Daniel Couto's blog

After 9 sessions having entrepreneurs as guest speakers, last Friday we had Roberto Saint-Malo, a top VC in Spain, talking to us in class.

Roberto has a very good track record and one of his top investments was eDreams, the Expedia of Spain, which was sold to another fund for $160M, who then resold it for $400M. However, he also cautioned that large exits are not always possible and that VCs should consider investing in promising businesses, even if the exit value is around $30M-$40M, which was a refreshing statement. It was also interesting that he noted that in the 90s VCs were the ones not only  putting money into companies, but also adding value through their experience. Good VCs still do it today, but there’s a new type of investor, that sometimes keep VCs awake at night: the super angels. These are mostly experienced, wealthy individuals who made their fortunes through the Internet and make early stage investment demanding less equity than VCs normally do. No wonder sometimes VCs worry about them!

As for companies in which VCs like to invest, Roberto pointed out that age is not really a factor. If a company’s founder has a great idea and shows execution power, it does not matter how old he or she is. But one factor that can turn the balance in favor of the founder is a team that has worked well together before (on the other side, founders should also look for VCs who have gone through opening and growing a company before): he mentioned teams that have successfully built companies before, but I’d argue that teams that worked well in a complex project anywhere should also be highly regarded.

Interestingly, he said that for him the idea the entrepreneur has does not necessarily has to be innovative and that he has a lot of respect for people who take a proven model and optimizes it or, in other words, who copy something that already exists and makes it better. He mentioned that McDonald’s and Visa are companies that copied what others were doing, but added a twist to make it better.

In any case, in Roberto’s opinion it’s very important that there be a “click” between the entrepreneur and the investor. Otherwise they are better off going somewhere else, as they may be just wasting time unless there’s a good connection from the beginning. This is especially important for him, as his investment flow, from getting to know the idea until putting money into it takes only 8 weeks on average, as opposed to the industry standard which, according to him, is of up to 6 months. Surprisingly, in only 2 weeks time he and his team usually know whether they’ll put money into a company and the 6 weeks after that are spent doing due diligence, getting the necessary approvals and then making the money available to the investor.

As a Spanish based VC he tries to have a footprint in other countries through partnerships. He mentioned a partnership with top VC funds like Accel Partnersas very interesting, as he gets to invest with them in US deals and Accell has a partner that is  both happy to put money into deals without asking for a large chunk of equity and to help selling US companies to big buyers in Spain such as Santander or Telefonica. He then proceeded to say that in general there are 3 types of deal he’s interested in:

• Proven model optimization: as mentioned above these are deals where an existing model is copied and improved upon or taken to a new geographical location.
• Early stage investments: these are innovative companies with disruptive concepts.
• International opportunities: these are done through key partnerships, like the one with Accel mentioned above. Here it’s also important to have a “click” with the other investors, just as it’s necessary with the founders. It’s also good to get at least observer status in the board of startups to get exposure to how business is done in other parts of the globe.

On Wednesday Pablo Larguia was the guest speaker at Managing the Tech Startups. He is quite young in his early 30s, and already quite successful as an entrepreneur, having founded bumeran, the monster.com of Latin America during his last year at university and later selling it for an undisclosed amount to the Telefonica group.

He is a very funny and energetic guy who put a lot of effort on sales, like every entrepreneur should do, but not many actually do it. He started the session by saying that he was worried after reading the posts that my colleagues and me have written, specifically mentioning a post by Fabio Gastaldi, where he said that the previous speaker had not said anything new. Pablo then said that he would strive to tell us something we didn’t know.

He started by saying something  that is the exact opposite of what I’ve been hearing so far, from several entrepreneurs and also from Blake Winchell, a top Valley VC who taught another class. Pablo said that as an entrepreneur you should get as much money as  possible, while before everybody said that the less the better, for several reasons: you give less equity, you strive to get a lot done with a little, you can control expectations, better, etc, etc. In this one I have to disagree with Pablo, as I’m also a firm believer that too much money at the beginning of a startup is more a liability than an asset. He said something else that goes against what I’ve been hearing, but on this one I agree with him. He said that unless you’re Mark Zuckerberg, you don’t get to choose your VC. Other people have stressed the importance of doing a due diligence on VCs that make you an offer just as they do on your company, and while I agree that this is important, not many companies get several term sheets and have the comfort of being able to select a VC. The bottom line really is that if you need to raise money and you get only one offer from some VC, go for it. Do a due diligence to better understand what you are up to, but you won’t have much of an option. He also pointed out that once you get a term sheet, understand it and make up your mind as quickly as you can, because VCs can change their minds and he has seen people losing funding because they took too long to analyze it.

