California Calling

I spent the past two weeks in the Bay Area. I am happy to report that the spirit of entrepreneurship is alive and well. I mostly met new startups that were just getting off the ground and was fascinated by the passion, intelligence and vision of all the entrepreneurs I met.

Some of the interesting entrepreneurs I met include Rob Lord and Nivi. Rob Lord is a serial entrepreneur and visionary whom you may remember for creating Winamp – the wildly successful media player bought by AOL during the bubble days. Rob is now the founder of Songbird ( – the ultimate integrated browser/media player with lots interesting features. Nivi, while officially an EIR at Bessemer (, is also a passionate entrepreneur helping out with business development and hiring at Songbird.

I was also very impressed by Jeremy Stoppelman, the CEO of Yelp ( A former Paypal employee, he had the vision to create an online user generated Yellow Pages / City Guide killer. What is most intriguing is that he seems to have found the secret sauce to provide enough social currency and value to the reviewers so that they willingly contribute and create a site that feels much more authentic and lively than CitySearch – in addition to being more exhaustive (e.g.; covering doctors). He just launched New York and I expect him to continue growing rapidly. Kudos to my friend Jeremy Levine from Bessemer for boldly investing early on!

I also want to mention Naval Ravikant who both writes an iconoclastic amazing blog on entrepreneurship ( and is the founder of Vast ( Naval is clearly a subject matter expert on the auction and classified space and I look forward to Vast’s release in a few weeks.

Last but not least, I want to commend my good friend and fellow Princeton and McKinsey alum, Dan Rosenthal, for joining Mayfield ( as a principal. I can now be assured of funding for all my future startups 🙂

Sometimes it pays to be lucky!

As you might have read in my post on “The Power of Introspection and Detached Analysis” after I sold Aucland I was involved with three companies in France:

For the first two I wrote the business plan, helped fund raise, managed the site redesign and spent countless hours with the management team refining the model and figuring out the business. For Cityvox, I was somewhat less active but helped think through the business model and strategic options.

I obviously liked the business, the management teams and helped get them off the ground; however, when I started Zingy I stopped being active. By this I don’t mean I just decreased my level of involvement; I completely stopped it. I did not have time to talk to the management, participate on board meetings or anything. It got to the point that I forgot I had those equity stakes – I essentially assumed my investments had died with the dotcom crash.

You can imagine my (extremely pleasant) surprise when I learned today that MilleMercis had gone public on Alternext, the French stock market for small cap companies and had a 60 million euro valuation! I love watching the stock on Boursorama, the largest French financial information site.

MilleMercis inspired me to check how my other companies were doing. I am very happy to report that 2xmoinscher is doing very well – growing rapidly and very profitable despite competition by Priceminister, a larger player in the same space, eBay and Amazon. In fact 2xmoinscher just turned down a buy out offer at over 10 times my original investment. As for Cityvox, it is profitable and growing, has reinvented itself when it needed to and is poised to grow when the local search marketing market finally takes off.

My Chinese Internet stocks are also doing extremely well so I guess I am currently batting 1.00 in Internet investments. Sometimes it pays to be lucky!

Let’s hope the luck continues with the next batch of startups! In the meantime feel free to contact me if you want to buy 2xmoinscher or Cityvox at a huge premium 🙂

In Praise of Premium Services

In this Web 2.0 world free services have been all the rage – from social networking to photo sharing to social bookmarking, all the sites seem to be free and ad funded.

I don’t doubt the relevance and current and even continuing successes of these sites. Contextually relevant text ads have proven extremely successful and even less lucrative ads types can be very profitable if you can aggregate enough traffic (e.g.; MySpace).

The point I am making is that there is a market for premium services. In certain markets, charging improves quality. Listing fees decrease the amount of “junk” items on eBay. By charging, Match eliminates all the people who think finding the right date is not worth $24.95 per month. More importantly, there are many markets where charging allows the sites to provide a much improved quality of service.

The market that provides the best example of this might be the photo and video hosting and backup space. The free market is divided into two types of players:

  • Photo Printing sites such as Snapfish, Kodak Gallery and Shutterfly
  • Photo Community Sites such as Flickr, Fotolog, Pbase and Fotki

In both categories the various sites work relatively well at their primary purpose. However, both have their flaws. In the photo printing sites, they downgrade the quality of your pictures, it’s difficult to upload thousands of pictures, they don’t support video, and worst of all they delete your pictures if you don’t print. The photo community sites offer limited storage, poor customer service, limited support for video, downgrade the quality of your pictures and pictures are shared with the community as opposed to being only for you, your friends and family.

In this market a number of premium services have emerged. The one that impressed me the most is Phanfare. They charge $6.95 per month or $54.95 per year or $299.95 for a lifetime membership and you get:

  • Unlimited storage
  • Video support
  • Customer service that gets back to you within a day 
  • The ability to easily upload thousands of pictures
  • Easy to use
  • Multi-lingual support
  • Dedicated site with a simple URL (
  • Great photo hosting for eBay and blogs
  • No ads

It strikes me that at those prices – a little more than your daily price for a latte for a month of service – there should be a premium market for the service even when the competition is free. The hundred million dollar question is how big is the premium market? While we try to answer the question, you can watch my pictures at 🙂

P.S. For full disclosure and because I put my money where my mouth is, I am a small investor in Phanfare.

The Power of Introspection and Detached Analysis

Every once in a while we are faced with making a decision that will change our life. We reach crossroads where the path we choose to go down irremediably closes down the other paths.
To help me make those decisions – whether in my business life or my personal life – I write myself long, detailed e-mails analyzing where I am, where I want to be, my options and the pros and cons of them.

The very act of writing down the options helps me think through them. I rarely reach the right conclusion while writing the e-mail to myself, but usually find it a few weeks later – sometimes after using the e-mail as a discussion tool with my close friends and trusted advisors.

Find below an e-mail I wrote to myself on January 30, 2001. I had sold Aucland a few months earlier and was struggling to decide what I should do next. It’s all the more interesting to read it, in light of what I ended up doing next

From:Fabrice Grinda
Sent: Tuesday, January 30, 2001 5:26 AM
To: Fabrice GRINDA
Subject: The Road Ahead

I have had a fair amount of free time recently and took the time to reflect on where I stood in my “business” life and what I should do in the coming years.  Unfortunately, I have not been able to reach a conclusive and I would like to solicit your help to think it through. To bring structure to my thoughts I jotted down an analysis of my current situation and what I could do.

Current Position

I am no closer today than I was three years ago from being in a position to influence things for the better in the world.  Worse, I have not reached a level of wealth sufficient that I need not worry about how I am going to earn a living for the next few years.  As a result, I will have to pursue “for profit” activities in the short term.

After quitting Aucland I was convinced I wanted to be an entrepreneur again. After two weeks of rest, I became so restless I started analyzing the US Internet market looking for arbitrage opportunities.  Likewise I started looking for “problems” in the world that an entrepreneur could solve by dis-intermediating or re-intermediating a given number of supply chains or processes. This led to a number of ideas. Unfortunately none of them was “right.” In some cases the competitive environment was going to be too intense, in others the business model was unclear… Something was always wrong.

