Mike Lanza: Starting Companies Without Venture capital

Do you need venture capital to build a successful company? Mike Lanza does not think so and he has several experiences to prove it. Last night I attended the SDForum Startup SIG to learn how Mike started four companies without venture capital. It was a interactive presentation where Mike addressed his observations and experiences of entrepreneurship.

Mike’s Entrepreneurial Career

In 1986, fresh out of school Mike started Lanza Laser Publishing. It was a graphic design company which employed Mike and a part-timer. It was not Mike’s intent for this to be a high growth company, but he ended up selling it in 1988.

In 1993 Mike started Digital Newsstand, an online news service. In this venture he had large aspirations of building a high growth company, but ended up spending two years on it without ever hiring employees or launching a product. Although the company folded, Mike started it with his own capital and no outside investment.

In 1995 Mike founded Just in Time Solutions, an online bill presentment and payment system, which is now known as Avolent, Inc. He grew the company to 65 employees and $6+ million revenues. In 1998 he left the company shortly after he took his first round of venture financing.

In 1999, right in the middle of the dot com bubble, Mike founded 1View Network. It was an online financial information consolidation company which he grew to 20+ employees and $1.5million/yr revenues. He raised $1.3 million in angel financing. A year later, in 2000, he successfully sold the company to Digital Insight.

Mike’s most recent experience was developing Click.TV, a web video technology. He founded the company in 2006 with his own capital and grew it to five employees. He recently sold the company with zero revenue. The acquisition has not been disclosed to the public yet, but you can read Christine Herron’s and Michael Arrington’s blogs for more Click.TV coverage.

My three takeaways from the presentation

1. The value of software patents
2. Successfully bootstrapping your company
3. Exit strategies for non venture backed companies

Patents: Mike believes that “patents do not do anything except create work for attorneys; if your technology is so unique and innovative process the paperwork but focus your time on running the business.” I agree with this statement because in my experience, I see too many technologist spend more time worrying about patents rather than building a business. Patents are only as strong as the amount of money you have to back them. Most companies use patents as defense mechanisms in litigation engagements. Your customer will never ask you if your technology is patented.

Bootstrapping: an attendee asked a question regarding his methods for bootstrapping a company. Mike said, the best form of financing is through revenue. In the beginning all of his early sales were consulting jobs. He eventually refined the product and his process so that it could be productized. In Gerald Weinberg’s book “The Secrets of Consulting” he coins the phrase “nothing new ever works.” This is especially true for technology. When the technology is introduced into the market it takes many revisions before it actually leaves the inventors hands. We believe that selling the tool as a consulting service is an effective method for jump starting the sale and finding your early adopters.

Exit: when you finance a company on your own, you have the opportunity to sell whenever you want. When you raise venture capital, sales opportunities are usually ignored until the money dries up. Most selling decisions take a long time because your investors will have to approve the deal. Its just how the economics work when you play the venture game. VC’s will not settle for the moderate gain unless they have to. If you take money early in the fund, they do not want to sell early because then they have to give the money back to their limited partners and they won’t be able to charge as much management fees.

My net net: these days it seems like the trend is to develop a ten slide PowerPoint presentation and try to raise venture capital. From the pitch preparation and networking events I have been to throughout the valley, it seems like most entrepreneurs do not have a real plan for spending the money. My observation is that many of the entrepreneurs are trying to raise money to pay themselves a salary while they entertain an idea.