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Do I Pitch A Better Mousetrap or A Different Version of Star Trek?

I’m having a debate with some of my angel investors on this, as we are trying to raise larger capital.  If you are in a space that has promise, but the earlier entrants have a mottled history, is it a better pitch to show that you have a better mousetrap (ie: better operating results at lower cost) or to try to distance yourself from “the space” altogether?

This question immediately made me think of Deep Space Nine.  I’m not a huge trekkie, but like most nerds I’ll watch it if I happen to be in front of a TV when it’s on.  Often when I visit Boston I stay with my friends Warren and Ilana Katz.  Warren is incapable of going to sleep at night before midnight and loves to sit in front of the TV late at night and watch Star Trek reruns. I’ve found myself watching Deep Space Nine as I nodded off thinking “man – this is just unsatisfying – where is Spock?”

If you are in a category where there are earlier entrants you are inevitably going to be compared during the fundraising cycle to those that came before you.  Rather than fly at warp speed to another part of the entrepreneurial galaxy, you should embrace the past in the quadrant that you are in.  If your predecessors struggled then there will be great lessons in there for you, especially if you believe you have a better approach.  It’s always easier to make an assessment about why something is going to be more successful against the backdrop of other approaches that have had mixed success.

Trying to distance yourself from what you are is a thinly veiled attempt at deception – both for yourself as well as your prospective investors.  I’ve never found this a particularly satisfying long term approach to anything.  Cliches abound (and I’ll spare you them and be succinct) – denying reality is not an effective strategy.

As investors, we’ve had great success in crowded segments where there has been carnage all around us.  One of my favorite examples is Service Magic – a company ultimately acquired by IAC for a substantial amount of money – in a segment that had a 95% mortality rate among the 20+ companies funded by over $400 million of VC dollars over a seven year period.  The entrepreneurs behind Service Magic knew what they were trying to create, had conviction about how to do it successfully, learned from the mistakes of their competitors, and never shied away from what they were.

Remember the great John Galt quote in Atlas Shrugged.  “No one stays here by faking reality in any matter whatever.”  Oh – and turn off the TV and go to sleep.

January 18th, 2007 by     Categories: Fundraising    
  • Chris

    I’ve noticed you mention Service Magic and their competitors multiple times. Does anybody know of/remember some of the competition that failed in this space. I can’t remember and I’m not getting good results via a search.
    Thanks.

  • Paul

    An awesome blog just got awesomer (now that I know you’ve read Rand). Love it, keep it up!
    -Paul

  • http://www.feld.com Brad Feld

    Two of the big ones were Improvenet ($60m – ultimately acquired by ServiceMagic for $7m) and BuildNet ($130m+).

  • http://www.constructiondeal.com Tim Clark

    SM just recently bought 1-800-Contractor as well. But they won’t get us…

  • http://cheynerood.com/blog Cheyne Rood

    Great blog – and I enjoyed this post. I found this to be comparable to Rick Segal’s recent post: http://ricksegal.typepad.com/pmv/2007/01/execution_play_.html
    Keep up the great insights! I need all the help I can get.
    -Cheyne