Interestingly enough I had gone through a similar process in my last 6 months at McKinsey. I never did find a brilliant idea through analysis. The creation of Aucland came through luck. One day a friend of mine walked in my office and told me “I just had to see this site.” That site was eBay. I immediately fell in love with the project. It was perfect. It had a large market, an attractive business model, needed the amounts of funds I knew I could raise, it was easy to execute, and the timing was right. Better yet, I fell in love with the business once I started working in it.
Unfortunately, the past 6 months I have not yielded such an idea and the environment has worsened for entrepreneurs. Funds are harder to raise. Many new projects notably in broadband and wireless require such massive investments that they are better done by existing companies with brands, expertise and cash. I have no way to reach the few businesses that are created by innovative engineers and programmers. They come to me to manage them after a first round of fundraising at which stage I would only be an employee with a low percentage of the company. I sent the message through the press that I was looking for new ventures. Unfortunately I received thousands of worthless ideas and projects.

After 2 months of unsuccessfully looking for ideas I was offered various positions in investment banks, consulting firms, private equity firms, and Internet divisions of large firms.  I declined all those offers and instead became a consultant for a number of Internet companies. The reasoning behind that choice was that it would allow me to stay in touch with the “milieu” and would increase the probability of finding a new idea.

Given that I am still paid by Aucland for the coming 9 months I chose to be paid only in equity. For the past four months I worked “full time” (50 hours a week, not the usual 80 and above) for MilleMercis (a wishlist site), MinutePay (a French Paypal-like site) and Trokers (a C2C barter site that is also launching a site).  For these companies I mostly:

  • Write the business plan (MilleMercis and Trokers)
  • Raise funds (MilleMercis and Trokers)
  • Handle business development (MinutePay mostly and a little MilleMercis)
  • Define their strategy (All three)
  • Work on site design and functionality (MilleMercis)

I have had a huge positive impact on all three companies because all three are at a very early stage of their development. They have 3 to 8 employees who are all paid the minimum wage and they have very little or no revenues and little traffic.  The problem is that I am bored out of my mind. There is not enough meaningful work for me to do there once I write the business plan and do the key business development work. Also the work is relatively boring. When you have written a business plan once, you can write 50. They all follow the same structure. Likewise, the other aspects of the work are very repetitive. Or, maybe it’s just that I do not feel the same passion for someone else’s project or for those specific projects.

However, I was able to meet one of my objectives – to stay in touch with the “milieu.” I have had enough free time that I really deepened and broadened my network of contacts on the Internet. I went to all the important Internet conferences, meetings and parties. I also took the time to go on vacation in India and go skiing every week-end. Unfortunately, none of these activities has yielded a brilliant idea and the 50 hours of work per week on the “boring” consulting job is preventing me from taking the time to think of new business ventures.

Also, I am not sure the business model I am following is attractive. I currently have:

  • 2% of MilleMercis (with up to 5% more in stock options on the last round’s valuation of $4 million depending on performance)
  • 1% of Trokers in stock options on the last round’s valuation ($1.5 million)
  • 0% to 2% of MinutePay in stock options on last round’s valuation of $5 million depending on performance

Not surprisingly I spend most of my time at MilleMercis (it is also the one doing the best). The problem is that these companies are so early stage it is unclear when my shareholdings will become liquid. In MilleMercis’ case my compensation depends on my ability to either raise funds or sell the company in the coming 9 months. Most of the companies that approach me to do consulting for them want the same type of performance-based compensation structure.  Obviously it makes sense for them to do so, but it basically forces me to work for them on a part-time basis for at least 12 months. Also, it is not very scalable – there is only so much work I can do.

In all these cases I am receiving stock options at the last round’s valuation (it is extremely hard to do anything other than that in France). As a result my upside is highly dependent on the exit valuation. Also, the companies are extremely risky. MinutePay and Trokers currently have a dubious business model (even though I love the services and they create great value for their customers). MilleMercis is the leader in the French wishlist market, but they are a smallish company in the e-mail marketing market they derive their revenues from. All this to say that this year’s worth of work can yield $0 and maybe up to $1 million. That said, whatever value this year ends up generating for me, the cash is not likely to going to be available for four to five years when the companies become liquid.

Given that I have some expenses – food, an apartment (eventually), etc. – I have to start generating some cash if I do not want to “eat into” the little cash I got out of Aucland. If I wanted to remain a consultant I would have to change the business model next October after Aucland stops paying me. (Note that I had the opportunity to get cash from the three companies above. I choose not to because I did not need it while Aucland was paying me in the hope of making more money by taking equity).

That said, I do not want to be a consultant. The work is boring, and it is highly unlikely to make me rich. I am even considering stopping the work I am doing for MilleMercis, Trokers and MinutePay and accepting the loss of having worked for them for nothing (if I stopped tomorrow I would only have the 1% of Trokers).

The problem is that if I stop I need to do something else. The trillion dollar question is what. I am not sure what I want to do and what would excite me. I guess a few paths are obvious:

Investment Banking

I have never worked in investment banking so I am not necessarily well-positioned to judge how the work would be like.  Looking at it from an outside perspective, I think I would like to work in M&A in a bank. It probably would be fun to be part of the negotiations process and to think through the ramifications and justifications of deals. The work sounds similar to the business development work I did for Aucland, which I liked.  However the work does not sound intellectually challenging and would not make good use of my ability to grasp complex concepts and theories.  Also I do not feel like a good negotiator or mediator.

I may even have missed the best opportunity to enter the market. Right after I quit Aucland a headhunter called me to offer the job as head of Internet M&A at two French banks where I would report directly to the top partners. He did not name them but gave enough hints that I figured out they were Lazard and Société Générale. Given that I had no experience in the business that seems pretty unheard of. I do not think an offer like this is likely to come today, especially since the M&A activity has significantly decreased and the banks have all started downsizing.

Also, I am not sure where would be the best place to work for an investment bank. Setting aside personal preferences for now, my gut feeling is that investment bankers in New York or London earn two to three times more than investment bankers in France. (They also work much more though, but that has never frightened me).

Private Equity and LBO

Again, I have no direct knowledge of the industry. I have very different feedbacks from my various friends who worked in the field. Some absolutely hated their experience while some loved it. Apparently the various companies in the field pursue very different strategies (financial optimization, LBOs, MBOs, etc.). As a result the work one does on a day-to-day basis varies significantly from one firm to the next.

If I remember correctly Su Lee (one of my McKinsey friends) hated her experience there. She was overworked and spent her days crunching financials models. Michael Kahan (another McKinsey friend) who worked for Onex had a very different experience. His company mostly did management buyouts of well-performing subsidiaries of large companies or conglomerates to allow these companies to grow faster by selling to other companies, etc. As a result his job was split into three activities:

  • Finding ideas for such opportunities.
  • Analyzing the idea: getting smart on the market both through personal research and hiring consultants, meeting management, doing the financial analysis and closing the deal.
  • Helping the companies grow.

