VC Seed Funding is Dead, Long Live VC Seed Funding!

image On December 2nd, 2006 I wrote the blog post published later in this post when I was CEO of startup Koral about my experiences in pitching VCs.  After my company was acquired by I was asked to stop blogging and they took over my blog as an asset in the sale of the company.  My blog was wiped out.  I am very grateful to my friend Zoli Erdos for finding this retro posting for me at

I had kept a personal blog for more than a year and was new at keeping a professional blog.  I had previously raised VC in 1999, 2000, 2001 and 2005.  I had seen many cycles and decided that since I was going to do it all over again I should write about it.  I had really positive experiences such as working with Greg Gretsch at Sigma Partners where he championed us to a partners’ meeting where we sort of got crucified.  They picked apart holes in our strategy and they were right.  We made changes and Greg was a gentleman throughout the process rather than berating us for our performance (it was our first partners’ meeting).

Secret #2But we also had some negative experiences, too.  Many.  It included some well known firms that made me come for a team pitch and then only gave me literally 15 minutes when we’d scheduled an hour.  It included one firm who I asked  not to call as a reference (they were our largest pilot customer) and in their kindness they called Marc Benioff (the CEO) and asked his opinion.  Another called Parker Harris, the co-founder and CTO.  In case VC’s haven’t figured this out yet, shit rolls downhill.  And both of these calls got passed down the chain with sufficient “Chinese Whispers” that by the time they got to me my buyers were perturbed.  No prizes for guessing which VCs I didn’t work with (and still won’t).

I decided to write about my experience and to be blunt.  Not only was it in character, but I also knew that nobody was yet reading my blog.  That changed very quickly.  My blog linked to Brad Feld’s blog because I was so grateful for his series on term sheets and he was one of the biggest reasons that as a VC I felt compelled to blog.  Remember, I was new to professional blogging.  I hadn’t thought about the fact that he would become aware of my link.

On December 3rd Brad Feld wrote a one paragraph blog post titled “Raising Venture Capital” in which he linked to my blog.  There was no viral social networking products back then like Twitter where people could easily discover your content.  It seemed that the main discovery mechanism was the “blog roll” that everybody kept.  It was sort of like Twitter’s list of who you follow but much, much smaller.  The only other ways to get discovered was to have good organic search results or to get covered by a major blog site.  And covered we did.  This blog post ended up on Valleywag (which had much bigger presence back then).

valleywag-logoIt became a huge kerfuffle with many VC partners writing to thank me for the post, which exposed those that gave their industry a bad name.  And then I was mortified – Valleywag figured out which firm had treated me the worst and published their names.  Gasp.  I had intended to talk about how bad the process could become, not to name-and-shame anybody (and The Funded was not yet around).  The managing partner of the firm called me the next day.  At the end of this post I’ll tell you what he said.

The Original Post (after the jump):

Venture Capital, By Mark Suster (December 2nd, 2006)
Can it really be a month since my last blog posting? Tempus Fugit. Well … I have had many late nights and I really didn’t contemplate writing many blog postings this month because I spent November in this interesting venture capital / fund raising dance involving lots of late night sessions reviewing legal documents, rewriting business plans and preparing for pitches. We have also been very busy with our next release, which is due out by December 11th (but I’ll save that for a different post). And I guess I have a penchant more for longer blog postings than frequent ones.

So for anybody who has been through the funding process before I hope that this will resonate and for those that haven’t I hope it will be interesting. I don’t plan to write the authoritative venture capital blog, just some anecdotes. If you are interested in reading good blogs about venture capital my favorite two are VentureBlog and Feld Thoughts.

Anyway, the starting point for this blog entry is a cartoon I remember reading in the New Yorker. The picture was of a man in a doctors office that was really irritated. There was a clock in the picture that was set to 9:30. The caption showed the man saying sternly to the receptions, “I had an appointment with the doctor at 9 AM” pointing to his watch. The receptionist replied, “Yes, your appointment with the doctor was at 9 AM but his appointment with you isn’t until 10:00!” Thus is venture capital. You have an “hour” to pitch in your first meeting. It is usual for the partners to stroll in 20 minutes after your appointment so at best you have 40. Prepare to give your pitch in 30 including Q&A. Don’t be frazzled … this is just the way it is.

