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I would not treat this story as a sign of how to convince VCs. It is almost never the case that VCs say yes because of one magically convincing point you make.

by pg 15y ago

I would not treat this story as a sign of how to convince VCs. It is almost never the case that VCs say yes because of one magically convincing point you make. Fred is not a purely functional VC (by which I mean not that he's dysfunctional, but that he's stateful). This slide was accompanied by lots of other evidence, including multiple prior meetings. The slide was just the final increment that pushed him over into yes. It is very unlikely that if a random person had walked up to him and shown him the same slide, Fred would have been convinced. What convinces VCs is, in order, (a) growth, (b) the founders' personal characteristics, (c) what you say to them. If you seem like an effective person and you have graphs that go up steeply, your pitch could be a bunch of platitudes and they'd still be eager to invest. (As would we, to be honest.) Whereas if you seem like an ineffective person and have no traction, you could have the best story in the world, and they will all say no. (Here we're a little more forgiving; we try to distinguish between genuine ineffectiveness and similar but curable phenomena like youth, inexperience, diffidence, and fear.)

brlewis 15y ago
Therefore, if you have the best story in the world, take it to potential users first.
mseebach 15y ago
So it's a classic instance of focussing excessively on that single straw that broke the camels back, not the many, many straws that preceded it.
NY_Entrepreneur 15y ago
I don't quite 'get it': So, "Could you expand on your answer a little, please". You seem to be saying that the key is "traction", significant and growing rapidly. Then it sounds like someone who was just featured on the TV show 'Diners, Drive-ins, and Dives" and has significant 'traction' growing rapidly would get a VC investment? Or so could someone who opened a pizza shop in a hot, new shopping mall. So, it sounds like nothing about the core technology, Buffett 'moat', potential business size, or business planning is relevant? Then, suppose the business is a new Web site. Suppose the founder gets from his ISP a static IP address and 15 Mbps upload bandwidth. Suppose his largest Web page can be sent for less than 200,000 bits. Suppose he half fills his bandwidth 24 x 7 for ( 15 * 10**6 ) / ( 2 * 200,000 ) = 37.5 pages sent per second. Suppose he sends three ads per page and gets $1 per thousand ads displayed (CPM). Then his revenue would be greater than 1 * 3 * 37.5 * 3600 * 24 * 30 / 1000 = 291,600 dollars a month. Now just why would he accept equity funding? Net, it sounds like, for an entrepreneur, when equity funding might help, his project is 'too early', and, by the time the funding is available, the VCs are too late. So, it sounds like VC funding is for where (A) the business has suddenly encountered some problem and needs cash fast or (B) the founder wants to take some cash off the table and not for usual business formation. Then back to the restaurant: All across the US, restaurants and Main Street businesses get built without VC funding, and commonly those businesses need much more in capital equipment, ovens, site renovation, trucks, etc. than a Web site filling 15 Mbps upload bandwidth. So, if those businesses don't need VC funding, why do new Web sites?
- simonw 15y ago
  What an odd comment. The difference between a restaurant and a technology startup is that a startup is "an organization formed to search for a repeatable and scalable business model" - http://steveblank.com/2010/01/25/whats-a-startup-first-principles/ http://steveblank.com/2010/01/25/whats-a-startup-first-princ... As for your static IP address example... a company that is serving 38 pages a seconds with 3 ads and a $1 CPM isn't exactly a trivial thing to build. If you do build that without taking any investment, good for you! You've bootstrapped your company. I imagine you'll find that you need a lot more than a static IP address and 15 Mbps upload bandwidth to get there though.
  - NY_Entrepreneur 15y ago
    "an organization formed to search for a repeatable and scalable business model" I've read that some dozens of times from Blank. Sounds like a guy opening a pizza shop knows better what he's doing than the IT startups Blank is talking about! Not all IT startups have to be less well directed than a pizza shop! Bluntly, for a well planned startup, I conclude that Blank is nearly always wrong. I helped start a company, now world famous. In my offer letter I was promised stock. Later the COB said that the amount would be $500,000. I never got the stock. That stock would be worth about $500 million now. Yup, I missed out. But I did get some startup experience. Got'a tell you, what Blank said didn't describe what we were doing at all. We always knew JUST what our business model was, and we were correct from the beginning to the present. It wasn't tough to know. Sometimes Blank is seriously wrong. "You've bootstrapped your company." From what PG wrote, sounds like I don't have much choice: No matter what "more" it takes, I have to have it done before a VC will write a check. But, then, as you said, I will already have "bootstrapped" my company. "I imagine you'll find that you need a lot more than a static IP address and 15 Mbps upload bandwidth to get there though." Sure. The point about the static IP address and the 15 Mbps upload bandwidth was just to illustrate that by the time I've got the "more" done and am ready to go live, we're not talking bucks big enough to eat up an average Series A. Instead we're talking much less cash that it would take to keep a new pizza shop going for the first week. My point isn't how much an entrepreneur needs to do. My point is that by the time the entrepreneur has gone live, gotten significant traction, and has the traction going, and, thus, qualified for VC funding, if he can half fill 15 Mbps upload bandwidth, then he won't want to take VC money. Put more simply, PG is saying that the VCs want to get on the plane after it has already left the ground. Okay by me. I'm just trying to understand the rules of the game. I didn't mention it, but my guess is that the severe rules PG is describing have been 'suggested' by the LPs.
fredwilson 15y ago
Great comment Paul The slide was absolutely the final thing I needed to see the vision
- jprobert 15y ago
  Can you share the slide?
  - fredwilson 15y ago
    i don't have it i will ask alex if he does
Hitchhiker 15y ago
A disjoint suggestion, I would sincerely request some readers to go check out http://www.amazon.com/In-The-Plex-ebook/dp/B003UYUP6M/ http://www.amazon.com/In-The-Plex-ebook/dp/B003UYUP6M/ It is a fascinating book and one that I regret not reading earlier.

by pg 15y ago

brlewis 15y ago

Therefore, if you have the best story in the world, take it to potential users first.

mseebach 15y ago

So it's a classic instance of focussing excessively on that single straw that broke the camels back, not the many, many straws that preceded it.