This actually sounds exciting, but I would have to do the work to be a good judge of that.

Internet division of a large company

A large number of companies like Vivendi, Lagardère and France Telecom own numerous Internet divisions. However they seem to have little skill at managing those businesses. I clearly have the opportunity to become the head of e-commerce or even of an entire Internet group there. If I played my cards right, a job like this could lead me to the very top of one of those groups after a certain period of time (15 years?).

I think these companies need entrepreneurial people who have a good understanding of the business, but my gut feeling is that I would hate to work there:
The different Internet divisions are part of different little fiefs and are prone to infighting (I have witnessed it many times in Vivendi and France Telecom). My job would then be highly political, and I hate company politics.
The keys to success are likely to be patience, good process management, setting the right agendas, and motivating my direct reports. I feel I can do that, but I would find it much more boring than defining a strategy, raising funds, negotiating deals, playing with site design, etc.

On the plus side I could probably get away with working 40 hours a week there and the salary can be mostly fixed and high. Another one of my McKinsey friends works for Bertlesman and it seems to be exactly like that for him. He is paid extremely well, he works relatively little, but he also seems thoroughly bored with his job and he seems to hate the bureaucracy and politics that surround him.

Working for a startup

I was offered positions either as CEO or as head of business development in a number of startups. To date I refused those offers because I did not like the projects. They were either not good, or just not very exciting. On a more general level though, I feel it would not be a good idea to work for a startup I did not create. In my opinion, the most fun part of a startup’s life is its genesis when everything must be done – building the team, the technology, finding a business model, adapting the business to the environment, to customers, etc. Once the company has reached a certain stage of development, the overall strategy is defined, the organization structure is more clear and the job becomes of CEO becomes much more process driven – making sure the company is hitting the numbers, that the various divisions are performing well, evaluating his direct reports, communicating with shareholders, etc. I can do the job, but it does not excite me as much, and someone like Paul Zilk, the 43 year old CEO I hired to replace me in Aucland can do it much better than me.

Also, from a financial standpoint working for a startup without being one of the founders carries a lot of the risks of failure with much fewer rewards.

Venture Capital

After witnessing first hand the general level of incompetence of VCs in Europe for the past few years I was really tempted to join a VC fund after Aucland. I received a few offers to join as a partner in newly formed funds or to join as an associate or VP in existing funds.

I actually like to read business plans and meet management of many different companies. It forces me to think and analyze numerous industries. However, having been a business angel and having founded Kangaroo Village, an incubator where I sit on the project selection committee, I realized that I am not well equipped to pass judgment on the vast majority of projects. They are too specialized and too technical. Likewise in many cases, especially recently, ex-consultants or bankers have been presenting the projects. They present so well after their years of training that it is hard to tell how good they actually are. At the end of the day I probably ended up being no better in project selection than the VCs I criticize.

Also when I created Kangaroo Village my intent was to really help the companies we invested in by participating actively in the early stage. In reality, we became so swamped with business plans (of horrible quality) that we could not help the companies we invested in much.

I also hate the negotiating process with the founders and its double standards. One minute we are trying to argue that their company is worthless, the other after our investment we are best friends. Then things become tense again for the next round of financing. I would much rather avoid all that.

Also, this is probably not the right time to enter venture capital. The venture capital is highly cyclical. ROIs depend on exits – IPOs or tradesales. Given that valuations are much lower than they were and that the IPO market has closed, venture capital companies are not likely to do well in the coming years. Also, funds tend to have 6 to 10 year lifecycles. Today I am not ready to commit 10 years to any given line of work.

Being an Entrepreneur

I love the time I spent at Aucland (at least until things got messy with my VC). I loved the variety of the work, the ever-changing market and the need to be creative. I also liked the flat organization structure and the crossing of our professional and social lives. What worries me though is that the time I enjoyed the most is also the time I would most likely not duplicate in a new startup.

We were undermanned and under-organized for too long. It gave me the opportunity to do every job in the company and to play a huge role in everything that went on. However, there is only so much a few people can do. It slowed us down a lot and led to various mistakes (or actually I missed some of my employees huge mistakes because I did not have the time to check how they were doing). If I skipped that first part, I would still love to be an entrepreneur, but the “interesting” part would only last 12 to 18 months at which point I would be better off handing over the company to someone like Paul Zilk.

The ideal job for me would thus seem to be a “serial-entrepreneur.” But for that I would need to have “serial-ideas” and that is not likely to happen given the difficulty I currently have of finding even one good idea. Furthermore, as I pointed out before times are not as good for entrepreneurs as they used to be.

Being an Entrepreneur in Residence (EIR)

If I become an entrepreneur in residence I would work for a venture capital firm to try to come up with a business idea. They would give me access to their resources and help me evaluate the ideas I come up with. It is unclear to me to what extent I would get paid for the work I do for them. From what I understand, there is an implicit arrangement where the EIR has to come up with an idea within 12 months.

I was very attracted to the idea at first. I figured it would allow me to find a new idea and that if the VCs like it I could bypass the love and seed money stages to directly do a first round of financing and grow the business much fast.  The work sounds eerily similar to the one I do today. I would be surrounded by smart people (the Internet currently entrepreneurs I brainstorm with are smart), I would get to go to various conferences (I already do), and I would get to work with some of the VC’s portfolio companies (I also work with startups as a consultant). Given my lack of creativity for finding new ideas I might not do any better than I am currently doing.


This list could never be completely exhaustive as the choices are endless. There are a few other potential opportunities. I could get an MBA. It would give me time off to think of what to do next and it would allow me to build a network of relationships. However, I do not really want to take the GMAT and go through the application process. I feel like I would learn next to nothing there and that I cannot justify the opportunity cost of the time.

On another note, I am not averse to doing something completely different from the opportunities I mentioned above (even outside the field of business). I usually get bored of something after a few years. Except for my studies at Princeton where I felt I could stay forever and have fun because I love learning, my interests have perpetually changed. I loved running my computer company at first – incorporating the company, finding suppliers and customers, preparing the pricing, selling the computers, assembling them, doing the accounting, etc. However after three years I got tired of dealing with bugs and irate customers (computers were even less stable then) and everything became so redundant… I loved McKinsey at first (ok, not on the first horrible Libby Chambers study, but all the studies after that). I loved most of the people I met there (they were all so smart and interesting). I actually loved writing and giving presentations at first. I really felt I was improving my oral and written communications skills and I loved learning business strategy and the intricate workings of various industries. However after 18 months that I started becoming restless. The work became repetitive (after you write enough decks you can write an infinite amount of them in your sleep). Also the work did not seem very meaningful and gratifying. Often my recommendations were not implemented or covered unimportant topics (especially at companies like Amex where we were at study 200 or something). Even when my recommendations were implemented I did not get to see them through and might learn about the implementation in the papers months afterwards. By then I would be working on another project and would no longer care. Truth be told after 2 years Aucland was becoming like that. I was more than happy to dump the day-to-day management of the company to Paul (who fist came in as COO), the CFO and the head of marketing. I still had an important role to play at first especially teaching them the job, defining the strategy, doing the business deals and playing with the site. However, after most of that work was done my value added was minimal. It was definitely the time to hand over the CEO position to Paul to go do something else (it did not actually happen that way because of the conflict with my shareholders, but that’s another story). After 5 years in business, I can definitely use a break and I would love to do something else. I just need to figure out what. Too bad you cannot become a movie star or a sports star overnight. I think it would be fun to try that, for a while at least. On a related note, I have actually been having a lot of fun writing articles for a French daily newspaper. I write one article a week on anything I choose that is Internet related. I have been mostly taking non-consensual positions on various topics which lead to interesting debates (to be entirely honest the articles have not been published yet, so far I have only shared them with fellow Internet entrepreneurs).