So far at the company I have raised seed funds of $500,000 of which $470,000 is still in the bank so I’m in pretty good shape. We started building the product 18 months ago so we are in better shape than 99% of start-ups. But nonetheless is takes capital to build out a successful enterprise and I’m not sitting on a pile of it myself. Thus begins the venture capital dance.

The first attention we started getting was after we launched the company publicly at Demo on September 25th of this year. A number of VC’s stopped by our booth or watched our demo on the DEMO website and we had about 5 proactive inquiries. After Office 2.0 we had about 25 firms contacting us – more than I could manage. The first VC I met with came from attending DEMO.  A gentleman had stopped by our booth multiple times and then wrote me immediately after the conference and said that I “HAD to come and meet with his partners the very next week.” Okay. Sure.

homer-simpson-dohI arrived at 12:50 PM in the afternoon, 10 minutes before my start time. I have raised capital 3 times before so I knew the drill. I set up my laptop, connected to the Internet, opened the compulsory 15 page PowerPoint deck and waited for my adoring fans. 1:20 and they turned up like clockwork. Only the thing is, only 2 of the 4 partners showed – we were waiting for the other 2. So I did what one does in this situation – I made polite small talk. I wasn’t feeling it. They looked nervous at having to speak with me impromptu and without the benefit of financial figures to scoff at, product pitches that they’ve seen 100 times and a market sizing to unpick. I’m not trying to imply that all VC’s are socially inept – that’s not the case. But these two certainly were. It got worse.

The third member of the meeting showed up and they sure looked relieved. We all sat down but still had to wait for the fourth. I broke the silence, “so, where do you guys live? Is it a long drive into the City (San Francisco) for you?” They answered politely but behind their words they were thinking, “what kind of idiotic question is that?” as they awkwardly answered that “it wasn’t too bad driving up from Palo Alto every day if one leaves at the right time.” Then, just in the nick of time, 30 minutes past the hour, the straggler turned up. So I was back in the business of pitching to VC’s – a bit like riding a bike I guess.

I started by trying to think I could explain my concept without having to patronize everybody with artificial PowerPoint slides. I thought, what would I do if I was trying to sell to a customer. My plan: verbal 5 minutes to explain the business then straight to product demo where I could cover all of the concepts that would have been in my 2-by-2 charts in my deck. Doh! Dare I steer off the course from the tried-and-true PowerPoint ritual? This approach generally works well with customers because I find it much easier to build rapport when we talk like humans than when we all stare at the PowerPoint slides being projected on the wall.

I was immediately reminded that they were interested in seeing the slides as the main partner who had courted me at DEMO in San Diego shuffled nervously through the print outs of the slides I had sent him in advance. All I kept thinking was, “if you made me send the slides in advance then why the fuck am I now going to spend 10 minutes talking you through them?” I was wrong. “Slides, please.” Okay. This is going well.

texting in meetingPage 1: Market Size. $3 billion industry. Not well penetrated. We’re set to change it. Here’s why those who came before us did not succeed. Man in back of room (the plonker who was 30 minutes late) is now on his Blackberry. No joke. Late and not even the courtesy to listen to me. The partner who said we “must meet this week” is shuffling through his papers and not listening to me either. Partner 3 is listening intently and partner 4 is looking patronizingly at me waiting for the killer question about how on Earth I was going to beat Microsoft.

Page 2: What’s unique about Koral. Experienced and serial entrepreneurs in the content management space. Folksonomy. Consumer approach to software for business users. Viral. Free product. Web service architecture that provides a content management platform for the Internet. Distributed version control model – first in the industry like ours and we are filing patents.

Page 3: Competition. Page 4: Business Model. Page 5: Financials. Page 6: We already have several pilot customers including a very large, unnamed software firm.

Aren’t they tired of this ritual? Well, in this company’s case, yes. Blackberry man is probably asking his girlfriend where to meet for dinner. Gotta-meet-me man is thinking about some other deal. Condescending man keeps jumping in with curveball questions so I am not able to get into the flow. Intent man works for the wrong company. MAN … get out of there!!! Don’t you guys want to see the product?

