Big Fish, Big Pond

How to attract seed capital for your high-tech start-up
Magazine Contributor
4 min read

This story appears in the April 2000 issue of . Subscribe »

Ask not what knows about starting up a high-tech venture; ask what does he not know. Kawasaki's list of accomplishments is staggering: He's the former chief evangelist for Apple Computers, founder of software companies ACIUS Inc. and Fog City Software Inc., angel investor for five other tech companies, seven-time author, and, last but not least, founder, chairman and CEO of Inc. Whew.

Housed in an 1893 Queen Anne-style home deep in the heart of , , acts as a liaison and advisor for high-tech start-up companies looking for seed capital (usually between $3 million and $5 million) from venture capitalists, corporate investors and angel investors. Member companies complete a lengthy and thorough application process, culminating in a face-to-face meeting. Once in, pertinent info is available for viewing by prescreened member investors looking for opportunities. And though provides advice and resources on everything from to the financing process, once investors and entrepreneurs begin negotiations, they're on their own as far as actual terms and valuations.

The company also conducts its Bootcamp for Startups seminar several times a year with speakers from, Silicon Valley Bank and other high-tech figures and entrepreneurs espousing their start-up wisdom.

"Seed-level investments enable a company to create a prototype, form alliances and close their first sales. These milestones then help them receive more capital to go on to the next stage," explains Kawasaki, who co-founded with Craig Johnson and Rich Karlgaard. "We look for strengths in three areas: the potential in the idea for either creating or capturing a market, the educational or work experience of the key players, and whether the is 'cool.' Is it world-class, curve-jumping or yet another search engine?"

Attracting High-Tech Entrepreneurs

What else does it take to stand apart from the competition and grab the attention of these high-tech matchmakers? Here are Kawasaki's suggestions:

Short but sweet: "In order to communicate the three qualities mentioned above, the team needs a tight, insightful plan and presentation," says Kawasaki. "Tight means 20 pages or less for a business plan and 12 slides or less for a presentation."

The grand illusion: Everyone wants to be the first at the gate, entrepreneurs and investors alike. "Create the impression of scarcity. If there's anything that investors hate more than a lousy deal, it's being shut out of a good deal. So entrepreneurs should go after many investors at once," explains Kawasaki.

Buyer beware: Cousins, childhood friends, neighbors and your dad's cousin's sister may provide cheap services as attorneys, bankers or accountants, but in the long run, you'll do better to pay for the knowledge you require from those who actually specialize in start-up work. Investing in sound advice is crucial, especially in the start-up phase.

True value: The same can be said of investors as well. "All money is not created equal," advises Kawasaki. "Some money is more valuable, [such as] money that comes from sophisticated investors who can mentor and connect you."

Avoid the pitfalls: "The two most dangerous pitfalls are getting too much money, because it encourages sloppy thinking," says Kawasaki, "and believing one doesn't have to have [a strong] business model because `things will work out or we'll be acquired.' "

All told, however, whether you'll stand out and become the next to make history all depends on you, your idea and your drive. "It would be easy if there were a set procedure or formula. There really isn't," says Kawasaki. "The big picture is that you get an idea, form a team and work like hell. With hindsight, you'll come to believe various factors (many of them serendipitous) helped, but each company is unique."

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Brain Food

Delve into 's vision in expanded form:

How to Drive Your Competition Crazy: Creating Disruption For Fun And Profit (Hyperion Books, $22.95, 800-759-0190)

Selling the Dream: How to Promote Your Product, Company, or Ideas-And Make a Difference--Using Everyday Evangelism (HarperBusiness, $14, 800-331-3761)

Rules For Revolutionaries: The Capitalist Manifesto for Creating and Marketing New Products and Services (HarperBusiness, $25, 800-331-3761).


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