NY_Entrepreneur 15y ago

I don't quite 'get it': So, "Could you expand on your answer a little, please". You seem to be saying that the key is "traction", significant and growing rapidly. Then it sounds like someone who was just featured on the TV show 'Diners, Drive-ins, and Dives" and has significant 'traction' growing rapidly would get a VC investment? Or so could someone who opened a pizza shop in a hot, new shopping mall. So, it sounds like nothing about the core technology, Buffett 'moat', potential business size, or business planning is relevant? Then, suppose the business is a new Web site. Suppose the founder gets from his ISP a static IP address and 15 Mbps upload bandwidth. Suppose his largest Web page can be sent for less than 200,000 bits. Suppose he half fills his bandwidth 24 x 7 for ( 15 * 10**6 ) / ( 2 * 200,000 ) = 37.5 pages sent per second. Suppose he sends three ads per page and gets $1 per thousand ads displayed (CPM). Then his revenue would be greater than 1 * 3 * 37.5 * 3600 * 24 * 30 / 1000 = 291,600 dollars a month. Now just why would he accept equity funding? Net, it sounds like, for an entrepreneur, when equity funding might help, his project is 'too early', and, by the time the funding is available, the VCs are too late. So, it sounds like VC funding is for where (A) the business has suddenly encountered some problem and needs cash fast or (B) the founder wants to take some cash off the table and not for usual business formation. Then back to the restaurant: All across the US, restaurants and Main Street businesses get built without VC funding, and commonly those businesses need much more in capital equipment, ovens, site renovation, trucks, etc. than a Web site filling 15 Mbps upload bandwidth. So, if those businesses don't need VC funding, why do new Web sites?

simonw 15y ago
What an odd comment. The difference between a restaurant and a technology startup is that a startup is "an organization formed to search for a repeatable and scalable business model" - http://steveblank.com/2010/01/25/whats-a-startup-first-principles/ http://steveblank.com/2010/01/25/whats-a-startup-first-princ... As for your static IP address example... a company that is serving 38 pages a seconds with 3 ads and a $1 CPM isn't exactly a trivial thing to build. If you do build that without taking any investment, good for you! You've bootstrapped your company. I imagine you'll find that you need a lot more than a static IP address and 15 Mbps upload bandwidth to get there though.
- NY_Entrepreneur 15y ago
  "an organization formed to search for a repeatable and scalable business model" I've read that some dozens of times from Blank. Sounds like a guy opening a pizza shop knows better what he's doing than the IT startups Blank is talking about! Not all IT startups have to be less well directed than a pizza shop! Bluntly, for a well planned startup, I conclude that Blank is nearly always wrong. I helped start a company, now world famous. In my offer letter I was promised stock. Later the COB said that the amount would be $500,000. I never got the stock. That stock would be worth about $500 million now. Yup, I missed out. But I did get some startup experience. Got'a tell you, what Blank said didn't describe what we were doing at all. We always knew JUST what our business model was, and we were correct from the beginning to the present. It wasn't tough to know. Sometimes Blank is seriously wrong. "You've bootstrapped your company." From what PG wrote, sounds like I don't have much choice: No matter what "more" it takes, I have to have it done before a VC will write a check. But, then, as you said, I will already have "bootstrapped" my company. "I imagine you'll find that you need a lot more than a static IP address and 15 Mbps upload bandwidth to get there though." Sure. The point about the static IP address and the 15 Mbps upload bandwidth was just to illustrate that by the time I've got the "more" done and am ready to go live, we're not talking bucks big enough to eat up an average Series A. Instead we're talking much less cash that it would take to keep a new pizza shop going for the first week. My point isn't how much an entrepreneur needs to do. My point is that by the time the entrepreneur has gone live, gotten significant traction, and has the traction going, and, thus, qualified for VC funding, if he can half fill 15 Mbps upload bandwidth, then he won't want to take VC money. Put more simply, PG is saying that the VCs want to get on the plane after it has already left the ground. Okay by me. I'm just trying to understand the rules of the game. I didn't mention it, but my guess is that the severe rules PG is describing have been 'suggested' by the LPs.

fredwilson 15y ago

Great comment Paul The slide was absolutely the final thing I needed to see the vision

jprobert 15y ago
Can you share the slide?
- fredwilson 15y ago
  i don't have it i will ask alex if he does

Hitchhiker 15y ago

A disjoint suggestion, I would sincerely request some readers to go check out http://www.amazon.com/In-The-Plex-ebook/dp/B003UYUP6M/ http://www.amazon.com/In-The-Plex-ebook/dp/B003UYUP6M/ It is a fascinating book and one that I regret not reading earlier.