Brunch, Palo Alto Style

Today’s event was breakfast with the effervescent Peter Davies, along with his friend David Perry. David is a remarkable man, having been the CEO of the record braking company Chemdex. Chemdex was a company David started during the height of the internet bubble, and is a true example of how companies rose and fell so quickly. Started after leaving Harvard University, David single handily raised large sums of VC and took the company from nothing to worth $10 billion in less than 4 years, and then back to little over $100 million when he eventually sold it. I was in awe of the casual manner that David spoke about his experience as the youngest CEO to take a company to such a valuation and in one of the shortest periods in America’s history, only to lose nearly everything by the end.

He had a few insights into what his insights into how to be a successful entrepreneur that resonated with my experiences and beliefs. The first is to not worry so much about what it is you are doing as long as you fulfil 2 criteria. They are that you are always learning and you are enjoying what you are doing. This mantra is true whether or not you are perusing entrepreneurial activities, or working for a company. Whatever choices you make in this regard will work themselves out eventually, and there’s no reason you can’t move on in the future.

Secondly he outlined a perspective when raising capital that I hadn’t heard before, but was particularly interesting. His idea when making a pitch is not to skirt around potential barriers and risks, but rather spell them out and make the investor aware of everything you are aware of. His reasoning is that they will look for risks anyway, and if you leave them to their own devices they will probably come to the wrong conclusions. However the ingenious part is once you have outlined the obviously fantastic opportunity, then prepared them with the risks, instead of asking money to pursue the opportunity, you ask for the money to eliminate the risks. So if you identify the risks in order of priority, and necessity, and ask for X amount to overcome the top Y risks, you can show how strong the company will be at that stage, what the risks will then be (presumably a lot less) and therefore show how much investment will be required at that stage to continue to overcome the further risk. If done properly, you will organise the risks into stages, and at each stage it will become easier and easier to raise the capital required to overcome the risks (if necessary of course).

Finally he also warned about a situation that currently seems a long way off, and that is raising too much money! Apparently he has encountered the situation, and Peter also, where VC’s wish to invest a much larger amount of capital. This usually occurs when investor groups work together and all want a piece of the pie. In this situation, to support the higher valuation this causes, it is too easy to spread the company too thinly and work on products that aren’t core to your business, and therefore you can lose focus on the key areas. Not something that is immediately relevant perhaps, but something to think about nonetheless.

I really enjoyed the breakfast and it sounds like David is onto something equally impressive for his next venture, this time with the experience behind him, and having learnt a number of hard lessons. He has found a technology that could potentially revolutionise the way in which molecular treatments work, with the associated rewards, so it will be interesting to see how this venture fairs. I have no reason to believe that he won’t be a success.