What’s Wrong With This Entrepreneurial Picture?

by on November 21, 2007 · 16 comments

TheFunded.com is an interesting site where people who have pitched VCs get to report on their experience. There was a big story on it in Wired this month.

Interested as I am in the entrepreneurship that is was is the Internet, I’ve been looking over the posts and came across an interesting one, about Accel Partners:

We pitched Kevin Efrusy on taking a round and he provided excellent advice …

He liked what we were doing but suggested to NOT take funding since we were profitable.

He was concerned that our exit wouldn’t be high enough to justify their investment but thinks that we’d probably get acquired in the next year.

Being a serial entrepreneur I’ll certainly pitch Accel again and recommend them to others.

Spot the albatross? I’ll point it out after the break.


If I were Accel Partners, or any other VC, I would not fund this person. The plan should be to have a highly successful, over-the-moon business this time. Otherwise, you shouldn’t be looking for venture capital.

The culture of Silicon Valley is accepting of failure, and that’s a very good thing. But taking it to the point where people self-identify as “serial entrepreneurs” who plan on starting multiple businesses, modest successes and failures? Not so good.

  • http://www.techliberation.com/ Tim Lee

    Jim, I don’t think the premise is that he’s going to fail. The premise is that he’s going to be bought by a big company like Google or Yahoo at a fairly modest valuation like $5 million and then go start another company. A lot of SV entrepreneurs feel that getting startups off the ground is the most interesting part, and don’t particularly want to stick around for the much longer and less exciting process of steadily growing a company from a small, profitable company into a big, bureaucratic one.

  • http://www.techliberation.com/ Tim Lee

    Jim, I don’t think the premise is that he’s going to fail. The premise is that he’s going to be bought by a big company like Google or Yahoo at a fairly modest valuation like $5 million and then go start another company. A lot of SV entrepreneurs feel that getting startups off the ground is the most interesting part, and don’t particularly want to stick around for the much longer and less exciting process of steadily growing a company from a small, profitable company into a big, bureaucratic one.

  • http://www.emergentchaos.com Adam

    The goal of an entreprenuer is to maximize return on investment. Sometimes that entails recognizing that the market isn’t developing as expected, and that the right thing to do is to sell the company.

    Home runs may be the most dramatic, but if you’ve hit a double, trying to run home may end up with an out, rather than a double.

  • http://www.emergentchaos.com Adam

    The goal of an entreprenuer is to maximize return on investment. Sometimes that entails recognizing that the market isn’t developing as expected, and that the right thing to do is to sell the company.

    Home runs may be the most dramatic, but if you’ve hit a double, trying to run home may end up with an out, rather than a double.

  • http://www.vinoveritas.com/blog Jon L

    Hm. As a startup that’s been doing the VC dance, and more recently switching to a more appropriate financing route for our venture, AND as a veteran film & television exec, there’s an interesting parallel here.

    It’s plain as day to see just how well the “hit-driven” mentality of both the music, and the film & television industries has worked out.

    They’re deep in the middle of an “I don’t need you anymore” revolution from creators and producers of content. The relevancy and control of the studios and networks over the “entrepreneurs” of the content business is falling by the day, and I see a similar situation forming in the VC business.

    Being completely focused on the “hits” guarantees they’re missing other solid, profitable businesses, and leaves their limited partners stuck on a roller coaster of good times and bad times.

    To me, this thinking makes no sense in a world where markets are increasingly fragmented, more educated, and “niche” hit can garner a million rabid customers for life, but if it’s not a nine figure market size, forget it.

    Gee, VC’s are defitely the guys I’d want to invest my money with. Not.

  • http://www.vinoveritas.com/blog Jon L

    Hm. As a startup that’s been doing the VC dance, and more recently switching to a more appropriate financing route for our venture, AND as a veteran film & television exec, there’s an interesting parallel here.

    It’s plain as day to see just how well the “hit-driven” mentality of both the music, and the film & television industries has worked out.

    They’re deep in the middle of an “I don’t need you anymore” revolution from creators and producers of content. The relevancy and control of the studios and networks over the “entrepreneurs” of the content business is falling by the day, and I see a similar situation forming in the VC business.

    Being completely focused on the “hits” guarantees they’re missing other solid, profitable businesses, and leaves their limited partners stuck on a roller coaster of good times and bad times.

