Entrepreneur in Residence, the cushy garage alternative
A couple weeks ago, we announced that Jim and I are starting our company as Entrepreneurs in Residence (EIRs) at Benchmark Capital. For those of you who are not familiar with the EIR role, Jim and I get an office at Benchmark for a few months where we can brainstorm, prototype, and evaluate new business opportunities. In addition to an office, we get access to Benchmark's expertise and connections to technology companies, and in return, we help Benchmark evaluate new companies flowing in. It is not like a round of funding — Benchmark doesn't own a stake in what we are doing, and they have no obligation to fund us later.
So why be EIRs instead of starting out completely independently? It was a complex decision. One thing you will find if you ever start your own company is that everyone has advice. In Silicon Valley, everyone has worked at a start-up in some capacity, so that advice comes in the form of mandates based on unsurpassed anecdotal experience. "Don't get venture capital. Trust me, when I was at Company A, we did, and …" "Talk to as many VCs as possible. Trust me, when I was at Company B, we didn't, and …" "Don't go into that industry, it overlaps with big Company X. Trust me, when I was at Company C, …" "Go into that industry because it overlaps with Company X, so then you can get acquired. Trust me, when I was at Company D, …"
If I learned one thing from the barrage of advice we got as we walked out the door of Google, it was that everyone's start-up experiences are unique, and anecdotal experience doesn't necessarily generalize well. However, everyone we talked to reinforced their conflicting advice with a couple of common observations:
Due to the increasing maturity of open source software, cheap hardware, and search engine marketing, starting an Internet-based company costs less money than you would expect. Check out Joe Kraus's excellent blog post on the topic if you haven't already.
Taking investment is a significant decision, and the form and amount of investment you take can dramatically change the path your company takes. VCs may have very different expectations than angel investors about the amount of equity they expect in return for money, and they may have different expectations about the timeline in which they expect a return. Due to the trend towards lower cost development, entrepreneurs have many more options today than they did in the 90s, and many companies today experimenting with less traditional forms of investment. My favorite example is Paul Graham's Y Combinator incubator, which invests just a few thousand dollars in extremely small teams that are often made up of college students.
In the end, it seems that success breeds happiness. Most of the bad experiences recalled to me in the form of advice-filled anecdotes sounded almost identical to the good experiences recalled to me from other people. It just so happened that the bad stories ended with no revenue and an investor coup, and the good stories ended with a product everyone uses and everyone making a lot of money. Different types of investment lead to different issues down the road, and different forms of investment work better for different companies. Let's hope that Jim and my advice ten years from now is colored by a happy ending :)
In the end, we chose to become EIRs primarily because we wanted to learn as much as possible before we make these complex decisions. We wanted to see the conversation the Benchmark partners had after a company pitch (Why did they care about different things than we did? What questions did they ask that we wouldn't have asked?). We wanted to see the relationship between a broad range of portfolio companies and board members before we find ourselves managing a relationship with our board. We wanted to expose ourselves to industries that we would have otherwise not looked at to pique our creativity as we develop our own ideas. There are lots of people with advice in the Valley, but none of it compares with the opportunity to see the issues play out first hand.
Also, the Benchmark office we have is a tad more comfortable than the bedroom in my house we would have used otherwise:
I still tried to convince Jim that we should spend our first day in my garage so we could say "We started the company out of Bret's garage." Saying "We started the company out of a cushy office on Sand Hill Road" just doesn't have the same ring to it.
So did we make the right decision? I think so, but only time will tell. Ask me in a couple years, and I will have some strongly worded advice for you…
