My current gig is designed around spending as little as possible period. Less money needed = less dilution and more flexibility. Especially in the formative stage, money is a curse, so to speak. Marketing and sales gobble cash worse than zombies and the expected results never align (rarely if ever). It’s the internet age, if you cant pull customers from Google organically, you aren’t very good at SEO (hire someone) or your product doesn’t have a market (wow, that’s a problem money can’t fix). If you can’t get followers, your product isn’t very good. Unless your product is aimed at people over 50, marketing on TV, Radio and print is pointless or merely self-gratifying (IMHO). PPC is for getting $ sales, so should pay for itself.

If you can’t live on a shoestring before VC money, god help you. You should even have to live on a shoestring every day after that. Cash in the bank is a temptation for:

Office space, Staffing, Lunch, Dinner, Toys, Vacations, “Culture” , team-building and “branding” and “extending features”.

If a $ doesn’t make your product better or get more sales, it’s a pointless dollar and one you’re better not taking in the first place.

Just a thought.

Rob

Sorry, but you have no reason to live!

There is no reference to “under performing” grocers that I see; only the fact that the cost of living in the Bay Area is exceedingly high.

The Bay Area has a large Talent pool because it’s where the money has been. If the money were in Wilmington, DE, the Talent would be there.

The issue is how do you finance the new lean McClure model in the Bay Area due to cost of living? You get into a Catch-22 pretty quickly, or you limit yourself to only doing deals with 20-something garage bands; likely where you have no experienced marketing/business Founders, even though that’s where you need to do part of your spend?

I have yet to see anyone ask McClure how he gets around this? Since, the rest of his reasoning does seem sound. BTW, there’s a lot of Talent in places like Albuquerque and they even get AT&T reception.

you should operate in albuquerque only if you dont need the talent….

The only item McClure failed to address is that age-old conundrum of focusing investment in Silicon Valley/Bay Area, where (other than commercial rents), the cost of living remains close to the highest in N.A. — So, you have to raise far more money just to barely get by, and all that money goes to insurance companies, landlords and mediocre restaurants and groceries that charge 2x what you’d pay elsewhere. Forget being a start-up under this model if you have any business experience and might have a family — you can’t afford to launch in the Bay Area without much larger funding rounds.

Solution to that? Look to Salt Lake City, Portland, Albuquerque, Omaha, etc. – only in those locations can businesses actually operate under the terms McClure lays out.

VC used to be for high fixed cost/low variable cost industries, but is now being used to cover variable costs, like sales commissions. Few banks would ever finance a startup’s fab, but they will gladly fund the hiring of a few more salespeople for a good company. Moreover, the bankers generally need a single digit return, not a monstrous IRR to justify the investment. They also don’t go crazy with liquidation preferences and the cost of capital is much lower.

Venture “Capital” is increasingly a biotech phenomenon, but even there the IRRs suffer from the very long time lags to liquidity events. Green investments are doing atrociously, as wind/solar get cheaper by getting bigger, like traditional manufactured goods, not by getting smaller like semis.

The VC model that’s existed for 40 years is clearly not working anymore, which is reflected in the re-allocation of pension/endowment/institution assets into other categories. Don’t know if McClure’s got the right answer, but the risk of venture investing is very hard to justify when the return comes not from financing high margin software licenses or chips, but from funding the expansion of the marketing department.