The Pre-Product Phase
One of my big weaknesses as an early stage investor is my eyes glaze over at wireframes, design sketches, photoshop screens, and prose that describes a product. Until I can get my hands on it and use it, I have an incredibly difficult time imagining what the thing is.
For that reason, I prefer working on projects that are designed in code as opposed to paper, photoshop, or some other tool. That’s a lot easier on the web and much harder on mobile, which is a bummer. When something is designed in code, it comes to life for me quickly and I can react to it, give feedback on it, and think about it, and consider investing in it.
I’ve pretty much given up investing in products that aren’t ready for public use. It has not really worked out for me. I really enjoy investing in a business where the product is out in the wild, getting used, and everything else has to be figured out. I am good at that. But I am not good at investing in the figuring out the product stage. My track record proves that conclusively.
I get a ton of requests (mutiple requests a day) to meet with entrepreneurs to give them feedback on their product. I also get emails with links to wireframes and sketches where entrepreneurs want feedback. I generally decline these requests because I know that my feedback will be poor. I lack the imagination to see where the entrepreneur is going with the product.
Everyone has their strenghts and weaknesses. My weakness is the pre-product phase. I thought I’d make that clear to everyone. It will save us all a lot of time and energy.
Ah. So now you have this blog post to refer to when those requests come in for feedback.
you are on to me
You were part of the new usv.com wireframing, no?
that was designed in code. at least that’s how we did it once we realized the other way wasn’t working for us
“Prove with code” – Kevin Marshall (mantra #1).
You do invest in stealth projects though where the test network is closed?I’ve been working on some of these and honestly, the opposite of ‘wild’ may be ‘captive’ and it’s still hard to grasp the dynamics of it.
we’ve done that but i am not going to do it in the future. i suck at it.
You work with collaboratively with angels who work earlier on in the cycle, closer to the ideation stage?
yes. that is where i send entrepreneurs who i think have potential but aren’t at a stage where i can help them
Speaking of which….*nudge* *nudge* =)
I sent your angel list around
I don’t care what the internet says…you rock! Thanks! =)
I’m trying hard to parse your meaning of ‘captive’ and ‘wild’ and coming up short.The only closed network I can remember Fred mentioning was the “new feature” in Kik that his daughters were testing, which must have been the card embedding based on the time it was mentioned. In this world of fast moving messenger apps, testing something before wider release might be the only way to catch it at an early stage. I’m sure that other products, especially in mobile where word of mouth and viral required-to-communicate features can drive installs, will follow the same trajectory. Think Snapchat’s user base in LA revealed in the API probing.
Fred used ‘wild’ as do many. Open web. Love this term btw.I used captive–controlled trials. Closed Betas.I’m not a student of Fred’s investments but, the number of non-public or soft release solutions out there is many. In fact, if you can do it, you do. I see them I( and advise to a few of them) often.Certainly your are right that crossing networks is the trajectory of success but to simply throw stuff out and see what sticks on the wall is invariably a questionable strategy.
1 – Does the track record of the entrepreneur make a difference?2 – You really should have hashtags for content, #BeforeYouEmailMe with a bunch of these type of posts 🙂
not in my track record it doesn’t
what about your partners? Teams win. USV obviously has a good team.
I have the same data – track record has no correlation for me with outcome across all the investments I’ve done.
I think it i great that you put this up, and Farhan is right: this should be hashtagged or sticky. Save you and them a lot of headache.Back in the 90s, they used to tell us entrepreneurs that until you had invested your own money and time, had a prototype, taken all that risk, no VC would talk to you. Wasn’t totally true (and cost me a lot of time and money believing it).But nowadays it is cheap to build prototypes (hardware and software, even on mobile). Do you think as a matter of principle (as opposed to your personal prefs), entrepreneurs should at least have functioning prototypes before approaching investors?
no, but they should have one before appoarching me
is one of your partners good at this? it would put usv at a competitive disadvantage to be camped out down stream of the wireframes fishery.
Came across this post about a User Experience crash course for getting your product ready for public use.http://thehipperelement.com…
My only issue with having folks judge your business from a demo link, or even by using the real thing, is that they’re judging what could be a 7 novel saga by the cover of just the first book. If there’s a big vision there, chances are using the product will do little more than give you a taste. The rest comes from the story and vision of the founders. And if someone has already judged you based on a link, and written the rest of the story in their heads before they speak to you, they’ve likely gotten it all wrong.What your product needs to look and feel like at launch is probably very different from what it needs to look and feel like at scale. Getting your first 1000 users is a different business from getting you first 10mm. And a link to an alpha product will not likely reveal the plans for that latter. You’re only going to get that through a conversation.
I think Fred is being subtle here. Its a horse bleep tactic to get the first couple of ‘dots in the line….’ ( as Mark Suster would say ) as the entrepreneur angles for an investment.
Yes! This is the real struggle…showing a clunky alpha that’s a good enough teaser to motivate people to buy a ticket for the full show…it’s a difficult skill in itself (and one that I continue to struggle to develop).
Even having a sexy alpha can do you a disservice. I’d say 95% of everyone I talk to about Wander&Trade completely misjudged the long term vision based on their impressions of the alpha product.
Damned if you do, damned if you don’t.But I believe as long as everything you do pushes ahead the ultimate vision…then the massive struggle (and all the frustration) is worth it.
i think of the work of companies as a never ending process of market discovery. My work as well.We all have ultimate beliefs as the core of whatever we do of value. But to me the larger the gap between the thing in front of me as an atomic piece of the big picture, the more I doubt it.
