Rob Reid is not only the founder and CEO of a young startup, he is also a
former venture capitalist. As a result, he has some interesting insights
into the love-hate relationship between these two professions.
As the driving force behind Listen.com, a Web site that catalogs music that
is legally available for download in MP3 and other digital formats, he has
had to convince venture capitalists and angels of two things -- that record
labels or bands will eventually post some of their best tracks on the
Internet and that people will actually pay to download music over the Web.
At 21st Century Internet Venture Capital, however, Mr. Reid specialized in
saying no to money-hungry entrepreneurs.
Mr. Reid wrote the book Architects of the Web to celebrate entrepreneurs.
AvantGo, one of Mr. Reid's deals at 21st Century, has an opportunity in
Internet appliances.
August Capital is content to take baby steps into the Internet economy.
Although he did work on deals like AvantGo, Big Words, GreenTree, When.com,
and Vicinity, he estimates that 21st Century invested in less than one
percent of the deals that came across its transom.
Because of his strong personal connections in the venture business, Mr. Reid
did not have trouble convincing investors to say yes. When he left his
two-year stint at 21st Century in December 1998 to start Listen.com, he
received a bridge loan from Halsey Minor, CEO of CNet (Nasdaq: CNET). In
February, Mr. Minor and new investors Chris Anderson, founder and CEO of
Imagine Media; and Ted Waitt, CEO of Gateway (NYSE: GTW); and Altos Ventures
anted up an additional $1 million in seed funding. Two months after that,
Listen.com raked in even more money -- $9.3 million in first-round funding
from August Capital, Austin Ventures, and previous investors.
VC-ING EYE TO EYE
Even though his experience in raising money was relatively painless, Mr.
Reid thinks that entrepreneurs and venture capitalists have a number of
misconceptions about each other.
A common complaint among entrepreneurs is that venture capitalists only care
about money. But as a VC, Mr. Reid says he was surprised at the level of
respect that his peers had for people who are starting new companies. In his
view, when a venture capitalist refuses to fund a company, the entrepreneur
shouldn't take it personally; it may have been the hundredth time the VC has
said no that week.
Putting on his entrepreneurial hat, Mr. Reid thinks that many VCs could
provide better service. When he was starting Listen.com, Mr. Reid says he
received precious little guidance on nuts-and-bolts matters like finding a
good company to handle Listen.com's human-resource issues and determining
when and how Listen.com should look for relationships with banking and
accounting firms. "The best venture capitalists view the entrepreneur as a
client," he says.
Emotionally, Mr. Reid says, entrepreneurs differ from VCs because they have
"put all of their emotional eggs in one basket. As a VC, you have a
portfolio of companies for which you are responsible." Life as a VC was much
easier for Mr. Reid than as an entrepreneur, which he describes as "like
being the final net for every ball that might be in the air."
WORK THE NETWORK
In Mr. Reid's view, building a personal network is the most important key to
becoming a successful entrepreneur. "Success in the startup world is being
within a handshake of a VC," he says. While he was at 21st Century, he can
recall very few companies that his firm funded that were not referred by a
friend or colleague.
Mr. Reid also recommends that entrepreneurs place less emphasis on writing
business plans. Although he believes that it is important for entrepreneurs
to think through strategic issues, he says companies should focus their
energies on building their business. He has never written a business plan
for Listen.com.
Because of his network of friends and acquaintances in the venture world,
Mr. Reid acknowledges that some entrepreneurs may believe that his advice
does not apply. But he now considers himself first and foremost an
entrepreneur. "Some of us are VCs," he says, "and some of us are operating
people. VCs fly around at 30,000 feet. I always wanted to come in for a
landing."
A soft landing, that is.
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