Why I Hate Spreadsheet Jockeys
July 31st, 2008 • Entrepreneurship + Startups, Rants, Venture Capital
So word is I’m going to be quoted in a story in the Atlanta Business Chronicle tomorrow (I haven’t seen it yet) and I thought I’d talk about why I said some of the things I said. First, if you didn’t know the Atlanta Business Chronicle has again put a reporter on the technology/startup beat after saying that they were going to stop covering this area. It might have to do with the fact that so many of you dropped your subscription. I dropped mine years ago in protest of treatment that I got from a previous reporter. Regardless of the changes, I don’t intend to restart my subscription. Unless of course, I can get one for free. But that’s not the point of this blog post.
Lately I’ve heard a refrain that Atlanta is an “enterprise” town (heck, Lance Weatherby just did a post about consumer oriented startups in Atlanta to which Rob Shields responded with this exact issue). The belief being that if your business is anything other than an enterprise play, then you won’t get funded locally. I say bull to that. The reason is that even so called enterprise deals don’t get funded here.
An example close to my heart is my old company, Digital Envoy. Digital Envoy sold and sells exclusively to other companies. Granted the data the company deals with is about individual users, the customer for the technology is and has always been other companies. Oh wait, the customers are other companies that are Internet savvy. They aren’t (generally) Coke, Home Depot, or Delta (heck, Coke makes you select your country as its first interaction with you - go try it out). We never got the attention of local investors until AOL Time Warner Ventures was committed to investing and said they wanted a local investor. In the end, this was probably the best thing to have happened to us. We didn’t get sucked into believing some of the silly things or strategies investors in the southeast think you need to have to succeed. But I digress.
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Probably the most incendiary comment I made for the article was about investors who are spreadsheet jockeys. Atlanta (and most of the southeast it seems) is dominated by venture capitalists and investors that are spreadsheet jockeys (sometimes it also seems like they’re lemmings but I’m not 100% sure this is true anymore). I’ve used the term “spreadsheet jockey” a lot but now it’s in print in the Atlanta Business Chronicle (again, so I’ve been told - I haven’t seen the actual article).
Spreadsheet jockeys are people who analyze everything solely using financial numbers and models against a spreadsheet. If you can’t model it, then it has no value. Don’t know what a customer visiting your site is worth? Then they aren’t worth anything. Good word of mouth and name recognition for your company? No value. By the way, Twitter would be an example of all of these. Well, except that they get bad mouthed every time they fail whale (I find it humorous that the Wikipedia entry for “fail whale” redirects to an entry about Twitter).
Now I can’t say how much any of these things is worth, but I know it’s greater than zero. How much greater than zero depends on the scale, the company, and the problem being attacked. But the problem is that spreadsheet jockeys can’t model these variables and therefore can’t show how much they’ll be worth in the future or their NPV. So if your entire business is based on something that can’t be modeled or is too difficult to model/value, these folks will never get over the hurdle to be able to invest because they can’t figure out what you’re worth now. In the absence of a value that can be modeled, you are assumed to be worth zero. If for some crazy reason they do invest in you (and you’re crazy enough to take their money), they’ll make your life hell. Trust me, I speak from experience.
So why do VCs in the southeast tend to skew to the spreadsheet jockey end of the spectrum? My belief is that many of them did roughly this career path: undergrad in finance/economics, work in investment banking or financial services for 2-5 years, go back to grad school for an MBA, congratulations you are now a VC! Honestly, some of my thought to go and get my MBA was to better understand the mind of VCs so that I’d be on better footing the next time around.
So sure, a lot of what you do as a VC is about managing money and making investments but when it comes to early stage startups there is a lot more to investing than figuring out ROI or IRR (if you don’t know what those mean, that’s quite possibly a good thing). This is where the spreadsheet jockey fail whales in deciding which companies will and won’t succeed. Their skills are aimed towards picking large(r) companies not unlike those listed on the stock market. In fact, Wall Street calls these people quants and good ones are always in huge demand. You can decide for yourself if a spreadsheet jockey was really good would they stay in venture capital or go and make boatloads of cash on Wall Street.
So given all that, spreadsheet jockeys are quite possibly the worst type of investor you could have in your company. They’ll want to spend an inordinate amount of time going through you income statements leaving no time to actually discuss strategic initiatives the company should be working on. Mind you, those strategic initiatives are usually the reason you have any type of positive liquidity event. It isn’t because you saved $.50 per pound on coffee for the office last month.
Spreadsheet jockeys will also push you to have monthly board meetings. Their intent is to keep a close eye on your financials (see savings on coffee above). God help you if you agree to monthly meetings because watching grass grow while your fingernails are plucked out by Sayid would be a lot more fun than dissecting company financials every month in a board meeting. Again, trust me I speak from experience.
