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Make You or Break You

Mark Suster

Los Angeles venture capitalist Mark Suster, one of the most active VCs in Southern California, came to San Diego June 14 to give advice to startups and entrepreneurs.

His presentation, part of San Diego Startup Week, drew over 800 attendees to Symphony Hall.

The appeal may have something to do with Suster’s prominence in the investor arena. He’s a partner at Upfront Ventures, one of the oldest venture firms in LA, with an annual fund of $100 million. Suster, 48, is also an angel investor, a successful entrepreneur, and a bit of a celebrity on the web.

He tweets. He blogs. He even snaps (a lot). He’s amassed over 253,000 followers on Twitter, and 100,000 followers on LinkedIn.

Suster’s ties to San Diego go way back. He got his undergrad at the University of California, San Diego and co-founded UCSD’s incubator/accelerator The Basement.

Suster shared tips and insights on starting, financing, and operating a startup. Here are some takeaways:

Focus on base camp, not the peak Suster uses a mountain climbing analogy to help entrepreneurs answer the question, “What market should I get into?”

Suster: “Don’t focus on the peak. The first step for a startup should be to focus on basecamp. You don’t have to know exactly where you’ll end up; you just need to know how to take the first hill. From that vantage point, you can see what the opportunities are. Sometimes as you ascend you realize… we climbed the wrong peak. It’s not as high as we thought it would be. But from that trajectory, you can see where you should have gone.”

If building a company “at internet scale,” consider deflationary economics

Suster: “If you want to launch on the internet (and you have a good idea) understand that if you stumbled upon a very large market it will, by definition, be insanely competitive. Not just U.S. competitive, but global competitive.”

Consider truly disruptive companies, Suster said, and how they used deflationary economics to their advantage. They created subpar products that already existed in the market, but created them at a lower price, with lower functionality, and a lower profit margin — but capturing a bigger market. Think Google Docs and Google Sheets. “They were just crappy versions of Microsoft’s Word and Excel,” Suster said.

“All the great companies of the internet — Whatsapp, Amazon, Netflix, Uber, Skype — they were all successful for the exact same reason: deflationary economics.”

How to look good to investors? Don’t outsource product development

Suster: “We look at product, team, and engineering capability within your company. You simply will not raise venture money — or high-quality money — if you outsource your product development. It’s like opening a restaurant and outsourcing the cooking to somebody else.”

Focus on high-quality money

Suster: “The foundations on which you build your business — including who your investors are — determine the trajectory and arch of your success. Don’t be cheap.”

Don’t wait for the money. Build your product now

Suster: “If I had a dollar for every time someone told me, ‘As soon as I raise more money, I can finish my product or I can build my team.’ That’s a red flag to me. If I hear that, I know that I will never fund you. Because for every eight people who tell me that, there’s two who did it with no money. These people have the X factor. They’re able to persuade people to do work in the evenings, on the weekends, to even quit their jobs and take equity instead. They know how to get things done.”

Go it alone. Co-founders are expensive

Suster: “You will grind me over whether I take 20 percent or 21 percent, and yet you give away 66 percent before you even started by recruiting co-founders. I know co-founders are helpful. I know it feels awful to be told that it wasn’t the best economic decision for you. But if you jump first, and then hire help later — it will be better for you.”

Stay lean as long as possible

Suster: “We are all in such a rush to get customers faster, get PR faster, raise more venture capital, commercialize. But people are re-evaluating the asset class, and it’s happening everywhere. Capital is still available; it’s not doomsday, but it’s harder to raise. Value every dollar.”

Build your team carefully.

Suster: “We all like to have people like us around, but that doesn’t make a good company. If you’re an introvert, find an extrovert that will help you meet other people. If you’re ADD, find a completer or a finisher. And don’t hire the best. Hire the second best. Hire the hungry, the scrappy — those with chips on their shoulders. And hire missionaries. Sometimes, starting up sucks, and when you hit maximum ‘suckery,’ you want missionaries in the trenches with you. You need people committed to the cause.”

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