Why being greedy gets you nowhere

Visuvi CEO Chris Boone on how an investment flopped due to avarice

In this segment of Lessons Learned for entrepreneurs, Bambi Francisco interviewed Chris Boone, founder and CEO of Visuvi, a an image based search engine with patent pending technology in “content based image recognition.”

BF: You have been an investment banker since your professional career and you moved over to become a CEO of a startup company about one years old. So, you probably have a lot of interesting lessons that you've learned now that you're in operations. Can you share three pieces of advice being an entrepreneur?

CB: First and foremost you have to solve a significant market problem so necessity is the mother of all inventions and creations. The first thing you have to do is to make certain that whatever business that you're going after or solving, is not tremendous demand or is needed in the market place. At Visuvi for example, we've seen a number of folks in computer vision that have had amazing technology and algorithms that the market just doesn't need or simply just does not know how to value. The second piece of advice that I would offer is to make certain that there is a business behind that necessity. I think back to, for example, the Apple Newton which is fantastic technology that came out years ago. But for a number of reasons did not make it in the market place. A few years later, you had the palm pilot that did take off.

BF: Was that model? Or was it more the timing?

CB: It was a little bit of everything. The product was expensive, very large, and very heavy. There were a number of challenges. But again, it was not a significant enough business need int he market place.

BF: So it was a business need, not so much a business model?

CB: It is both business model and business need in that particular case. So you have to make sure that you have a business model that aligns to that business need. The third piece of advice is to not be greedy. I say this both to the entrepreneur who is trying to sell or raise capital for the company. But I also say this to the investor. There has to be enough money for both sides to make it a worth while partnership. This is a partnership for the next five to seven years so you have to make sure that whoever is with you has enough steak in the game to make the investment worthwhile.

BF: It sounds like you've had an experience with that third lesson. Can you elaborate what happened there? Was someone too greedy?

CB: I've seen both sides. I've seen where the investors got greedy finding the best technology. But as the company continued to raise rounds of capital, the management got so diluted, that there was no incentive for them to stay. So when bigger opportunities cam along, that intellectual capital left with those individuals. When that happened, there was not enough to sustain that company. So what had happened was what supposed to be a fantastic company with amazing technology, flopped when the investors got greedy. I've seen management teams who were not willing to offer enough of the company to make it an attractive investment opportunity. At the end of the day, the investors are about a couple of things such as returns but more specifically, IRR. So how quickly can they take that dollar and have a significant return to make it an attractive opportunity?

BF: If you have a particular technology, and you are a founder, what percent do you expect to own after three or five years?

CB: The first thing I would ask an entrepreneur is, "If you want to be Bill Gates, do you know how much Bill Gates owned when the company went public?

BF: How much?

CB: He had 41%.The days of an entrepreneur having forty-one percent during an IPO are long gone. Do not go in thinking you will have forty-on percent of your company. You need to be very realistic that when you raise capital, every success of round you get for the diluted. But, does it matter if you have 5.5 of a company or 5.7 during an IPO? I doubt the folks at Google would make that argument.

BF: OK, Chris. Thanks so much for your lessons.