Marc Andressen, como montar uma startup (histórico)
Autor: Courtnay "OB1" Guimarães | Publicado: 2010-09-10T19:27:00-03:00

Hi Folks,

Há milênios, MA publicou uma série incrível de estórias sobre como viver ou não viver uma startup. Como ele já deu sumiço no blog e o conteúdo só está disponível nos arquivos da net, me dei a liberdade de "surrupia-lo" e colocar aqui.


The Pmarca Guide to Startups, part 1: Why not to do a startup       Jun 18, 2007
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In this series of posts I will walk through some of my accumulated knowledge and experience in building high-tech startups.
My specific experience is from three companies I have co-founded:  Netscape, sold to America Online in 1998 for $4.2 billion; Opsware  (formerly Loudcloud), a public software company with an approximately $1  billion market cap; and now Ning, a new, private consumer Internet  company.
But more generally, I've been fortunate enough to be involved in and  exposed to a broad range of other startups -- maybe 40 or 50 in enough  detail to know what I'm talking about -- since arriving in Silicon  Valley in 1994: as a board member, as an angel investor, as an advisor,  as a friend of various founders, and as a participant in various venture  capital funds.
This series will focus on lessons learned from this entire  cross-section of Silicon Valley startups -- so don't think that anything  I am talking about is referring to one of my own companies: most likely  when I talk about a scenario I have seen or something I have  experienced, it is from some other startup that I am not naming but was  involved with some other way than as a founder.
Finally, much of my perspective is based on Silicon Valley and the  environment that we have here -- the culture, the people, the venture  capital base, and so on.  Some of it will travel well to other regions  and countries, some probably will not.  Caveat emptor.
With all that out of the way, let's start at the beginning: why not to do a startup.
Startups, even in the wake of the crash of 2000, have become imbued  with a real mystique -- you read a lot about how great it is to do a  startup, how much fun it is, what with the getting to invent the future,  all the free meals, foosball tables, and all the rest.
Now, it is true that there are a lot of great things about doing a startup.  They include, in my experience:
Most fundamentally, the opportunity to be in control of your own destiny  -- you get to succeed or fail on your own, and you don't have some bozo  telling you what to do.  For a certain kind of personality, this alone  is reason enough to do a startup.
The opportunity to create something new -- the proverbial  blank sheet of paper.  You have the ability -- actually, the obligation  -- to imagine a product that does not yet exist and bring it into  existence, without any of the constraints normally faced by larger  companies.
The opportunity to have an impact on the world -- to give  people a new way to communicate, a new way to share information, a new  way to work together, or anything else you can think of that would make  the world a better place.  Think it should be easier for low-income  people to borrow money?  Start Prosper.  Think television should be opened up to an infinite number of channels?  Start Joost.  Think that computers should be based on Unix and open standards and not proprietary technology?  Start Sun.
The ability to create your ideal culture and work with a dream team of people  you get to assemble yourself.  Want your culture to be based on people  who have fun every day and enjoy working together?  Or, are  hyper-competitive both in work and play?  Or, are super-focused on  creating innovative new rocket science technologies?  Or, are global in  perspective from day one?  You get to choose, and to build your culture  and team to suit.
And finally, money -- startups done right can of course be  highly lucrative.  This is not just an issue of personal greed -- when  things go right, your team and employees will themselves do very well  and will be able to support their families, send their kids to college,  and realize their dreams, and that's really cool.  And if you're really  lucky, you as the entrepreneur can ultimately make profound philanthropic gifts that change society for the better.
However, there are many more reasons to not do a startup.
First, and most importantly, realize that a startup puts you on an emotional rollercoaster unlike anything you have ever experienced.
You will flip rapidly from a day in which you are euphorically  convinced you are going to own the world, to a day in which doom seems  only weeks away and you feel completely ruined, and back again.
Over and over and over.
And I'm talking about what happens to stable entrepreneurs.
There is so much uncertainty and so much risk  around practically everything you are doing.  Will the product ship on  time?  Will it be fast enough?  Will it have too many bugs?  Will it be  easy to use?  Will anyone use it?  Will your competitor beat you to  market?  Will you get any press coverage?  Will anyone invest in the  company?  Will that key new engineer join?  Will your key user interface  designer quit and go to Google?  And on and on and on...
Some days things will go really well and some things will go really  poorly.  And the level of stress that you're under generally will  magnify those transient data points into incredible highs and  unbelievable lows at whiplash speed and huge magnitude.
Sound like fun?
Second, in a startup, absolutely nothing happens unless you make it happen.
This one throws both founders and employees new to startups.
In an established company -- no matter how poorly run or demoralized  -- things happen.  They just happen.  People come in to work.  Code gets  written.  User interfaces get designed.  Servers get provisioned.   Markets get analyzed.  Pricing gets studied and determined.  Sales calls  get made.  The wastebaskets get emptied.  And so on.
A startup has none of the established systems, rhythms, infrastructure that any established company has.
In a startup it is very easy for the code to not get written, for the  user interfaces to not get designed... for people to not come into  work... and for the wastebaskets to not get emptied.
You as the founder have to put all of these systems and routines and  habits in place and get everyone actually rowing -- forget even about  rowing in the right direction: just rowing at all is hard enough at the  start.
And until you do, absolutely nothing happens.
Unless, of course, you do it yourself.
Have fun emptying those wastebaskets.
Third, you get told no -- a lot.
Unless you've spent time in sales, you are probably not familiar with being told no a lot.
It's not so much fun.
Go watch Death of a Salesman and then Glengarry Glen Ross.
That's roughly what it's like.
You're going to get told no by potential employees, potential  investors, potential customers, potential partners, reporters,  analysts...
Over and over and over.
And when you do get a "yes", half the time you'll get a call two days later and it'll turn out the answer has morphed into "no".
Better start working on your fake smile.
Fourth, hiring is a huge pain in the ass.
You will be amazed how many windowshoppers you'll deal with.
A lot of people think they want to be part of a startup, but when the  time comes to leave their cushy job at HP or Apple, they flinch -- and  stay.
Going through the recruiting process and being seduced by a startup  is heady stuff for your typical engineer or midlevel manager at a big  company -- you get to participate vicariously in the thrill of a startup  without actually having to join or do any of the hard work.
