Paul Graham's Startup School Recap

If you're interested in my travel problems, I'll post those tomorrow… Just as a hint, have you seen Planes, Trains, and Automobiles?

There were a number of people live blogging from Startup School, but I chose not to in order to be able to focus on what was being said and the discussions of those around me. First of all, I have to say that although the outlets were lacking, enough people – including me – brought surge protectors that power was almost as ubiquitous as the Wifi.

Alright, now the topics…

As I mentioned elsewhere, my merry band of geeks completely missed the first two presenters Langley Steinert & Marc Hedlund. I was hoping to catch Marc, but alas. Also, these are in the best order as far as I remember, but don't quote me on that one…

We joined the conference midway through the presentation from Yahoo's VP of Engineering Qi Lu. We missed enough and his accent was thick, so I completely missed out. He probably said something interesting and/or useful, but I didn't catch it. I wouldn't say he was a bad communicator, just that I didn't catch the message.

Next, there was a presentation from Hutch Fishman who has served as CFO for a number of Paul Graham's operations along with providing CFO-type support for a number of other firms. He described the various steps in the standard funding cycle for a startup along with what a company should expect in terms of transitions in equity, the Board of Advisers, and ranges. He talked a bit about Sarbanes-Oxley and explicitly stated he would not be willing to serve as CFO for a publicly traded company due to the law. I think this is huge and a very bad sign of things that are happening in the markets. Here we have a well-seasoned and experienced CFO who is being driven away from great firms because of the malfeasance of a limited number of individuals. If a company exec raids a retirement fund or cooks the books, we send them to jail. If a Senator does the same, we re-elect them. Something is wrong here.

Next, was the nearly infamous Paul Graham. He didn't have any slides, but gave a pretty detailed treatise on innovation, how people can come up with “good” ideas, and why he focuses on college students/recent grads. The discussion tied together a few of his recent essays and it made a compelling case. Basically it boils down to “who has the least to lose and the most to gain” and the answer is “the person who is intelligent, works hard, has few financial and personal responsibilities, and is used to a simple lifestyle”. Taking a risk for a year or five is different when you're already living on Ramen, sharing an apartment with a friend, and can hack all day and night than when you have to make a house payment, provide food and clothes for a growing child, and have a spouse. Is it impossible? No, it's just different.

One of the most interesting things during the Q/A for this session was when a gentleman in the back stood up and said something along the lines of “But some of us older people don't want to be in a position where our kid asks 'What do you do daddy?' and the answer is 'Some shitty job that I hate because I was afraid to take risks'.” The applause was huge.

Next, was Michael Mandel who serves as the Chief Economist for BusinessWeek. His discussion seemed to pick up with Hutch's and Paul's discussions left off and tied together the innovation concepts with the general economy. He pointed out that booms and busts are standard for any industry and that the recent ones were statistically no different than had happened many times before in many other industries. He explained how innovation (technologically, process-wise, etc) had been the single biggest engine of the economy for the last 20+ years and will continue to be as long as someone doesn't screw it up. His single biggest concern was how the communist dictators react to the coming bust in the capitalist market systems they've set up. He points the the distribution of wealth where the peasant farmers' lives have not changed significantly in a century while certain areas are jumping ahead in leaps and bounds. Later on, I got a moment to press him on this point and he laid out two primary scenarios… First, China could go the route of the Soviet Union and collapse upon itself. The bust will eviscerate the economic system that has been heavily subsidized by the government and people may leave. Second, it could result in war.

The following is my conjecture: Are there huge economic/resource centers near China and what would happen to those? Are there areas which have been – or essentially are – pieces of China that are no longer part of the whole? This could spell very bad news for Hong Kong (yes, already part of China), Tawian, the Koreas, and Japan. I would put forth the notion that we've seen other nations do this… most recently Germany. Goodwin's Law does not apply here because I didn't actually mention them by name.

Next, was Woz. Yes, Steve Wozniak. One of the few people who can be personally credited with putting computers within the reach of the masses. Before he even said a word, there was applause. He started off describing himself and how he learned about technology. Basically he hacked, designed, built, experimented, honed, broke, and improved every schematic, circuit and nifty piece of electronics he could get his hands on. It was that simple, he was a self-taught hacker who applied Blackberry-user-like passion to learning about circuits… and with that, he ignited a revolution. He traced this story through Apple getting its first orders, through spending every waking minute of every waking day hand-soldering machines. One of the funniest notes was when he described the ownership breakdown of Apple. He talked about how he, Steve Jobs, and (can't remember his name) owned 45, 45, 10% respectively. Then, as things started taking off and the risk became greater, the other guy decided he couldn't handle the risk and decided to sell his 10% stake back to the Steve's… for a few hundred dollars. Woz wrapped up his presentation to a standing ovation.