On the personal life side he advised finding a girlfriend before starting a company or you will be single for a long time. Interestingly, earlier today I read somewhere (I believe it was on TechCrunch) that somebody should write a “for dummies” book explaining to girls what they are up to if they start to date a startup founder. Again, I tend to agree with him and with the article I read, as startup founders are usually busier beyond the girls’ wildest imagination. Another good advice was that the relationship you should have with your startup is the same that you strive to have with a real person: you must love it, have trust and passion, be proud of it and have a long  term focus or it will not work out. As he said, put love into it and magic things will happen!

His current venture is a tech conference in Madrid, La Red Innova, that will have its third edition on June 15th and 16th. As the true entrepreneur he is, he came up with the idea for it after visiting other tech conferences in Munich, Stockholm, Israel and San Francisco and noticing high interest for tech startups in Spain and Latin America. He then found the right people, among them Jose Maria Figueres, a former president of Costa Rica and got the project going. This part was, in my opinion, the most interesting part of his talk and I’ll try to summarize below how he advises to go from an idea into starting a business:

1. Map your business so that you list everything that will play a role in getting it going. Don’t forget to draw the connections between each point.
2. Identify the key drivers for the business to succeed. As Pablo said, as an entrepreneur you’ll have a lot to do and unless you identify the key drivers you’ll go crazy.
3. Contact your friends who can help you: at big companies, small companies, universities, etc. Identify the ones who can help you gain visibility.
4. Surround yourself with the right partners
5. Create something that interests people and keeps them coming back, whatever it is.
6. Commit, commit, commit: unless you dedicate a lot of time and effort, there’s not much chance that you’ll succeed.
7. Execute, execute, execute: This is an advice that every entrepreneur and VC gives. An idea is worth nothing, unless it’s well executed.

Last week we had Ronald J. Friedlander, the founder, CEO and chairman of ReviewPro (I’ll leave aside the discussion of whether the same person should be the CEO and chairman of a company, but it’s interesting to read  The Economist’s Schumpeter point of view) as a guest speaker in the Managing the Tech Startups class.

He was a very entertaining speaker, possibly the most entertaining one we had in the course. Unfortunately most of what he said was off record and I can’t blog about it, so I guess this is the end of this post.

Ok, not really. Even though I can’t tell the world about a lot of what he told us, there were some valuable lessons to take home.

When he was working at Grupo Planeta, he realized that user generated content was an unstoppable trend and that it could influence the way businesses function, because possibly for the first time ever customers were no longer passive people who could just complain to a company’s hotline, but could instead tell the whole world about their experience with a product or service – this was the beginning of the so called Web 2.0. However, in 2007, no hotel in the world was monitoring social media and had no idea what was being said about them in the Internet. He then proceeded to start ReviewPro as a part time venture, while having a day job. As stated in its website, ReviewPro is a tool that allows you to “know everything that is being said about your hotel”. It monitors Facebook, Twitter and several online travel agencies so that managers know what people are saying about either a single hotel or a whole hotel chain – it seems to be a very powerful application. Since Ronald is not a tech person, he found two programmers to code the application, and gave them some equity in the business. He worked a damn lot for quite a while, since his day was occupied with a demanding  job and he only had nights and weekends free for his new project. Once the application was ready to go, he left his job, self funded the company for 18 months with no salary and dedicated all his energy to get ReviewPro going. From the very beginning he obsessed about the customer experience, the technology and the product: the application must do what the customer needs, in a simple way that always works. The company’s money was where his mouth was, since he invested a considerable amount in the technology and pretty much nothing in marketing the service – this is in line with Fred Wilson’s opinion that marketing is for companies with services or products that suck.

Contrary to what everybody learns in business school, Ronald had no formal business plan for ReviewPro – all he had were some milestones scribbled on a napkin and that was his roadmap. He knew, however, that the hotel market was huge and that his product was scalable and this is what really mattered. he also made the product simple to use, creating what he says is Google Analytics for hotel reviews. he also made sure his application was for everybody, not only big hotel chains, what expanded his potential customer base. His outgoing personality also helped him a lot, as he approached top people in big hotel chains without fear – one of them, whom he approached at a conference, gave him 2 minutes, which were enough for the guy to be amazed at what Reviewpro could do. Of course this was only possible because he had a product to demo, what reflects the importance of having a real product and not only an idea; that is, show that you can execute! Besides, a lot of his sales are done through telemarketing, since the product can be demonstrated remotely, does not cost much and brings great value to the customers.