As a founder of a startup trying to hire your team, you'll run into this again and again.
When Jim Clark decided to start a new company in 1994, I was one of  about a dozen people at various Silicon Valley companies he was talking  to about joining him in what became Netscape.
I was the only one who went all the way to saying "yes" (largely because I was 22 and had no reason not to do it).
The rest flinched and didn't do it.
And this was Jim Clark, a legend in the industry who was coming off  of the most successful company in Silicon Valley in 1994 -- Silicon  Graphics Inc.
How easy do you think it's going to be for you?
Then, once you do get through the windowshoppers and  actually hire some people, your success rate on hiring is probably not  going to be higher than 50%, and that's if you're good at it.
By that I mean that half or more of the people you hire aren't going  to work out.  They're going to be too lazy, too slow, easily rattled,  political, bipolar, or psychotic.
And then you have to either live with them, or fire them.
Which ones of those sounds like fun?
Fifth, God help you, at some point you're going to have to hire executives.
You think hiring employees is hard and risky -- wait until you start  hiring for VP Engineering, VP Marketing, VP Sales, VP HR, General  Counsel, and CFO.
Sixth, the hours.
There's been a lot of talk in Silicon Valley lately about work/life  balance -- about how you should be able to do a startup and  simultaneously live a full and fulfilling outside life.
Now, personally, I have a lot of sympathy for that point of view.
And I try hard in my companies (well, at least my last two companies)  to do whatever I can to help make sure that people aren't ground down  to little tiny spots on the floor by the workload and the hours.
But, it's really difficult.
The fact is that startups are incredibly intense experiences and take a lot out of people in the best of circumstances.
And just because you want people to have work/life balance, it's not  so easy when you're close to running out of cash, your product hasn't  shipped yet, your VC is mad at you, and your Kleiner Perkins-backed  competitor in Menlo Park -- you know, the one whose employees' average  age seems to be about 19 -- is kicking your butt.
Which is what it's going to be like most of the time.
And even if you can help your employees have proper work/life balance, as a founder you certainly won't.
(In case you were wondering, by the way, the hours do compound the stress.)
Seventh, it's really easy for the culture of a startup to go sideways.
This combines the first and second items above.
This is the emotional rollercoaster wreaking havoc on not just you but your whole company.
It takes time for the culture of any company to become "set" -- for  the team of people who have come together for the first time to decide  collectively what they're all about, what they value -- and how they  look at challenge and adversity.
In the best case, you get an amazing dynamic of people really pulling  together, supporting one another, and working their collective tails  off in pursuit of a dream.
In the worst case, you end up with widespread, self-reinforcing  bitterness, disillusionment, cynicism, bad morale, contempt for  management, and depression.
And you as the founder have much less influence over this than you'll think you do.
Guess which way it usually goes.
Eighth, there are lots of X factors that can come along and whup you right upside the head, and there's absolutely nothing you can do about them.
Stock market crashes.
Terrorist attacks.
Natural disasters.
A better funded startup with a more experienced team that's been hard  at work longer than you have, in stealth mode, that unexpectedly  releases a product that swiftly comes to dominate your market,  completely closing off your opportunity, and you had no idea they were  even working on it.
At best, any given X factor might slam shut the fundraising window,  cause customers to delay or cancel purchases -- or, at worst, shut down  your whole company.
Russian mobsters laundering millions of dollars of dirty money  through your service, resulting in the credit card companies closing you  down.
You think I'm joking about that one?
OK, now here's the best part:
I haven't even talked about figuring out what product to build,  building it, taking it to market, and standing out from the crowd.
All the risks in the core activities of what your company actually  does are yet to come, and to be discussed in future posts in this  series.
Closing metaphor:

The Pmarca Guide to Startups, part 2: When the VCs say "no"       Jun 20, 2007
This post is about what to do between when  the VCs say "no" to funding your startup, and when you either change  their minds or find some other path.
I'm going to assume that you've done all the basics: developed a plan and a pitch, decided that venture financing is right for you and you are right for venture financing, lined up meetings with properly qualified VCs, and made your pitch.
And the answer has come back and it's "no".
One "no" doesn't mean anything -- the VC could just be having a bad  day, or she had a bad experience with another company in your category,  or she had a bad experience with another company with a similar name, or  she had a bad experience with another founder who kind of looks like  you, or her Mercedes SLR McLaren's engine could have blown up on the  freeway that morning -- it could be anything.  Go meet with more VCs.
If you meet with three VCs and they all say "no", it could just be a big coincidence.  Go meet with more VCs.
If you meet with five, or six, or eight VCs and they all say no, it's not a coincidence.
There is something wrong with your plan.
Or, even if there isn't, there might as well be, because you're still not getting funded.
Meeting with more VCs after a bunch have said no is probably a waste  of time.  Instead, retool your plan -- which is what this post is about.
But first, lay the groundwork to go back in later.
It's an old -- and true -- cliche that VCs rarely actually say "no"  -- more often they say "maybe", or "not right now", or "my partners  aren't sure", or "that's interesting, let me think about it".
They do that because they don't want to invest in your company given  the current facts, but they want to keep the door open in case the facts  change.
And that's exactly what you want -- you want to be able to go back to  them with a new set of facts, and change their minds, and get to "yes".
So be sure to take "no" gracefully -- politely ask them for feedback  (which they probably won't give you, at least not completely honestly --  nobody likes calling someone else's baby ugly -- believe me, I've done  it), thank them for their time, and ask if you can call them again if  things change.
Trust me -- they'd much rather be saying "yes" than "no" -- they need all the good investments they can get.
Second, consider the environment.
Being told "no" by VCs in 1999 is a lot different than being told "no" in 2002.
If you were told "no" in 1999, I'm sure you're a wonderful person and  you have huge potential and your mother loves you very much, but your  plan really was seriously flawed.
If you were told "no" in 2002, you probably actually were the next  Google, but most of the VCs were hiding under their desks and they just  missed it.
In my opinion, we're now in a much more rational environment than  either of those extremes -- a lot of good plans are being funded, along  with some bad ones, but not all the bad ones.
I'll proceed under the assumption that we're in normal times.  But if  things get truly euphoric or truly funereal again, the rest of this  post will probably not be very helpful -- in either case.
Third, retool your plan.
