Picture the dilemma: You're a venture capitalist sitting on the board of a
wounded duck, a surprise because the elevator pitch was so good months ago.
You have to decide whether your CEO is a boat anchor who can't scale up. You
could bring in a good athlete, but there's always the chance he could hit
the windshield. Because you're worried that your VC partners have short
arms, you're wondering whether to wake the giant. In any case, you're out of
bandwidth: You're thinking about putting a ribbon on it and moving into sell
mode.
Is everything clear?
Welcome to the language lab of Sand Hill Road: With practice, you, too,
should be able to understand venturespeak. You'll be able to tell whether
the dogs will eat the dog food, or, for that matter, whether the fish will
jump out of the fish tank. Bright, witty and blunt, venture capitalists have
a language all their own to describe the birth, life and death of the
companies they fund. It's a verbal shorthand -- a kind of technological
Esperanto -- for situations they see again and again. And while it may seem
brutal, it accurately describes their Darwinian world of risk.
''Taken out of context, they sound mean-spirited,'' says Mark Jensen, a
senior accountant with Arthur Anderson who deals with VCs. ''But 99 percent
of the time, they're really focusing on a specific business issue, and
they're very descriptive. You mention cram-down round to someone and they
get it.'' Well, OK, maybe it takes a wee bit of education. First of all, it
helps to know that venture capitalists are consistently pressed for time.
And everyone clamors for their attention. In the jargon, they are frequently
out of bandwidth. Instead of taking a long time to describe an unconvincing
pitch from a particular company, they may simply summarize it at their
Monday morning meeting by saying that the entrepreneur is sucking his own
exhaust, meaning that he can't possibly know everything he pretends.
Second, the venture capitalists' world is a clubby one: Though they compete
vigorously, they execute the same functions, much like police officers, rock
promoters or even car salesmen. A colorful phrase is not just a coin of the
realm. It's a reminder of their guild. ''It just adds humor to the
day-to-day routine,'' says Virginia Turezyn, a general partner with
Information Technology Ventures. ''It's almost a game to come up with new
ones. Rather than going through all the gory details, you can say 'That's
part (of another firm's) kennel club (a dog). Everyone laughs, and you can
move on. It's almost like, 'Enough said.' ''
Phrases can be harsh
Like any argot, the language reveals much about its users. ''I'd say your
list shows their creativity, intensity and irreverence,'' says Davis Folsom,
a University of South Carolina professor who has compiled a glossary of
business cliches. The phrases also betray a slant on the world. Consider the
term boat anchor, which means a person or an activity that holds a company
back. In VC jargon, it's eminently bad. In television or football, an anchor
is a mark of stability and strength. ''The usual anchor -- say on a baseball
team -- is someone who's solid and there,'' says George Lakoff, a
linguistics expert at UC Berkeley. '''But from (the VCs) point of view, they
don't care about that. They care about motion. Motion is a metaphor for
progress, for making more money.''
The entries in this lexicon are too numerous to list fully. But broadly, the
jargon falls into categories of food, heat, color, and catastrophe.
Take food: Will the dogs eat the dog food? is, simply, a way of asking
whether the customers will buy the product. Venture capitalist John Doerr of
Kleiner Perkins Caufield & Byers once predicted success for @Home, the cable
Internet content provider, by saying, ''It's not a matter of 'Will the dogs
eat the dogfood?' They're ripping the bags open.''
Or heat: Though it may not be good in politics, heat is an almost
unparalleled virtue in venture capital. A hot space is a promising niche. In
the center of the flame describes a well-positioned company.
Color so dominates talk of initial public offerings that you have to wonder
whether Andy Warhol might have a piece of the action: A red herring is a
preliminary prospectus designed to gauge support for an initial public
offering. A green shoe is an extra allotment of stock to the investment
banker, designed to sweeten a successful deal. And blue sky laws refer to
restrictions placed on IPOs by various states.
Some meanings intuitive
The catastrophes speak for themselves. Hitting the windshield means a poor
performance, a company moving too slowly. A cram-down round, also known as a
blow-out round or wash-out round, means a new round of funding at lower
prices, with the original investors losing most or all their stake.
And finally, there are a host of miscellaneous phrases. A good athlete is a
highly competent CEO who may have no particular experience in the company's
domain. An elevator pitch is what an entrepreneur can tell a venture
capitalist about a company in the time it takes to ride together in the
elevator. Short arms refers to a VC who enters a first round of funding but
is leery about staying in for a second. And, waking the giant means talking
to Microsoft Corp. The humor lies in the exaggeration. Though it may not be
kind to call a company plankton, it colorfully describes a small company
swallowed by a bigger fish.
''To some degree, these are mental viruses,'' says David Cowan, a general
partner with Bessemer Ventures in Menlo Park. ''Someone creates one, they
say it at a meeting, and it infects the minds of everyone who hears it,
particularly if the phrase is good.''
The best of the VC terms have shown remarkable staying power: Take the
living dead -- companies that neither succeed nor fail but live on in
purgatory. Franklin ''Pitch'' Johnson, a venture capital pioneer who is a
partner at Asset Management in Palo Alto, claims credit for coining the
phrase, saying he took it decades ago from the 1968 horror movie classic,
George Romero's ''Night of the Living Dead.'' ''We had a company or two
where they didn't exactly die, they didn't succeed, they just scratched out
a living,'' Johnson said. ''I was giving a talk, and I referred to the
living dead, and it kind of caught on.'' Of course, there are times when the
biting jargon can be dangerous, particularly when it's used out of context.
In the now-famous Alantec Inc. case a year ago, three venture capitalists
agreed to pay $15 million to two entrepreneurs who claimed they were cheated
of their rightful share of the profits of the firm. The VCs case was hurt
badly because their corporate lawyers had referred to the entrepreneurs as
being ''washed out.'' But venture capitalists are nothing if not resilient.
The Alantec case spawned its own jargon. VCs now call the extensive armor of
legal protections they place on a deal ''the Alantec clause.''
Still puzzled by the dilemma at the top? Here's an English translation:
''You're a venture capitalist sitting on the board of an ailing company, a
surprise because it sounded so promising when the entrepreneur first talked
to you. You have to decide whether the CEO is hindering the company's growth
and cannot run a bigger operation. You could bring in a talented executive
from another field, but there's always a chance that he or she could fail.
Because you're worried that your VC partners won't participate in a second
round of funding, you're wondering whether to talk to Microsoft. In any
case, you're exhausted. You're thinking about firing the engineers and
selling the company.''
Lab practice begins at 3:00.
Tushar J. Mehta
email: [email protected]
voicemail: (425)558-1101