Here are the day 3 notes for the Web 2.0 Conference in San Francisco:

[My notes and analysis are in these square brackets.]

Disruption Opportunity: Venture Capital: Roger McNamee (private equity) and Ram Shiram (seed investing)

    • Shiram: I DO believe that it’s cheap to start a company; it is hard to find talent though.
    • Content companies are very hard to build; both Roger and Battelle (MC) have built content companies and they take a long time and they’re very difficult to build and grow.
    • Question: So let’s pretend that Stikkit asks for (and gets) $5M. They only need $100K to build the company…but what do they do with the other $4.9M?
      • Answer: Yes, having too much money is a problem for startups – “indigestion is worse than starvation.”
      • McNamee: “A lot of the most attractive ideas need less than $1M”
      • Shiram: the math doesn’t work today putting out $5-10M per deal in a $500M fund. There will be a lot of companies purchased in the sub-100M range. Another problem is too much money floating around there. If you have a great idea and a great team, you can go to an auction model. But don’t equate money with success. If your valuation keeps going up, your exit becomes expensive and then there are only 6 companies that can buy you out. So be careful of increasing your valuation too quickly and pricing yourself out of the market from an acquisition perspective.
    • Question: “We built an app for $75K and we’re going to sell it for 20x. Why do we need you?”
      • Shiram: “You don’t need me. Building your business and serving people is your primary job. Raising funds is secondary.”
    • McNamee:
      • Ram is talking about getting people to your site and keeping them there. What about the people who don’t have time to go to your site and will never go there?
      • User-generated content is an alternative to passive entertainment and will be huge.
      • The amount of cool stuff going on to service that market of content producers is lame. I would look at enabling forms of user generated content.
      • The second issue is time: We all have multiple inboxes. If you let it pile up for six months, 98% of it will go away and 2% will be important.
      • The two important things are: a) saving time and b) connecting people who don’t and won’t use the web to the web to allow them to generate content
        • [what does he mean, connect people who don’t and won’t use the web…to the web. HOW?]
    • Question: IPO route: is it closed and why?
      • Shiram: companies less than $1B don’t get any notice from the analysts anymore. I suggest that if you are a smaller company, go for an M&A exit instead.
      • McNamee: “Fear is transitory and greed is permanent” – the IPO route will come back. But my approach is: “Build something great and the exit will take care of itself. I don’t worry about pre-building to exit. “
    • Question: “I’m an entrepreneur. How do I ensure I won’t get kicked out and how do I deal with valuation?”
      • Shiram: “Most good investors won’t kick out a passionate founder. Don’t worry about valuation. Just find smart money and work, work, work!”
      • McNamee: “Focus on the size of the pie, not on the size of the slice. If you’re focusing on control, quit now!”
      • Battelle: “I disagree – keep >51%”.
      • [Troy: Battelle’s comment is misleading. One can own 99% of the company but there can be terms on the term sheet that are so onerous that you effectively have no control of your company. I know of one case where an entrepreneur had signed a term sheet that dictated that his VC had signing authority for everything over $5000 AND that the VC had all the controlling votes. Don’t just focus on the ownership percentage! Battelle’s comment is fear-based – was he burned in his content company that he mentioned?]
    • Question: “What is smart money?”
      • Shiram: “Try making judgements – you will make mistakes”;
      • McNamee: “Don’t focus on the fund – focus on the person. Find the person who you want to call at 2am with bad news and also with great news and who have the contextual expertise about your business.”
    • Question: “We’re looking for $5-15M and have been having a hard time finding it even though our technology is great. Where do we find that capital?”
      • Shiram: “You shouldn’t have trouble raising money because there’s so much of it out there.”
      • McNamee: “Don’t complain if it’s hard to do. Entrepreneurship is not for lightweights. Life is hard.”