“Every startup needs a five minute pitch to get funded. Unfortunately, novel business ideas are not easily deconstructed into five minute blurbs. Many have sought funding to standardize a more holistic approach, but their explanations always take longer than five minutes, at which point the venture capitalists move on.”
By late September, Tootly had netted 200,000 downloads, all of them paid. Ben and Jacob had stumbled upon an insatiable, heretofore unfulfilled desire to mimic a baser aspect of human biology through expensive technology. Their ambition had the best of them, and they meant to seize the opportunity. Jacob left business school “temporarily” with an open invitation to return, which they were more than happy to grant (even if Jacob's success was nothing more than a short-lived whiff of hot, stinky air, there was a small chance he could become a high net-worth donor).
As their app sales grew, Ben and Jacob mulled over the idea of instituting a “marketing plan,” but thought better of it when they both remembered their marketing classes (besides, they weren't sure they could invent any good lies about a single function novelty app). Instead, they let the app continue to sell itself, and devoted much of their time to fielding the ever-expanding array of interview requests from the blogosphere.
Where nuggets of truth hide amongst an uncountably large mass of heresy, rumor, and speculation. Paradoxically offers a thousand different biases while somehow remaining an echo chamber. Also, the future of journalism.
Jacob wasn't entirely pleased with the outcome of these interviews. “I was happy about the excitement surrounding our app, but the bloggers would embellish things. Not a big deal normally, except the embellishment would continue unabated by second-hand ‘journalists’ who didn't interview us…as you can imagine, it snowballed. All of the sudden the Wall Street Journal has us quoted by some fifth-degree source, saying we'd be ‘the Google of mobile apps.’” Ben was decidedly more upbeat. “The Wall Street Journal implied that we were the next Google of mobile apps. Who cares about their sources; it's the Wall Street Journal!”
After the explosive press coverage, Tootly started receiving unsolicited offers for funding by some lower-tier venture capitalists. Ben and Jacob were caught off guard, but they soon constructed a strategy: reject them. They knew if “dumb money” was courting them, “smart money” from the top-tier firms would be readily available, if they had their act together. And every startup wanted “smart money” for their company. Tootly would be no different.
Used as a distinction between types of early-stage investors. “Dumb money” usually comes from family, friends or fledgling firms that have no “expertise” in your market. “Smart money” comes from well-respected angels and venture capitalists who have a record of success. Since most successful records are a function of luck, and the greatest successes come from novel products in brand new markets, this distinction is arbitrary and unnecessarily condescending. All “smart money” was “dumb money” once.
From then on, the co-creators of Tootly focused their energy on preparing themselves for the inevitable pitch sessions with the top tier firms. But before they could dive into the presentation dry-runs and practice their best sycophantry, they needed to get Tootly’s administrative house in order. “We split the company 50-50 (even though I had the initial idea) because I thought that kept things fair and aligned,” Jacob remarked naively. “We used an online self-service law firm to draw up our LLC papers, because regular lawyers are money-sucking vampires whose sole purpose is to destroy value,” Jacob had thought then, completely unaware of the Faustian bargain he should have made to hire small-time, money-sucking vampire-lawyers to avoid big-time, wealth-obliviating Draculean lawyers later on.
Ben recalled their initial administrata with a hint of bitterness. “Those poor choices never hurt us early on, when Tootly was selling like hotcakes and everybody wanted a piece. But our unforeseeably bad decisions had as many consequences as our unforeseeably good decisions had benefits. Worst was probably our decision to spurn angel investors.”
Angel investors, or “angels” for short, are individual high-net-worth individuals who like to diversify their wealth with small scale, high-risk investment vehicles. In English: they’re really rich people who love putting money into startups with little expectation of return, usually “for shits and giggles.” Some of them are successful entrepreneurs who want to relive their glory days, others are celebrities who want to add edge and/or apparent intelligence to their public image, still others are scary fucking Russian mobsters who will sooner kill you than lose money. “Angels” can be a surprisingly ill-suited term.