Overall I feel that the decision I need to take is going to have a huge impact on my life. Today I have a very large number of options. Once I start walking down a path, many other potential paths will no longer be available. For the first time in my life I do not know which one is the right one. The journey I took to date and the choices I made in life have always seemed obvious to me – the decision to work hard in school, to go to Princeton, to join McKinsey, to create Aucland… Despite all the mistakes I made along the way (especially in my personal life), I believe all those decisions were right (for me at least) regardless of how they ended (the Aucland experience could have been a huge success. It was so close… It came down to two incorrect decisions. First my own. I should have sold to eBay for $15 million. Then Arnault’s. He should have let me sell the company last February).

Despite its various “down” periods I loved the life I lived so far. I love the memories I have of it and I clearly remember enjoying living it despite the regrets I inevitably get when I look at missed opportunities and passed mistakes. In addition, to enjoying the life I led, I actually feel like I accomplished a few meaningful things. At Princeton I loved the sense of accomplishment I got from helping a student grasp a concept he previously did not understand (I was a tutor in economics, a teacher assistant in accounting and a consultant in econometrics). One of the happiest moments in my life was when a girl (unfortunately I do not remember who) told me she had worked hard and joined McKinsey because she wanted to follow in my footsteps. Likewise, with Aucland I feel proud that I helped change mindsets in France. Aucland was the first French startup to raise a lot of money (a $18 million capital increase was unheard of in France in July 1999, $1 or $2 million were the norm then), we were the first to use PR and buzz aggressively. The image I got in the press as the poster child of the French Internet allowed me to inspire people. Young people could succeed again… The only article I liked in the press on my Aucland experience was a little snippet that said: “Today’s generation of young French people no longer want to be like Lou Gerstner of IBM, they dream of being entrepreneurs like Fabrice Grinda of Aucland.” The last thing I feel proud of is the fact that I changed the lives of so many of my employees. They are obviously disappointed that the dream I sold them did not happen, but I still changed their lives for the better. Many of them were stuck in meaningless jobs they hated as salesmen or waiters and are now hot commodities on the job market (and they like it).

I want the path I choose to allow me to be happy with the work I do on a daily basis and to allow me to feel a greater sense of accomplishment (until now I have never been able to influence more than a few people).  If I can have both those things and avoid past mistakes, things should be great.

Anyway, It is getting late (5 am) and the quality of both my thinking and writing is starting to decrease significantly so I will leave it at that.

Entrepreneurship: The Game

As a champion of entrepreneurship, I can only applaud the charitable Ewing Marion Kauffman Foundation, headed by Carl Schramm, which gives away $70 million per year to promote entrepreneurship around the world.

One of its most interesting projects is Hot Shot Business ( Hot Shot Business is the result of a partnership with the edutainment arm of Walt Disney. It allows millions of budding entrepreneurs to open their own pet spa, skateboard factory, landscape-gardening business or comic shop in Opportunity City. Players start marketing campaigns; change products, services and prices and respond to demanding customers and big events.

Hopefully all these entrepreneurs will be more open to risk and help us save ourselves from the creeping bureaucracy and risk aversion that is becoming increasingly prevalent in developed countries – including, I am afraid to admit, the United States.

Moments (incorrectly) attributed to Jorge Luis Borges

While in Argentina, I came across this inspiring poem. Carpe diem!


If I could live my life again
I’d try to make more mistakes,
I wouldn’t try to be so perfect,
I’d be more relaxed,
I’d be more true-to-life than I was.

In fact, I’d take fewer things seriously,
I’d be less hygienic,
I’d take more risks,
I’d take more trips,
I’d watch more sunsets,
I’d climb more mountains,
I’d swim more rivers,
I’d go to more places I’ve never been,
I’d eat more ice cream and less lime beans,
I’d have more real problems and less imaginary ones.

I was one of those people who live prudent and prolific lives each minute of their existence.
Of course did I have moments of joy yet if I could go back I’d try to have good moments only.
In case you don’t know: that’s what life is made of.

I was one of those who never go anywhere,
without a thermometer,
without a hot-water bottle,
without an umbrella,
without a parachute.

If I could live again
I’d travel light,
I’d try to work barefoot,
from Spring to Fall,
I’d ride more carts,
I’d watch more sunrises,
play with more kids.

If I could live my life again
– but now I am 85,
and I know I am dying.

You can also read the original in Spanish.

A Eulogy to Rong Yiren

While I never knew him, I would much have liked to. Rong Yiren was a true entrepreneur. Rong’s family had created one of the largest businesses in China. When his family fled from China in 1949 as the communists took it over, Rong stayed to run the 24 flour mills, and various dyeing, printing and textile factories he owned employing some 80,000 people. He presented himself as a patriotic capitalist who had remained to help China end its poverty. He astutely handed over large stakes in his family’s business in exchange for becoming the vice-mayor of Shanghai and in 1959 vice-minister for the textile industry. He used his guanxi, or personal connections, to survive the Cultural Revolution. His companies were confiscated and he was reduced to doing medial work, but his connections shielded him from further terror.

His dogged conviction that China would discover capitalism was finally proven right when Deng Xiaoping decided to experiment with capitalism and enlisted Rong to lead the way. In 1979, he founded CITIC which swept up telecoms, utilities and highways. When Deng in the 1980s set up the Special Economic Zones in Guangdong and Fujian, CITIC was there first to exploit the property boom.

Mr. Rong’s conglomerate now boasts assets of more than 51 billion yuan ($6.3 billion) and 200 affiliated enterprises, including airlines, Hong Kong banks, timber operations and Australian aluminum smelting. These assets made him a billionaire.

Mr. Rong passed away on October 26, aged 89.


One cannot but be in awe at the amazing beauty and diversity of Patagonia. From the Perito Moreno Glacier near Calafate to the “Seven Lakes” of Bariloche, Patagonia offers an incredibly rich and diverse scenery and ecology.