I start in with the product. Intent man and condescending man love it. We start getting on famously. They are engaged in a beautiful dialog about market adoption and why they have problems managing their documents since they store everything in Outlook. Then, with as much attention as my 3.5 year old son, they promptly tell me that they have another call and leave the meeting at 10:50. Sorry. Couldn’t be helped.

So I’m stuck with the paper shuffler and the Blackberry man. I am not kidding you when I say that I was on the verge of literally saying, “let’s just call this meeting a day. It’s clear you have no respect for me and no interest in my company.” I bit my tongue (which my wife will tell you is rare). I finished the next 15 painful minutes and said goodbye. My only regret … the $25 I had to pay to park in their building. They were seriously the most pompous, self-centered, unprofessional group of people that I have come across in a long time. I went to back to their website and unsurprisingly there were no great companies I had ever heard of. I later learned that they were a spin out from an investment bank. It all made sense. They were not “real” VCs.

Well I am happy to report that it was mostly smooth sailing from there. While I did have many more circumstances that I found frustrating (one firm showed up 35 minutes, apologized because they were trying to vote on whether to fund another deal and then a partner turned up 25 minutes later and kicked us out of the room because he had a conference call) in general I found the process very rewarding. We received a lot of positive accolades on our vision and our product. I visited 14 VC’s, got 8 call-backs for second meetings, had 6 firms indicate an interest to explore an investment and possibly submit a term sheet and 3 companies actually say they were ready to write a check. The other 3 are still pending but since I am close to agreeing a term sheet it doesn’t make sense to pursue things at this stage.

Biggest lessons …

1. people universally said to focus on the SMB market (SME in UK parlance) and MAYBE divisions of corporations. But not one VC thought I should go after big, enterprise clients. I had planned a balance of large companies and SMB/divisional sales but have changed my thinking. Reasons: cost of sales executives, long sales cycles, deep functional requirements.

2. the smartest guys I met in the process said I really needed to focus on customer adoption / usability. Most people agreed that if you had a document management need and were willing to load your documents into our system it was one of the most usable products they had seen. But how do you convince millions of people that need to be educated that they have a document management problems to upload their documents in the first place? We have invested heavily in this. People said, “invest more.” Making user adoption incredibly simple and shortening the time to a light going off in the user’s head that they see the value is critical in driving viral adoption. Think LinkedIn.

3. People were mixed on how much money we should raise. I only want to raise $2.5 million and some people believed ardently that we needed to raise $5 million. I guess it was unsurprising that the people who were sure we needed to raise more money tended to have very large funds. We want to build the company slowly and pragmatically serving the needs of our existing customers.

4. I met a lot of really bright people that were passionate about and experienced in helping entrepreneurs build successful businesses. I think good VC’s really do make a difference. I look for firms in which some of the partners (my partner) have operational experience and know what it’s like to wake up every day and be an entrepreneur. I have raised capital in the past from European firms and from US firms. There is really no other place in the world like Silicon Valley. The amount of experience that exists in these 40 or so miles is phenomenal. I was a bit humbled by some of the companies that were funded by the people that I had met.

5. My partners Tim Barker and Ryan Lissack are both absolute superstars. Tim handled the product management, vision, roadmap and competitive questions like a pro. Ryan was my savior when it came time for questions on how SOLR clustering works, why Postgres was more suitable to us than MySQL and why aspect-oriented programming was delivering us benefits in the development process.

I look forward to the next phase of our business. We will hopefully close on a $2-3 million financing round at some point in January and I can get back to the full time work of running my business. I can get back to sleeping by midnight and posting blogs more frequently. The venture capital process is a necessary and informative experience that is not for the faint hearted. It helps one refine your business focus and share ideas with some of the brightest minds in the industry and be challenged by people who have seen every eventuality in the type of business you want to build. But … I sure will be glad to get back to being a full-time CEO.



The managing partner of the venture firm called me the day after they were exposed on the front page of Valleywag.  I was nervous and mortified.  He was a gentleman.  He apologized and said that their firm had learned from the incident.  He vowed to make sure that his colleagues never behaved like that in a startup meeting again.  He handled this perfectly.  Here’s the link to theValleywag teaser article (they have since purged the full article).