Part II

So, what fraction of venture partners could look at such 'secret sauce' and evaluate it, say, like looking at and evaluating the wind tunnel of the Wright brothers?

I can absolutely, positively assure you that the answer is, "may I have the envelope, please?", in all the US, countable on two, maybe one, hand.

About the best an entrepreneur can hope for is (1) they (the entreprenrur) have some solid technical qualifications (technical accomplishments, professional titles, educational degrees, publications), (2) they have some solid business qualifications (successful start-up, development, and management experience), (3) they have work about ready to hit the headlines, that is, are packed and on the way to Kitty Hawk and, then, some venture partner sees (1)-(3) and 'believes' and seems to be willing to continue to 'believe' even when, say, there is a crack in the engine block and a two month delay.

So, how the heck is an entrepreneur going to find such a 'believer'? NOT easily!

Finding such a venture partner is one reason for contacting them early on! Or, for the Wright brothers, once they made headlines at Kitty Hawk, likely many investors came forward. But would the brothers have wanted such people on their Board? Heck no! Why: Because that first successful plane at Kitty Hawk was only the first of years of widely active R&D in aviation and where, at any moment, an ignorant investor could get nervous, exercise their fiduciary responsibility, head for a lifeboat, and leave the ship to sink.

So, an entrepreneur doesn't want 'dumb money' that could too easily destroy the company for no good reason. 'Smart money' that could walk to the back of the bicycle shop and understand the wind tunnel and the calculations would be good. Lacking that, 'patient' money is necessary. Indeed, if the Board Member just writes a check and otherwise ignores the company, then that might work.

Net, it is likely much better if the entrepreneur just f'gets about venture investors and, like, say, just a Main Street pizza shop, opens, gets profitable quickly, grows 'organically', and has nothing to do with equity investors. The difference between such a pizza shop entrepreneur and an information technology entrepreneur is not so much what to do early on but just the much greater potential of information technology.

How much greater? Suppose the Web site is just from a living room with 15 Mbps upload bandwidth to the Internet. Suppose one Web page can be sent for about 20 KB or 200 Kb. Suppose the 15 Mbps is half full, 24 x 7 for 75 Web pages a second being sent. Suppose each Web page has 3 ads. Suppose the ad targeting is good enough for $1 of revenue for each 1000 ads displayed. Then get

1 * 3 * 75 * 3600 * 24 * 30 / 1000 = 583,200

dollars a month in revenue. At's a lot's of carryout pizza!

So, that's

75 * 3600 * 24 * 30 = 194,400,000

Web pages a month served. So, how to get that many people so interested? Sure: Did I mention "pick a 'big' problem that so far is poorly solved and where a good solution will be valuable"?

So, just why don't we see more examples? Well, there are each year maybe a million information technology entrepreneurs with routine work and otherwise mostly just luck on their side and only a tiny number of entrepreneurs like the Wright brothers. Then among the winners, tend to see more from routine work with good luck than from careful R&D and planning!

Is there a role for "careful R&D and planning"? Sure! F'get about information technology venture capital; for pushing to a great future, it's a nearly brain-dead, junk effort, real kindergarten stuff! Instead, the all-time, dream-team, unchallenged, world-class, astoundingly high batting average backer of the future of information technology, indeed, the main creator of Silicon Valley is, "May I have the envelope, please?", thankfully for US national security, the US DoD. E.g., near 1942, a letter, a few calculations, a few measurements, and a few scientific papers got the US to invest about $3 billion scarce 1942 dollars in the Manhattan Project. So, the $3 billion was invested just from some simple evidence, mostly just on paper. In comparison, information technology venture capital would have said, "You build one and test it and, then, we will consider funding half the aviation gasoline for the Enola Gay.".

ROI? Sure, the $3 billion was an average of $3000 per casualty for the estimated 1 million US military casualties for an invasion of the home islands of Japan. Great ROI and bargain.

Of course there are many more examples -- stealth, GPS, Sosus, phased array radar, phased array passive sonar, the SR-71, and much more. Important? At the start of Gulf War I, Saddam had the world's third or fourth largest military. The US blew his military off the desert with more casualties from recreation such as playing softball than from Saddam's military.

So, what about the information technology venture partners, why don't they do similar work? First, the venture partners, e.g., history majors and lawyers, nearly never have the qualifications to be a DoD problem sponsor. Second, the limited partners who actually have the money and evaluate the venture partners have even less good qualifications. Bluntly, shockingly, so far US information technology venture capital is insisting on just ignoring 'technology'. So, they entertain themselves with total nonsense about their special 'insight', 'deep domain knowledge' (a bigger laugh than anything from Jay Leno), 'judgment', etc. Basically all but a small number of US information technology venture partners are totally unqualified in 'technology'.

But why should the venture partners and their limited partners change? Because on average they are losing money! As from Mark Suster, over the past 10 years or so, about 2/3rds of the venture partners have lost their jobs from not being able to raise another fund from having negative returns. Basically they are failures. The rest? Some of them have been lucky.

Real understanding as for US DoD problem sponsors? We're counting on two, maybe, one hand. The rest are drinking witch's brew and taking shots in the dark.

So, why contact venture partners early on? An entrepreneur with good work such as the Wright brothers will think, "If they can't understand what's in the back of our bicycle shop now, then we don't want them on our Board later for the rest of the progress in aviation as we do much such R&D work in the future.".

A venture partner will likely say, "Let me see your demo at Kitty Hawk and your confirmed orders for planes, and then we'll consider an investment.". The Wright brothers might have said, "We'll show you the back of our bicycle shop, with an NDA, and ask you for an explanation of what you saw, and if you give good answers then maybe we will consider you for a seat on our Board. Since an ignorant person on our Board could kill our company, we don't want any such person, even with a checkbook.".