

“Fundraising is simple: find investors that get excited about your company. It is a filtering exercise. Too many founders believe they have the wrong pitch instead of realizing they have the wrong audience.”

Special bonus points (and some 1990s nostalgia for you): Do you remember the other company named eShares which Fred previously invested in via Flatiron Partners? I sat on the board of with Fred’s partner at the time Jerry Colonna. (a) What did they do? (b) Who acquired them? (c) How much where they acquired for? (d) Who did they compete with and what happened to their competitor?

  • Thanks for the post. For those bonus points…

    eShare Technologies provided enterprise-class interaction software and services for building interaction and community on Web sites, extranets, and intranets. aka, Web Chat.

    They were acquired by Melita International Corp on June 18, 1999. Then, in September, they were sued for $100M by EIS International Inc. (EISI) for some shady stuff (below).

    http://www.prnewswire.com/news-releases/eis-international-inc-eisi-files-100-million-suit-against-eshare-technologies-inc-and-melita-international-corporation-meli-74303052.html

    • Demonstrating the power of Google search! Bonus points awarded.

      • Busted. However, knowing exactly what to search for is key. (They called me “google search” in college – I swear)

        In June 1999, I just graduated HS on my way to college, little (actually no) focus on tech acquisitions at that time. I’ve made up for lost time, however.

    • Kiley Grant

      This is a snippet from the original press release:

      eShare Technologies has achieved industry-wide recognition as the pre-eminent expert in people-to-people interactions on the Internet, supplying application software and services to businesses, consumers and community sites for more than 1,000 customers worldwide.

      I don’t know the exact metrics, but at first look $79K per customer seems like quite the deal, only 12,000 more and they grow a horn on their nose.

      • Horn on their nose? You saying eShares could be the next rhino?!

        • Shawn T

          We have to make “rhinos” a thing now.

  • In sales, one of the first action is qualify your buyers, but somehow we forget when it comes to investments.

  • I’m just going to be honest, each sentence in that email reads like a checklist of things that get under my skin. I’m slightly nauseated. That is all.

  • Jacob Gordon

    Why do you think associates are often the rejecters?

  • Offtopic but just an FYI for you. Berkeley Breathed has begun creating Bloom County again. Since we’re the same age I thought you might have followed it back in the day: https://www.facebook.com/berkeleybreathed?ref=profile The strip stopped about 25 years ago. The characters are now “discovering” the Internet. Funny stuff.

    • thanks for that. I saw one strip and it was hilarious, but thought it might be a one time thing or satire. How can we bring back The Far Side?

  • I have to say what made me cringe, from a startup founder’s perspective, there is no way I’d complain about money if I’m focused on a mission. That’s when the “doesn’t feel right” senses speak up loud and clear. The way I see it, the right VC match based on true intent, doesn’t require a whole lot of thought and negotiation. Both want same thing and there are far more important issues to resolve than haggling over money and equity. Wouldn’t be much of a match if there wasn’t mutual trust and risk both parties are taking on. I can’t relate to the frustration, personally.

  • Rick

    Hmm… One entrepreneur having money thrown at them left and right. Another being rejected left and right.
    .
    I just sat in front of someone who loved my last idea but doesn’t like my new one. I guess you are right it’s all about the right audience not the right idea.
    .
    Maybe I’ll break my own rule and just find a job… As long as I’m not programming I’ll be OK.

  • I listened to David S Rose speak the other day. He had some interesting points about investing. He said too many people at the angel level are focusing on Unicorns when they should be focusing on finding Gazelles. Gazelles are companies that angels invest in a valuation x, and return 30x. That means a company at a 2M-3M valuation has to sell for 60M-90M. Totally doable. Unicorns aren’t.

  • StevenHB

    I have to assume that the email snippet above made more sense in context than it does to me, as it is presented here. I got the sense that the author was blowing smoke (he was offered $$$ and other benefits and had a completely unspecified “algorithm” for achieving “a sustainable competitive advantage” [sounding too good to be true] and is building a “digital ecosystem” and then the intimation of some kind of VC conspiracy against giving “other people the tools to create their own opportunities”). Too many buzzwords and too few details (though I can understand why you might omit any that you received).

  • Joseph Prencipe

    Hi Brad, good article. I like the ‘feeling’ approach with some key things like this.

  • This behavior is fueled by the perceived signaling benefit associated with brand. People buy into it.

  • Dave Katz

    The “feel good / right” also applies to business deals and development. Some sound too good to be true, and it all comes down to the connections and how much you trust them. It may not always be as extreme as selling your soul to the devil, but don’t let the money cloud smart judgement. Not all money is equal just like all calories are not equal.

  • Isn’t it also dependent on the deal stage eg. seed vs series a are world apart. “seed” is like yeah we got a great idea you (VC) might like/be passionate about and here’s the MVP to prove people like it.. vs “series a” (and above) is more about how much $$$ of kerosine can we put into the fire to fuel the growth/accelerate this business model?

  • Amazing. I absolutely love this. If we could all spend 10 mins a day, where we have time to ponder/meditate – if we did this and focus on our happiness factor – our lives would change for the better. Some of the biggest decisions we make, we never take the necessary quite time to think and feel what the right answer should be.

  • Moral Max

    Both want same thing and there are far more important issues to resolve than haggling over money and equity. Wouldn’t be much of a match if there wasn’t mutual trust and risk both parties are taking on. I can’t relate to the frustration,Casquette Huf