It’s nearly 3 am, and I’m having one of those sleepless nights, where
my mind is racing with new ideas and lists of things I have to do. I
know (from experience) that I won’t get back to sleep until I’ve
written things down. And while I’m at it, I decided to blog about one
of these new ideas.
For several months I’ve been contemplating a shift in my career from
pure startup entrepreneur to venture capitalist. I’ve been studying the
history of venture capital and have learned that many of the pioneers
of the industry and many of the leading VCs today don’t just look for
deals, but they create them. They help form companies, generate
business plans, recruit management, and act in many ways like
founders–they just don’t often run the companies.
This appeals to me a great deal. In fact, it is really what I’ve been
doing as a so-called "parallel entrepreneur" — the difference being
that I have been using a bit of personal seed capital for each of my
startups. How much better, I think, it would be if I became a
full-fledged VC so that I could invest more significant funds in these
startups, as well as providing training and mentoring for them.
So I’ve been pondering ways to make this shift.
In the meantime, my startups such as 10x Marketing, Infobase Media,
FundingUniverse, Web Evident, and Worldhistory.com are experiencing
growth (and growth pains) and overall are looking more and more promising. It
is difficult for me to take capital out of these companies in the form
of salary or consulting fees, when every dollar that I can keep in the
company is one dollar that can be used to help the company turn the
corner and get to cash flow positive. And my return in the form of
shareholder value will be far greater than any return I can get from
Last night a relative asked me why I don’t just get a normal job. I
responded by asking: would you rather have a normal job with a salary
of say $100,000 per year or a harvest of $1 million every three years?
Internet startups can easily generate millions of dollars of
shareholder value in a short period of time (say 3-5 years). In fact,
the highest percentage growth in the equity value of a startup occurs
in the first few months of its existence where reasonable people
(such as venture investors) look at a business idea and the team that is determined to
execute on it and they often give the company a $3-4 million valuation
before it has even finished its product and taken it to market.
It’s not easy to get a multiple million dollar valuation for a raw
idea. Only 1-3% of companies that pitch venture capitalists get
funding. The strength of the team is of course a major factor. But tens
of thousands of new companies get started every year with investment
from personal savings and from family, friends, and angel investors,
and in almost every case there is an initial valuation that is
significant. If the company succeeds, then the early equity holders can
eventually cash out and do quite well.
I totally value equity in startups more than I value a salary or a
traditional income. But that can create a bit of a dilemma between
harvests — in fact, I am accustomed to experience serious personal
cash flow issues as my appetite for being involved in startups far
exceeds my ability to fund them. The good news is that perhaps 3-5
years from now the harvests will come more quickly, as multiple seed
deals per year turn into harvestable businesses.
But what to do in the meantime? I don’t want to take cash out of my existing startups, but I haven’t yet joined a venture fund.
So here’s the idea that is keeping me up. I’ve done some consulting
over the years, but I had a very hard time pricing my consulting
services. In one instance, I got a wonderful client in Canada, spent a
few days with them, worked feverishly on a marketing plan and internet
strategy for them, and delivered it. But while I was working for them I
discovered how serious their cash flow problems were and how the
founder was going into debt personally to pay my fees. I also realized
that my plan would work (of course I thought it was brilliant) but
would take additional capital for them to pursue it. I felt bad for the
company and waived all my consulting fees. All they did was cover my
So I’ve learned that I will never been good at charging for my consulting servides.
But, maybe, I wonder, I could auction off my consulting services
through eBay or some other online system. The market demand for my
services would bring potentially dozens of companies into the auction,
and the ones that want my services most and could afford them would win
Since my consulting time during this transition period from internet
parallel entrepreneur to investor would be very limited, perhaps as
little as one day a week, then the limited supply of my time might
drive the prices up to a reasonable level.
I need such an online system to remove myself from the process, since I can be too soft or generous for my own good.
At 10x Marketing when we used to help companies set up auctions on eBay
for their products, we learned that conversion rates on eBay were often
significantly higher (sometimes several times higher) than our clients
pre-existing web sites. With that knowledge, we started directly
pay-per-click traffic to go directly to the eBay auctions. The more
people you can get into an auction, the better the conversion rate and
the higher the selling price.
So with my personal consulting, how could I generate online demand for such an auction?
I could of course use email, and notify some of my 2,600 personal contacts that I’m offering a day a week of my time.
Also, FundingUniverse has more than 1,500 registered entrepreneurs who
are currently seeking funding to grow their companies. Some already
have dozens of employees and significant revenue. These would be
candidates for consulting as well.
Also, I could use LinkedIn.com where I am two or three degrees away
from more than 650,000 people. I wouldn’t spam my LinkedIn connections,
but I might get introductions to a few dozen companies that I would
like to consult for, and invite them to participate in the auction.
And finally, I could always use Google and other search engines to drive traffic once the auction has started.
So here’s the question for all my kind readers (so that I can get back
to sleep): do you know of any individual or consultant or team that has
auctioned off their professional services? Also, what do you think of
this concept? Could it work? Could it work for me? Could it work as a
business model–an auction for consulting services–if the marketing
engine created enough demand to generate decent pricing for the service
I know there are lots of online systems such as eLance and rentacoder
where companies post projects and individuals or companies bid on how
much they will charge to do the work. But is anyone trying the opposite
approach? Are any attorneys, or accountants, or business consultants
using market demand to fill up their schedule and determine pricing?
Okay. So I’ve let everyone know where my career is heading, and I’ve asked you all for advice.