Yes. The trailer should be all about the atomic unit!
Should not always be the case. If aguy comes in and shows you how hecan mine BitCoins where the computingcosts is a penny per BitCoin or some such,you still want to evaluate that based onthe atomic thing in front of you?Part of the problem here is the IT communitythinking about what is technical in code isjust the code, just routine software. Insteadfor, say, Google, what was just crucial weretheir approaches, just in prose before code,for page rank, ad targeting, and ad words.Why? Far too much of the IT communityunderstands code a little and the rest notat all. Why? Too few good examples ofdepth, and too little background in anythingbut just routine code.
We will cheerfully disagree on this.Someone said that it all boils down to young companies working to discover their markets and older companies struggling not to loose them.In that generality lies all the truth about what we do, day after day, year after year in this great job of creating value that people want to call their own.
What you are saying is inevitably true in 90+% ofcases, but my claim was “Should not always be thecase.”.There is an approach to gaining and/or keeping amarket: Offer much better products/services, and doso before the other guy.One of the keys here can be new, powerfultechnology, defensible, that can yield much morevaluable products/services.In much of business, we are short on examples, butfor anyone with a background in original research inengineering that situation is a sign of anopportunity, not a real difficulty.Since VCs are interested essentially only inexceptional cases, that we have too few examples oforiginal research being valuable for discoveringand/or not losing a market is an opportunity, not anirrelevancy.
NIcely debated.We don’t build our businesses focusing on the corner cases for certain.But I would argue that the biggest wins are a tiny fraction of the whole, usually are not built on a definable market need (FB, Twitter) and are exceptional mostly because they become mainstream.Exceptional is a term we apply to the winners. The proof comes from the market side.
As I recall, some months ago Fred advisedentrepreneurs that often it’s easier to sella vision than the reality of some prototype orearly product.And a few days ago Fred gave some exampleVC pitches — all were of the form ‘I want tobuild something to do X’. So, it was want to,not I’ve done it. And it was called a pitch.
I like to think that little things give you insight into big things. That one off business tactics reflect the generational mindset of the times.As a Gen Xer, I shake my head at how Baby Boomer Kids just expect everyone to help them.He’s Fred Farking Wilson you morons. Like he’s got time to look at your wireframes.To further illuminate my frustration, I bring you the wisdom of none other than Brett Hull, with a classic example of the good side of old school hockey culture: http://www.thehockeynews.co…
You and me both, but……baby boomer kids?!
Echo Gen. The ones w Helicopter Parents, etc.I love the respect that Hull demands from Avery. Oldy, old school.
Ah, millennials.Yeah, it was a beautiful anecdote.
But you don’t invest from USV at that stage, right?So are you doing this for goodwill or deal flow?
I will not make introductions for people unless they have a MVP to show. I can imagine what they want to build but at that point i’m not sure they have the desire.I have only had one person I’ve actually I recommended to build an MVP actually do it.My friend built an MVP for his idea and I was true to my word and made an introduction to an investor.His company was then invested in by the investor I connected him with. This was a very proud moment for me.I just don’t want to waste any of my connections/investors time unless people are serious about building a great product and a company.
What would you consider an MVP to be? How much of the eventual product use case does it need to demonstrate?I have received advice ranging from collecting marketing information in order to build a sales engine to an almost feature complete working demo, but focused on a small number of features.
I consider an MVP a product that is a complete working demo that can be used by beta testers. It doesn’t have to be your complete vision but it definitely has to be something people can play with and want to start using that day. We never collected any marketing information other than showing our demo/beta product to our potential users when we built the first version of Edmodo. We used our vision and desire to solve a problem. The market sometimes doesn’t know what they want or need, it’s up to you the entrepreneur to show them what they are missing 🙂
Depending on the market to know what they want is always a non-starter.Well said.
“The market doesn’t know what they want or need…”Do you mean that the need or problem is felt (experienced) but not defined so that the market will immediately recognize the need once the product is introduced? Or does this mean that the market must be educated about its need in order to recognize the value of the product?
Hmmm….actually I read this as being more about ‘want’ rather than need in the earlier point. Most successful products today are about wants…Thanks
Needs can be more nebulous than wants can’t they. Especially in terms of perception.Admittedly I probably latched onto that comment based on experience with a couple of brilliant educational products that were perhaps ahead of their time. That experience haunts me.
Play around with is not the same as start the day
What exactly counts as an MVP these days?
For me MVP includes a revenue model (otherwise it ain’t viable) and someone who would write an order/ buy it – (otherwise its too minimal). As for product – it could also be a service.These give the confidence of execution / an apparent market and leave worries about market size/scalability – which are generally growth stage issues. Anything less is a blank cheque based on trust.
When I worked at Morgan Stanley in IT I met a company iRise which enabled prototyping for mobile apps http://www.irise.com/soluti…. Without writing code you could have a “functional” app in the sense that you could interact with it. I wonder if that would be helpful for entrepreneurs pitching you, or if you need to see a finished alpha or beta product.
