Some time ago, I read former Treasury Secretary Robert Rubin‘s book In an Uncertain World: Tough Choices from Wall Street to Washington and one of my key takeaways was his framework for balancing risk in decision making. 

The book is about a third economics text book, a third memoir, and a third commentary but I managed to power through it on a few trans-continental flights.  It is certainly worth a read and he is a very bright guy – both in his command of markets as well as his approach to leadership.  He is part of the "now that I am running Goldman Sachs, I need more challenges so let me be Secretary of Treasury" gang like current Treasury Secretary Hank Paulson

You should pick it up yourself, but here is the short version:

• In decision making, you must balance rewards, risks, and probabilities
• It is important to determine at what point additional risk no longer carries potential rewards that exceed potential losses given the respective probabilities of the good and bad outcomes

He then goes on to describe how all of this can be laid out on an expected values table – have fun with that…

He also covers the "risk of remote contingencies" and how this remote risk can prove devastating and is almost always underestimated.  As he points out, you don’t want to be in a position where remote risk can hurt you beyond a certain point or not understand "how much loss can be tolerated."

Business decisions include elements of risk and reward that must be balanced.  Whether or not to pursue a given market, build a certain feature, or invest in a specific opportunity all involve taking a risk that you are correct based many times on imperfect information. 

The point to not lose sight of here is the risk of remote contingencies – what happens if the deal you are chasing doesn’t close or the market you are targeting does not materialize?  Have you surpassed the point where the additional risk you are taking does not justify the potential loss that may occur?  What are the "remote contingencies" that you are not focusing on?   

John Cook, the Seattle P-I venture reporter, posted a good summary from the keynote of the WSA Investment Forum by Larry Orr of Trinity Ventures entitled Top ten reasons to invest in Seattle.  Follow the link to get the list.

As a relative newcomer to Seattle, I am still learning about the venture infrastructure here but certainly have been impressed with both the community that exists as well as the opportunities for would-be entrepreneurs.  There are lots of great organizations like the Northwest Enterpreneur Network, MIT Enterprise Forum of the Northwest, and WSA.  Also, quite a few Seattle-area venture firms like Polaris Ventures & Northwest Venture Associates (investors in MessageGate) as well as Ignition Partners, Madrona, and OVP to name a few.  Even the Open Coffee Club I posted about is a forum for creating relationships and nurturing ideas among smart people.

Lots of regions want to be "like Silicon Valley" which is a bit of a fruitless pursuit.  The Bay Area is truly unique in its history and character but there are other cities/regions including Seattle that have created their own identity as it relates to nurturing start-ups and innovation.  VCs play a leading role in attracting talent and developing the support infrastructure for start-ups in their region.  Brad Feld of Foundry/Mobius is an example of a guy leading the charge to promote his region with initiatives like Colorado Startups, TechStars, & the Entrepreneur’s Foundation of Colorado.  Jason Caplain in the Raleigh/Durham area is another.

You don’t have to be in the Bay Area, Seattle, RTP, or Boulder to launch a company – although it certainly helps and here’s why:

1.  The family tree

This is the generational development of entrepreneurs, their "offspring", and having all the supporting services (lawyers, auditors, etc.) up the learning curve on how to fund, grow, and exit.  Seattle has/had Microsoft, Amazon, Real Networks, and McCaw to name a few.  These companies paved the way and have created enterpreneurial "offspring" that both fund and found companies.

2.  Smart people

Having a local research, defense, or university presence brings bright people to the area and through programmatic research spawns innovation and breakthrough.  Also having companies locally that recruit globally to find great people feeds the population and creates a dynamic population with more folks arriving every day.

3.  Access to capital

We’re not talking about bank loans here, but risk capital.  Having the available capital to fund ideas and businesses is essential from local angel investors willing to take a very early stage bet to venture capital firms inclined to provide capital over multiple rounds.

