I have been musing about what a recently befriended VC told me about his firm investing in a few “Superfounders” every year, while discarding thousands of Business Plans. First I felt flattered, assuming of course to be meant. When i asked him how he recognized a Superfounder, he said: “well, you know one when you see one”. Aha.

There is of course a very valid point in that a VC Partner known to have invested in some of the great successes in their realm of action does have the experience to recognize success in the budding. But maybe that’s just the point, “when it is [already] budding”.

Picture this:

Niklas Zenström spent some three years being laughed at for Skypester before moving to an unlikely Baltic State to rename it Skype and get rich.

When we got to know the Sevenload team, by all classic criteria of the business and VC scene I know, there was no way their imminent (and yet to be brought to full fruition) success was discernible. But i felt:

- Passion
- Nonconformism
- A dedication to User Value
- Borderless thinking
- and the proven will to bite the bullet in the face of adversity
- very low bullshit factor
- and a keen sense for the value of every single €
- and the ambition to shoot for the moon (even if you miss it, you’ll land among the stars)

…all proven in the biography, especially of Ibrahim Evsan, the Key founder - and as i know see as an observer of http://www.codingnight.de

It’s either viral or another proof that A class people attract A class people, because the whole team shows that dedication. In the myths of our time, it’s the Googleyness of Sevenload.

Which brings me back to “What is a Superfounder?”. I’m not sure there isn’t a fat danger of having a kind of simplistic Belief in the Strong Man. Where I come from,

http://www.denkwerk.com

which we founded as the idea of “A Company of Brilliant People”, dedicated to the above, to innovation, to having the guts to start new things, it is TEAMS that created the greatest success. And Team means that secret combination of personalities, talents, and experiences, that combine to bring the spice and the reality to any Grand Idea. So if being a Superfounder means dreaming that dream and creating that kind of environment, then maybe yes, I do feel like a Superfounder, Ibo certainly is, and Bill Gates, who said success is never achieved alone, damn sure is. [wow, me and Bill in one sentence]

But maybe the lesson of the picture in this blog is different: it is the teams that matter. And the less loud, less salesmany, less obvious secret toilers, the Wozniaks, the Myhrvolds, the Substance Makers are the ones that really count at least as much. In one word:

the Supernerds.

The world is abuzz with the changes spurred by the (third) arrival of video to the internet. There is truth in the perception, but many questions are unanswered by the hype.

The way we see it, three factors will create the actual value of video on the web:

1) ubiquity: it will evolve from a feature to a standard component of every website
2) involvement /interactivity: the business models that will succeed are those that combine the emotional appeal of moving pictures with a wide and differentiated range of interests reflecting long tail segments which in their combination reflect any given markets population diversity
3) cannibalization of existing markets: there is still no new money out there, so startups have to decide who’s pockets they’re after. The Advertising World? Media Budgets? B2C Entertainment? E-Commerce -> Retail? That is the Gretchenfrage.

Incidentally, that’s the exciting part of

http://www.sevenload.de

the board of which I just joined. they will beat YouTube in Europe, not as a copy. Al Ries in “The Origin of Brands”:

“If you want to beat the incumbent, you have to be the enemy of the incumbent”

So be it.

Rumour has it VCs are downbeat again. Well, on the one hand I can’t blame them, and on the other it brings me back the structural problem of assessing innovation as an investor. I have been observing a very fashion-driven, impressionable and cyclical focus of VCs on The Things That Exit Well (TTTEW), coupled with a regularly disdainful disregard of Never Heard of That (NHoT) and Don’t Believe It Works (DBIW).

Interestingly, most acclaimed hot shots, like skype, or Social Bookmarking, or even Apple in the beginning, went through year-long phases of NHoT and DBIW before sparking real Oh God I Hope We’ll Get a Deal in That Space Epidemic (OGIHWGaDiTSE).

Now as a proponent of a few Startups That Earn Actual Money (STEAM) - I like to think of our company as having a STEAM-Engine, being STEAM-Driven, or believing in STEAM-Power, if that is not too much self-E-STEAM - I keep wondering why it is much harder for VCs to see the merits of Social Commerce models vs. simple Social Network models.

There is no logical explanation for this. And if you think of it, copying something that just exited well is about the stupidest thing you can do:

1. It has already been done
2. It has become big enough to just exit
3. It has become so big everybody actually knows about it
4. There are at least 100 other boy group founding teams and greedy-panicky Vijays (see Dilbert for who that is) funding them who are trying to do the latest GooTube thing

…doesn’t strike you as smart? It’s being done. All the time. Again. And it’s sooo 1990s, ain’t it?