I started with a few days in Cumelen at Alec’s place. For those of you who do not know him, Alec is an amazing entrepreneur – HBS grad, former BCG consultant, who created Deremate, the largest auction site of Latin America. He just sold Deremate to La Nacion and Mercadolibre (part owned by eBay) and is taking a few months off. Cumelen is in the Seven Lake district and is part of “Green Patagonia” – a wet micro-climate with an abundance of trees. There we boated on Nahuel Huapi lake, biked, hiked and rafted under the rain. A full day of hiking in Santana – in the 20 km no man’s land between Chile and Argentina – was close to my heart as we trekked to the Dora and Ana waterfalls. The way back offered the most prominent view of a full rainbow I had ever seen. Rafting on the Manso river also proved extremely exciting as it offers category 4 rapids and ends in Chile where we drove quads back to Argentina.

More pictures of Cumelen

Alec and I then flew to southern Argentina to explore the Perito Moreno Glacier. An invigorating 8 hour climb of the glacier allowed us to discover a white desert of immense diversity with beautiful blue lagoons. Deftly using our crampons, we climbed near the accumulation zone. It’s amazing to see a glacier can exist in the 15 degree Celsius ambient temperature near the lake.

More pictures of the Perito Moreno Glacier

The next day proved just as exciting as we galloped for hours at the Estancia Anita near Calafate – just an hour away of the glacier, but with a topology akin to Arizona.

More pictures of Estancia Anita

After an amazing week of adventure we were off to Buenos Aires to plot world conquest!

Investment Banking Fees

My post praising the value of investment bankers led to a number of e-mails asking for the parameters for investment banking fees for M&A. Here is the retail M&A price list from a first tier investment bank:

Aggregate value of transaction – Aggregate fee as a % of the transaction

    $20 billion – 0.150%
    $15 billion – 0.180%
    $12.5 billion – 0.200%
    $10 billion – 0.230%
    $9 billion – 0.240%
    $8 billion – 0.250%
    $7.5 billion – 0.265%
    $7 billion – 0.275%
    $6 billion – 0.300%
    $5 billion – 0.320%
    $4 billion – 0.360%
    $3 billion – 0.400%
    $2 billion – 0.450%
    $1 billion – 0.600%
    $900 million – 0.625%
    $800 million – 0.650%
    $700 million – 0.700%
    $600 million – 0.700%
    $500 million – 0.800%
    $400 million – 0.900%
    $300 million – 1.000%
    $200 million – 1.200%
    $100 million – 1.500%
    $50 million – 2.000%

As I mentioned before, those are retail prices so you might be able to shave a bit from those. Also, at lower price points and/or in deals that are less likely to happen you likely to have a retainer (say $50k) and a minimum transaction fee (say $750k).

Sometimes, if I have a good understanding of the value of the company, I also structure deals giving bankers an upside for selling the company at a premium to my expected value. For instance if I think the company is worth $100 million, I might pay 1.5% on the first $100 million, but 2% on the next $50 million and 2.5% after that. You need to realize that the marginal value of the extra million is worth a lot more to the shareholders than to the bankers who would rather get the deal done.

I hope this provides good guidance!

Side note: IPO fees are very different. For IPOs where the market cap is below $400 million the bankers take 7% of the proceeds split between the book runner and the co-managers.


My trip to Morocco was magnificent. There was palpable energy in the air and the attitude of many of the people in the street reminded me of China in 1994!

After landing in Casablanca, the capital, I headed to Marrakech, the red city. The city has a long history as it was a large imperial city and several dynasties had made it their capital as testified by the numerous historical monuments in the city.

I ate dinner that evening at “Le Comptoir de Marrakech” which is part of “Le Buddha Bar,” before heading to the Riad where I was staying. For those not familiar with it, a Riad is a traditional Moroccan housing where entire families live together. While the exterior is typically modest, those are typically large on the inside and have a large internal garden that serves as the focal point of the Riad. I stayed at the Riad “Les Boungainvilliers” where the owners were nice enough to rent me a room.

The second day started with a visit to the famed Djamaa El Fna at the heart of the medina – a vast plaza outside of the souk with snake charmers, monkey trainers, acrobats and animals of all kinds. From there I explored the souk with its infinite offering – traditional clothes, carpets, jewelry, etc.

From there one it was off to “Les Jardins Marjorelle” an ecological masterpiece by Jacques Morelle with numerous plants from around the world beautifully assorted. The park is owned by Yves Saint Laurent and Pierre Bergé.

I ate lunch at “El Fassia” an amazing Moroccan restaurant owned and managed by women where I tried a delicious multitude of local food.

In the afternoon, I visited the Bahia and Bdiaa palaces. The Bahia palace is relatively close to Jemaa El Fna. It occupies around 27 acres and was built in 1880 by Ahmed ben Moussa, the grand vizir of the sultan. The palace has two parts: an old part with apartments around a riad paved in marble; a recent part with a large garden surrounded by rooms for the concubines. I was most impressed by the mosaics on the walls, magnificent ceilings, the marble and the humongous double doors.

The El Bdia palace is grandiose and was built in 1578 after the victory by sultan Ahmed El Mansour Ed-Dahbi in the “battle of the three kings.” The palace is mostly in ruins and a housing place for storks but its roof provides startling views of Marrakech. It also houses an alcove “Mihrab” more than 900 years old for the imam to direct prayers and read the Koran.

That evening was spent at Chez Ali – a traditional Moroccan dinner in massive tent with diverse folklore troops singing, dancing and animating the evening. At the end of the meal the real show began with an horseback riding show displaying old tribal power with various acrobatic tricks and mock cavalry charges with gun fire.

On the third day, I was off to Agadir by way of Essaouira. Essaouira, ex-Mogador, means “the well drawn.” It is a beautiful coastal city built on a rock with strong Atlantic winds making it a paradise for wind and kite surfers. That evening I reached Agadir and stayed at the Club Tikkida Dunas. Agadir is more of a beach resort on the Atlantic. I took advantage of an amazing 2 hour massage for $30 at the “Argan Massage Center” which was much needed after so much driving and in light of the coming trek and journey to the desert.

I was then off for the dunes of Chegaga in the Sahara. I stopped on the way at Taroudant, Taliouine and Tazenakht. We then went through a 96 km of off road course in diverse sceneries reminiscent of the “Paris Dakar” – even managing to get stuck in one of the dunes! After many hours of digging, we finally escaped and reached the immense and beautiful blond dunes where we bivouacked and tented with nomads – the blue men of the desert. I had hoped to see the sunset, the stars and the sunrise in the Sahara, but it was not to be as it was raining non-stop!

The next two days were absolutely amazing as we first raced dune buggies before beginning a beautiful 15 mile 2 days hike in the afternoon. It was unfortunately time to go back and the next day we started the long trek back to Marrakech. We started with 60 km of off road before reaching Zagora. We traversed the famed Draa valley in the middle of palm tree oasis with tons of “Kasbahs” and “ksours” – small villages with houses in cooked mud and stone walls. Then came a late lunch at Agdz before heading to Ourzazate. From Ouarzazate to Marrakech, we moved slowly through a blizzard as we crossed the summit of Tizi-n-Tichka at 2,260 meters of altitude.