This is the hard part -- changing the facts of your plan and what you are trying to do, to make your company more fundable.
To describe the dimensions that you should consider as you contemplate retooling your plan, let me introduce the onion theory of risk.
If you're an investor, you look at the risk around an investment as  if it's an onion.  Just like you peel an onion and remove each layer in  turn, risk in a startup investment comes in layers that get peeled away  -- reduced -- one by one.
Your challenge as an entrepreneur trying to raise venture capital is  to keep peeling layers of risk off of your particular onion until the  VCs say "yes" -- until the risk in your startup is reduced to the point  where investing in your startup doesn't look terrifying and merely looks  risky.
What are the layers of risk for a high-tech startup?
It depends on the startup, but here are some of the common ones:
Founder risk -- does the startup have the right founding  team?  A common founding team might include a great technologist, plus  someone who can run the company, at least to start.  Is the technologist  really all that?  Is the business person capable of running the  company?  Is the business person missing from the team altogether?  Is  it a business person or business people with no technologist, and  therefore virtually unfundable?
Market risk -- is there a market for the product (using the  term product and service interchangeably)?  Will anyone want it?  Will  they pay for it?  How much will they pay?  How do we know?
Competition risk -- are there too many other startups  already doing this?  Is this startup sufficiently differentiated from  the other startups, and also differentiated from any large incumbents?
Timing risk -- is it too early?  Is it too late?
Financing risk -- after we invest in this round, how many  additional rounds of financing will be required for the company to  become profitable, and what will the dollar total be?  How certain are  we about these estimates?  How do we know?
Marketing risk -- will this startup be able to cut through  the noise?  How much will marketing cost?  Do the economics of customer  acquisition -- the cost to acquire a customer, and the revenue that  customer will generate -- work?
Distribution risk -- does this startup need certain  distribution partners to succeed?  Will it be able to get them?  How?   (For example, this is a common problem with mobile startups that need  deals with major mobile carriers to succeed.)
Technology risk -- can the product be built?  Does it  involve rocket science -- or an equivalent, like artificial intelligence  or natural language processing?  Are there fundamental breakthroughs  that need to happen?  If so, how certain are we that they will happen,  or that this team will be able to make them?
Product risk -- even assuming the product can in theory be built, can this team build it?
Hiring risk -- what positions does the startup need to hire  for in order to execute its plan?  E.g. a startup planning to build a  high-scale web service will need a VP of Operations -- will the founding  team be able to hire a good one?
Location risk -- where is the startup located?  Can it hire  the right talent in that location?  And will I as the VC need to drive  more than 20 minutes in my Mercedes SLR McLaren to get there?
You know, when you stack up all these layers and look at the full onion, you realize it's amazing that any venture investments ever get made.
What you need to do is take a hard-headed look at each of these risks  -- and any others that are specific to your startup and its category --  and put yourself in the VC's shoes: what could this startup do to  minimize or eliminate enough of these risks to make the company  fundable?
Then do those things.
This isn't very much fun, since it will probably involve making  significant changes to your plan, but look on the bright side: it's  excellent practice for when your company ultimately goes public and has  to file an S1 registration statement with the SEC, in which you have to  itemize in huge detail every conceivable risk and bad thing that could  ever possibly happen to you, up to and including global warming.
Some ideas on reducing risk:
Founder risk -- the tough one.  If you're the technologist  on a founding team with a business person, you have to consider the  possibility that the VCs don't think the business person is strong  enough to be the founding CEO.  Or vice versa, maybe they think the  technologist isn't strong enough to build the product.  You may have to  swap out one or more founders, and/or add one or more founders.
I put this one right up front because it can be a huge issue and the  odds of someone being honest with you about it in the specific are not  that high.
Market risk -- you probably need to validate the market, at a  practical level.  Sometimes more detailed and analytical market  research will solve the problem, but more often you actually need to go  get some customers to demonstrate that the market exists.  Preferably,  paying customers.  Or at least credible prospects who will talk to VCs  to validate the market hypothesis.
Competition risk -- is your differentiation really sharp  enough?  Rethink this one from the ground up.  Lots of startups do not  have strong enough differentiation out of the gate, even after they get  funded.  If you don't have a really solid idea as to how you're  dramatically different from or advantaged over known and unknown  competitors, you might not want to start a company in the first place.
Two additional points on competition risk that founders routinely screw up in VC pitches:
Never, ever say that you have no competitors.  That signals naivete.   Great markets draw competitors, and so if you really have no  competition, you must not be in a great market.  Even if you really  believe you have no competitors, create a competitive landscape slide  with adjacent companies in related market segments and be ready to talk  crisply about how you are like and unlike those adjacent companies.
And never, ever say your market projections indicate you're going to  be hugely successful if you get only 2% of your (extremely large)  market.  That also signals naivete.  If you're going after 2% of a large  market, that means the presumably larger companies that are going to  take the other 98% are going to kill you.  You have to have a theory for  how you're going to get a significantly higher market share than 2%.   (I pick 2% because that's the cliche, but if you're a VC, you've  probably heard someone use it.)
Timing risk -- the only thing to do here is to make more  progress, and demonstrate that you're not too early or too late.   Getting customers in the bag is the most valuable thing you can do on  this one.
Financing risk -- rethink very carefully how much money you  will need to raise after this round of financing, and try to change the  plan in plausible ways to require less money.  For example, only serve  Cristal at your launch party, and not Remy Martin "Black Pearl" Louis XIII cognac.
Marketing risk -- first, make sure your differentiation is  super-sharp, because without that, you probably won't be able to stand  out from the noise.
Then, model out your customer acquisition economics in detail and  make sure that you can show how you'll get more revenue from a customer  than it will cost in sales and marketing expense to acquire that  customer.  This is a common problem for startups pursuing the small  business market, for example.
If it turns out you need a lot of money in absolute terms for  marketing, look for alternate approaches -- perhaps guerilla marketing,  or some form of virality.
Distribution risk -- this is a very tough one -- if your  plan has distribution risk, which is to say you need a key distribution  partner to make it work, personally I'd recommend shelving the plan and  doing something else.  Otherwise, you may need to go get the  distribution deal before you can raise money, which is almost  impossible.
Technology risk -- there's only one way around this, which is to build the product, or at least get it to beta, and then raise money.
Product risk -- same answer -- build it.
