Simon Murdoch is interesting. Amazon’s first head in the UK has been both an entrepreneur and a VC and now he’s back to being an entrepreneur again.
Speaking last night to an Internet People dinner audience comprised largely of entrepreneurs (indicated by a show of hands), he talked briefly about the Web start-up experience and how to raise money. What follows are paraphrased notes taken during his speech.
Murdoch set up online bookstore Bookpages.co.uk in 1996 and sold it to Amazon in the UK in April 1996. From then on he became VP Europe of Amazon.com and later managed it from October 1998 through 1999. After that he became a co-founder and partner of Episode 1 Partners, an early stage technology investment company which managed the $100m Chase Episode 1 Fund launched in January 2000.
Chase Capital Partners invested in nine businesses, notably the successful Betfair.com. As an Angel investor he invested in Shazam, has been chairman of Video Island (now merged with and renamed LoveFilm) with Simon Calver, now backed by Benchmark Capital.
Currently he founded and is funding FriendsAbroad.com, a social network for developing language skills and contacts abroad.
Working for Amazon was an ‘eye opening experience’ where he learnt that US businesses have a “global view from the word go” – something we tend to ignore in the UK.
He fond Angel investing ‘quite challenging’, but to borrow Fat Boy Slim’s phrase, he reckons it’s a great time to be an Internet Entrepreneur “Right Here Right Now”
The eternal question: How do you raise money? He has found that most entrepreneurs want to brag about their valuation. A better idea is to work out what your objectives are. Mike Southon’s “The Beermat Entrepreneur” book, said this, and you should also work out a way of not needing any money to start up. Make customers find out where the market is first – handy now the social web is here.
When you do eventually raise money you will lose an element of control, so deal with that. And once you have investors you will follow their objectives not yours.
Note that VCs are only interested in businesses which are going to be huge – they don’t care about something small which will make 2-3 million a year. It needs to be one or two in its market.
The initial risks of any startup are ‘will your technology work’ – that’s something that VCs want to see. And you need to prove there is a market for what you want. “Don’t be Click Mango.”
“VCs like an ‘A team’ with a ‘B idea’, not a B-team with an A-idea.”
So for instance, “Bebo is a company which has proved the technology, has a great team, and loads of traffic, but they don’t really know where the money is, but hopefully Benchmark are helping them to find this out.”
“The most important thing in a startup is don’t run out of cash. Never do that.” (Hence, don’t start out having to spend any).
Also realise that VCs never say no. “Death is by a thousand cuts with a VC.” They will ask you a million questions. Why? If you are as good as you say you are you will come back with a better idea. Don’t get excited by the “third meeting” with the VC. It’s meaningless.
Thus, you can spend a lot of time serving VCs. Better to focus on the business. Better to be in a situation where VCs are clamouring to invest.
Murdoch also admitted that often VCs won’t tell you your partner is “crap” in case they will burn bridges.
Why do so many VCs operate with a herd mentality, often investing in the same kinds of companies? It’s hard to be an assertive VC in a partnership when you have a lot of other smart people.
Don’t raise money from VCs if you don’t need it apart from specific circumstance, because it ties your hands on others deals.
Even if you don’t need to money, it’s still a good idea to get them involved as they will make you shoot for higher stakes.