Rip Good Times A Different Perspective

R.I.P. Good Times? A Different Perspective on the Downturn 2882 Sand Hill Road, Suite 100 Brendon Kim / bkim@altosventures.com Menlo Park, California 94025 Han Kim / hkim@altosventures.com (650) 234-9771 Ho Nam / hnam@altosventures.com www.altosventures.com Anthony Lee / alee@altosventures.com

Slides from Sequoia Presentation to CEOs, October 7, 2008 Widely publicized meeting was “very somber…”

Boom and Busts: Been there before! (just a sampling over past 178 years)
Railroads
Railroads (2 nd wave)
Electronics Industry
Computers
Computers (2 nd wave)
“ High tech”, entrepreneurs become “media events”
1830-1846 => hundred companies in UK alone
Speculative frenzy flowed to other countries
Panic of 1873; 89 of 364 railroads go bankrupt
1878 => the next “billion dollar companies” funded
Inspire the 1 st science fiction boom
1949 => Big companies: GE, Westinghouse, RCA, Siemens, AEG, Plessey, Ferranti, Phillips enter market
1960-70s => 2 nd big wave in computing
DEC, ROLM (mini-computers, computer/telephone)

Is This a Good Time to Jump?

Uncertainty is Good For Entrepreneurs
Pace of Change Accelerating
Change Creates Uncertainty and FEAR
Entrepreneurs should love change; they are the beneficiaries of change, not the victims
“ To be sure, people who need certainty are unlikely to make good entrepreneurs. But such people are unlikely to do well in a host of other activities as well – in politics, or in command positions in a military service, or as the captain of an ocean liner. In all such pursuits decisions have to be made, and the essence of any decision is uncertainty. ”
- Peter Drucker, Innovation and Entrepreneurship

Uncertainty is Good, But Risk?
Entrepreneurs: A “propensity to take risk”??
“ I find myself baffled by your papers . I think I know as many successful innovators and entrepreneurs as anyone, beginning with myself. I have never come across an “entrepreneurial personality.” The successful ones I know all have, however, one thing – and only one thing – in common: they are not “ risk-takers.” They try to define the risks they have to take and to minimize them as much as possible. Otherwise none of us could have succeeded. ”
- Successful Entrepreneur (Drucker, Innovation and Entrepreneurship)

Less Cash Required Than Ever to Build Great Companies Yet most of the biggest tech homeruns have raised less than $10M (or none at all)
VCs playing “venture lotto” now suddenly touting the importance of cash
“ Spend every dollar as if it were your last” (Cash is King? Business 101)
The U.S. venture industry has been investing at near-record levels 1997 2007 $13M $66M Median VC raised prior to IPO ($M) Total U.S. VC investment ($B) 1997 2007 $13B $30B

“ Foxes are great at raising capital - they thrive in bubble markets. Hedgehogs would rather bootstrap - they do far better during the inevitable crashes .”
- Altos Blog “Foxes and Hedgehogs in Silicon Valley” (2006)
altos.typepad.com
Fox or Hedgehog?

If You Are Ready to Jump… We’re still open for business: # of new companies in 1 st Half 2008: 2 # of new companies in 2 nd Half 2008: 6+ 2882 Sand Hill Road, Suite 100 Brendon Kim / bkim@altosventures.com Menlo Park, California 94025 Han Kim / hkim@altosventures.com (650) 234-9771 Ho Nam / hnam@altosventures.com www.altosventures.com Anthony Lee / alee@altosventures.com

Simple . Product and value proposition has to be focused. It has to be simple; elegant and obvious, after the fact.
Small . “Game Changers” start small and grow in unexpected ways. Grandiose plans to "change the world" or "revolutionize an industry" are unlikely to work.
Leadership . Be the best, otherwise, you will do nothing but show the way for competition.
What we look for beyond Capital Efficiency and Hedgehogs

You Think This is Bad?? How about 24.9% unemployment (vs. 6.1?%)

“ When growing up, I was intrigued that my father only concerned himself with those business elements that were controllable. He refused to acknowledge the Depression and did quite well during that period. He was unwilling to talk about recessions or 20-inch snowfalls. He only thought about and talked about those conditions within his control. I saw this daily in Dad’s actions. I never knew when the country was in a recession because Dad wouldn’t talk about it.
People would suggest we close the store on Labor Day because everyone would be out of town. He’d say, “How many will be gone?” Of course, we’d stay open and do just fine. He taught us to concern ourselves only with those things over which we have control.
I thought he was unique in this until I realized this is one of the key common traits of highly successful people. Those folks are never victims; they take what comes and handle the situation. The rest is a waste of time. ”
- Barnett Helzberg from “What I Learned Before I Sold To Warren Buffet”
Lessons from Helzberg Diamonds

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Rip Good Times A Different Perspective

by Ho Nam on Oct 19, 2008

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