So, dear entrepreneurs, stick to your guns on real innovation, don’t foray into the OGIHWGaDiTSE, avoid the Vijays, and remember MIT’s secret formula for success, as transmitted by Prof. Ken Morse:

CFIMITYM

(Cash Flow is More Important Than your Mother)

Cheers

Rocketrabbit

PS: I’m known for being a real Punster…

Robert Shiller identified a number of reasons why this time around, exuberence is more rational than when he wrote his landmark “irrational exuberence”. In short:

- founders are smarter
- costs for it and marketing are lower
- market demand is 10x greater

I buy that. Totally. We’ve been saying it too B). The only thing that worries me is that the GooTube deal creates valuation hyperventilation - and building an organisation that actually sustains a business that is worth more than 9 digits is a cartload of LONG HARD WORK. Let nobody forget that.

The other interesting phenomenon is that bankers and consultants are flocking back to the troughs of get-reach-fast-with-dotcom-web2.0 - and they still often need to learn to go operative - Find the shortest distance between a powerpoint slide and the real world.

Exit phantasies, commercialisation discussion, is blogging worth the trouble - there are many signs that euphoria and passion, the web 2.0 sense of mission etc.. are giving way to the same kind of frenetic and less frenetic division of the spoils that we had in 2000.

That holds an important lesson for all entrepreneurs, especially since this time around, there will be no big bust - just failures and successes distributed along the bell curve.

Lesson #1:
Even if everyone is focussing on other metrics, make sure you’re earning money. It’s better to be smaller and profitable, i.e. independent, than growing and growing and going nowhere in terms of being a viable business.

MIT’s secret formula for success is CFIMITYM (Cash Flow is More Important Than Your Mother) - brutal, but to the point.

Lesson #2:
Focus on proving the business model, or, more likely, finding it in the first place. chances are, that gets you more and stickier users than pure play community building. Business Models tend to evolve where there is long term value.

Lesson #3:
Try to identify the basic need you are adressing - the more basic it is, the more chances you have. Poeple have eaten, slept, mated, vyed for attention and recognition, thirsted for knowledge etc.. for centuries… that’s where the money is.

Lesson #4
Look for the right people. Rotten Ideas have made it because of world class teams. And be honest to yourself about your won ability. Your abilities do not expand as you grow older, they diminish and gnarl like old roots. That makes you experienced and savvy in your field of expertise - and less and less of a generalist in others. Get Good people. Kennedy did (”A good manager hires better staff than he is”).

When the going gets tough, the tough get going…

Even the smartest VCs still need an irrational exuberence moment to take their decision. The Financing of the Next Big Thing (NBT) is secured - but in the round (won’t be more specific in case one of them reads this) some of the VCs, though very smart and rational, still need the feeling of “we’ve got to rush to the bandwagon” before they really commit. And that means we have to waste some energy just to prove that we can scale fast really fast.

We believe that you have to finetune your Value Proposition. and make yourself sticky before you explode - or you wil get ephemereal and lose the audience you reach. That doesn’t mean being slow or defensive - it means spending as much energy on retaining customers / users as on winning new ones. Not an easy one. But probably the secret to success.

Now customer retention is probably achieved by the basics:

- compelling, understandable value proposition
- swift, perfect service delivery (including technology)
- simple mantra (see Guy Kawasaki on that) that’ll be told at every party

In short: gain not only a lot of contacts, but a relevant portion of mind share as well.

I’ll report more on this, because we have devised a nice little strategy to comply without wasting marketing reach. There is Gold there.

Some of you who know me already know this, but I’ve been back in hands-on business with the Next Big Thing for the past couple of weeks. Can’t say too much about it now, but I’ll share with you - those of you who know the feeling - the sense of excitement at building an exponential-growth company. We’ll be stealthing some more the next couple of months. As soon as we have the technology in place, our company will kawham! - At least, that’s we’re fighting for.

My life as an Investor will continue, but I’ll focus on the Angel & advisory part and have increased staff on dw capital to do the operatives of our Seed Funding. That gives the Startups more worth (and more professionalism, too). It leverages the dw capital positioning as “Founder friendly like an Angel and professional like a VC“. Plus I gain more insights on an operative level, which will decrease the half-life of my know-how. Growth must always become institutional if it is to prevail!