All very fair, and humble, for you to state.I believe the hangup and confusion for most comes in the terms ‘early stage’ and ‘seed’…your definition of the words (and most investors actually) is different from the definitions that most entrepreneurs think of.Even with a blog as popular as yours – there remains a lot of confusion around the meaning behind some of the words and terms used throughout the startup world.Still that being said – your feedback on the early stage stuff I’ve shared with you has always been spot on and extremely helpful (most recently you really helped bring clarity to the business model that I should be focusing on — and I believe that was the weakest part of our plan at that time)
I can talk business model without seeing the product. But you don’t get to execute on business model if you don’t nail the product
Good stuff. I’m the Opp – product is the easy part for me 🙂
From what I hear from investors, product seems to trump business model, but thankfully you can have both — although not necessarily from the same brain. #ittakesavillage
In my experience, *most* investors tend to focus on whatever you “don’t have yet”…the longer they can sit on the sidelines with the “option to play once we are way up in the game” the better….but I can’t blame them…if I was on that side of the table, I would probably be inclined to try and play the game that way too.
I need to question whether we really have business models in the beginning. We have deep segment understanding but from the ground up, the model will develop if the value is there.I’m on a rage against top down thinking.
Smart. Tough love.
Completely agree when it comes to making an investment decision, even at seed (where I play) there needs to be a product “in the wild” as you say, so that I, but more importantly customers can evaluate it.However, I don’t want the baby to get thrown out with the bath water, as prototypes are critical in the pre-investment stages to help developers and entrepreneurs test their product ideas and get customer feedback, input and reactions before they actually build and launch a product. I see way too many entrepreneurs spending months or more building a product to find out no/few people care to use it. Prototyping is a quick, cheap way to find that out before you build/launch.
We tried that, Fred, but mobile is so painful to do early product. Partly because of that and partly because we realized we needed to be able to iterate faster than mobile allows (at least iOS allows), we switched to a web version first. In the future, I’d never invent on mobile directly, opting instead for web first when possible. Unfortunately, we needed training to shift. We are close now.
Funny we are doing the same thing. We are building our own app for our own purposes (meaning we are allowed to iterate bc there is no legal approvals woot woot) and we are prototyping and doing all iteration on Web.
I just wish I had web experience before starting all this web development. We ended up taking a bunch of contract work last year. It kept us in business but we also took jobs that furthered our skill set as much of it was HTML5.
You should add to this that the prototype should be an android (for mobile) since you’ve refused you use an iPhone 😉 – I learned that one the hard way hehe!
Are there any test iOs devices at least at usv where one could get you to install an app?
When I did my EMR product I didn’t write much code at all. Mostly the code was generated. A picture is worth a thousand words and a million lines of code!.Ask those people you get *drafts* from to use advanced tools and you can get a working system with just a click or two.
you should put this info in your about page, along with either a link to or a description of what you like to invest in. (engaged networks etc etc)
Better yet, an email auto-reply message. 😉
I think an autoresponse is a great idea but I think for it to work Fred would have to use a different email address for initial contact (which I don’t think is a bad thing but from memory he didn’t want to do it when I suggested it previously)
Before I say why I think that is a bad idea I will ask what exactly what would the auto-reply say?
Not the right approach for everybody. But some high volume inboxes practice this impersonal approach to feel better about themselves when they don’t reply to 95% of their emails.
From the Journal of it depends a high volume inbox such as the customer support email at Sony for their digital cameras is the type of thing you use auto senders on. Or the disqus help desk.For a situation where you are operating a funnel where any potential email could be the deal that got away you take the time, effort, and money to make sure the right thing happens.A “Fred” is certainly liked for his approachability and likability so operating an auto sender is nowhere near as good as even having a personal assistant (which I know Fred doesn’t want to do) connect more personally with the sender.Of course you can even have a human do auto replies after making a judgement as far as which seemingly personally auto reply is needed. (Not an algorithm but a real person).
The filter and qualifier. I could argue that either way.But what I think in general is that you don’t put friction in front of business leads.It reminds me of the ads I used to read as a kid in my dad’s trade magazines that said things like “no triflers” or “serious inquiries only”. I remember one which said “gambling junket if you don’t know what that is don’t even bother calling”. Why not suck in newbies to go on junkets? Are people beating down your doors??And I’ve found that there are always outliers and it pays to put in the extra effort. Not everything is low hanging fruit. This is not to say that a particular person (say Fred) should or even can leave no stone unturned. (I’m not giving him advice I’m giving advice to people reading this.) But I just feel based on my experience as a strategy it pays to not put up qualifiers and barriers.
I agree with you LE and if Fred is willing to put up with the burden of the volume of email then that is fine. I just think he struggles with it. If he had a smart autoresponder that sent out a reply the first time someone contacts him telling them he may not be able to respond or help then it takes the burden away of feeling he has to respond and possibly manages the senders expectations.
Hey Donna 😉
I love seeing the design work before it goes to code but I agree that many many things cannot be understood until it’s a live experience. It’s why the time frame from design to code should be a sprint vs. a marathon.
(Don’t tell anyone but I really love looking at wireframes. Visualizing is part of creation to me and I always start there.)
(LOL me2 – it’s like seeing a house before it’s renovated)
I won’t tell anyone!
Maybe it’s a marketing thing. cc: @leigh:disqusReally.
One of the biggest reasons to avoid anything but a live product is that most are not able to put together a live, functioning product. They want money to “try” to put something together.
Fred, this is such a good post. I truly wish more VCs thought like you. What has really upset me is how many VCs are scared to invest in a certain space because of being burned by startups they’d previously invested in pre-product in the particular space. My take is that you can’t really weigh an investment pre-product with an investment once the product is out, and this post pretty much confirms that smart investors think that way as well. Or at least one of them.
