Stardust Global Ventures

I’m going to start this with a disclaimer. Stardust Global Ventures is not, contrary to a bizarre number of queries, a venture capital firm. It’s a labor of love that Sheryl and I created to explore digital media, social networking, mobile technologies and the like. We are not invested in any of the companies we talk about other than emotional investment in solutions we like. If that changes, we’ll be forthcoming about that when we talk about any company.

As another snippet of information, I’m a tech guy in many ways. You all know that. But over my thirty years in the industry, I’ve also had the opportunity to learn some important business lessons. I’m a business guy too. What follows comes from some lessons learned while working with Kleiner, Perkins, Caufield & Byers several years ago. So yes, I have actually spent a bit of time on Sand Hill Road.

I was exchanging some thoughts with Stuart Henshall (@stuarthenshall) about Skype’s potential IPO and Twitter’s monetization and value. The conversations blurred, but here’s the thread I’m working on right this moment:

Want a Twitter-sized elevator pitch for what this post is about?:

My thoughts were spurred on again this morning when Sheryl (@SherylBreuker) and Phil Campbell (@philcampbell) caught my eye. Phil asked another big question  “I do have a question thou, how do you get a VC or investor that doesn’t steal your idea and invests in you, your ideals and your project?“

I think it all ties together nicely.

Investors come in a wide variety of shapes and sizes. While I don’t wish to offend, I’m going to paint them with a broad brush in two simple terms – shepherds and wolves. Both have a legitimate place, but more on that ahead.

In the current economy, investments are down across the tech sector. Investments are hard won, and there’s a plethora of competition from innovators with pure genius fighting for investor attention. There’s also a pretty high noise level with developers of pure crap lower quality garbage  inferior solutions that should, perhaps, never see the light of day. You are competing with noise. For some, the noise is a greater challenge to overcome than a true competitor. Welcome to Internet business.

I’ve had a number of conversation with colleagues about exit strategies, how and where many startups fail to consider all the multiple exit strategies that exist and the like. That’s another conversation. As for innovative entrepreneurship, that’s driven by talents, ambitions, and passion. We either have it or we don’t, and it exists in hundreds of forms. It isn’t always about building a better mousetrap, but it is always about passion.

But we’re talking about the relationship between creators and investors, or more specifically about the investors. To give them credit where due, investors are all winners. They’re in it to make a profit, and if they’re doing any serious investing, and have been around at all, they’ve got savvy, and they know how to make money. For many, it is their passion. But wait…there’s more.

If all investors are winners, how do you lose. I’ll draw on my sales and marketing background in tandem with my relationships with investors to tell you how an investor loses. Never leave money on the table. Period. If you don’t invest more than money in a company, you’re already losing. More importantly, you’re leaving money on the table. That’s a disservice to yourself, your portfolio, and those you invest in. I call these investors the wolves.

The Wolves
Invest money because they know that’s the club they wield. They take board seats because then they can bang their…ummm….checkbook on the table. They want power, but not leadership. They leverage their financial investment as a weapon to pressure innovator leaders to do more, faster, cheaper. Do more with less, that tired mantra of the manager who all too often doesn’t know how to do anything but boss. Bossing is not leading. Ever.

These investors still provide valuable service and win money. They give funding to many startups who need it. They give pressure which most startups need to maintain focus. They keep the wheels turning.

Never underestimate the value of the wolf investor. Without them many companies would never get the funding needed to achieve greatness. And to be safe, never underestimate the ability of the wolf to devour the sheep. Ever.

There’s another class of investor who takes a different approach. There’s still money. There are still board seats. There’s still a clear definition of where the power comes from. This investor brings far more than money and bossing to the table. This investor brings leadership. This investor brings soul. This backer invests themselves in success. I call them the shepherds.

The Shepherds
They invest money too. They take seats on the board. But they also may take senior management roles. They don’t offer instructions and set expectations in the same way. They build strategies. Investors bring experience. Solid business experience that innovators may not have. Many innovators are young wizards creating completely new tools in hardware and software. These entrepreneurs need a partner, a shepherd, a mentor. In short they need guidance.

Shepherds nurture and guide their flock through dangerous territory. They help build and sanity check business roadmaps.They bring in engineering expertise to help with quality review. They study the competition and offer strategy to win. In short, the shepherd engages with the flock. They work together closely.

The relationship between the shepherd and the sheep is more successful and sustainable than the relationship between a wolf and the sheep. Always.

I chose the analogy purposefully because many innovators in technology are like sheep to the slaughter in business. The past few days I’ve been talking with companies about how I can help in their efforts to productize and brand solutions. I’m looking for the right fit in the leadership team with a company and these thoughts are in my head constantly.

We each serve a purpose. The innovators role may not be business leadership. That’s a rare combination. Partnerships that succeed are often built between duos who share similar passions but complementary talents. And for many, the technical skills far outweigh the business acumen.

For startups, a word of wisdom – know your investor. We all know how investors conduct due diligence reviews of the companies they consider funding. How well do those companies conduct due diligence reviews of the investors? In my experience, far too few. Some, but not enough. Even due diligence may not be enough, but it may help at least avoid the greatest danger in new partnering relationships – the wolf in sheep’s clothing.

If you’re looking for funding…if all you want is the money, a wolf will often do nicely. You simply have to recognize the sacrifices you’re willing to make. Consider return on investment, ROI, because that’s what it is. Your backer is investing money in you. But you’re investing in them too. You’re investing the brainchild that is your passion. You’re investing the sweat of your team. You’re investing your life energy into your creation. Take the time for due diligence and consider whether the right match for your creation is a wolf or a shepherd. Do you need cash to survive, for which you’ll pay dearly, or do you need a shepherd with patience, creativity and commitment who will bring guidance and their experience to help make your brainchild something bigger than you envisioned. It’s a choice.

To Phil Campbell’s question, “how do you get a VC or investor that doesn’t steal your idea and invests in you, your ideals and your project?” I think the answer is the same, and I think it’s a simple one.

Maybe a better synopsis –

I know there are naysayers out there who will shake their heads and scoff, so I’ll give you a live, real-world example that’s in the news today. Two company names.

eBay and Skype

Who are the wolves? Who are the shepherds? And who are the sheep? All three exist. You can noodle on that puzzler for homework. No test. Unless you’re an innovator wooing investors.

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