4.  Optimism

This is a bit more subjective but it is about the culture and mindset of the population.  One thing you must have to start a company is optimism and a belief that you can be successful.  Having had people around you be successful fuels this (see point #1)

There are probably many more things to add to this list, but I believe these are key.  I moved here from Atlanta and although all of these things exist there, the "family tree" doesn’t have as many branches as Seattle and certainly no where near the development as the Bay Area.

This came up this morning here over coffee and if you have seen Glengarry Glen Ross you know why.  This is a great clip of a "sales motivation speech" although I wouldn’t quite call it supportive.

Baldwin’s character touches on lots of issues that sales and marketing deal with albeit in a less than polite way from leads to a laser-like focus on closing.  Although the delivery is a bit abrupt to say the least, the message here is on target – activity is not accomplishment and you must focus on closing business to build a company.  Plus, this gave me a reason to upload this clip…

ABC – Always Be Closing…

Jason Caplain from Southern Capitol Ventures has offered up a second day of his time, this time in Atlanta, for open meetings with entrepreneurs.

Looks like there was a good turn out last time around although, in the spirit of continuous improvement, he issued a few guidelines for the next gathering on May 17.

There are lots of points and posts on how to pitch a VC. A few good places to look are AsktheVC and the local Seattle Alliance of Angels has a good Powerpoint template to follow here. Take what they are telling you to heart as they are providing you a roadmap on how to be successful in fund raising.

Here’s a few pointers that I think are worthwhile:

1. VCs have short attention spans (sorry fellas) so be brief and concise. It is more a function of their job than anything else – quickly tell them why they should care.
2. Start with the problem you solve then describe how you solve it – describing how it works out of the gate misses the biggest piece which is why would anybody care.
3. These are only 15 minute meetings so make them count. Plan on 5 minutes of content and use the balance of the time to field questions and be sized up by your audience. If you can’t get it across in 5 minutes, then you are not ready for this meeting.
4. Use this as a framing statement “It does/performs/provides X and that is important because Y.” You probably know “X” inside and out, but “Y” is actually more important.
5. No NDAs – they won’t sign them and it makes you look silly in a first meeting. You should be an expert at pitching your idea or company to anyone anywhere without fear of giving up your “secret sauce.” How else are you going to get real feedback and ensure you’re not drinking your own Kool Aid.
6. Ideas are cheap and plentiful. Customers, trial users, and even interviews about the problem build your case and make what you are doing tangible – it is all about execution.
7. Research the firm’s portfolio and understand current/previous investments, ones you are similar to, and even which ones may be competitive indicating they have already placed a bet on your opportunity.
8. If you are desperate for a paycheck, this will come through loud and clear. Remember the leverage equation of these meetings – you are asking for their money but you are also selling part of your business (regardless of stage) to get it.

Be prepared to be told in a range of ways that it is not a good idea, not a big enough market, not right for the VC, or that you are not making sense. If you go around pitching your idea and at least one audience doesn’t react this way, be suspect because people may be tuning you out and/or don’t care enough to provide feedback. Counting on this happening will strengthen your resolve and put you in the right frame of mind to think through your business and be prepared for the hard questions.

The first
one of these was held today at Louisa’s on Eastlake.  Pretty well attended and very laid back gathering.  Thanks to Andy for coordinating and bringing a great group of people together.

Met some new folks and look forward to attending another one.

Venture capital is often discussed and often misunderstood.  I have learned some lessons and taken my lumps by being on the entrepreneur/management team side of the equation and there are some great VC blogs out there that I highly recommend (several I list on my blog).

That said, I am a huge advocate of this kind of risk capital and the role it plays is driving innovation and private enterprise in both the US and global economy.  I’ll save that for another post, but wanted to put the word out about a great way to chat with a venture capitalist…at his request.

Jason Caplain of Southern Capitol Ventures in Raleigh, NC writes a blog called Southeast VC.  He has put out an open meeting invitation to anyone who wants to get together on April 20 in Raleigh for a chat.  This is the kind of openness and proactive approach that I love to see.

I like and respect Jason and encourage anyone that can swing it to take him up on his offer.  I have family in the RTP area and he took my meeting request without knowing me as I passed through Raleigh a while ago.