Venture funding: The stupidest idea ever?
VC WAS DISSATISFIED WORKING ON SMART IDEAS, SO HE WENT THE OTHER WAY
By Elise Ackerman
Mercury News
Article Launched: 10/02/2007 01:35:04 AM PDT

As managing director of Garage Technology Ventures, Guy Kawasaki funded all the really smart ideas he could find. None hit it big.

So earlier this year the guru of Silicon Valley start-ups decided to fund a really dumb idea that cost as little as possible.

In May, Kawasaki started Truemors, a site specializing in what it calls "true rumors" submitted by readers. It cost less than $13,000 to launch and was almost immediately dubbed "the worst site ever" by a leading European technology news site.

Why would a respected venture capitalist and author of bestselling business books make a site like Truemors his next act? Because Kawasaki, 53, wanted to get firsthand experience with a user-generated, Web 2.0, social-media Web site.

He also felt that starting the site would illustrate what he saw as a problem with venture capital - these Web 2.0 sites did not need lots of funding, and even if they did it was becoming harder for VCs to pick the winners.

For nine years, Kawasaki and his partners had invested millions of dollars in companies that seemed like smart bets. They had their share of successes, but nothing on the order of Google or Yahoo.

Meanwhile, ideas he dismissed became stock market sensations.

Like Yahoo. In 1995, venture capitalist Michael Moritz of Sequoia Capital asked Kawasaki if he'd like to interview to be chief executive of Yahoo. "It was a list of David and Jerry's (co-founders Filo and Yang) favorite Web sites," Kawasaki recalled. "It had no business plan."

Kawasaki said no. Years passed. Two guys from Stanford created yet another search engine. "The 15th search engine - what a dumb idea," Kawasaki quipped about his reaction. That turned into Google.

"The only thing you can conclude is that it's a crap shoot," Kawasaki said in a recent interview at his home office in Atherton. "You have no idea what is going to succeed."

Bill Reichert, Kawasaki's partner at Garage Technology Ventures, said the tipping point for his partner came after Kawasaki chaired a panel discussion featuring start-ups like Hot or Not - a Web site where men and women submit photos to be rated by strangers - and Plenty of Fish - a free dating site.

Neither site had raised venture capital, but both were enjoying advertising sales of more than a million dollars a year. That made it clear to the folks at Garage that the problem was the venture capital model itself, which seemed out of whack.

Kawasaki decided to find out how little it cost to start a Web 2.0 company himself. He paid $4,500 to Web developers in South Dakota whom he had met through his personal blog. He spent $4,824 on legal fees. He spent almost $3,000 more on a logo, domain names and other miscellaneous expenses.

And he began devoting himself to what he truly loved: Selling products and ideas.

At Apple Computer in the 1980s and 1990s, Kawasaki had helped turn Macintosh users into Apple fanatics. He left the company in 1997, and made a career as a venture capitalist and speaker. His book "The Art of the Start" became a bible for would-be entrepreneurs.

Some of his key advice: "Don't be afraid of polarizing people," and "Don't let the bozos grind you down."

Two days after he launched Truemors, Kawasaki discovered the value of his own advice.

Kawasaki had wanted the site to be a place where news and gossip met. He imagined his average reader as a Google programmer who was about to go on a date with an East Bay non-profit activist.

What would they talk about? Truemors could help. Its news items covered everything from politics to sports, Hollywood gossip and technology culled from the Web and, occasionally, firsthand accounts.

"I promise, if you read Truemors, it will make you a more interesting person," Kawasaki said.

Unlike Digg, a similar user-generated site that lets people rank stories on its front page, Truemors lists stories in the order they were submitted. Users can vote to move a story to a "Greatest" page - or to the dumpster if they think something is untrue.

The blogosphere's first reaction to Truemors was a blistering attack. A hacker broke in. Obscenities were submitted as news. Kawasaki himself was trashed.

"I have a very low opinion of the blogosphere," Kawasaki said. "I think it is made up of about 250,000 people who are mostly 45-year-old men who live with their mother and have dead cats in their refrigerators."

Kawasaki didn't let the bozos get him down. He cleaned up his site. The attacks quickly died down.

Earlier this month, the European news outfit with the scathing early review recanted. "We're big enough to admit that Truemors is definitely not the world's worst Web site any longer," Martin Veitch, executive editor of IT Week, wrote in a Sept. 10 article on theinquirer.net, a technology news site.

Kawasaki said the coverage was responsible for a huge spike in page views, which are now averaging about 150,000 a month, according to Google analytics.

Drew Curtis, founder of FARK, a Web site of interesting and amusing news stories that was one of Kawasaki's inspirations, said those numbers are pretty good. He said FARK, which now gets 53 million page views a month, got only 50,000 page views in its first year. FARK was launched in 1999.

"He certainly has critical mass," Curtis said of Kawasaki.

Kawasaki insists he wants the site to be a success, but he acknowledges that the stakes are not high. His monthly break-even point is only $3,000.

Kawasaki is still a venture capitalist and continues working with Garage's portfolio of companies. "Truemors helps me understand Web 2.0 better than any other experience," he said. "Life is good for entrepreneurs these days."