Ben stroked his scraggly beard as he considered hypotheticals and counterfactuals. “If we had gone the angel investment route for our first round, we would have received much less funding -- a surprisingly helpful constraint. We wouldn’t have grown so fast, and wouldn’t have transitioned our product so abruptly. We couldn’t have known then, of course...”
Tootly’s explosive download numbers (and the lazy, confident projections of Tootly’s download numbers in the future) kept them laser-focused on getting a big injection of venture capital rather than the paltry sums angels tended to float; even the scary Russian angels kept caps on their investments. With the paperwork finished and angels rejected, Ben and Jacob honed their salesmanship into a well-greased venture capital-pitching machine.
Jacob explained. “Ben and I knew the typical venture capital checklist. We’d need a 5 second vision statement, a 5 minute elevator pitch, and a 50 minute overview of our business plan. Each stage was a filter; if they didn’t like our elevator pitch or vision, they wouldn’t waste any more time. We were lucky in that we already had a proven, successful app, but the top firms would need more than past success. They’d want leadership for the future. Gusto. Bravado. Or the ability to fake it convincingly.”
Ben agreed that Jacob was the “edgier” co-founder, the one willing to fight fire with fire...and a variety of other masculine cliches. He started with the vision statement.
A company’s “vision” is an impossibly reductive, expansively ambiguous statement meant to inspire the insipid. Usually looks great on business cards, letter templates, SEC forms and subpoenas. See Google’s “Organize the World’s Information,” Apple’s “Making Tools for the Mind to Advance Humankind,” or Microsoft’s “What the hell are we fucking doing with this company?”
For Tootly, Jacob opted for something bold but memorable. “Bringing Novelty to the Masses.” The runner up, which Ben preferred, was “Farting to the Future,” but Jacob thought it was too restrictive. He also worried that investors who hadn’t downloaded Tootly would feel confused and offended. With that finished, Jacob worked on the elevator pitch.
Slightly less reductive, the elevator pitch is a storied tradition in the Silicon Valley venture community. At a variety of forums, founders are given opportunities to deliver concise pitches to investors that usually last around 5 minutes without ever describing anything about the company. Instead, the elevator pitch is an opportunity for the venture capitalist to do a “gut check” on a variety of interpersonal factors: whether the founder sweats while speaking, how many big words the founder uses, how many times the founder compares themselves to Steve Jobs, etc. Without the random “gut check,” they’d have to read hundreds more business plans, and who has the time, really?
Jacob honed his elevator pitch to great precision, starting strong (“We are already the dominant paid platform for novelty, and we’re just getting started”) and ending with a self-referential flourish (Jacob whips out his phone, opens Tootly, presses the button to release an illustrious raspberry, and says, “Do you hear it? That’s the sound of money.”) The business plan, arguably the most important but least viewed of the three, was last on his list.
Ostensibly where a startup demonstrates the enduring value it will create and the novel, intricate methods for a startup’s future success. Instead, usually a 10-15 page document and/or Powerpoint presentation with nothing but vacuous, vague assertions and a proliferation of “hockey stick” graphs demonstrating predicted growth with no basis in reality. Studies show that 99% of all business plan graphs have predictive error rates exceeding 99%.
For his coup-de-grace, Jacob Googled seven different pictures of “hockey stick” graphs, replaced the numbers with Tootly’s downloads and revenue, made a variety of baseless assumptions about customer acquisition, and calculated the incalculable value of Tootly’s brand name. 20 Powerpoint Slides, and 15 pages later, he was finished. Naturally, Ben and Jacob celebrated with In-N-Out Double-Doubles and real-life, non-simulated gas.
By early October 2008, Tootly was ready for prime time investment, amid download numbers whose very growth seemed to be accelerating. Ben and Jacob finally “connected” (a business school term for initiating communication) with a number of the top grade venture capitalists; predictably, they wound up with funding, but not entirely without frustration.
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