I sometimes wonder if the entire build-it-first, MVP, live-demo mantra leads to a huge pool of shallow products. Some things are just way hard to build.Go to any conference now, and there are kids, like ants, all over the place with iPhone product demos. Big whoop. I still love to bump into the one scraggly guy that wants to build a nuclear reactor…and his plans are on a napkin.
Ha Ha – As a “scraggly guy” – who would rather start a relationship by trying to argue a point, rather than engage in a blowing smoke up collective backsides exercise, I could not agree more.I feel that software development is becoming so commoditized, that the only thing that really matters is the problem it solves and the elegance in the difference it makes.So if you have are an experienced team that can execute and you have a big idea THEN you are not a commodity – I would argue that everything else is a race to the bottom.
#BAM! Can we create a comment of the day … and perhaps response of the day? I’d nominate Bruce and james for the inaugural prize!
Maybe it depends on how you design your pre-product demo.I am currently designing my own app (a “PowerPoint killer”) in… PowerPoint (hey, I am a professional presentation designer!) which allows me to produce a very high quantity of screens in a relatively short time. The screens give a near click-by-click user experience.Black and white wireframes do not give a feel for the app, they look uglyProfessional designers usually design a few highly sophisticated and almost final designs in Photoshop or Illustrator, but they do not give a sense for the flow. It looks pretty, but that’s about it.
Thanks god I hit you up for wallstrip before this post
there wasn’t much to imagine when you pitched me”rocketboom for stocks”i got that in about a nanosecond”this for that”http://www.avc.com/a_vc/201…
I think I said…Cramer with______, but i trust your memory :)and I think you stilll must have blank check entrepreneurs…
nope. i’ve lost too much money with them.
While many VCs still have “blank check entrepreneurs”, one of the big lessons is the one Fred puts out so powerfully. I used to do this at Mobius. I don’t anymore. Sure – I have people I’ll work with over and over again, but there is no such thing anymore as a blank check.
dont tell @pmarca you now do ‘this for that’ deals …
awesome self awareness Fred. a great leadership trait to have.
Proto.io for the win. This is an AMAZING tool. Any founders getting started, use this. It is dead simple to use, requires a little bit of coding (but nothing a weekend staring at a computer can’t get you past) and you can take great wires/designs of what you want to create and bring them to life with all the nice transitions and effects of iOS (platform we build with).I can’t recommend it enough, and no, I do not work with them. This helped us get developers on our team, helped us close our first clients before we had our product built, allows us to user test UX changes quickly and make smarter decisions off of feedback other than our own.Fred, while seeing a prototype that is basically tappable designs may still not be enough for you (no backend support, etc.), if someone came to you with a smartly build proto.io version of their idea, it would give you a great feel for what they want to create.
that would help me a lot
Crazy. Just had a meeting with an entrepreneur and we talked about this exact thing. In the comments, you reference sending to angels. It’s also important in many instances to send to angels that will “get it”. They will provide good feedback, and will be more likely to invest. Otherwise, it could be a waste of time.
+100. Identifying and connecting with the *right* angels is the secret (I think). Money is only one small part of growing from nothing into something…and in my (limited) experience so far, the people and belief aspect seems to be *way* more useful and important.
regardless of the rights and wrongs – I am sure that Fred might miss out on something by working this way – it’s great that he has recognised his limitations and put this out there as a stop sign.what more could any entrepreneur ask for?
What I’ve learned from Fred and a friend who is an extremely successful private equity investor is the value of focus. It seems like this type of investor is missing out on so much (especially when the thing being missed is something we’re vested in) but in the end their focused strategy seems to result in a much higher degree of success. Perhaps there are exceptions. I haven’t made a study of this but it is a lesson I desperately need to learn. I have a tendency to not want to miss any opportunity which I believe in the end results in missing out on a lot.
In addition to a product, I think being able demonstrate customer validation for the idea really helps. When listening to pitches/ideas, I often acknowledge my lack of expertise in certain domains and instead rely on data to tell me whether the idea is something that people will actually want.Dropbox demonstrated customer customer validation pre-product with their video and sign up page. SinglePlatform demonstrated customer validation pre-product with actual pre-payments from customers. More is better but a little is better than none when it comes to validation…which is usually all you can get pre-product.
“products that aren’t ready for public use”Oh!!!… that is the definition of early-stage-investment now-a-days?… i understand why there are… i)pre-angelii)angelIII)super angeliv) and anglo angel :-)P.S. I started putting my Oh….to replace wtf.
In this day and age I do not understand why anyone does not design interactive products in code.This DOES NOT need to be production quality scalable code. But interactive products are about flow, not about static designs. You can’t design flow with photoshop.
Fred, I have noted from early in my exposure to you that you set clear boundaries around things like investing and hiring, and probably in other ways as well. While someone with my disposition might think you are limiting your options (and you are — intentionally), it obviously works! I can learn a lot from your approach. Have learned a lot, but still learning. I wonder if this is part of entrepreneurial nature — to want to always keep the possibilities wide open. Which can be counterproductive. Will you consider writing more on the role that “focus” plays for you? How you decide parameters? Etc.
