How to Succeed in the Startup Business Without Leaving Philly

When it comes to raising money, what mistakes do you see—or have you made yourselves?
Moul: My first time out, I’m sure I committed every faux pas possible. You know, I said, “How hard could this be? You put a deck together, you go out, you pitch to smart people, and they write you a check at the end of the meeting, right?” And that’s not quite how it goes. I even brought the wiring instructions along. [laughter] Another mistake I made early on was pitching everybody and not doing my homework on who is really in the space. And a lot of these guys will take a meeting ’cause they don’t want to miss out on potential opportunity, but I wasted a lot of time pitching people where we didn’t even fit in their investment pieces.

Bookspan: Take a look at other companies that are analog companies to what you’re doing. So you’re looking for analogs, people who invest in the space, and then work your way back to those people. And if someone like Richard says no to you, don’t say, “Okay, great, thanks” and leave the room. Say, “Do you know anybody who might be interested? Would you introduce me?”

Richard, what are the mistakes you see?
Vague: We see just a lot of poor presentations, and I’m kind of amazed. They’ve gotten the appointment, we’re there … then they show up late. To me, that’s death. There are very few attributes I value more highly than punctuality, and some guy shows up 10 minutes late for their shot at our capital, they fumble around getting their presentation going, they’ll give an entire presentation and they won’t include financial projections. … You know, we kind of believe in a punch-line-first style of presenting: Give us your best, sexiest points really early on.

Bookspan: Why do you want to see financial projections?

Vague: ’Cause I want to see if the guys have financial competence.

Bookspan: Okay, but you don’t believe them, do you?

Vague: I never believe them, but you can tell a lot. The fact that somebody doesn’t have financial information in there, even just a little bit, I find appalling. You just want to see how their mind works.

So for you it’s as much about the person as it is the company?
Vague: The main reason you want them there, rather than just sending you a deck, is to get to know them as a person. Things like clarity and simplicity to me are evidence of intelligence.

Bookspan: See, that’s why it’s all about the people. When you take a look at Fab.com—it started as a gay dating site. PayPal started as a way to beam money between PalmPilots—you remember PalmPilots? When you have the right people, you have confidence that they have a better shot at navigating their way through things.

It seems like there are a lot of serial entrepreneurs out there. It’s almost as if they don’t really care about what they’re producing as long as they’re doing something. Does that give you pause, or is that a positive trait?
Gupta: I think it’s impossible to not care deeply about what you’re doing—I mean, we spend such a ridiculous amount of time doing this, whether it’s actually physically there or just mentally there, right? Ask any one of our spouses; they probably hate us.

Moul: Or past spouses. [laughter]

Gupta: If you’re not in love with that idea, you’re going to hate life, you really are. I can’t imagine any entrepreneur starting something that they just don’t fundamentally believe in.

Moul: In my case, it’s the love of building; it’s the challenge of starting from nothing and creating a company out of thin air.

Bookspan: One of the things we look for is the lemonade stand. We want to see prior entrepreneurial experience, but we don’t care if it was when you were 12 years old and had a lemonade stand. We just want to see that you wanted to create something that didn’t exist before.

Moul: Real quick on the lemonade stand: My seven-year-old did this two years in a row now, did the lemonade stand, and his pricing was pay what you want. …

Bookspan: Nice.

Moul: And he was unbelievably successful. I couldn’t believe it! I thought everybody would rip him off, but people were giving him five bucks for a glass of lemonade. He gave half of it, by the way, to charity, which I’m very proud of.

Gupta: You should get him to try to do, like, a freemium model, like the lemonade just without sugar, but then, you know …

Vague: You could upgrade. [laughter]

In terms of the next generation, how do they prepare for jobs in this sector? Not as entrepreneurs, necessarily, but how do they become your next employees?
Bookspan: I’m a big fan of liberal arts. I think it’s important to be a well-rounded person. But it astounds me that we are not educating kids for the jobs that are out there. I would trade off modern European history in the high-school curriculum for tech-related courses in a heartbeat. If you want a job, dammit, learn to code. You will never go hungry in your lifetime if you can code.

So what will the Philly start-up scene look like in five years?
Gupta: Five years from now, I hope we have more tech, less scene. You know, you go to San Francisco and you’ve got plenty of tech scene, but the scene has a lot to do with stuff that isn’t about tech. It’s not about start-ups—it’s about people preening. I would love it if we would have a vibrant start-up community that somehow doesn’t get caught up in that.

Moul: I would like to see two things. For sure we need that flywheel to start happening, where we have successful exits and those guys go on to start other start-ups. And in five years I would love for us, not just as a start-up community but as an entire city, to have shed the whole down-on-Philly attitude. I want our entrepreneurs and our start-up guys to be walking around saying we can compete, as Apu said, on a global scale. Not just Philly-big, but global.

Bookspan: I’d like to see a lot of people having made a lot of money by investing in Philadelphia companies. And it gets back to the flywheel, because if that is the case, then for every successful company, you’re going to have spawned 10 new ones. I’d love to see us have 15 notable exits in the next five years.

Vague: The principle difference in my mind between Philly and other places is, if you go to San Francisco or parts of New York, it’s just sheer density of activity. I can think of nothing better for Philadelphia than that. We talked about trying to revitalize the state of Pennsylvania or the City of Philadelphia or whatever, and there’s a lot of effort put into getting branches of other companies brought here. But that’s a comparatively sterile experience, because you get a warehouse, but you don’t get any intellectual capital. Business that starts up here and grows up here becomes a net exporter of intellectual capital into the community. The more of that we have, the more vibrant the city is going to be.