So this is the reason why so many Atlanta (and southeast) startups end up going outside of the region for funding. You can’t model most Internet businesses in a nice neat spreadsheet. It just doesn’t work. There wouldn’t have been a way to model the exit for YouTube or even the recent exit of Omnisio. There is an underlying understanding of business and technology that has to be there for you to understand why these business will or won’t succeed. Understanding of business doesn’t fit within columns and rows of a spreadsheet.
So if you’re ever faced with pitching to a spreadsheet jockey, my suggestion is to run, not walk, towards the exit. You’ll have better luck elsewhere.
Oh yeah, one other way you identify spreadsheet jockeys is that they expect to play golf at every conference they attend. But that’s a discussion for another time…
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One final note - I don’t speak for Jeff, Appcelerator, or anyone else who has or hasn’t raised money or who has or hasn’t left town because of it. Just thought I’d mention that since the article in the ABC is about Appcelerator. All these ideas and rants are fully my own.
24 Responses (Add Your Comment)
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Paul Freet July 31, 2008at 10:21 pm
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Brilliant.
There is a place in the world for spreadsheet jockeys (even in Atlanta, not just NYC).
But early-stage isn’t it.
That’s where the attitude ought to be “tell me a story” (or “SELL me YOUR story”!), not just “show me your numbers”…
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Urvaksh August 1, 2008at 12:50 am
Thanks for creating buzz about the article - and I enjoyed the preemptive strike. Masterful!
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Sanjay,
That was a sublimely awesome post.
Nothing more to say… -
recently told at board meeting with sophisticated west coast investor:
“let’s not waste any time at board meetings talking about *financials*, we’re going to be burning money every month for the next 18 months…. not much to talk.”
another (paraphrased) quote from a local tech VC:
“i’d like to work through your 5 year financial plan and spend a few days digging into it before we can talk about a term sheet”
in my west coast fundraising, not *one* VC even asked about financial or financial plan until 3-4 meeting. in fact, i didn’t even have it in any pitch deck.
financials are important and we’ve got a lot of spreadsheets we look at each day to manage the business. as an entrepreneur you better have a good point of view about financing and how much you’ll need, how long it will take, etc.
i definitely agree with sanjay’s comment :”run!”
i told a good friend of mine of the comment above about the “5 year financials” and he asked: “why are you wasting time with these guys? they don’t understand your business”.
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You can read all of the article here: http://tinyurl.com/6c2sy9
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As a recovering spreadsheet jockey I initially took offense to your post but after getting over it (part of my recovery process, I guess) I have to agree with you. My experience trying (sometimes succeeding, sometimes failing) to be an ‘intrapreneur’ within established companies is that the spreadsheet jockey-itis is just as deadly there as with a start up.
In the early stage of anything you are better off using logic, 80/20 rule, rules of thumb, and other sound but quick tools than getting anal with analysis paralysis. You have to put priority on moving quickly and iteratively. There’ll be plenty of time for some reasonable application of “financial analysis” once you’ve crossed a chasm or two.
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Good read, Sanjay. I thought the ABC article was interesting. I’m glad I had the opportunity to get to know Jeff over the past few months. I hate to see someone with his talent and spirit leave Atlanta. I hope this discussion keeps us focused on making Atlanta an even better place for technology start-ups.
Quick POV from a Southeast VC and former start-up guy and entrepreneur (and I know I speak for my fellow technology partners at Noro-Moseley, Alan Taetle and Chuck Johnson, both of whom are also former start-up guys/entrepreneurs), like every other VC I’ve ever worked with (including many on Sand Hill Road), we always ask for some detail on the business model, not because we want to calculate an NPV. We ask for a model because we want to understand how the founder/CEO plans on growing the business. We also want to look at the assumptions that drive that growth and do a gut check against our own knowledge of the space – do these assumptions comport with our own knowledge and experience? And the model doesn’t need to be detailed – some of the best I’ve ever seen are short and sweet – breaking down the opportunity into simple components. This is one of many elements we use to determine our interest in a company – most of our early review is around the team and the opportunity. We don’t generally ask for a model unless we’re interested in the first place.
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A lot of times the founder/CEO needs help planning how to grow the company, hone the business model, etc. Thus why we turn to the angels/VCs with more “experience”. If you are basing meeting number 1 on the financials in our presentation deck you are doing yourself an injustice.
“If you’ve got a good idea and a good team you can get funded in Atlanta.”
I also hear this a lot and I think it is crap. Maybe someone can shed some light on what the right team is.I am thinking since I didn’t come from ISS, Earthlink or any of the other “successes” then I am on the wrong team?
I suggest this to early stage companies, quit pitching and quit chasing the VCs and start releasing. Develop your product (yes it will be lifestyle at first) then go after a bigger investment. If you are in a software start-up your costs should be near 0.. or you are doing something wrong.
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“Quit pitching and quit chasing the VCs and start releasing”… smartest thing said all day.