I finally reached Marrackech and spent the night a the Tikkida Garden before heading back to Casablanca for my flight to Nice the next day.

All in all, it was amazing. I loved the country, the people, the food, the culture and saw rain and snow in the Sahara. You can see all the pictures here. I am sure one of my upcoming startups will have a North African component to it 🙂

Next stop: Argentina!

In Praise of Investment Bankers

Investment bankers have often decried as adding little value and adding complexity to otherwise simple sale processes. I strongly disagree.

Even if a startup is run by a former investment banker or someone with significant M&A experience, I would not recommend handling the sale process without a banker. Abraham Lincoln once remarked regarding lawyers: “he who represents himself has a fool for a client.” The same applies for bankers.

There are several reasons why I recommend you use bankers:

1. Avoiding conflicts with the buyer:

This is the single most important reason to use bankers. Negotiating a sale of a company is one point in time at which your interests are not aligned with those of the buyer. It is very easy for the negotiation to turn acrimonious.

The sale of the company is not the end game, but only one step in its development. You will have to work with the buyer for the foreseeable future and must thus maintain a good relationship with him.

Whether negotiating the price or the details of the stock purchase agreement (SPA – representation and warranties, etc.), I always let my lawyer and bankers take the lead in the discussions. This way I can blame everything on them – they are greedy and difficult while I am the reasonable guy willing to make compromises.

On my last transaction – after we had run the process and signed the LOI – I went on vacation and left my banker and lawyer to negotiate the SPA. I only made myself available to the buyer for 1 hour every few days. This forced the buyer to focus on the essential, thus involving me only for the most important discussions and removing further potential for conflict over details.

2. Bankers have good senior level relationships:

When selling your company, you typically know a lot of the people in your own industry, but you often don’t have the relationships to bring parties in conjoint spaces to the table. Senior bankers have the ear of CEOs, CFOs and corporate development people … and the more parties bidding for the company, the higher the ultimate price.

3. Running a sale process increases valuations:

Running a process usually means:

    a. Sending an executive summary to gauge interest
    b. Organizing management presentations
    c. Requesting LOIs by a specific date
    d. Selecting a shortlist and organizing follow-up presentations
    e. Requesting a new LOI by a specific date by the short list
    f. Selecting the winning bid (after doing one last all around check)

The first offer we received for Zingy was $40 million. After we ran the process the winning bid was $80 million in cash.

Side Note: I usually blame the requirement for running a process on my shareholders. After all, even if you are the controlling shareholder, your minority shareholders will want an independent process to make sure they are treated fairly.

4. Bankers do a lot of the work:

Bankers use your existing material to write the executive summary and management presentation. They track the status of the discussions with all the contacts. They coordinate the meetings. They prepare justifications of the valuations for the buyer. They help negotiate the LOI and SPA.

Selling your company is extremely time consuming without having to do all the above given all the management presentations and follow-up discussions with potential buyers. Given that you also have a business to run, bankers allow you to offload as much of the work as possible.

5. It’s not expensive:

Investment bankers take between 2% and 0.5% of the sales price depending on your company’s valuation. In light of the 4 benefits listed above they provide, the price is very reasonable.


Use investment bankers if your selling price is above $10 million. The best investment bankers I know in new media and wireless are Andy Kass and Emmanuel DeSousa. They are former CSFB bankers who now work at Deutsche Bank. They are super smart, hungry, extremely well connected and in the midst of every deal I heard of in the past few months. They really make deals happen!

The only exception to the above rule is if you have strong professional investors in the company – VCs and/or private equity firms who also want to sell. Then, you can let them run the process and blame them for being greedy and difficult. Just make sure that your interests are truly aligned and that they want the same thing you do. If in doubt, hire bankers!

Fund Raising 101

Looking back, I realize how little I really knew about fund raising when I started Aucland. It seemed to me all you had to do was write an amazing business plan, send it to a VC, organize a management presentation, do a brilliant job and all your problems were going to be solved. How little did I know 🙂

There were two fundamentally flawed issues with this: timing and approach.

a. Timing

When you create a new business from scratch, you face two main types of risk: idea risk and execution risk. Idea risk is the risk that the business you enter is not attractive and ends up not working for whatever reason (market too small, bad business model, etc.). You can minimize that risk by applying the 9 business selection criteria previously mentioned and/or copying an already successful idea from abroad. Execution risk is the risk that you are not able to execute and take the business from an idea to a functional product that can generate revenues.

I have come to realize that VCs are willing to accept idea risk much more than execution risk. Approaching a VC when you only have a business plan is a bad idea. The risk in your project is so large that you are unlikely to get a valuation above $1 million pre-money – if you can get funding at all. Moreover, if the VCs like the idea, they will immediately start looking around to see if there is another company in the space that might further ahead that they could fund. That said don’t worry about the VC stealing your idea and building the company – they are too busy being VCs to do that 🙂

If you wait until you have a functioning product and a proof of concept – even on a small scale – you will have proven that you can execute and that your go to market strategy has some merit and you will then find VCs to be much more responsive and valuations much more attractive.

Side note: Most entrepreneurs think that the largest risk they face is competition – they typically overestimate the competitive threat and completely underestimate the execution risk.

b. Approach:

Now that you have a functioning site it’s time to start contacting VCs to obtain the funding you need to accelerate your growth. Sending a VC a 50 page business plan and hoping to get a reply is not a realistic approach. VCs receive thousands of business plans a year, but between the companies they are on the board of, companies they are negotiating with and companies they are just talking to, they have very little time and will not read a 50 page business plan.

Prepare a 9 slide presentation with:

    1. Cover page
    2. The concept
    3. The market
    4. Your specific implementation
    5. Your differentiation
    6. Your team
    7. Your projected financials
    8. Your capital needs
    9. Closing page with contact information

Now that you have your teaser presentation ready you must contact the VC. E-mailing it to [email protected] is unlikely to work as that e-mail address is flooded with thousands of ideas and projects and your presentation is likely to get lost in the clutter.

The best way to approach a VC is through someone they know and to organize a brief voice conversation. Work your network – between your classmates, co-workers at all the companies you have worked at, family and friends someone must know a VC that invests in the field you in (or a VC in any field who might be able to point you to VCs in your industry if need be). Have your contact send an introduction e-mail. Reply, thank your friend for the introduction and express interest in having a brief conversation. The VC will usually reply accepting to talk, asking for the Powerpoint or telling you if your project is out of scope for his firm. If the VC does not reply within a week call him — if he is in a meeting or traveling ask his assistant when he will be free and call again. As with many endeavors in life, persistence usually works 🙂


The earliest capital is the most difficult and expensive to raise – and you are extremely unlikely to get it from a VC. Do whatever it takes to get the project off the ground without it. If you don’t have enough personal money to fund the early stage development you can:

  • Beg friends and family for money
  • Don’t pay yourself
  • Beg your developer friends to build the software for you
  • Give sweat equity to whomever you need in the early stages of the company
  • Penny pinch on everything – you most likely don’t need a CFO, nice offices, etc. Just get the product out of the door!