Hiring risk -- the best way to address this is to figure out  which position/positions the VCs are worried about, and add it/them to  the founding team.  This will mean additional dilution for you, but it's  probably the only way to solve the problem.
Location risk -- this is the one you're really not going to  like.  If you're not in a major center of entrepreneurialism and you're  having trouble raising money, you probably need to move.  There's a  reason why most films get made in Los Angeles, and there's a reason most  venture-backed US tech startups happen in Silicon Valley and handful of  other places -- that's where the money is.  You can start a company  wherever you want, but you may not be able to get it funded there.
You'll notice that a lot of what you may need to do is kick the ball further down the road -- make more progress against your plan before you raise venture capital.
This obviously raises the issue of how you're supposed to do that before you've raised money.
Try to raise angel money, or bootstrap off of initial customers or  consulting contracts, or work on it after hours while keeping your  current job, or quit your job and live off of credit cards for a while.
Lots of entrepreneurs have done these things and succeeded -- and of course, many have failed.
Nobody said this would be easy.
The most valuable thing you can do is actually build your product.  When in doubt, focus on that.
The next most valuable thing you can do is get customers -- or, for a  consumer Internet service, establish a pattern of page view growth.
The whole theory of venture capital is that VCs are investing in risk  -- another term for venture capital is "risk capital" -- but the  reality is that VCs will only take on so much risk, and the best thing  you can do to optimize your chances of raising money is to take out  risk.
Peel away at the onion.
Then, once you've done that, recraft the pitch around the new facts.  Go do the pitches again.  And repeat as necessary.
And to end on a happy note, remember that "yes" can turn into "no" at  any point up until the cash hits your company's bank account.
So keep your options open all the way to the end.

The Pmarca Guide to Startups, part 3: "But I don't know any VCs!"In my last post in this series, When the VCs say "no", I discussed what to do once you have been turned down for venture funding for the first time.
However, this presupposes you've been able to pitch VCs in the first place.  What if you have a startup for which you'd like to raise venture funding, but you don't know any VCs?
I can certainly sympathize with this problem -- when I was in college  working on Mosaic at the University of Illinois, the term "venture  capital" might as well have been "klaatu barada nikto" for all I knew.  I  had never met a venture capitalist, no venture capitalist had ever  talked to me, and I wouldn't have recognized one if I'd stumbled over  his checkbook on the sidewalk.  Without Jim Clark, I'm not at all  certain I would have been able to raise money to start a company like  Netscape, had it even occured to me to start a company in the first  place.
The starting point for raising money from VCs when you don't know any VCs is to realize that VCs work mostly through referrals  -- they hear about a promising startup or entrepreneur from someone  they have worked with before, like another entrepreneur, an executive or  engineer at one of the startups they have funded, or an angel investor  with whom they have previously co-invested.
The reason for this is simply the math: any individual VC can only fund a few companies per year,  and for every one she funds, she probably meets with 15 or 20, and  there are hundreds more that would like to meet with her that she  doesn't possibly have time to meet with.  She has to rely on her network  to help her screen the hundreds down to 15 or 20, so she can spend her  time finding the right one out of the 15 or 20.
Therefore, submitting a business plan "over the transom",  or unsolicited, to a venture firm is likely to amount to just as much  as submitting a screenplay "over the transom" to a Hollywood talent  agency -- that is, precisely nothing.
So the primary trick becomes getting yourself into a position where you're one of the 15 or 20  a particular venture capitalist is meeting with based on referrals from  her network, not one of the hundreds of people who don't come  recommended by anyone and whom she has no intention of meeting.
But before you think about doing that, the first order of business is to (paraphrasing for a family audience) "have your stuff together" -- create and develop your plan, your presentation, and your supporting materials so that when you do  meet with a VC, you impress her right out of the gate as bringing her a  fundable startup founded by someone who knows what he -- that's you --  is doing.
My recommendation is to read up on all the things you should do to  put together a really effective business plan and presentation, and then  pretend you have already been turned down once -- then go back to my last post and go through all the different things you should anticipate and fix before you actually do walk through the door.
One of the reason VCs only meet with startups through their networks  is because too many of the hundreds of other startups that they could  meet with come across as amateurish and uninformed, and therefore not  fundable, when they do take meetings with them.  So you have a big  opportunity to cut through the noise by making a great first impression -- which requires really thinking things through ahead of time and doing all the hard work up front to really make your pitch and plan a masterpiece.
Working backwards from that, the best thing you can walk in with is a working product.   Or, if you can't get to a working product without raising venture  funding, then at least a beta or prototype of some form -- a web site  that works but hasn't launched, or a software mockup with partial  functionality, or something.  And of course it's even better if  you walk in with existing "traction" of some form -- customers, beta  customers, some evidence of adoption by Internet users, whatever is  appropriate for your particular startup.
With a working product that could be the foundation of a fundable  startup, you have a much better chance of getting funded once you do get  in the door.  Back to my rule of thumb from the last post: when in doubt, work on the product.
Failing a working product and ideally customers or users, be sure to have as fleshed out a presentation  as you possibly can -- including mockups, screenshots, market analyses,  customer research such as interviews with real prospects, and the like.
Don't bother with a long detailed written business plan.  Most VCs will either fund a startup based on a fleshed out Powerpoint presentation of about 20 slides,  or they won't fund it at all.  Corollary: any VC who requires a long  detailed written business plan is probably not the right VC to be  working with.
Next: qualify, qualify, qualify.  Do extensive  research on venture capitalists and find the ones who focus on the  sector relevant to your startup.  It is completely counterproductive to  everyone involved for you to pitch a health care VC on a consumer  Internet startup, or vice versa.  Individual VCs are usually quite  focused in the kinds of companies they are looking for, and identifying  those VCs and screening out all the others is absolutely key.
Now, on to developing contacts:
The best way to develop contacts with VCs, in my opinion, is  to work at a venture-backed startup, kick butt, get promoted, and  network the whole way.
If you can't get hired by a venture-backed startup right now, work at  a well-regarded large tech company that employs a lot of people like  Google or Apple, gain experience, and then go to work at a venture-backed startup, kick butt, get promoted, and network the whole way.
