Wednesday, April 10, 2013

Expert takes on investing in business plans


            Sean Parker is probably most known for being portrayed by Justin Timberlake in the film The Social Network. But his career has been much more successful than that. Two of the first three companies he has worked with are ones that changed the world forever. In 1999, he helped found Napster with Shawn Fanning. Napster was a music file-sharing program that enabled users to easily download digital music files illegally. The program quickly drew the ire of the Recording Industry Association of America and was forced to shutdown in July of 2001. It ignited the industry’s response to take their music online.
            Parker then attempted to revolutionize the address book with Plaxo, an online service that will automatically update your address book. The company was founded in 2002 but due its inability to be successful, he was fired in 2004. It turned out to be a blessing in disguise as at that time, while plotting his next move, he stumbled upon TheFacebook, while visiting a friend at Stanford. He had already wanted to tap the potential of social network and got excited about an existing service named Friendster but got cold feet when the service’s system began crashing. He quickly found out how to contact founder Mark Zuckerberg and the rest is history. He became president of Facebook until being fired in 2005.
            Parker today is an investor in Spotify, the world’s foremost music streaming service, is the CEO of Airtime.com, a new video chat service, and finds startups to fund for the Founders Fund. In a recent interview at the LeWeb conference, Parker has this advice for getting your business noticed. He says that he looks for “great teams. A startup needs to have an effective leader who can hire and attract great talent. A complete team that can execute is his benchmark” for making an investment. Parker also gave the example of Gowalla, a location-based social network that stuck too tightly to its business plan, and the not being flexible led to his loss of interest. So flexibility would also be a guideline.

            Peter Thiel also was a major factor in the beginning of Facebook. He unlike Sean Parker has a less colorful past. He made his fortune in founding PayPal, the huge digital payment system. He sold the company to Ebay which helped solidify his career. Thiel now runs Clarium Capital, the company he founded after PayPal, and the Founders Fund. Thiel was one of Facebook’s first investors with a startup fund of $500,000. Companies he has invested in include LinkedIn, Slide, Geni.com Yelp, and Yammer. He also is commentator on CNBC, executive produced the film Thank You for Smoking, and frequently writes for the Wall Street Journal, Forbes, and Policy Review.
            In a recent interview with TechCrunch, Thiel put into words exactly what he’s looking for in investment opportunities.

“We try to find technology businesses that nobody else in the world is building. So, the people who are actually starting them are much more braver and crazier than we are. We are for the most part just investing but I think that’s what really makes the difference. It’s where you do something where if you don’t do it, it’ll never get done. And so the question I always want people to ask is what idea do you know to be true that nobody else agrees with you on. The business version of it is what business can you start that would be valuable that no one’s thought of? So we always try to find things that are not being done and if we didn’t back a particular entrepreneur, this thing would never get created for the world.”

Thiel also went on to emphasize how important it is that you have a business plan and a clear vision for the company.

“This is sort of a minor nit, but it’s one that I think is always a good one to be aware of. They shouldn’t say that there are a whole bunch of different things they could do with their product, all of which would be good. Normally you want just one thing that’s going to be fantastic. And so when you say, ‘We could do A, or B or C or D or E, and we could make money doing A or B or C or D or E,’ that’s often that you don’t really have a plan, which isn’t going to work. It’s always better to have a plan. It’s one of the things I learned in chess: A bad plan is better than no plan.”

Check out the full video here: