Thursday, 15 April 2010

Venture Capitalists can add value too, not just money

Great anecdote on how VC's can add big value, relayed by Ben Horowitz talking about Ron Conway, Valley Godfather:
A particularly memorable moment was one night I was in the office at 11pm with our then director of finance, Alfred Lin (now COO of Zappos). We were at wit’s end because we had just lost our biggest customer opportunity which was with a large US telecom company.  Normally “losing” didn’t phase us as we even developed a motto: “losing is just a step on the path toward winning.” But this time, we were really in trouble because the customer was signing a long-term contract with our competitor later that week.  We had already appealed to the President of the division; the only further escalation points were to the CEO or Chairman.  We had already tapped out our VC contacts.  If we lost this customer, as Alfred dryly pointed out, it was unlikely we’d be able to get our revenue over our fixed costs in any reasonable timeframe.  I asked Alfred what about any of our angel investors, so we went through them and none seemed likely to be able to pull this off.
Alfred said, “Well there is this one other investor, Ron Conway.”  I didn’t know Ron at the time, and his investment was quite small.  But we had nothing to lose by reaching out. So sometime after 11pm, I wrote Ron and essentially said: “hello, you don’t know me, I’m an executive at a company you’re an investor in, and we need a meeting—in person—with the CEO himself of this Fortune 50 company—this week—and if you can’t make this happen, hey that’s ok, but we may be going down—sorry.”  Ron wrote back in literally 2 minutes and said, in what I have learned is Ron’s distinctive email style (immediate, short, all caps), “AM ON IT.” 
The next morning, Ron had done it.  Tellme went on to win an eight figure contract that led to a nine figure contract. That’s a lot o’ money from a desperate email from someone he’d never met at 11pm.
Tellme was eventually acquired by Microsoft for about $800mm.  My view of building startups is that it is somewhere between impossible and almost impossible, so you want all the help you can get.  Tellme’s VCs (The Barksdale Group, Benchmark and Kleiner Perkins) were also extremely helpful, and I don’t think Tellme could have succeeded without them, including help with customer connections. But my personal opinion is that I’m not sure we would have made it without Ron either.


Jochie van der Merwe said...

I've got only questions and no answers, but doesn't understanding come from asking the right questions?

Question: Could it be that the developed world enjoy a first mover advantage over the developing world?
Question: Was it a good thing or a bad thing for the South African Government of Post WW1 to uplift South Africa from a farming and mining economy to a more industrialised economy by deliberately starting Steel manufacturing and electricity generating businesses in South Africa? If not the government, who would and should have done it?
What is the quickest way to kick-start South Africa to emulate countries like South Korea that rose from the destruction of WW2 and the Korean War to where they are today?

Rush Bhana said...

Great article. Would be a great passage for your biography :)

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