Capital Chaos

Tiny Pictures (San Francisco, CA) just locked in $7.2M in a Series B round led by Draper Fisher Jurvetson .  This latest investment comes on the backend of a Series A round of $4m led by Mohr Davidow which also participated in this latest round. 

The mobile photo-sharing company offers a service called Radar which lets users comment on each others camera phone pics.  The dialogue (comments) about your pics can be limited to the friends you share them with or you can make the images public for others to comment on as well - which will inevitably get people to want to join your feed and see what else you have. 

While Radar has gotten some very positive feedback since its application is both easy to use and non-intrusive to others who are not interested, I am a bit confused at why this company has the need to raise over $11M and where the real value proposition is.  Yes, Radar has served some 15M mobile photos a month and yes, the interactive advertising which is designed to attract movie studios and music companies alike (will.i.am just joined their board) but I still question how this company will generate enough revenue to even pay back its investors let alone increase value to them.  The market for mobile phone apps is becomming increasingly more crowded and at some point advertisers must be asking how the money spent correlates to increased sales of products - unless this is purely meant for brand awareness/retention.  Yet, even for those reasons, I dont see major advertisers spending enough money to cover the amount raised in any short time.  It is possible that there are other ways to monetize the users on the service and offer ads which are more direc tmarketing and response driven but to date, that has not been part of any announced initiative.

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Draper Fisher Jurvetson (Menlo Park, CA) is one of the premier VC firms with over $5.5B under management (globally).  Having backed more than 400 companies - many of which have been pioneers and leaders in their respective spaces (Hotmail, Skype, Baidu, Overture), these guys just get it.

As an early stage VC as well as later stage VC, they are pretty well known for supporting s business once they are engaged and leveraging their various assets/investments to provide even greater value (to both the company and their investment).  Their primary areas of focus are:

• IT
• Nanotech and Life Sciences
• Clean Energy Technologies

Tim Draper, founder, recently provided some guidance as to his view on 10 steps to running a company.

1. Where do you start? Start with a big market. Go after something that has hypergrowth, where the price-to-earnings (P/E) ratios are high and the air is clean and the water is fine.

2. Go for big margins. What that means is: What is your area of expertise? What are you really good at? What are you specifically best at? What does your painting look like and why is it that you are the only one who can develop that painting? Big margins.

3. Super people. You are constantly on the lookout for superheroes. Your absolute, sole reason to exist is to find as many people smarter than you as you can. There is only one person who is smarter than everyone else, and I’m just assuming that person is not here. For me, it was really easy. I am constantly on the lookout for really great, smart people, and I think you should be, too.

4. Build market share fast. If you are on the Web, build market share fast. Grow. Move. Use a virus, use a magnet, use a whatever you can to get to be the biggest one fastest.

5. Partner and create a network. Use that network and build it.

6. Win. Grow big, fast, and just win. Be the winner. You don’t want to be Number 2. Just don’t. It’s not that much harder to be Number 1 than Number 2, just that extra oomph at the finish line.

7. Get a customer. That should have been earlier. A customer is absolutely critical to your success because you need the feedback.

8. Now, go get another customer so that the first one doesn’t own you.

9. Build strategic relations with one or more of those key customers. “Strategic relations” just means money has to go one way or the other, so it’s better to have it go towards you.

10. Take it public.

While number 10 is really predicated on economic conditions and isn’t always the best route for some companies, DFJ is all about the entreprenuerial spirit and cultivating it into a real business with results.

If you are interested in securing funding from Draper Fisher Jurveston, best way (other than a direct introduction) is to submit a written business plan and full resumes (not single paragraph summaries as the firm puts it).  Critical in any submission is to send it directly to a key founder of the firm.

When submitting a plan, be sure to include the following information:

• Investment Size and Structure Requested
• Description of the Product or Service
• Brief History of the Company
• Business and Marketing Strategy
• Analysis of the Market and the Competition
• Full Resumes of Key Management (Highlighting Industry and Market Expertise)
• Current Financial Statements and Projections

As the firm says, “this document should be a working document for the company, used in long-term planning, and not simply a sales tool for fundraising”. They prefer hard-copy business plans, as opposed to e-mail submissions and expect up to three weeks for them to get back to you.  

In an interesting Q&A with Tim Draper, when asked what he looks for in a business plan, he responded, “A clear understanding of the business. How do you plan to make money? How much money is required? Why is your company unique? Why can it overcome much larger and better financed competition? What does the competition look like, both startup and large company competition? Who are the people in your team? What are their complete backgrounds? What is the company going to focus on? ”

Sounds like good advice to me!

Other than going directly to Tim, other people you may want to pitch to in the firm are Josh Stein (josh@dfj.com) and Ravi Belani  ravi@dfj.com.

Contact:
2882 Sand Hill Road,
Suite 150
Menlo Park, CA 94025

mail@dfj.com