Thanks for the insightful post, Fred. I’m bootstrapping a little web app to allow users to easily find and curate the financial web. Maybe when the product is ready to use I will send it along! Cheers and thanks for posting, I really learn a lot from your narratives.www.indievestments.com
As a user experience designer, I find this post so fascinating. You said that when you look at wireframes and designers your eyes glaze over and that you lack the imagination to see where an product is headed.I have to wonder if the problem isn’t you Fred! Instead, perhaps the problem is that the wireframes, designs, and ideas are not being presented to you with a proper context. What do I mean by that?Well, when I present ideas in the form of sketches, wireframes, whiteboard sessions, and visual designs to clients the number one thing I keep in mind is to always maintain context through not just turning on a projector and showing deliverables on a screen. Instead, I always try to weave my deliverables into a story of how someone is going to use the product so that we’re not just debating wireframes and designs. But instead, we’re debating how the wireframes and designs fit into that product narrative for specific people.I don’t think the problem is your imagination or ability to grasp wireframes and designs!! I’ve worked with a lot of people who have *far less* product knowledge than you! But I’ve always found that by creating context through narratives helps avoid that “glaze over” factor that you wrote about.
i think the problem is me. i have ADD and my mind moves very fast. if i can “drive” it settles down. when i have to listen to someone telling a story, i really struggle.
You have just phrased this in a way that a nickel has dropped on my daughter’s digesting things. As she listens, she puts an image/concept together which she repeats back to me, often slightly shifted to account for her understanding it. I will note she does not do this with books, but she is impatient in movies.Fred, is this your experience of “driving”?
I hate the “telling of stories” part. I may have a chance with you – when I come out with a product. I promise to email you just a link.In real use, a product does not have its founder by its side… telling a story to each user. I really don’t get the fascination of today’s culture with storytelling as key to everything.
This is a great comment.The issue for me, and I’m a believer in wireframes as visual language, is that the leap from wireframes to customer touch is often greater than the leap from idea to visualization.I talk to entrepreneurs. I look at comps. I play with beta’s. And I look at customer interactions all the time.In a lot of ways, wireframes are as much a tool for development as they are for concept and seem sideways to the idea not forward to the actual project.I’m agreeing with you….but experiencing a change in myself over time towards the tangibility of this step.
I agree that wireframes are a tool for development. But I’m confused about your statement “wireframes .. seem sideways to the idea not forward to the actual project”.Every team has their own unique process based on the skill-set and lens through which they view product development.If I understand correctly, you’re saying that wireframes *don’t* push the project forward. I’d love to hear more about your thoughts on this.I feel like the process of actually developing the wireframes is crucial to moving the project forward. Without this phase, teams end up wasting valuable time and money debating the product features, goals, etc. In my experience, the process of wire-framing helps get everyone on the same page about the “why” and then “how” and “what” of the product.Maybe I’ve mis-understood your comment, but as a user experience designer I think wireframes are critical to pushing a project forward. Happy to talk more about this!
I’m probably obfuscating this a bit unintentionally.Wireframes are the visualization of the idea and intent.They are an object to share where you are trying to go.The big job of taking a wireframe and turning into a full blown project on Asana for example is another huge leap of compromise and decisions. And honestly once a project gets tasked out, I look forward to prototypes and often never refer to the wireframes again.So–quite inarticulately–an essential piece but simply a step towards a prototype, and less of a milestone in my mind that they used to function.Hope this clarifies a bit.
This post is also a really nice way of saying you’d like to avoid the technical risk of development before launch.
because i am not good at measuring it. others are
What about doing a video (ala Dropbox- http://techcrunch.com/2011/… Does this get a little closer to the working MVP requirement, or is it in the same category of static mock-ups?
Why invest in a startup with a vision if you can get one with a product that’s already removed technical risk? Just don’t call yourself venture capital.
call me a dickhead. i don’t care.
Is it ok if I Tweet this? 😉
I found USV at the AngelList, which would imply investments at the seed stage, which often are pre-income and prototype of the prototype stage. There is nothing wrong with investing in later stages, as long as someone does not claim being an angel investor.
we do a lot of seeds. they just have had products in the market when we did the seed, delicious, etsy, tumblr, foursquare, kickstarter come to mind
Before you invested, product did not get on the market by itself; someone invested before you. Even if this was labor of the founders.I am talking from my own experience; I ran out of my own money before my product reached the market. Despite having the idea of the century, I cannot get investors. I did not apply at USV though; after looking at your firm profile.
