A too easy startup story and how we funded an ill-timed idea
Anyone who buys into the startup mythology spectrum has read accounts of how difficult it is to raise money, especially when all you’ve got is an untested idea. Endless pitching, bored investors, and dismissals of your ideas, right? Well, I had an idea in 2011 and I pitched to exactly one seed fund and got funded. Which sounds cool, but it didn’t turn out that way.
Eight Powerpoint slides thrown together in an hour
It was Christmas week and I was browsing the tech blogs when I read about an early stage fund that was taking a different approach. They were based in France and funded by a young tech billionaire. No limited partners and a very minimal staff. They had decided to fund one hundred early stage startups in a year with a very fast decision-making process and simple term sheets that were fair to both parties. Basically they were going to throw spaghetti at the wall and see what stuck. I found their concept refreshing and dragged up my startup ideas list to see what I could pitch. I settled on one (more on that in a bit), and spent an hour putting together a pretty lame pitch deck, just eight slides. I sent it off to their site and never expected to hear a word. It was basically a whim.
A week later an email from them appeared in my in box.
I was expecting a ‘Sorry, but not for us’ reply. Instead they were interested in learning more. Could I send a brief business plan? Needless to say I was not expecting that. They also said they required at least two founders. So I recruited a web designer friend of mine as a co-founder and grabbed a domain name, 24pagebooks.com (no longer active), and then wrote out a summary. They read it, asked a few questions, and then asked if we could meet with a friend in NYC so he could vet us in person. I think they basically wanted to see if we were not kooks. We flew to NY, met the very nice guy, a Frenchman with his own startup, and then flew home. A few days later we were sent a term sheet.
Tem sheets are documents where the investor sets out the terms of the investment, how much they are investing and a valuation, ownership details, etc. We took it to an attorney and he said he thought it was very fair to us. This was taking on a surrealistic feel. These kinds of things don’t happen. They were offering a 100,000 Euro seed investment at a valuation of 500,000 Euros, about $650,000 back then. We were apparently the owners of a company that someone thought was worth $650k. Yikes.
They told us what kind of corporation they wanted us to file © and used a standard set of documents so we wouldn’t have to pay too much in legal fees. This was a big deal because legal fees can be ridiculously high for these kinds of things, as much as $20k. We incorporated, opened a bank account, and they duly wired $50,000 Euros to it. The second $50k would come when we had some product traction, i.e. sales. So, I quit a really good job (big mistake in hindsight) and went to work.
A Dummies book you could read on a short plane flight
That was our elevator pitch. We would take topics people needed to get up to speed on and write really condensed books about them. 24 page books, which became the name of the business. Having written a half dozen how-to books, I was pretty sure I could give people a reasonable level of knowledge in a much more concise format. We would publish on Amazon, initially as ebooks, and then build a list and market them, eventually moving to actual physical books. So my partner built a nice web site and I went to work writing.
We published thirteen ‘books’ in a couple of months
I wrote about subjects like networking, dating, self-help, marketing, etc. The idea was to try different categories until something got traction. My partner designed the books, which I must say were very professional with beautiful covers, ISBN numbers, etc. We posted them on Amazon, built product pages and did some basic marketing. And nothing happened. We sold nada, zilch, virtually nothing.
And sold around 100
This was disconcerting to say the least because were spending other people’s money for our overhead, legal, survival salaries, etc. Eventually I had to make the call to the investors and tell them it wasn’t flying. We returned what capital there was left and that was that.
Why it didn’t work
Our timing was pretty bad in hindsight. Amazon’s publishing made publishing ebooks so easy that the market flooded with crap that people were publishing to try to get speaking gigs or clients. You could buy titles for pennies or free. I believe this flood made buyers wary of wasting time or money on cheap information. On top of that, being in an information business when the world had ready access to unfathomable amounts of it for free was not the greatest business to be in.
Failure is hard, failing with other people’s money is painful
You read about startups failing all the time, 7 out of ten typically go down quickly. We were just a statistic but it was still difficult. My partner and I had a falling out that we never really recovered from, an outcome I still regret. But it wasn’t a net negative. For relatively little work on our part, we had an experience few can access. The investors have gone on to be quite successful with their model and there wasn’t bad blood. Ironically I went on to mentoring startups for an incubator on how to thoroughly vet a business idea, and have worked for three successful growth companies since then.