A Conversation with A VC
By Roy D. Follendore III
Copyright (c) 2001 by RDFollendoreIII
September 5, 2001
I had this interesting telephone conference the day before yesterday with a guy that was supposed to be some major Venture Capitalist. To protect his identity I will call him “Ed.” This is not his actual name of course. Actually, I have no doubt that he is what he, and other reputable people, say that he is. I am equally sure he has made a bunch of money and thinks of himself as a good guy.
Anyway, I had tried to reach Ed twice before and each time he put me off. “Call me on Tuesday when I get home.” “Call me in ten minutes.” I called him ten minutes later and we talked. Actually, he did most of the talking.
Without so much as a howdy, the first question I heard out of his mouth was “How much was invested so far?” I told him. The second question was “How much do you think your company will make in three years?” I told him.
He did not believe me and, in so many words, called me a liar and said that there was nothing in the “Harvard Business Model” that would support my figures. I listened to his explanation. He berated the entrepreneurs and their attitudes that the Internet would change the “Harvard Business Model”. Sure, I might believe that, like the VC capitalist had absolutely nothing to do with the concept. The fact is that EVERYONE conspired to rape the public investors and in particular the VC CAPITALIST.
Well I guess the other day I was just a gluten for punishment so I listened. When I could put a word in edgewise, I explained that the figures that I gave were estimates several MBA’s and I had prepared and was based on a general-purpose infrastructure concept being handled by several “spin-off” corporations. My explanation apparently did not seem to make a difference. I guess I somehow inadvertently had pushed some cognitive button on his frontal lobe or something. Ed was in the “telling me like it is” mode. I think that everyone has been in such a conversation with someone.
He explained how he sees the VC capital works. He said his investors put in a “call” for a technology and he tries to fill that call with folks like me. Evidently, there are currently two such “calls” for my area. One is for a “solution to the internet problem.” I have been involved with the Internet since it began and to be perfectly honest, the problem was so nebulous I didn’t have a clue as to what that meant. He went on to lecture me on the fact that he only is successful in 5% of the cases and that I have to come up with a Marketing Analysis, which if he were to do it would cost $10K. At this point, all kinds of alarms immediately started going off in my head.
After that, Ed said, “we throw away the business plan”, I just will have to fill out two short questionnaires and my guy gets the bucks. No one reads business plans. All of this for just 5% of the money raised, which has already been agreed to by the investors. He said that if my marketing plan was in order and we were first to market with the goods then he would GUARANTEE I would get the money for the company. Wow, I think to myself, a guarantee! Woopie. I haven’t heard that since the last time I listened to the local television commercial for the Men’s Store.
This conversation did not seem to want to end. He evidently wanted to give me an example of his ongoing success. He told me about this great venture capital investment that he is putting together to be some sort of final solution to children under 12 getting on websites on the Internet. He reported to me in a forcefully factual manner that “a Microsoft had been shut down because kids under 12 were allowed to get access.” “They thought they were too big, but now they know different.” Knowing what I know and what you should know about the nature of the Internet and about Microsoft, this particular comment in particular amazed me. He said that this company he was in the last stage of securing funding for had found some way to absolutely guarantee that children under 12 could not get onto an unauthorized website. What a statement I thought. I jokingly asked him if they had figured out a way to tattoo and scan kids with embedded chips like they do animals. The only other way I could think of to keep kids off computers these days is to exterminate them, a thought that was too frightening for even me to pursue as a bad joke.
(Actually I had previously given considerable thought about a solution to the problem of kids on the Internet. You can find this at www.noisetoknowledge.com/childrens_net.htm if you are interested, but of course, I did not mention this to Ed during our conversation.)
The real underlying problem is that unless we define positive areas of content control, we can not eliminate the negative. Certainly, the Vchip technology for broadcasting, which we all pay for every time we purchase a television set was a truly bogus concept propagated by some investors on the political landscape. Everyone who has ever had kids knows that you have to get parents to participate to make anything having to do with children work. Aside from that little problem, I know that there simply is no fool proof, noninvasive or non-oppressive way to absolutely authenticate identity, must less age. It is simply a fact of Science that because you do not know what you do not know, one can only indicate the probable existence of a negative, you cannot know it. (For example: You might not think your kids are being exposed to websites but you can not be sure any more than you think you might not have cancer but you can not be absolutely sure because you can’t know everything. If you don’t know, how would a web site know?) I know I am off the subject here but all of this flashed into my mind but I did not want to argue with him. Instead, I decide to be positive and give a different example of what my technology could do.
I told Ed that I was interested in solutions to the HIPAA legislation concerns that were enacted to provide patient record participation and privacy. This he told me was impossible. Ed said absolutely “No!” the investments calls in this area were already filled. No investors would be interested in anything new. He said that I had missed the opportunity to come to the investment market. I told Ed that he obviously did not understand what my technology was about; he said he really didn’t care. He said that he already knew enough about security to know that investments have already been made.
When I tried to make the point that I was certain that there would be nothing that could meet the HIPAA requirements, he said that it was not important if technology works or does not work. Ed then said that investors invest in technical investments related to market share, not functionality. He said that to come to a market with a product that works even when other products don’t, is to slap them in the face and say to the investors that “their” investment decisions were bad. I suppose Ed was telling me that I might hurt their feelings or something.
All I know is that I have talked with the leading companies about technologies and they are not intending to come through with anything new in this area, and they know that what they have will not do what is necessary. I suppose it was then that I realized that my mind is more practical and does not work like Eds and we were not communicating..
Ok. It went beyond that. I had had enough. I decided that if this guy was telling me the truth, then nothing about VC capitalist made any sense and probably would never make any sense. I had to call the conversation quits because by then my head ached. Obviously, my brain was just not up to Ed’s idea of the requirements for the “Harvard Business Standard.” Since the call had been on my dime, I decided to call the conversation quits. I suppose that by his version of a standard of thinking, the investment I had made of my time and money into our conversation could be counted as a success. I don’t think so. I am sure that Ed’s perspective of our conversation is different. After all, as he said, he was just trying to help someone with advice at the suggestion of a common friend.
I got off the phone the other day thinking it is no wonder that technical investments in the stock market IPO’s are so screwed up. There is obviously some huge gap between the investor and the technical entrepreneurs. The people in between are supposed to be providing “due diligence.” The fact is that from the entrepreneurs perspective it seems that the people in the middle seem to be going with the flow of the money.
What an awful mess.
Copyright (c) 2001-2007 RDFollendoreIII All Rights Reserved