Fred, you are saying that your practice in the”pre-product phase” is from your “weakness”.Hmm ….First, refusing carefully to evaluate projects juston paper or invest in the “pre-product phase” isnearly universal practice among all US VC firms andnot particular to USV. So, a guess is that the realcause of the practice is some nearly uniform covertheir asses (CYA) practice of the limited partners(LPs), that is, closer to private equity investing.Here I will respond to the this fact, that US VCfirms refuse carefully to evaluate or invest inprojects in “pre-product phase”.Second, the entrepreneur had to have some thinkingand work well before the “pre-product phase”. If anentrepreneur can do that work, then an investor theentrepreneur would have to report to on his Boardshould be able at least to read and evaluate the”wire-frame”, etc. description.Else, consider: As the company grows, there will bemore ‘development projects’ that start with ‘ideas’and move through “wire-frame” descriptions, etc.,and these projects will need budgets, due dates,etc. and will likely have to be approved by theBoard. If the Board can’t effectively, hopefullyeven accurately, evaluate projects at the”wire-frame” stage, then bummer: The poorentrepreneur is reporting to a Board that flatlycan’t be effective evaluating the entrepreneur’scontinued work and future company. Double bummer.Third, the absolute emphasis on evaluation of onlythe ‘minimum viable product’ (MVP) “ready for publicuse” strongly suggests that the evaluation will bemostly just on how the work will appeal to the firstfew minutes of first time users and, then, basedmostly just on user experience (UX) and userinterface (UI). This approach promises poor resultsfor the VC because it is judging a book by itscover, judging a woman as a potential wife just fromher in a simple black dress at a red sauce Italianrestaurant dinner, or judging a car ignoring what isunder the hood. The result promises to be low VCROI as reported here at AVC some months ago.Fourth, with the MVP “ready for public use” beingthe first time at which you can make an evaluation,you are assuming that the entrepreneur can do thework for such a product with just his own checkbookand/or funding via ‘hustle’, welfare, consulting, apart-time job, neglect of his full-time job,’family, friends, and fools’, crowd sourcing, angels,seed stage VCs, etc.This circumstance tends to say:(A) The project, at least for the code, isrelatively trivial, and more significant babies werethrown out with the bathwater.(B) The projects reviewed have darned low ‘burnrate’ and are maybe from an entrepreneur who was asole founder and solo developer. Then for a goodproject the founder is about to be in very muchbetter financial shape then he was on the way to”ready for public use” and is much less interestedin venture funding.”Very much better financial shape”? Suppose hisproject is for a Web site and he finds $1500 andplugs together a server in a mid-tower case with an8 core processor with 64 bit addressing and a 4.0GHz clock, 32 GB of error correcting coding (ECC)main memory, 12 TB of hard disk, and a huge range ofsystem software, e.g., everything from the MicrosoftBizSpark program, for free or nearly so.Suppose his living room has for less than $100 amonth upload bandwidth to the Internet of 25 Mbps(million bits per second) with commercial usepermitted, he sends Web pages for 400,000 bits each,each Web page has an average of five ads, he getspaid (from Mary Meeker data at KPCB) $2 per 1000 adssent (charge per thousand or CPM), and, as we expectfrom a good project, after some time for growth,half fills the upload bandwidth 24 x 7. Then hesends25 * 10**6 / ( 2 * 400,000 ) = 31.250Web pages a second (possibly quite doable with thatmid-tower case) and gets monthly revenue of2 * 5 * 25 * 10**6 * 3600 * 24 * 30 / ( 2 * 400,000* 1000 ) = 810,000dollars.So, the project is one guy, one server at his kneein his living room, and $810,000 a month in revenue.So, now he can splurge and treat himself to dinnersat restaurants from McD’s to Le Cirque with winesfrom the Medoc and/or the Côte-d’Or.Now all of a sudden he wants to go from owning 100%of his company and being his own boss and beingsuccessful to suddenly owning 0% of his company witha chance to own 50% again after a four year vestingwhile reporting to a Board that doesn’t understandhis business and can fire him at any time for anyreason or no reason and can have some strong reasonsfrom fiduciary responsibilities to LPs to fire himand, thus, end the founder’s vesting, etc.?A reason for that? Maybe actually he knowssomething the investors don’t know yet: Thebusiness is about to go down the big white plasticpipes to the big concrete tank buried in thebackyard.So, the VCs are trying to place their bet when thehorses are 10 feet from the wire.So, what the VCs get to invest in is just the fruitwith the internal rot that does not yet show on thesurface. Did I mention the low average VC ROI?Fifth, the idea nearly the only thing that mattersis the UX/UI from the code is rotten. A significantevaluation for a significant project will get into,say, the details of its ad targeting, virality, andthe crucial, core, original, difficult to duplicateor equal, technical intellectual property, theimportance of the problem being solved, the promiseof the first good or a much better solution, etc.It isn’t all just a fad to thrill lonely teenagegirls wanting to attract or gossip about boys.Sixth, with high irony, essentially all of thecurrent interest in information technology (IT),especially in Silicon Valley and Boston, is basedheavily on projects for US national security fromabout 1940 to the present. For more, that work hasbeen based heavily on peer reviewed academicresearch.As we know very well, all of this work was evaluatedquite well, thank you, from just words on paper withall the expensive work on the hardware, software,bread boards, prototypes, fly-off versions, etc. yetto be started.In this way we got the atomic bomb, the hydrogenbomb, the proximity fuse, massive progress in bothsonar and radar, the U-2, the SR-71, the Keyholesurveillance satellites (Hubble aimed at the surfaceof the earth), GPS, TCP/IP (ARPAnet), etc. Littlethings like those.E.g., Teller and Ulam had an idea, and on its firsttrial the idea yielded the energy of 15 million tonsof TNT. From beginning to the end, the confidencewas just from Teller, Ulam, and some scribbles juston paper. Indeed there is the famous Ulam quote:”It is still an unending source of surprise for mehow a few scribbles on a blackboard or on a piece ofpaper can change the course of human affairs.”If US national security evaluated only projects’ready for use’ from the meager funding of one ortwo guys in a garage, then about all that would getfunded would be various side arms, knives, etc.E.g., we would have no GPS. US national securitywould suck.Well, venture capital, in the refusal to work frompaper, has yet to learn this lesson. Did I mentionthe low average