Looking at what I wrote above, I could actually report a lot of what he said and there are many valuable lessons for entrepreneurs there, which I’ll summarize here:

• When you spot a trend position your company to benefit from it: it may take a while for the market to be ready for the trend, but if you are well positioned you’ll quickly capture a large market share. This is how you can actually benefit from being the first mover.
• Bootstrap for as long as you can, so that you still owe a large part of the equity even after investors come in.
• If possible, it’s not bad to start your new venture as a side job, until it’s ready for you to dedicate fully: be careful; it’s not always possible or advisable to do it like this – use your common sense and best judgment.
• Talk to customers a lot and understand their needs: don’t build hoping that they will come; instead, talk o them first to understand the issues they face.
• Build up a great product and rely on word of mouth for it to spread, so that you don’t have to invest a lot in advertising.
• If you are bootstrapping your business, don’t worry too much about writing a business plan: define what you have to accomplish and when and focus on building the company.
• Pitch, pitch, pitch: to potential customers, potential partners (but don’t get too many on board, otherwise you’ll not have time for anything else) and investors (when the time is right).
• Have a product as soon as possible even if it’s a prototype: this shows the world that you can execute and not only have ideas.
• At the beginning build a product that has a low cost of sales: in ReviewPro’s case this was done by having a product that can be demoed remotely by telesales personnel. Be creative and see how you can do something similar in your industry.

On Monday Pedro Jareño, from minube, was the guest speaker at the Managing the Tech Startup class. Minube is an online community for travel inspiration. The way he explained is that trip advisor is a good website to visit when you already know where you want to go, but there’s no place in the Internet to go to get ideas on new places to visit. It’s an interesting concept that is also being promoted by Gogobot in the US (they don’t compete with each other, since minube targets mostly the European market).

In his words “travel today is about inspiration” and in minube users can not only write about their trips, but also post videos and pictures, besides writing blog posts. Well, you may say, you can also do it in Facebook. However, the big difference is that Facebook is a generic social website, while minube focuses only on travel and you’re bound to find better information there. It also promotes conversations between the users through the blog posts and follow up comments.

The site targets mostly “new travelers” and by that I mean people who don’t have a single, long holiday a year, but also makes short trips on the weekends or go to another city just for dinner and prefer convenience and real recommendations than luxury and comfort.

Minube makes money from hotels and flights bookings done on their site and also from promoted travel destinations. The way the first one works is simple: they receive a commission for each booking made. The second one is more interesting and potentially controversial, but they do a good job of setting the controversy aside. Let’s say that the Tourism office of Andalusia wants to promote travel there. They partner with minube, which sends a team to make videos and pics of he city and also to write about it and the information is then published on the site, opening the door to a new destination. The controversy arises here, as users may consider that minube is promoting a travel destination, instead of helping the user to discover it. However, users are encouraged to explore the site and find out what other users have to say about that destination, so that they can confront the “official” site information against independent reviews by users -it’s transparent, clean and helps to build a trustworthy community.

Pedro also provided a step by step guide on how to create a community, which I hope he does not mind me posting here:

1. Identify the target of your community: you have to research the Internet to understand the habits of your audience.
2. Get users on board: Tell stories that engage them, use contests (but make the content worthwhile so that users come back to the site once the contest is over), be creative to create a friendly brand.
3. “Dynamize” the website: You have to be one of the most active community members yourself.
4. Create faithful users: Returning users is very  important to maintain a community going and you must engage them with interesting 2-way conversations, giving them a powerful voice.
5. Public recognize the powerful users: At minube they have feature video and photo of the day. This shows that they highly value their users’ contributions.

Rinse and repeat!

Minube seems to be on the right path to build a great online travel community in several languages – Spanish, French, German, Italian, Portuguese and Chinese (they don’t have English as they prefer to focus on markets which are less crowded) – and without spending a single Euro on marketing. The only recommendation I’d made is for them to clearly position as a community. If you visit the site the booking widget, with options to book flights or hotels immediately catch your attention, giving the impression that they are a booking portal and non a travel community. On the bright side, Pedro said they are aware of it and are working on improving this part.