My favorite quote from Warren Buffett that helps me not get caught up in the hype when I invest is:
“Price is what you pay. Value is what you get.” – Warren Buffett
I have riffed on this quote as a reminder to help me as an entrepreneur, which is:
“Value is what you create. Price is what you get.” – Jay Gould
In other words, create value, and you’ll get paid. It took a few hard lessons for me to come to this realization. Let me share one of those lessons with you below.
In December 2006 I raised $500K from some of the very best consumer internet investors on the planet for a business called WikiYou. Those investors included Reid Hoffman, Josh Kopelman, Raj Kapoor, and Chamath Palihapitiya. This was Pre-AngelList, so I had to raise the money the old fashion way. I had to generate strong interest and quickly close the financing.
Here’s how I raised the money from those investors:
First, I developed a memorable pitch for investors. The pitch was simple, relatable, understandable, and repeatable so they could pass it along if they liked it.
“If MySpace is an autobiography, than WikiYou is an unauthorized biography. Think, MySpace meets Wikipedia.”
The pitch was quickly and easily understood. I followed the first line by saying:
“Our mission is to host the biography of every person on earth.”
It was a lofty goal that was addressing a huge market size. If it was correct, this could be a gigantic multi-billion dollar business.
The three most common investor objections are a proven team, market size and traction. If you don’t address these immediately, you’re dead in the water and can’t raise money from investors. My pitch addressed market size. They knew I was a proven founder because I was running the second most visited video sharing site on the planet at the time (bolt.com). Because of my track record, it was less important to the investors for me to have traction in my new idea (WikiYou) because they believed I could execute and develop traction post funding.
Finally, once I generated strong interest from investors, I needed to negotiate terms, create alignment, and quickly close the deal. To do that, I needed to create scarcity, social proof and leverage.
I created scarcity with our initial investor, Raj Kapoor, by using my existing business as BATNA. My existing business had tens of millions of monthly visitors and was generating millions of dollars in revenue. Basically, Raj understood that our alternative to raising money was to incubate WikiYou at Bolt.
Once Raj committed to invest in WikiYou, I had the much needed social proof to approach and close Josh Kopelman and Reid Hoffman. Raj also provided introductions to Josh and Reid, which was further social proof. Cold calling Josh and Reid would have been far less effective, if at all.
Chase The Vision:
“Chase the vision, not the money, the money will end up following you.” – Tony Hsieh
Unfortunately, I didn’t create value for WikiYou before or after that fundraising, and ultimately nobody got paid as a result. I incorrectly chased the money, not the vision. That fundraising is the single biggest embarrassment in my career. Those investors are some of the most prolific investors in consumer technology, and I failed. It still hurts. I failed because I was chasing the money, not the vision!
If its not clear what my mistake was, let me state it clearly: I didn’t create value before I raised money.
I’m sharing this story as a reminder that you MUST create value before you raise money from investors, and then everyone can get paid. Raising money is not a victory, creating value is the victory. You create value by chasing the vision, not the money.