Once your product is out of the door, test your go to market strategy on a limited scale – for instance $10k in Google Adwords advertising — until you can show your model works, then use your connections to approach a VC and raise the money you need.

Good luck!

Side note: The above is somewhat specific to consumer facing ideas. For a softeware company selling to coropoates, the model can be a bit different as you can get an early customer to pay you to develop your product and then use VC money to scale the company…

St. Moritz

After a few more meetings with entrepreneurs in Paris including Fotovista (500 million euros in revenues!), oodrive and esearchvision, it was time to take a few days off for a real vacation. I headed to St. Moritz for 3 days to take advantage of the abundant snow that had already fallen.

The train ride to St. Moritz from Zurich was extremely pleasant with a beautiful scenery along the way. Many times I felt I had traveled back in time to the mid-19th century and was only brought back to reality by the occasional sight of cars. St. Moritz itself is extremely beautiful with log cabins and wooden buildings throughout the city. Only the various luxury stores remind you of its commercial nature.

I stayed at the Suvretta House right on the slopes. The hotel interior is extremely luxurious, though as usual for European luxury hotels the beds leave a bit to be desired.

St. Moritz

Upon arriving I decided to try cross country skiing for the first time. I tried the classical style which did not do much for me. Much more importantly the next morning came the time to try the slopes. As I had never skied there before I hired a guide to tour the mountain. Interestingly enough the ski school seems to go out of its way to find hot single female guides for male clients and vice versa 🙂

Swiss flag on top of slopesThe snow was good, though the snow cover was limited given that it was early in the season – limiting the opportunities for off piste skiing. Having discovered the mountain, I then spent the next two days skiing on my own and was able to take advantage of every skier’s dream: empty slopes with absolutely no lines for the ski lifts.

The resort has amazing facilities with high speed quads or more throughout the mountain with protective bubbles to keep you warm on the way up. As the many pictures I took attest, the view was maginificent. After 3 brief days, it was time to go again, but I know I will be back!

Next stop: Morocco!

Inspiring Quotes

I recently came across an amazing site – – with quotes from thousands of people from all walks of life. Here are a select few I often turn to when in need of inspiration:

Goethe: “Whatever you can do, or dream you can, begin it. Boldness has genius, power and magic in it.”

Salvador Dali: “At the age of six I wanted to be a cook. At seven I wanted to be Napoleon. And my ambition has been growing steadily ever since.”

Salvador Dali: “I don’t do drugs. I am drugs.”

Napoleon Bonaparte: “Glory is fleeting, but obscurity is forever.”

Bobby Kennedy: “Only those who dare to fail greatly can ever achieve greatly.”

Shakespeare, Henry V:
If we are marked to die, we are enough
To do our country proud, and if to live,
The fewer men the greater share of honor.
Crispin Crispian shall ne’er go by,
From this day to the ending of the world,
But in it we shall be remember’d;
We few, we happy few, we band of brothers;
For he to-day that sheds his blood with me
Shall be my brother; be he ne’er so vile,
This day shall gentle his condition:
And gentlemen in England now a-bed
Shall think themselves accursed they were not here,
And hold their manhoods cheap whiles any speaks
That fought with us upon Saint Crispin’s day.

Advertising Creativity

I have always been in awe of creativity in advertising. The first ad that profoundly moved me was Apple’s 1984 Think Different ad. While at Aucland, I did my best to provide creative freedom to our advertising team at CLM/BBDO. They ended up creating an amazing ad that was both creative – so much so that it won the Silver Lion in Cannes in 2000 – and commercially successful.

Despite rumors of its demise, creativity is alive and kicking. For Thanksgiving I was sent the most creative greeting card I had ever seen. More recently, I saw a very intriguing Napster ad 🙂

Entrepreneurs Everywhere :)

The guiding theme of my current vacation is to meet entrepreneurs from the world over. As my travels take me from New York to Paris, London or even Buenos Aires, I am meeting entrepreneurs to hear their stories, aspirations, dreams and be inspired by their passion.

Here is a sample of the companies whose founders I have met or am meeting:

  • Xanga – online blogging and social networking
  • The Ladders – job search with a twist – job seekers pay
  • Mobissimo – travel search engine
  • Brandalley – equivalent of Europe focusing on luxury goods
  • Meetic – largest online dating site in Europe, second largest in the world
  • Photoways – Shutterfly of Europe
  • Cityvox – Citysearch of France
  • 2xmoinscher – of France
  • MilleMercis – online marketing in France
  • Un77 – online marketing in France
  • Deremate – eBay of Latin America

In hearing so many inspiring stories, I cannot help but be reminded of one of my favorite quotes by Goethe: “Whatever you can do, or dream you can, begin it. Boldness has genius, power and magic in it.”

If it’s in the press it must be official :)

Zingy Founder Steps Down
Peter Kafka, 12.01.05, 5:02 PM ET

The founder of one of the best-known players in the high-flying ringtone business has left the company he started. Fabrice Grinda, who started mobile-content company Zingy in 2001 and sold it to Japan- based last year, left the company on Wednesday. Chief Operating Officer Andy Volanakis is serving as interim chief executive.

Grinda is well-regarded in the mobile-content industry for having the foresight to start Zingy, which makes most of its money managing and selling ring tones, when the market barely existed. He is also thought to have made a significant profit when he sold the company to For-Side, which owns a conglomerate of mobile-content companies in Asia, the U.S. and Europe.

“It’s been four-and-a-half years, and I’ve taken this company everywhere I can take it,” Grinda said. Zingy officials responded to requests for comment with a written statement thanking Grinda “for his contribution in making Zingy the leader in mobile media.”

People familiar with the company said Grinda had differed with his new owners over plans for Zingy’s future. For-Side management, which is aiming to roll up several of its subsidiaries and take them public, has been focused on maintaining margins and limiting expenses, while Grinda had wanted to expand Zingy by adding new product lines and buy acquiring other companies, sources said.

Inspiring Speeches

I suppose the concept of inspiring people through great oration is particularly appealing to me and when I am in need of inspiration I turn to reading or listening to amazing speeches.

A recent favorite of mine was Steve Jobs’ amazing commencement speech to the graduating Stanford class ( I also turn to this amazing site: Most of the speeches don’t speak to me the same way Steve Jobs’ speech did, but are still extraordinary in their own way.

On a related note, my favorite collection is a 4-disk series called Great Speeches of the 20th Century ( I listen to them every year and think most of you would really enjoy it too.

International Idea Arbitrage

An international idea arbitrage is a concept I coined in the mid-1990s (apologies in advance to whomever might have said it before me). It’s the concept of taking an idea from one country and duplicating it and adapting it to another country.

As I mentioned in my 9 business selection criteria posting, I currently lack the creativity to come up with brilliant new ideas that change the world. However, the selection criteria can also be applied to evaluate existing businesses. When copying ideas, you must either dramatically improve on them or take them to places where they have not been done before.