VC ROI?Seventh, companies commonly evaluate and then fundinternal projects with little or no more than wireframes. I can give you several examples from myexperience, including two that literally saved FedExfrom going out of business. In each case there wasa meeting with a very unsatisfactory conclusion, andI went off alone and just did my thing, all fromjust between my ears, successfully.My Ph.D. dissertation? I identified the problem,did the research in six weeks independently in myfirst summer in grad school, later polished theresearch a little, gave a seminar on some of themath, wrote and successfully ran some illustrativesoftware, did the writing and typing of thedissertation itself, and turned in the polishedresults. That was the first time my advisors hadmuch idea what my work was. To get my math reviewed,I suggested a world-class guy, Member US NationalAcademy of Engineering, and he became the Chair ofmy orals committee. I passed. Lesson: The workwas successful and was just from my planning; thework went 99 44/100% according to plan.By the way, the world class guy did carefully readmy dissertation. And, he didn’t look at theillustrative software!NSF, NIH, and DARPA can all evaluate projects juston paper and appear to have batting average muchhigher than venture capital. Lesson: Evaluatingjust on paper highly technical projects often withhighly important practical results really can bedone.Clearly US VCs don’t plan projects; maybe it istheir LPs who insist on not planning projects. Theidea, commonly claimed on VC Web sites, that such aVC would be a good member of the founder’s teambegins to be a threat to femurs from excessivelyanimated thigh slapping from hysterical laughter.Did I mention the low average VC ROI?When I was majoring in math and physics and askedabout majoring in business, my mom told me that thequality there was low. Somehow she was correct. Itlooks like too much of business was drawn from theDelta pledge class:http://www.youtube.com/watc…I still don’t understand how the Delta pledge classcould be so large!Around DC, FedEx, and more, I’ve seen a lot of good,powerful technical work with valuable practicalresults, but what I’ve seen about business andtechnology from US VCs has been right down therewith the Delta pledge class. Reason: The Deltapledge class didn’t read their course text bookswith understanding, and similarly for VCs and thebusiness plans.I know; I know: Each VC gets from entrepreneursabout 2000 plans a year. But lots of things getreviewed carefully — student applications tocollege and graduate school, college term papers,Master’s theses and Ph.D. dissertations, originalresearch papers to peer reviewed journals oforiginal research, applications to NSF, NIH, andDARPA, etc. That VCs can’t review project proposalson paper is strange.M. Andreessen recently remarked that there are inthe US each year only about 15 plans worthy of aSeries A. And, we have a good idea how many Googlesor Twitters there are each 10 years. So, for justgood plans a year and maybe only about 15 Twittersin 10 years, each VC should be able to read thatmany plans.Maybe on average the plans suck; similarly for termpapers, college applications, …. Still arelooking for only about 15 plans. There should be away to get the plans read. Also need filters’tuned’ to find the 15 exceptional plans a year, notlook at 250 more stabs at a UX a year.Hmm …, sounds like a business opportunity:Set up a business plan review company (largelyjoking!): Let’s see, about 700 US VC firms, about2000 plans sent to each firm per year, and maybeeach plan gets sent to 200 firms. Let n be thetotal number of entrepreneurs sending plans in oneyear. Then the total number of plans sent is both n* 200 and 700 * 2000 so thatn * 200 = 700 * 2000so that n = 7000. So, have each plan read once withthe results sold 200 times. Hmm …!VCs, some warm advice: The future of IT is notnearly just exploitation of a smart phone forsocial, mobile, sharing fad apps for overlyemotional teenage girls to gossip about and look forboys. Such apps are about as relevant to the futureof IT as decorative engraving on gun barrels was towinning WWII.
Thank you for saying these words. I don’t ever think I can be helpful if I’m not the target customer (in giving feedback). Hard to convey that to die-hard entrepreneurs…
This gets into a strange issue for meExactly what is MVP in light of this – it clearly in many cases is not wireframes, or a landing page, as much as people would like to admit it.Is the pojnt where you would raise money your MVP – or before? Or After?
ideally after if you can wait
Interesting. By default this approach will give better results as it limits exposure to one of the biggest early stage hurdles… execution. If you have a working product a company has already taken that first step form concept to something functional, which is a pretty big advantage when investing.It does have disadvantages as well. You either have to A. limit your investments to companies who “design in code” or B. push your investment entry points further down the product development timeline which would/could impact returns.I suspect you’ve done the math and the advantages out way the drawbacks. I’d be interested to know how big the hit and miss gap was for you? (pre-product investment vs product investment)
Just to play devils advocate here. Not arguing with your track record but picking a winner that is already winning is hardly an advanced skill set. Where is the vision in that? I think the word venture needs more scrutiny.
What do you think about a design that is then made to feel operational through a tool like http://prototypesapp.com?
While i agree with your bigger message about the value of getting something tangible out there sooner rather than later, i think that development during the ideation phase (the pre-product phase) is a huge waste of time and resources. The point of visual mockups & interactive prototypes (like Flinto) are to allow for quick iteration that is less time-consuming (and less costly) than dev prototyping
Fred- my company PickAxe (consisting of me and my co-founder Kyle) try to solve this exact problem, by helping entrepreneurs show vs. tell. Help them build the “secret sauce” app quickly (2-1/2 wks). Totally agree with your paint points. After being recruited so many times as a CTO for equity, realized that entrepreneurs really just need to get their idea realized as a proof of concept, to get first customer, funding, or a CTO.
With bread and food, your customers are buying taste in the present, not possibilities of a future.It may be healthy but if it ain’t delicious, it ain’t ready.
Bread ends up as french toast–no?Kind of a natural lifecycle of tastes and uses.Though yes–shelf life is a pure anxiety metric. Balance between natural goodness and market viability.BTW–people hate PR in the tech world, in the food/fitness world a critical piece of cycle.
Is bread a metaphor here? Or did I miss the part where you pivoted to Charlie the Baker?
