{"id":5189,"date":"2011-11-04T14:06:46","date_gmt":"2011-11-04T22:06:46","guid":{"rendered":"https:\/\/redfindevelop.wpengine.com\/blog\/?p=5189"},"modified":"2020-10-05T13:12:29","modified_gmt":"2020-10-05T20:12:29","slug":"the_shitake_hits_the_fan","status":"publish","type":"post","link":"https:\/\/www.redfin.com\/news\/the_shitake_hits_the_fan\/","title":{"rendered":"The Shitake Hits the Fan"},"content":{"rendered":"<p>There has been over the past 18 months a Cambrian explosion of startup life, many incubated by angels and seed funds. And now the process of natural selection is beginning again.<br \/>\nI got back from the Valley Thursday and what I gathered from the people there is the same as what I&#8217;ve heard here: that many seed companies are having a hard time raising money.<br \/>\nYes,\u00a0<a href=\"http:\/\/www.avc.com\/a_vc\/2010\/05\/from-hopes-and-dreams-to-the-real-thing.html\">second rounds are always hard<\/a>, after you\u2019ve built the product but before it has made much money.\u00a0The difference is that today\u2019s first-round investors are angels and seed funds, which sometimes aren\u2019t even set up to participate in many follow-on rounds.<br \/>\nWhat\u2019s made that worse is the market is becoming more cautious around post-seed deals. <a href=\"https:\/\/twitter.com\/#!\/cdixon\">Everyone criticized the Wall Street Journal\u2019s Pui-Wing Tam<\/a> for being <a href=\"http:\/\/online.wsj.com\/article\/SB10001424052970204450804576625043573078086.html\">the first to notice a cash-crunch<\/a> for seed-stage companies seeking follow-on rounds, but I think she nailed it.<br \/>\nSome early-stage entrepreneurs are now clawing at the walls, begging supporters for money and time.\u00a0Many investors <a href=\"http:\/\/cdixon.org\/2010\/03\/11\/the-importance-of-investor-signaling-in-venture-pricing\/\">never promised more money or much time<\/a>.\u00a0The premise of some seed investments, especially from larger funds, is \u201coptionality.\u201d<br \/>\nRather than making a serious commitment to a handful of seed-stage companies, larger funds are buying the right from many startups to lead a later round in the hope that one or two of them catches on with consumers.<br \/>\nOne reason for this is that consumer internet investing has become a hit-driven business. Who could pick the next Twitter? When the question is one of tickling consumers\u2019 fickle fancy, rather than a rational process of evaluating technology, it\u2019s a crapshoot. So some investors play at the dollar tables, and roll the dice all night long.<br \/>\nThis approach has led to the creation of more new businesses over the past 24 months than the Valley has likely ever seen. It has given entrepreneurs a shot at success many never would have otherwise gotten.<br \/>\nAnd some don&#8217;t need any more capital or advice beyond a seed round of financing.\u00a0But I did, especially when I was first starting out.<br \/>\nI co-founded a company, Plumtree, that raised seed capital from Sequoia. Kirill, Joe and I closed the round, walked out to an ATM to check our balance, and began laughing hysterically.<br \/>\nThings went downhill from there. A co-founder left. Nobody bought the product. And we ran out of money. I felt like I was digging deeper and deeper into a hopelessly dark mine, looking for gold.<br \/>\nThen Pierre Lamond, the Sequoia partner on the deal, began working out of our office, acting as the virtual CEO. \u00a0Pierre made a point of being there the day one of his other companies went public. We looked at a news photo of all the smiling people, who seemed to be living in a gated community, on a planet I would never visit. Then Pierre said &#8220;that company was once even more screwed up than you are.\u201d<br \/>\nI clung to that statement through Plumtree&#8217;s early days, and returned to it again when Dave and I were working out of an apartment trying to figure out how to make Redfin work .<br \/>\nTo find a new lead investor to join Sequoia on Plumtree&#8217;s board, Pierre drove me all over Palo Alto and Menlo Park in his car. It was the first time I&#8217;d visited the Promised Land of the Valley itself, and it was nice to see it through his windshield.<br \/>\nI cherished the conversations we had on those trips: about how Pierre founded National Semiconductor, or built the Cray supercomputer. He asked me what I enjoyed doing outside of Plumtree and I said &#8220;reading.&#8221; He saw what a little stress-monkey I was and said I should spend a few minutes reading a book every night; it&#8217;s advice I still try to follow.<br \/>\nAt each stop, Pierre promised he would work closely with the new investor on Plumtree, and possibly on other deals too. I was then released by my nervous handler to perform in the conference room like a zoo animal on The Tonight Show.<br \/>\nYou may think it wasn\u2019t really a fiasco, but one detail should suffice to convince you it was: at one point, I lugged a full-sized server around because we couldn\u2019t get the product to work on a laptop, or over the web. I tried to get the server going under the table before the partner came into the room but sooner or later he \u00a0always asked, \u201cWhat is that humming?\u201d It was the sound of a thousand memory leaks spinning up the disk drive and every other internal gizmo into a panic.<br \/>\nThat anyone gave us money was a miracle. But once we get the money, we prospered, eventually becoming one of only two technology companies to go public in 2002.\u00a0I wondered why Sequoia went to such great lengths to get Plumtree funded when it would have been easier to write off the few hundred thousand dollars invested in our company.<br \/>\nAnd the simple answer was that Sequoia cared about its reputation and stood by its companies. Someone later told me that a Sequoia partner liked to say, \u201cWe don\u2019t want you staggering around, with your fly down and a drink in your hand, telling the whole world \u2018We\u2019re a Sequoia company.\u2019\u201d<br \/>\nIf Sequoia hadn\u2019t saved us, I would have decided that my startup fling was folly. Plumtree would have just disappeared, and everyone would have thought it was a terrible idea. Redfin wouldn\u2019t have the executives it has now, and neither would AdMob, Xoom, Atlassian, Zendesk, Piazza, The Climate Corporation or any of the other companies now being led, in part or in total, by Plumtree people.<br \/>\nIt seems a shame to me that few of today&#8217;s seed-stage entrepreneurs will get the same support we did. I promise you, we were even more screwed up than you are.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>There has been over the past 18 months a Cambrian explosion of startup life, many incubated by angels and seed funds. And now the process of natural selection is beginning again. I got back from the Valley Thursday and what I gathered from the people there is the same as what I&#8217;ve heard here: that [&hellip;]<\/p>\n","protected":false},"author":13210,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[57],"tags":[7],"dashboard":[],"coauthors":[],"class_list":["post-5189","post","type-post","status-publish","format-standard","hentry","category-company-news","tag-startup-culture"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.7 (Yoast SEO v27.5) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>The Shitake Hits the Fan - Redfin Real Estate News<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.redfin.com\/news\/the_shitake_hits_the_fan\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Shitake Hits the Fan\" \/>\n<meta property=\"og:description\" content=\"There has been over the past 18 months a Cambrian explosion of startup life, many incubated by angels and seed funds. 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