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Getting venture capital for your start-up business these days is as hard
as getting bread with dinner in this carb-crazed world.
It’s rarely happening.
Five or six years ago, venture capitalists were throwing money at any kid
with a high-tech idea. It didn’t matter if he had a business plan or even
if he knew what one was. The Internet was hot. Dot-com start-ups were
even hotter. VCs couldn’t get the money out of their pockets fast enough.
But then the dot-com bubble burst. The kid with the cool idea was sent
back to school or sent home to live in his parents’ basement while he
licked his wounds. Start-up after start-up went bust. Latte machines were
packed up and the Herman Miller chairs were sold on eBay. The boom was
over and the bust was financially devastating — to the high-tech
community and to the country’s overall economy.
Now, it’s a heck of a lot harder for anyone to get VC backing for a new
idea or a fledgling business. And it should be, according to most
analysts. If everyone had been more discriminating about what business
venture got the needed funding, then everything would have been quite
different. Maybe not every kid with a digital dream and a souped up
harddrive should be heading a start-up.
But as we rapidly close in on 2005, what is happening to the people out
there trying to get a start-up off the ground. Many of them are doing it
right this time, says Guy Kawasaki, CEO and a founder of Garage
Technology Ventures, a VC investment bank for emerging technology
companies. Now the author of the new book The Art of the Start,
Kawasaki says financial backing is available if the gal with a dream
moves beyond the dream and into the business world. Have a business plan?
Have a business team already set up? Know who your competitors are and
how you’re going to distribute this product?
Well, now you’re talking.
In this interview with Datamation, Kawasaki, a former Apple Fellow
at Apple Computer, Inc., talks about the critical needs for a start-up,
building a real business, and if we’ll ever see another time like the
dot-com boom.
Q: What part of the industry will generate the ‘next great thing’?
No one really knows. We didn’t know where the next thing was coming from
last time, and we didn’t see the end of the boom — or at least we didn’t
take the appropriate actions. Why should anyone believe us now? The job
of a venture capitalist is not to predict the future but to recognize
when an entrepreneur has, and sink his teeth into that entrepreneur. Most
venture capitalists, frankly, are too old and too rich to create the
future.
Q: After the excitement and over-indulgence of the Internet boom, do
you think there will be another great technology boom, or did the dot-com
bust make us all too cynical for it to happen again?
Memories are short, and greed is ever present. There absolutely will be
another great technology boom. I just hope it’s in my lifetime because
this time, I know what to do when there’s a bubble.
Q: Why did all those dot-com business fail and what can we learn from
it?
The overall answer is that we, the tech sector, is too hard on ourselves.
Sure, lots of dumb companies started and were funded. Mea culpa. I was
part of this. But lots of smart companies started too, and they did
change the world. Can you imagine a world without the Internet and
companies like Amazon, NetFlix, Tivo, eBay and Google? Would you like to
go back to electric typewriters while we’re at it?
Q: Most of the VC money was pulled away when people saw that so much
of the dot-com craze was smoke and mirrors. Is that kind of abundant
money coming back?
We have gone from a period of irrational exuberance to irrational
depression, and now we’re swinging back to the middle. However, we still
have a slight hangover, so we won’t behave like drunken sailors. But all
venture capitalists aren’t requiring ‘proven teams, proven technology and
proven traction’ to fund deals — at least, not the venture capitalists
with courage. If you want to see a venture capitalist with real courage,
look at Sequoia Capital.
Q: When someone gets that great idea for a business or product, what
is critical that they do? What do they generally do wrong?
The list of critical actions feels, at times, endless. However,
entrepreneurship is simple: you create something, you sell it, you
collect the money. Everything you do has to support three functions. If
it doesn’t, don’t do it.
Q: What do these entrepreneurs need to do to make up for that lack of
VC enthusiasm?
Build a real business. — a business that fills existing needs or creates
new needs. But not a business that’s built on wishful thinking or the
assumption that you can keep raising money until you figure something
out. The challenge is that sometimes you only discover you have a real
business after the fact. Who really knew ‘back then’ that millions of
people would want to sell their junk on eBay?