Natural is the only way and there is a distribution infrastructure that is growing to support this.Think what you may of Whole Foods–the complexity of infrastructure dealing with thousands of perishable products is really quite impressive.
A loaf of bread doesn’t last 2 days in my house 🙂
Any gluten free in the works?
We’re only using natural preservativesThat sounded good but then I realized salt is a natural preservative.
Baking bread to make the bread.Charlie Crystle and awaldstein def. need to connect and build a larger ‘natural food distribution’ business…one is heavily involved in a natural bread product the other in a drink product (both on East Coast)…I see some serendipitous magic starting to form…
The Bread Hawker. Nice ring to it. Hope you baguette.
Yeah, they could call it Arnold Bread and Crystle Light. ….oh, snap!
The world is going Paleo though. Not a lot of dough in the future
Jim, you have been on fire!
You are on fire!
You are scary.
YOU ARE TOO MUCH! GUEST POST!
a truly outstanding pun. somebody give this guy a badge! 🙂
90% of the battle with food is the component supply chain and time to transaction, not time for consumption with perishable items.And margin in tiered distribution.
Don’t let your bread loaf, do you?
I’m the silent (somewhat) partner.
Ah, of course. [I suck at stopping myself from trying to solve everyone’s problems.]
Being the customer is the best job there is.
So do I – so here’s what I would recommend…. 🙂
Was thinking this morning about refrigerated vans. And WTF to park them once you own them!I agree with you–own distribution locally. And it just may make sense to have more than one local center rather than eat up all that shelf life on long truck hauls.
Maintaining and managing a fleet is a challenge, but I’m looking forward to that part.Are you considering going eventually with the route delivery model on that?http://www.routebrokers.com…
Soon!And winter is its own temperature control for a few more months.
Reefer van? This?http://astridthora.files.wo…
Built in margin. #WholePaycheck
WF is an interesting one.They actually have regional Foragers who source the relationship of stores to local artisans.But–as in every retailer back to my day’s merchandising Fry’s and Radio Shack, getting on the shelf is simply step one. They transact, you need to market.
Yes, I see lots of local merchandise in my WF. I think it’s awesome. They think all my cash is awesome too.
They actually have regional Foragers who source the relationship of stores to local artisans.My guess is that the majority of those artisans are making bupkas  from their WF relationship. WF even has that loan program to help keep them a float.http://www.wholefoodsmarket…A small merchant can cut corners and pull shit that a larger organization’s can’t. Similar in a way to why it’s cheaper to outsource rather than have your own employees with hefty benefits. The outsource company can do things that the large corp. can’t do. (Have you ever seen an owners underage kids working in a chinese restaurant?) This also happens with small family owned businesses where if you figure out the $$ earned per hour of work by all members it’s not really that good. My speculation. Would totally guess that this is a long tail of profit.
Yup–We buy at the markets first every week even in winter.Smaller chains like Amish Markets downtown are getting bought up and there is now money be thrown at siphoning off the health and dollar conscious from them.Tough slog.
Looks similar to the one I had but our hair was way longer.
Every day with Jeff Spicoli in it is a good one.
No shoes no shirts no dice.
Pictures, or it didn’t happen.
I think I won’t share so I guess it didn’t happen 😉
Back in the 70’s I talked a neighbor into posing nude for me in my basement. I then developed the pictures in my darkroom. Unfortunately I never printed them because when I showed her the negatives she grabbed them and that was that. But it did happen. Of course they were art and tastefully done. Learned so much from that one episode.
they didn’t have cameras then….thank goodness.
Same as my Charlie comment above re: “where to park” is the route drivers driveway:http://www.routebrokers.com…
Interesting….but what’s a driveway?And the ‘route’ changes all the time based on sell through, based on a mix model of retail and home delivery. And in almost all of the cases, even for companies of significant size, the driver is never just the driver.There’s a solution. I don’t think for thiscase, it’s a third party, distributor within the boroughs or route leasing.Cool link though.
Interesting….but what’s a driveway?That was actually way funnier than what Hirschfield said as a joke (that was something my mom would have found funny – sorry Jim..)the driver is never just the driver.Well sure the driver is also the salesman. Hence he has an incentive to ride close to mr. retail small business owner (or even the 7-11 employees or Wawa employees) and keep the product moving and slotted correctly. And collect feedback at retail level. It’s very clear that this model works better than employees at least if you’ve ever seen these guys working quickly in a supermarket or convenience store. Newspaper delivery is another example. You don’t want to loose the route so you get your friend to cover for you. You don’t call and say “I’m sick” or “my family is going to Disney next week”.
Yes, Mr. Hand.
That’s a “humble brag” if I ever saw one.
Ah, how times have changed! Nowwe’ve got the whole NSA glued totheir screens looking at interceptsof SnapChat transmissions fromlonely teenage girls from Sweden!
Humble Brag: Subtly letting others know about how fantastic your life is while undercutting it with a bit of self-effacing humor or “woe is me” glossI’m not sure that really qualifies as a humble brag actually. A humble brag would be more like “It was really aggravating at the Aspen airport the private jet was delayed because of weather conditions..”I think it’s more like a “muted brag” since I actually cut out some of the things that would make it appear to be more clearly a brag. (Social engineering related if it matters.)
Amazingly I was thinking he was in “Lost in Space” but was actually in “My favorite Martian”.
I was just poking fun
ah, geez. thanks.
Doesn’t get much better than an endorsement from the Kid. Almost up there with JLM’s “well played.” Or Fred’s “yessssss”
And a stand up routine at the next AVC party!