And if you can't get hired by a well-regarded large tech company, go  get a bachelor's or master's degree at a major research university from  which well-regarded large tech companies regularly recruit, then work at  a well-regarded large tech company that employs a lot of people like  Google or Apple, gain experience, and then go to work at a venture-backed startup, kick butt, get promoted, and network the whole way.
I sound like I'm joking, but I'm completely serious -- this is the path taken by many venture-backed entrepreneurs I know.
Some alternate techniques that don't take quite as long:
If you're still in school, immediately transfer to, or plan on going to graduate school at, a large research university with well-known connections to the venture capital community, like Stanford or MIT.
Graduate students at Stanford are directly responsible for such  companies as Sun, Cisco, Yahoo, and Google, so needless to say, Silicon  Valley VCs are continually on the prowl on the Stanford engineering  campus for the next Jerry Yang or Larry Page.
(In contrast, the University of Illinois, where I went to school, is mostly prowled by mutant cold-weather cows.)
Alternately, jump all over Y Combinator.  This  program, created by entrepreneur Paul Graham and his partners, funds  early-stage startups in an organized program in Silicon Valley and  Boston and then makes sure the good ones get in front of venture  capitalists for follow-on funding.  It's a great idea and a huge  opportunity for the people who participate in it.
Read VC blogs -- read them all, and read them very  very carefully.  VCs who blog are doing entrepreneurs a huge service  both in conveying highly useful information as well as frequently  putting themselves out there to be contacted by entrepreneurs in various  ways including email, comments, and even uploaded podcasts.  Each VC is  different in terms of how she wants to engage with people online, but  by all means read as many VC blogs as you can and interact with as many  of them as you can in appropriate ways.
See the list of VC bloggers on my home page, as well as on the home pages of various of those bloggers.
At the very least you will start to get a really good sense of which VCs who blog are interested in which kinds of companies.
At best, a VC blogger may encourage her readers to communicate with  her in various ways, including soliciting email pitches in certain  startup categories of interest to her.
Fred Wilson  of Union Square Ventures has even gone so far as to encourage  entrepreneurs to record and upload audio pitches for new ventures so he  can listen to them on his IPod.  I don't know if he's still doing that,  but it's worth reading his blog and finding out.
Along those lines, some VCs are aggressive early adopters of new  forms of communication and interaction -- current examples being  Facebook and Twitter.  Observationally, when a VC is exploring a new  communiation medium like Facebook or Twitter, she can be more interested  in interacting with various people over that new medium than she might  otherwise be.  So, when such a new thing comes out -- like, hint hint,  Facebook or Twitter -- jump all over it, see which VCs are using it, and interact with them that way -- sensibly, of course.
More generally, it's a good idea for entrepreneurs who are looking for funding to blog  -- about their startup, about interesting things going on, about their  point of view.  This puts an entrepreneur in the flow of conversation,  which can lead to interaction with VCs through the normal medium of  blogging.  And, when a VC does decide to take a look at you and your  company, she can read your blog to get a sense of who you are and how  you think.  It's another great opportunity to put forward a fantastic  first impression.
Finally, if you are a programmer, I highly encourage you, if you have time, to create or contribute to a meaningful open source project.   The open source movement is an amazing opportunity for programmers all  over the world to not only build useful software that lots of people  can use, but also build their own reputations completely apart from  whatever day jobs they happen to have.  Being able to email a VC and  say, "I'm the creator of open source program X which has 50,000 users  worldwide, and I want to tell you about my new startup" is a lot more  effective than your normal pitch.
If you engage in a set of these techniques over time, you should  be able to interact with at least a few VCs in ways that they find  useful and that might lead to further conversations about funding, or  even introductions to other VCs.
I'm personally hoping that the next Google comes out of a VC being  sent an email pitch after the entrepreneur read that VC's blog.  Then  every VC on the planet will suddenly start blogging, overnight.
If none of those ideas work for you:
Your alternatives in reverse (declining) order of preference for funding are, in my view: angel  funding, bootstrapping via consulting contracts or early customers,  keeping your day job and working on your startup in your spare time, and  credit card debt.
Angel funding -- funding from individuals who like to invest small  amounts of money in early-stage startups, often before VCs come in --  can be a great way to go since good angels know good VCs and will be  eager to introduce you to them so that your company goes on to be  successful for the angel as well as for you.
This of course begs the question of how to raise angel money, which is another topic altogether!
I am not encouraging the other three alternatives --  bootstrapping, working on it part time, or credit card debt.  Each has  serious problems.  But, it is easy to name highly successful  entrepreneurs who have followed each of those paths, so they are worth  noting.
Closing link:
Finally, be sure to read this page on Sequoia Capital's web site.
Sequoia is one of the very best venture firms in the world, and has  funded many companies that you have heard of including Oracle, Apple,  Yahoo, and Google.
On that page,  Sequoia does entrepreneurs everywhere a huge service by first listing  the criteria that they look for in a startup, then the recommended  structure for your pitch presentation, and then finally actually asks  for pitches "over the transom".
I have not done a thorough review of other VC web sites to see who  else is being this open, but for Sequoia to be offering this to the  world at large is a huge opportunity for the right startup.  Don't let  it pass by.
[Editorial note: This will be the last VC-related post in this  series for a while.  From now on I plan to focus much more on how to  make a startup successful.]

The Pmarca Guide to Startups, part 4: The only thing that mattersThis post is all about the only thing that matters for a new startup.
But first, some theory:
If you look at a broad cross-section of startups -- say, 30 or 40 or  more; enough to screen out the pure flukes and look for patterns -- two  obvious facts will jump out at you.
First obvious fact: there is an incredibly wide divergence of success  -- some of those startups are insanely successful, some highly  successful, many somewhat successful, and quite a few of course outright  fail.
Second obvious fact: there is an incredibly wide divergence of  caliber and quality for the three core elements of each startup -- team, product, and market.
At any given startup, the team will range from outstanding to  remarkably flawed; the product will range from a masterpiece of  engineering to barely functional; and the market will range from booming  to comatose.
And so you start to wonder -- what correlates the most to success -- team, product, or market?  Or, more bluntly, what causes success?  And, for those of us who are students of startup failure -- what's most dangerous: a bad team, a weak product, or a poor market?
Let's start by defining terms.
The caliber of a startup team can be  defined as the suitability of the CEO, senior staff, engineers, and  other key staff relative to the opportunity in front of them.