Since they are my words I will expound. I think a “good team” is a group of complimentary individuals with domain expertise and successful startup experience. If you do not have all of these elements then go out and reduce technology and market risk by building your product and getting customers.
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It is nice to know that the VCs are saving all of the great deals for the angels :) I can’t wait to change their thinking over the next several years. Excellent post!
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Great post and good comments.
I am a newcomer to business in Atlanta and have found it difficult at best to understand the investment mindset here. What would possibly be a sound / easy investment in a startup elsewhere gets pulled through the mud and over-analyzed. I have only had one experience with what you call a spreadsheet jockey and found that I spent more time fixing / updating / reviewing the meta-data around my startup more so than doing anything practical toward making it profitable. Since then we have focused more on finding customers and improving our product (getting it out there - update as required) than on funding, I think the wisdom from Lance is well taken.
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I think there are two levels of “spreadsheet jockeying” that Sanjay is pointing out - the first one, evaluating the current financial health and future projections of a startup prefunding isn’t really avoidable. While the actual figures in the projections are hardly important, especially in an unpredictable business like technology, it is fair for investors to find out if you as an entrepreneur have at least thought about how to make money (and/or have the ability to do so).
I think the bigger problem Sanjay is pointing out is those recurrent deep dives into financial statements. In a young technology company, evaluating every decision through the prism of financial numbers could be a very bad move.
To add to Lance’s point, it is not like Valley VCs will fund anyone just out of any school just because they have a good idea. When they fund a kid who dropped out of Stanford, more likely that not, the kid came through a Stanford CS professor who is herself an angel investor. Those are connections too, though perhaps it’s esaier to find connections in the valley since the community is so tight knit and there are so many VCs. But often, even there, if you don’t come with a strong history, your only option is to build a product, get traction and then try to raise funding.
So the the question then changes to, do Atlanta/SouthEast VCs fund startups that have a strong and growing customer base but don’t yet have strong income? I don’t think any serious entrepreneur here is expecting funding for just an idea, the gap between a pilot product and profits is where the VC adds value. I’ll reserve my comments till I find out for myself how VCs in Atlanta fare on that.
Finally, I would like to point out that regardless of how much he hates spreadsheet jockeying, Sanjay’s got to have done some of it himself seeing how he has an MBA ;)
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Sanjay - I know, that was just a dig we non-MBA engineers get to make at you MBA engineers.
Having taken a handful of graduate business classes at Tech, I am not without blemish myself :)
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Good article, Sanjay, and a great batch of followup comments by the community.
Paul - that is sad, man. This goes to the point that we’ve all been beating to death over the past couple of years that by and large the VCs here are not “plugged” into what is happening in the community.
I agree with much of what has been said here, but have a slightly different twist on it. Too long to post here, so here’s a link:
Cheers.
Scott -
Great piece Sanjay. After reading both your blog entry and Scott Burkett’s, I heard the voice of a renewed sense of hope for what’s become of the Atlanta “startup” community. Being one of the co-founders of a local social music company, Maestro, trying to change the industry and bring a local company to the forefront of a major industry uprising in the digital media forum, these two blogs have hit close to home.
Although we do spend a significant time in NY and CA, and often debate whether we should just pack our bags and move, all of us are currently committed to running our little startup here as long as we possibly can. Unfortunately, it’s difficult to promise how much longer this will last, as the negatives here continue to outweigh the good that is being done by local community members such as yourself, Scott, and another blogger who has spent some time with our company, Dan Greenfield.
In Atlanta, we face wall after wall of incredulous responses from the local venture community, almost always centered around “discussions about financials” etc., while hearing far more constructive responses from Silicon Valley VC’s and investors.
As long as financial risk aversion takes precedence over innovative-based investments, the Southeast will never create a startup engine that is attractive to the raw talent and passion that most entrepreneurs possess. I can only hope that these messages resonate with the appropriate parties, and mindsets are changed, before just about every local technology-oriented firm runs screaming or another game-changing startup decays in the muck never to have an impact on the area or the world.
The hope for the Atlanta community lies in an aggregate of the connections and influences that each member can use to positively influence others. We touched on this as well in a blog entry we wrote after Dan stopped in at our offices, which you can find here:
http://blog.maestro.fm/2008/06/interviewing-maestro/
Thank you Sanjay for your insightful post. The truly successful investor bets on the opportunity, the people, and the technology. The weak investor hides behind the numbers.
I watched one of our local VCs on a panel at an investor conference earlier this year say that they want to find the next Google and they think they can find it in Atlanta. If the next Google does emerge locally, it will very likely come out of the Georgia Tech College of Computing or the School of Electrical Engineering. (like Google did!) But, how much time does this person spend at Ga Tech looking into the technology there? Have they ever talked to me or anyone else at VentureLab? Sadly, no. And Professors at Ga Tech routinely fly to California to meet with investors who are actually interested in what they are doing.