Since I was out in the hallway taking a call from Amtrak and trying to make alternate travel plans (details tomorrow), I missed out on the next presentation… so I don't have anything to say on Stephen Wolfram of Wolfram Research, makers of Mathematica.

Next, we had Stan Reiss who is a general partner of the VC firm Matrix which seems to have an impressive portfolio. His first point was that not every firm needs or should have VC money and that with this great power comes great responsibility. At that point, you're no longer in charge and you're accountable to the person holding the purse strings. If you're doing a poor job – or they think someone else can do better – they won't hesitate to replace you. In addition, if you're bleeding cash, a VC firm will simply wait until the time is good. He had a few key slides and dedicated the rest of his time to fielding questions. The single biggest thread of questions which came up were “I have a great idea, but how do I prevent you guys* from stealing it?” [Considering the tone, the phrase “you guys” was probably equivalent to “you scum-sucking heartless bastards”, but maybe that was just my impression.] He kept pointing out that it is not in the best interests of a reputable firm to do this and that a startup should do as much Due Diligence on a VC firm as the firm does on them. What a novel idea…

After his presentation, I listened in as two different individuals pitched him on their “great ideas”. I found two things interesting. The first guy had an idea which was already being sold to customers in a beta form and had the potential of a good deal of revenue. He had smartly started small to get the bugs ironed out, but was now intent on launching nationally in one fell swoop. Now, I don't consider myself a super-savvy business guy, but it seems like if the idea was truly as profitable as he was describing, a phased deployment across the nation would pay for itself. Sure, it might take 18 months instead of 3, but he would still own it… The second guy had “a great idea that he was going to spend the next year working on”, but he said talking about the idea would put it at risk. He wasn't even willing to give a high level overview. Personally, I believe that if giving a high level overview puts your idea at risk, you need a better idea…

Next, was Mark Macenka who is an IP Attorney/Partner for Goodwin Procter. He presented the core things that an acquiring/investing firm looks for in ventures. He hammered hard on the principles of protecting your ideas, establishing clear histories of when/who/how the ideas where hatched (aka Prior Art), and who owned what in terms of the idea, the company, etc. He described quite a few companies which had been screwed because of unclear ownership of code, concepts, patents, shares, etc where the VC firm reduced their investment by anywhere from 5-20%. He also mentioned that having a solid IP firm on your side demonstrates some credibility to potential investors and can scare away potential legal troubles. It makes sense, but it could also cost some major dollars that most firms won't have until they get the investment… so he described how many IP firms will actually work on a contingency (not sure if that's the right term) and essentially gloat the bill until funding is received.

Then there was Chris Sacca from Google. What is his title? Not a clue, but he was pretty cool. He was closely involved with Google Maps, but I'm not sure precisely how. He gave an overview of how Google (as a company) works, what they do for startups, and the general culture. It was part process description, part sales pitch, but the sales part was low-key and intelligent. He basically said that a Demo and passion are worth everything and that the underlying code “will have to be re-written to support 500 million users anyway”, so don't worry about it looking beautiful and in fact, don't worry about it supporting all the functionality, ideas, etc that you have. Just make it do *something*. And – oh yeah – the guy who built the beauty that is has since been hired by Google. He was *VERY* careful to state what his opinions were versus the direction of Google (SEC rules), but he clearly said that it takes the same amount of time and energy to invest in a firm as buy it… and since Google has a spare billion or three lying around, they simply buy whole teams. One of the merry band of geeks which had made the cross country trek with us is joining them next year, so this was particularly interesting. I have some more details on the discussion which I will be sharing in later posts.

Since I was out in the hallway to follow the detailed questions and missed out on the next two presentations, but it was well worth it… so I don't have anything to say on Olin Shivers. Sorry.

Finally, the whole thing wrapped up with a Q/A session from the Summer Founders Program. Some of it was interesting, some of it was nothing new, but one team made some good points as they had one member of the team who had to be removed once they began. I don't know the reasons behind it, but I've worked with a couple firms which were founded by groups of friends and I have yet to see one work out long term. There always seems to be a weak link who does significantly less than the others. If all goes well, you can get rid of that one person. If not, the team may crumble.

Well, I think this is my longest single blog entry ever. If you're still reading, thanks.

And despite the travel troubles, I'd do it again in a heartbeat.