You look at a startup and ask, will this team be able to optimally  execute against their opportunity?  I focus on effectiveness as opposed  to experience, since the history of the tech industry is full of highly  successful startups that were staffed primarily by people who had never  "done it before".
The quality of a startup's product can be  defined as how impressive the product is to one customer or user who  actually uses it: How easy is the product to use?  How feature rich is  it?  How fast is it?  How extensible is it?  How polished is it?  How  many (or rather, how few) bugs does it have?
The size of a startup's market is the the number, and growth rate, of those customers or users for that product.
(Let's assume for this discussion that you can make money at scale --  that the cost of acquiring a customer isn't higher than the revenue  that customer will generate.)
Some people have been objecting to my classification as  follows: "How great can a product be if nobody wants it?"  In other  words, isn't the quality of a product defined by how appealing it is to  lots of customers?  No.  Product quality and market size are completely different.
Here's the classic scenario: the world's best software application  for an operating system nobody runs.  Just ask any software developer  targeting the market for BeOS, Amiga, OS/2, or NeXT applications what  the difference is between great product and big market.So:
If you ask entrepreneurs or VCs which of team, product, or market is most important, many will say team.   This is the obvious answer, in part because in the beginning of a  startup, you know a lot more about the team than you do the product,  which hasn't been built yet, or the market, which hasn't been explored  yet.
Plus, we've all been raised on slogans like "people are our most  important asset" -- at least in the US, pro-people sentiments permeate  our culture, ranging from high school self-esteem programs to the  Declaration of Independence's inalienable rights to life, liberty, and  the pursuit of happiness -- so the answer that team is the most  important feels right.
And who wants to take the position that people don't matter?
On the other hand, if you ask engineers, many will say product.   This is a product business, startups invent products, customers buy  and use the products.  Apple and Google are the best companies in the  industry today because they build the best products.  Without the  product there is no company.  Just try having a great team and no  product, or a great market and no product.  What's wrong with you?  Now  let me get back to work on the product.
Personally, I'll take the third position -- I'll assert that market is the most important factor in a startup's success or failure.
Why?
In a great market -- a market with lots of real potential customers -- the market pulls product out of the startup.
The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along.
The product doesn't need to be great; it just has to basically work.   And, the market doesn't care how good the team is, as long as the team  can produce that viable product.
In short, customers are knocking down your door to get the product;  the main goal is to actually answer the phone and respond to all the  emails from people who want to buy.
And when you have a great market, the team is remarkably easy to upgrade on the fly.
This is the story of search keyword advertising, and Internet auctions, and TCP/IP routers.
Conversely, in a terrible market, you can have the best  product in the world and an absolutely killer team, and it doesn't  matter -- you're going to fail.
You'll break your pick for years trying to find customers who don't  exist for your marvelous product, and your wonderful team will  eventually get demoralized and quit, and your startup will die.
This is the story of videoconferencing, and workflow software, and micropayments.
In honor of Andy Rachleff, formerly of Benchmark Capital, who crystallized this formulation for me, let me present Rachleff's Law of Startup Success:
The #1 company-killer is lack of market.
Andy puts it this way:
When a great team meets a lousy market, market wins.
When a lousy team meets a great market, market wins.
When a great team meets a great market, something special happens.
You can obviously screw up a great market -- and that has been done,  and not infrequently -- but assuming the team is baseline competent and  the product is fundamentally acceptable, a great market will tend to  equal success and a poor market will tend to equal failure.  Market matters most.
And neither a stellar team nor a fantastic product will redeem a bad market.
OK, so what?
Well, first question: Since team is the thing you have the  most control over at the start, and everyone wants to have a great team,  what does a great team actually get you?
Hopefully a great team gets you at least an OK product, and ideally a great product.
However, I can name you a bunch of examples of great teams that  totally screwed up their products.  Great products are really, really  hard to build.
Hopefully a great team also gets you a great market -- but I can also  name you lots of examples of great teams that executed brilliantly  against terrible markets and failed.  Markets that don't exist don't care how smart you are.
In my experience, the most frequent case of great team paired with  bad product and/or terrible market is the second- or third-time  entrepreneur whose first company was a huge success.  People get cocky,  and slip up.  There is one high-profile, highly successful software  entrepreneur right now who is burning through something like $80 million  in venture funding in his latest startup and has practically nothing to  show for it except for some great press clippings and a couple of beta  customers -- because there is virtually no market for what he is  building.
Conversely, I can name you any number of weak teams whose startups  were highly successful due to explosively large markets for what they  were doing.
Finally, to quote Tim Shephard: "A great team is a team that will  always beat a mediocre team, given the same market and product."
Second question: Can't great products sometimes create huge new markets?
Absolutely.
This is a best case scenario, though.
VMWare is the most recent company to have done it -- VMWare's product  was so profoundly transformative out of the gate that it catalyzed a  whole new movement toward operating system virtualization, which turns  out to be a monster market.
And of course, in this scenario, it also doesn't really matter how  good your team is, as long as the team is good enough to develop the  product to the baseline level of quality the market requires and get it  fundamentally to market.
Understand I'm not saying that you should shoot low in terms of quality of team, or that VMWare's team was not incredibly strong -- it was, and is.  I'm saying, bring a product as transformative as VMWare's to market and you're going to succeed, full stop.
Short of that, I wouldn't count on your product creating a new market from scratch.
Third question: as a startup founder, what should I do about all this?
Let's introduce Rachleff's Corollary of Startup Success:
The only thing that matters is getting to product/market fit.
Product/market fit means being in a good market with a product that can satisfy that market.
You can always feel when product/market fit isn't happening.   The customers aren't quite getting value out of the product, word of  mouth isn't spreading, usage isn't growing that fast, press reviews are  kind of "blah", the sales cycle takes too long, and lots of deals never  close.
And you can always feel product/market fit when it's happening.   The customers are buying the product just as fast as you can make it  -- or usage is growing just as fast as you can add more servers.  Money  from customers is piling up in your company checking account.  You're  hiring sales and customer support staff as fast as you can.  Reporters  are calling because they've heard about your hot new thing and they want  to talk to you about it.  You start getting entrepreneur of the year  awards from Harvard Business School.  Investment bankers are staking out  your house.  You could eat free for a year at Buck's.