    To me, this thinking makes no sense in a world where markets are increasingly fragmented, more educated, and “niche” hit can garner a million rabid customers for life, but if it’s not a nine figure market size, forget it.

    Gee, VC’s are defitely the guys I’d want to invest my money with. Not.

  • http://www.vinoveritas.com/blog Jon

    Funny, catching up on todays’ newsfeeds, and here’s this article on TechDirt that exactly talks about what I posted above:

    http://techdirt.com/articles/20071120/123845.shtml

  • http://www.vinoveritas.com/blog Jon

    Funny, catching up on todays’ newsfeeds, and here’s this article on TechDirt that exactly talks about what I posted above:

    http://techdirt.com/articles/20071120/123845.shtml

  • Jon L

    Oops, sorry Tim, didn’t notice at first that the techdirt article was written by you…

  • Jon L

    Oops, sorry Tim, didn’t notice at first that the techdirt article was written by you…

  • http://www.cato.org/people/harper.html Jim Harper

    That Tim’s a pretty smart dude, huh Jon?

    But, Tim, from what I know, VCs are not looking to fund companies that are going to sell for $5 million. They want to make 100x on their investment and if the entrepreneur’s plan is not to do that, it’s not a good place to put venture capital. It’s fine to build a company and sell it for $5 million, but that’s not a VC firm’s idea of success. The Accel guy said as much, pointing him away from VC to conventional business-building.

  • http://www.cato.org/people/harper.html Jim Harper

    That Tim’s a pretty smart dude, huh Jon?

    But, Tim, from what I know, VCs are not looking to fund companies that are going to sell for $5 million. They want to make 100x on their investment and if the entrepreneur’s plan is not to do that, it’s not a good place to put venture capital. It’s fine to build a company and sell it for $5 million, but that’s not a VC firm’s idea of success. The Accel guy said as much, pointing him away from VC to conventional business-building.

  • http://www.techliberation.com/ Tim Lee

    Right, but nothing in that passage suggests the guy wasn’t trying to build the next Google at the outset. It just sounds like the business has matured to the point where it’s now clear that the odds of this business being the next Google are fairly low. As Adam said, even if you were trying to hit a home run at the outset, it’s still a good idea to recognize when you’ve only hit a double and not get tagged out at third. That doesn’t mean he won’t be trying for the home run with his next effort.

  • http://www.techliberation.com/ Tim Lee

    Right, but nothing in that passage suggests the guy wasn’t trying to build the next Google at the outset. It just sounds like the business has matured to the point where it’s now clear that the odds of this business being the next Google are fairly low. As Adam said, even if you were trying to hit a home run at the outset, it’s still a good idea to recognize when you’ve only hit a double and not get tagged out at third. That doesn’t mean he won’t be trying for the home run with his next effort.

  • http://www.cato.org/people/harper.html Jim Harper

    With the VCs help, he’s making the right decision – to not take VC for this business. He’s pitching a business that doesn’t have an over-the-moon exit strategy. That’s not a plan that VCs want to invest in. It’s a fine thing to do. But it’s not a good VC investment.

    Look, he self-identifies as a serial entrepreneur. Jeff Bezos, Larry and Sergey, Bill Gates – none of these people are serial entrepreneurs. The next one of these are what VCs are looking for. VCs shouldn’t invest in “serial entrepreneurs.” Other people might want to do so, but not VCs. It’s not like everyone “deserves” to have a VC investment. VC investment should go to people who plan to remake the world and see no alternative to successfully executing that plan.

  • http://www.cato.org/people/harper.html Jim Harper

    With the VCs help, he’s making the right decision – to not take VC for this business. He’s pitching a business that doesn’t have an over-the-moon exit strategy. That’s not a plan that VCs want to invest in. It’s a fine thing to do. But it’s not a good VC investment.

    Look, he self-identifies as a serial entrepreneur. Jeff Bezos, Larry and Sergey, Bill Gates – none of these people are serial entrepreneurs. The next one of these are what VCs are looking for. VCs shouldn’t invest in “serial entrepreneurs.” Other people might want to do so, but not VCs. It’s not like everyone “deserves” to have a VC investment. VC investment should go to people who plan to remake the world and see no alternative to successfully executing that plan.

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