I promised to blog my reflections on the 18-hour stint - well, here goes:

1) Provided you can choose from equal VC quality, choose a VC with an Office in your country -

2) or calculate three extra weeks on legal hassle because they just won’t understand your legal system (unless, of course, you share legal systems)

3) Be ready to bypass the lawyer of your VC at any moment (incl. @ 03h00 AM - myke sure you have a contact who will comply) - remember there may be a Principal-Agent-Problem between Vc and his Lawyer - the VC wants the deal @ good terms and low cost, but he wants the deal. A Bad Lawyer often raises his profile by being excruciating and blaming a bummed deal on you.

4) Align your Business Angels, if you have any, into your interest. If need be, point out that you can always gang up with the VC. But it is best if you don’t have to go there - that depends on the mentality of your BAs. I’ve seen both.

5) Don’t succomb to the enticements of the new. The nice great VCs who now are a tremendous success may just be your worst nightmare two years down the road, so remember to balance control power in your company. In the best of all worlds, as an entrepreneur, you get to pick who you work with on which issue because you gang up with the Business Angels if the VCs get unreasonable and you gang up with the VCs if the BAs get unprofessional or greedy. Make it clear that, while alle share the risk, you are the entrepreneur who is going to make it happen - or not.

6) Don’t overestimate yourself and consider - in your inner fort - the scenario if the company outgrows you or you get boreed. Few Entrepreneurs are as good in the 0 - 100 employees periods as the are in the 100 - 1000 or beyond periods. That was not an issue in my recent experience, but it is always worth remembering.

7) Don’t bind yourself to milestones. Business Plans are a process, not a bible. Focus on the metrics and never tie your investment capital to that. There is only one 100% sure fact about your business plan: it is not going to happen. The story will always be different, for better or for worse. So while building the structure of the company for the VC phase, make sure you have a tight-knit communication, frequent consultation infrastructure (Board) - share decision responsability. Stop selling your venture the minute the money is in the bank and all covenants are through (that’s why milestones are unwise for a VC too, because then reporting focuses on showing how milestones are met, not on the actual problems and necessary adjustments of and to the business model). Make sure you have VCs you are comfortable sharing your worse problems with.

In this sense, there is no real “stupid money” - you should always keep that communication line open so noone will feel thumped and try to get back at you (of that, the stupidest money sources are always capable). And sometimes even the worst moron will see something that you, in the Hamster wheel, won’t.

That’s a first - discussions welcome.

I Just emerged (at 04h00 in the morning) from an 18 - hour (!!!!) - bit of negotiation with two international VCs in one of the startups dw capital is invested in. We had the full program:

- the Lawyer pissing contest (pardon my french)
- the last-minute deal restructuring
- the last-minute battle over terms
- the nerve game on who gets to leave the table first (well not quite, but we did have a little theatre play)
- we used three rooms and a hallway to do all telcoing back to the principals

But now come the differences:

- a savvy founder who kept his nerve and outplayed the lawyers well (it always helps to just call the principal of the VC)
- and a really easy-going notary, funny on top of it

So it all ended

a) succesfully
b) even on friendly terms
c) and with two bottles of champagne….

I’ll get back to the audience on my findings out of the process. Still a lot to be learned, or remembered again at the very least.

Cheers!

The past weeks have been incredibly busy. Sevenload, Qype, Oneview, and itravel are achieving their respective crests.

http://www.sevenload.de has an exploding user base, has just won nicole da silva and a number of young stars had their start on the platform. It is now by far the most used German Video and Photo Platform. myvideo is raising a stink and faking their user numbers (check by looking up a user beyond # 800), but have little to now recognition in the relevant crowd. Remember “the Tipping Point” and you’ll know why that’s relevant. Ibo’s Team is just the better team.

http://www.qype.de is growing fast, getting really useful, and closing a new financing round (no details, it’s all NDA’d) - but just this much: Qype is going to be the dominant player. Stephan is an incredible guy and has a great team.

http://www.oneview.de are preparing their gamma, and it will rock. Full google-kicking potential. We will get our revenge for having been the first social networking/bookmarking site (1998) and not getting the recognition because the business model had no market yet in 2000. Great team there too, with two additions to the developer team.

http://www.itravel.de - stay tuned for the first real long tail social commerce site, you’ll see more and more of the community in the next three months. In cooperation with Sevenload!

I’m really excited as we are preparing Upload! 2006, which we hope to become the coolest web 2.0 / social commerce / next big thing event of this and coming years.

BTW: we are desperately looking for developers, marketers, tecchies, pr guys/gals, project managers, business developers, sales guys etc etc etc…. contact me, or denkwerk @ http://www.denkwerk.com