Lots of startups fail before product/market fit ever happens.
My contention, in fact, is that they fail because they never get to product/market fit.
Carried a step further, I believe that the life of any startup can be divided into two parts: before product/market fit (call this "BPMF") and after product/market fit ("APMF").
When you are BPMF, focus obsessively on getting to product/market fit.
Do whatever is required to get to product/market fit.   Including changing out people, rewriting your product, moving into a  different market, telling customers no when you don't want to, telling  customers yes when you don't want to, raising that fourth round of  highly dilutive venture capital -- whatever is required.
When you get right down to it, you can ignore almost everything else.
I'm not suggesting that you do ignore everything else -- just that judging from what I've seen in successful startups, you can.
Whenever you see a successful startup, you see one that has reached product/market fit  -- and usually along the way screwed up all kinds of other things, from  channel model to pipeline development strategy to marketing plan to  press relations to compensation policies to the CEO sleeping with the  venture capitalist.  And the startup is still successful.
Conversely, you see a surprising number of really well-run startups  that have all aspects of operations completely buttoned down, HR  policies in place, great sales model, thoroughly thought-through  marketing plan, great interview processes, outstanding catered food, 30"  monitors for all the programmers, top tier VCs on the board -- heading straight off a cliff due to not ever finding product/market fit.
Ironically, once a startup is successful, and you ask the founders  what made it successful, they will usually cite all kinds of things that  had nothing to do with it.  People are terrible at understanding  causation.  But in almost every case, the cause was actually  product/market fit.
Because, really, what else could it possibly be?
[Editorial note: this post obviously raises way more questions  than it answers.  How exactly do you go about getting to product/market  fit if you don't hit it right out of the gate?  How do you evaluate  markets for size and quality, especially before they're fully formed?   What actually makes a product "fit" a market?  What role does timing  play?  How do you know when to change strategy and go after a different  market or build a different product?  When do you need to change out  some or all of your team?  And why can't you count on on a great team to  build the right product and find the right market?  All these topics  will be discussed in future posts in this series.]

The Pmarca Guide to Startups, part 5: The Moby Dick theory of big companies                           "There she blows," was sung out from the mast-head.  "Where away?" demanded the captain.
"Three points off the lee bow, sir."
"Raise up your wheel. Steady!" "Steady, sir."
"Mast-head ahoy! Do you see that whale now?"
"Ay ay, sir! A shoal of Sperm Whales! There she blows! There she breaches!"
"Sing out! sing out every time!"
"Ay Ay, sir! There she blows! there -- there -- THAR she blows -- bowes -- bo-o-os!"
"How far off?"
"Two miles and a half."
"Thunder and lightning! so near! Call all hands."
-- J. Ross Browne's Etchings of a Whaling Cruize, 1846There are times in the life of a startup when you have to deal with big companies.
Maybe you're looking for a partnership or distribution deal. Perhaps  you want an investment. Sometimes you want a marketing or sales  alliance. From time to time you need a big company's permission to do  something. Or maybe a big company has approached you and says it wants  to buy your startup.
The most important thing you need to know going into any discussion  or interaction with a big company is that you're Captain Ahab, and the  big company is Moby Dick.
"Scarcely had we proceeded two days on the sea, when about  sunrise a great many Whales and other monsters of the sea, appeared.  Among the former, one was of a most monstrous size. ... This came  towards us, open-mouthed, raising the waves on all sides, and beating  the sea before him into a foam."  -- Tooke's Lucian, "The True History"When Captain Ahab went in search of the great white whale Moby Dick,  he had absolutely no idea whether he would find Moby Dick, whether Moby  Dick would allow himself to be found, whether Moby Dick would try to  immediately capsize the ship or instead play cat and mouse, or whether  Moby Dick was off mating with his giant whale girlfriend.
What happened was entirely up to Moby Dick.
And Captain Ahab would never be able explain to himself or anyone else why Moby Dick would do whatever it was he'd do.
You're Captain Ahab, and the big company is Moby Dick.
"Clap eye on Captain Ahab, young man, and thou wilt find that he has only one leg."  "What do you mean, sir? Was the other one lost by a whale?"
"Lost by a whale! Young man, come nearer to me: it was devoured,  chewed up, crunched by the monstrousest parmacetty that ever chipped a  boat! -- ah, ah!"
-- Moby DickHere's why:
The behavior of any big company is largely inexplicable when viewed from the outside.
I always laugh when someone says, "Microsoft is going to do X", or "Google is going to do Y", or "Yahoo is going to do Z".
Odds are, nobody inside Microsoft, Google, or Yahoo knows what Microsoft, Google, or Yahoo is going to do in any given circumstance on any given issue.
Sure, maybe the CEO knows, if the issue is really big, but you're  probably not dealing at the CEO level, and so that doesn't matter.
The inside of any big company is a very, very complex system  consisting of many thousands of people, of whom at least hundreds and  probably thousands are executives who think they have some level of  decision-making authority.
On any given issue, many people inside the company are going to get  some kind of vote on what happens -- maybe 8 people, maybe 10, 15, 20,  sometimes many more.
When I was at IBM in the early 90's, they had a formal decision  making process called "concurrence" -- on any given issue, a written  list of the 50 or so executives from all over the company who would be  affected by the decision in any way, no matter how minor, would be  assembled, and any one of those executives could "nonconcur" and veto  the decision. That's an extreme case, but even a non-extreme version of  this process -- and all big companies have one; they have to -- is  mind-bendingly complex to try to understand, even from the inside, let  alone the outside.
"... and the breath of the whale is frequently attended with  such an insupportable smell, as to bring on a disorder of the brain."  -- Ulloa's South AmericaYou can count on there being a whole host of impinging forces that  will affect the dynamic of decision-making on any issue at a big  company.
The consensus building process, trade-offs, quids pro quo, politics,  rivalries, arguments, mentorships, revenge for past wrongs,  turf-building, engineering groups, product managers, product marketers,  sales, corporate marketing, finance, HR, legal, channels, business  development, the strategy team, the international divisions, investors,  Wall Street analysts, industry analysts, good press, bad press, press  articles being written that you don't know about, customers, prospects,  lost sales, prospects on the fence, partners, this quarter's sales  numbers, this quarter's margins, the bond rating, the planning meeting  that happened last week, the planning meeting that got cancelled this  week, bonus programs, people joining the company, people leaving the  company, people getting fired by the company, people getting promoted,  people getting sidelined, people getting demoted, who's sleeping with  whom, which dinner party the CEO went to last night, the guy who  prepares the Powerpoint presentation for the staff meeting accidentally  putting your startup's name in too small a font to be read from the back  of the conference room...