It’s this latter strategy that has worked for me. If I had a nickel for every time someone told me that an idea from country A would never work in country B, I would be a billionaire!

When I created Aucland, I was told:

  • The Internet will not work in France, we have the Minitel!
  • Even if the Internet takes off, it’s only those crazy Americans who will trade beanie babies on eBay, we Frenchmen are much more sophisticated.
  • Americans have much more of a garage sale culture than the French
  • Even if by some miracle the Internet did take off and people wanted to trade used goods online, we would never put our credit cards online.

I heard similar stories across Europe. Yet today eBay generates around 20% of its revenues from Europe!

When a friend of mine created Meetic, now the largest dating site in France consumers were telling him the idea would never work:

  • It’s only those crazy Americans that are willing to put their profiles online, we French people are much more romantic and hate the concept of productizing love!
  • Girls would say that the site only had geeks and losers and would never be caught dead on the site.
  • Guys said that being on the site was admitting they could not find girls any other way and would never be on it – especially as no interesting girl could possibly be on it.

Four years later the site has millions of subscribers, over 10 million unique visitors per month and is now public with a $500 million market capitalization!

When I created Zingy in 2001, consumers, carriers and media companies all told me it was only those crazy Japanese, Koreans and Europeans that bought ringtones and mobile content. It would never work in the U.S. where consumers were more rational and price sensitive. In 2005, U.S. mobile content revenues reached $1.5 billion!

I have come to realize that people around the world are much more alike than they like to admit. We all share similar goals and aspirations. We have a fundamental need to express our identity, to entertain ourselves, to communicate and to trade. As such many ideas are transposable across cultures, languages and countries.

It’s also interesting to note that consumers are not good at predicting their future behavior limiting the role of focus groups in evaluating new products and services.

The above is not to say that all ideas are transposable across countries, but there are certain indicators that can help identify those concepts that are. One of the best measures of the potential success in transposing an idea is its existing success in many countries and cultures. What gave me hope with Zingy was that mobile content was already popular not just in Japan and Korea – but also in the Philippines, China, France, Italy, Spain, Germany, the UK and many other countries around the world.

I guess I need to start booking a trip around the world 🙂

9 Business Selection Criteria

As I am entering a new stage of my life, the time has come to pull from my shelf my trusty old 9 business selection criteria.

The traditional cliché of entrepreneurs is that they have an idea and vision. They build companies to fulfill that vision. I am not this type of entrepreneur.

I realized long ago I lacked the creativity to come up with brilliant new ideas. Frankly I lack creative skills in general including the ability to paint, dance or sing ?

To cover up for that deficiency, I use a rational thought process in evaluating business ideas to decide which business I will create, invest in, buy or join. These are my 9 criterias:

1. At least a $1 billion addressable market
This criteria is inherently personal and depends on the entrepreneur’s ambition, but there are good reasons to target larger markets:

  • It’s easier to obtain funding
  • Many Internet businesses have a certain amont of fixed costs but limited variable costs, therefore the larger the business, the higher the net margin
  • I find it more interesting to build larger companies

This does not mean that the market must be a $1 billion market at the launch of the company, but that it must have the potential.

When I created Aucland, the online auction market was small, but the offline used goods markets were multi-billion dollar markets in their own right suggesting that the online market would be large enough if a certain percentage of the trading went online.

2. A valid business model understood from the get go

There is only a 5% chance that a company created today will still be around in 5 years. I have not seen official statistics, but many VCs seem to believe that only 0.1% of the company started without a valid business model succeed.

It’s so risky to create a company to begin with, I would rather have all the odds in my favor… I realize that Google is a counter example, but in an upcoming post I will describe how they got lucky.

For clarification purposes, by having a valid business model I mean understanding how you are going to generate money and having a good sense of the gross and net margins at the creation of the company.

3. Does not require more than $2 million in seed or $15 million in first round VC money

If it requires much more, the business might be too capital intensive which could lead to too much dillution and suggest that this is an idea that is easier for a large incumbent to fund rather than a new startup.

4. A business where you have a real shot at being one of the top players – at least in the region you are targeting

Avoid entering businesses where many players are well funded or where the incumbents have a sustainable advantage. That is not to say not to enter businesses where there are incumbents – just make you have a hard to replicate edge on them – after all Skype did extremely well because it entered the telephony market with a radically lower cost structure than the traditional telcos and used it to its advantage.

5. A scalable idea
This is again a very personal criteria. Walmart and Starbucks are great businesses, but I would rather not be in a business where I need to open a new store to increase my sales as it leads to slower growth and greater capital requirements. Internet businesses are magical as they give you the ability to build and grow global companies in record times – just look at what Google, eBay, Skype and many others accomplished in less than 10 years – in some cases in less than 5 years!

6. A business with little or no risk of disintermediation and/or margin compression by suppliers and/or customers

You are in a much safer position if you are much larger than your customers and/or suppliers. Walmart exerts tremendous pressure on its suppliers which are much smaller than it is and depend on its sales. eBay can also continuously increase prices on its sellers – none of which is in a meaningful position to fight back on its own. Zingy violated this criteria and this is one of the main reasons I sold the company as I hated having so much of the revenues coming from the top 3 carriers in the US and so much of the costs generated by the top music labels.

7. A business that is in a rapidly growing market

A rising tide raises all boats. Growing markets generate more interest from the press, consumers, customers and suppliers. Moreover, if you are gaining share in a rapidly growing market, this can create exponential growth.

8. An idea that I know how to execute on or can learn how to execute on

For now I will probably focus on technology ideas as I have a clear comparative advantage in the field as I understand technology and know how to manage technology organizations. This probably excludes biotechnology for me – if five teams present me their cure for prostate cancer I can tell you which presents the best and has the slickest Powerpoint presentation, but I can’t really say which is best positioned to win.

9. An idea that I like and want to do!

One of the keys to happiness and success in life is to do things you love and are passionate about…

A few things to note:
As you can see, I did not mention barriers to entry as a business selection criteria. While it would be nice to be in a position to have strong barriers to entry from the get go – it’s relatively rare to be in a position to have a sustainable barriers to entry from the start especially as it is becoming easier to duplicate technology or even get around many patents. I prefer to focus on building the barriers to entry with the business – the very fact of operating a business – having customers, suppliers, press attention, creating a brand – creates barriers to entry.

The End of a Journey, the Beginning of a New One

Over the past four and half years, I have had the pleasure to share a wonderful journey with all of you. Thanks to your passion, dedication, grit, commitment, tenacity, and to some sheer luck, we have succeeded where many have failed. I am indebted to all of you for this wonderful experience, and I am proud to have been part of this remarkable team.

My aspirations and ambitions are now taking me in a different direction. I resigned from my position as CEO of Zingy effective November 30, 2005. I will take a few months off and spend some time musing about entrepreneurship, business and life on this new blog on the way to finding my next adventure.

I look forward to seeing you all again on the journey of life!