You can't possibly even identify all the factors that will come to  bear on a big company's decision, much less try to understand them, much  less try to influence them very much at all.
"The larger whales, whalers seldom venture to attack. They  stand in so great dread of some of them, that when out at sea they are  afraid to mention even their names, and carry dung, lime-stone,  juniper-wood, and some other articles of the same nature in their boats,  in order to terrify and prevent their too near approach."  -- Uno Von Troil's Letters on Banks's and Solander's Voyage to Iceland In 1772Back to Moby Dick.
Moby Dick might stalk you for three months, then jump out of the  water and raise a huge ruckus, then vanish for six months, then come  back and beach your whole boat, or alternately give you the clear shot  you need to harpoon his giant butt.
And you're never going to know why.
A big company might study you for three months, then approach you and  tell you they want to invest in you or partner with you or buy you,  then vanish for six months, then come out with a directly competitive  product that kills you, or alternately acquire you and make you and your  whole team rich.
And you're never going to know why.
The upside of dealing with a big company is that there's potentially a ton of whale meat in it for you.
Sorry, mixing my metaphors. The right deal with the right big company can have a huge impact on a startup's success.
"And what thing soever besides cometh within the chaos of  this monster's mouth, be it beast, boat, or stone, down it goes all  incontinently that foul great swallow of his, and perisheth in the  bottomless gulf of his paunch."  -- Holland's Plutarch's MoralsThe downside of dealing with a big company is that he can capsize you  -- maybe by stepping on you in one way or another and killing you, but  more likely by wrapping you up in a bad partnership that ends up holding  you back, or just making you waste a huge amount of time in meetings  and get distracted from your core mission.
So what to do?
First, don't do startups that require deals with big companies to make them successful.
The risk of never getting those deals is way too high, no matter how hard you are willing to work at it.
And even if you get the deals, they probably won't work out the way you hoped.
"'Stern all!' exclaimed the mate, as upon turning his head,  he saw the distended jaws of a large Sperm Whale close to the head of  the boat, threatening it with instant destruction; -- 'Stern all, for  your lives!'"  -- Wharton the Whale KillerSecond, never assume that a deal with a big company  is closed until the ink hits the paper and/or the cash hits the company  bank account.
There is always something that can cause a deal that looks like it's  closed, to suddenly get blown to smithereens -- or vanish without a  trace.
At day-break, the three mast-heads were punctually manned afresh.  "D'ye see him?" cried Ahab after allowing a little space for the light to spread.
"See nothing, sir."
-- Moby DickThird, be extremely patient.
Big companies play "hurry up and wait" all the time. In the last few  years I've dealt with one big East Coast technology company in  particular that has played "hurry up and wait" with me at least four  separate times -- including a mandatory immediate cross-country flight  just to have dinner with the #2 executive -- and has never followed  through on anything.
If you want a deal with a big company, it is probably going to take a lot longer to put together than you think.
"My God! Mr. Chace, what is the matter?" I answered, "we have been stove by a whale."  -- "Narrative of the Shipwreck of the Whale Ship Essex of  Nantucket, Which Was Attacked and Finally Destroyed by a Large Sperm  Whale in the Pacific Ocean" by Owen Chace of Nantucket, First Mate of  Said Vessel, New York, 1821Fourth, beware bad deals.
I am thinking of one high-profile Internet startup in San Francisco  right now that is extremely promising, has great technology and a unique  offering, that did two big deals early with high-profile big company  partners, and has become completely hamstrung in its ability to execute  on its core business as a result.
Fifth, never, ever assume a big company will do the obvious thing.
What is obvious to you -- or any outsider -- is probably not obvious  on the inside, once all the other factors that are involved are taken  into account.
Sixth, be aware that big companies care a lot more about what other big companies are doing than what any startup is doing.
Hell, big companies often care a lot more about what other big  companies are doing than they care about what their customers are doing.
Moby Dick cared a lot more about what the other giant white whales  were doing than those annoying little people in that flimsy boat.
"The Whale is harpooned to be sure; but bethink you, how you  would manage a powerful unbroken colt, with the mere appliance of a  rope tied to the root of his tail."  -- A Chapter on Whaling in Ribs and TrucksSeventh, if doing deals with big companies is going  to be a key part of your strategy, be sure to hire a real pro who has  done it before.
Only the best and most experienced whalers had a chance at taking down Moby Dick.
This is why senior sales and business development people get paid a lot of money. They're worth it.
"Oh! Ahab," cried Starbuck, "not too late is it, even now,  the third day, to desist. See! Moby Dick seeks thee not. It is thou,  thou, that madly seekest him!"  -- Moby DickEighth, don't get obsessed.
Don't turn into Captain Ahab.
By all means, talk to big companies about all kinds of things, but  always be ready to have the conversation just drop and to return to your  core business.
Rare is the startup where a deal with a big company leads to success, or lack thereof leads to huge failure.
(However, see also Microsoft and Digital Research circa 1981. Talk about a huge whale.)
Closing thought:
Diving beneath the settling ship, the whale ran quivering  along its keel; but turning under water, swiftly shot to the surface  again, far off the other bow, but within a few yards of Ahab's boat,  where, for a time, the whale lay quiescent.  "...Towards thee I roll, thou all-destroying but unconquering whale;  to the last I grapple with thee; from hell's heart I stab at thee; for  hate's sake I spit my last breath at thee. Sink all coffins and all  hearses to one common pool! and since neither can be mine, let me then  tow to pieces, while still chasing thee, though tied to thee, thou  damned whale! THUS, I give up the spear!"
The harpoon was darted; the stricken whale flew forward; with  igniting velocity the line ran through the grooves; -- ran foul. Ahab  stooped to clear it; he did clear it; but the flying turn caught him  round the neck, and voicelessly as Turkish mutes bowstring their victim,  he was shot out of the boat, ere the crew knew he was gone.
-- Moby Dick








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