Copyright 1998 by Mary Eisenhart. All rights reserved.

Breakfast With Guy

By Mary Eisenhart

Kawasaki launches novel financing model for startups at

As we settle into the memorabilia-laden booth at Buck's in Woodside, Guy Kawasaki, CEO of, informs me that this is where all of Sand Hill Road has breakfast. Judging by the intermittent parade of VCs stopping by the table over the next hour, he's right.

One of the passing financial mavens professes himself much chagrined at having missed's launch party the previous week, as well he might be. The party took over the premises of Autobahn Motors. The dealership's showroom and service bays were packed with overflow crowds of entrepreneurs, VCs, media, and Silicon Valley Usual Suspects, all feasting, schmoozing, carrying off t-shirts, hoping to win the raffle prize (a 1-year lease on a Mercedes), checking out exhibits of pricey toys, getting free massages and ducking into photo booths to get on-the-spot pictures of themselves on the cover of Forbes.

"I don't want you to think we threw away money," says Kawasaki cannily. "That was a very inexpensive party. Autobahn let us use the place for free, because I told them, 'Look, I'm bringing you an audience that's worth $5 billion. I'm either going to bring it to you, or the Lexus dealer, or Smythe Mercedes. Take your pick!'

"Il Fornaio donated most of the food, because they want to publicize their existence, and they have these new rooms. The corporate massage people did it to foster new business, because they want to come to company sites and do massages. All the bike people did it because they wanted to show off their bikes--Wheelsmith sells $3000 bikes, and talk about the right audience...

"Forbes did it because of our [Forbes publisher] Rich Karlgaard connection. The next day 600 people went to their office and put up their picture on the cover of Forbes. It's a lot better for Rich Karlgaard that they put up that thing, with a picture of them in Forbes, rather than Fortune. So all in all, it didn't cost that much, and certainly builds buzz."


Building buzz is something of a forte for Kawasaki, erstwhile Chief Evangelist at Apple and author of numerous irreverent guerrilla marketing treatises starting with The Macintosh Way and culminating with the upcoming Rules for Revolutionaries, due early next year. When your business is fundamentally matchmaking investors with startups, it's a good thing to have both camps talking about you. Consequently, visitors to have lots of options in addition to direct pursuit of funding--for example, they can subscribe to any of a number of mail lists ranging from Geoff's Gems to Stories From Hell, all resonating in some way with the entrepreneurial experience.

Investors residing in Heaven ('s online home for angels and other would-be sources of financing) include the likes of microprocessor co-inventor Federico Faggin, Diamond Multimedia founder Chong-Moon Lee, Compaq chairman and venture capitalist Ben Rosen, and analyst George Gilder, as well as institutional investors like Silicon Valley Bank and Advanced Technology Ventures.



Tell me about Why did you leave the glorious heights of Macintosh evangelism for the entrepreneurial world?

Well, by the way, since I left Apple, the stock has tripled and they've had three quarters of profitability! So I did all Macintosh users a favor!(laughs)

Basically, the company is about finding and helping the next Apple Computer, or the next Yahoo!, or the next Netscape. It's to help two guys in a garage, or two gals in a garage, get their start. They don't exactly have the right connections, the right background...


There's definitely an established network, but if you don't know how to plug into it, you're at a disadvantage.

So these people don't know how to plug into it, or they don't want to plug into it, or they want to postpone plugging into it.



They don't want to sell off that much of the company right now; they'd rather get through proof-of-concept or prototype before they get real venture capital--or maybe they've been rejected by a real venture capitalist.

Our job is to get them enough money to get to the stage where they get real venture capital.
Because of their own success, venture capitalists are raising larger and larger funds, but they have roughly the same number of partners. That means by definition the deals have to get bigger. It's as much trouble to do a half-million dollar deal as a five million dollar deal, so the half-million dollar deals don't get done.

That's the area we want to specialize in. We're a baseball team, but we're the farm club. The Mayfields, the Kleiner Perkins, the Accels, the IVP, the NEA, are the major leagues. We're their farm system.

Our idea of success is our companies go on to the major leagues.


The major leagues being defined ultimately in terms of venture capital, IPO and/or acquisition?

For us, it's just the next step--venture capital. The venture capitalists then define their success as IPO.


So it's an unlikely funding scenario that somebody just wanted to build a successful, sustainable small business.


If two people want to start a Web design consulting firm--not interested.

If they want to create the ultimate Web design tool, we're interested.

It's not for consultancies--there has to be the potential for capital gains. You don't typically sell a Web design consulting firm. You make it into a nice business, but you don't go public or anything.


This is a useful clarification, because a lot of entrepreneurial nerds I've known over the years have a deep-rooted distrust of venture capitalists, which seems to stem in part from not knowing the business the VCs are in.

I don't know why they resent venture capitalists...


Well, you've heard the Vulture Capitalist lectures, and you've even given a few!

Yeah, but's a business!

In a way, it's like discrimination. It's like saying "You know about those..." --pick a group. Blacks. Asians. Croatians.


Masons. Catholics. Jocks.

Ex-Apple employees!

But when you really come down to really get to know them, they have kids, they're normal people...

It's not like they sit in cigar-smoke-filled rooms plotting about how to steal companies from entrepreneurs.


And sometimes the VCs have come from being entrepreneurs themselves. Lately that's a pretty common career path.

I would draw a parallel situation to the people who say, "Journalists are stupid. They suck. They always get it wrong." And the people who say it inevitably are the ones who don't return phone calls, who don't show up at meetings. They don't prepare their press kits, they treat the press like shit, they only want to use them when they want ink...

So who's at fault there? Is it the stupid journalist, or the stupid entrepreneur?

Where do you get your money from for these earnest young entrepreneurs?

We don't give any money, but we're going to create a side fund, to go side-by-side when investments are done. But our service is one of placement.


You're a matchmaking service.

We're a yenta.


You're a

I don't know if I want to go that far!

But we are a yenta. We find these entrepreneurs, we groom them, we make them more presentable to this community, we help them clarify their business plans...


How do you do that? Joe Stanford Grad Student wanders into your office...

And he has a good plan? A good idea?

No, he had this brainstorm in engineering class...

We need slightly more than that!

The process an entrepreneur goes through is two steps. First, they present the basic information, which is elevator pitch and key words and background of the founders.


What's elevator pitch?

The theory is that if you're in an elevator and some world-famous venture capitalist walks in just by accident, and you have five floors to tell him what your idea is to set up the next meeting, what do you tell him? It's a hundred-word pitch.

So three of us read those, and then we vote on whether we should invite that person back for more information. And then we read those, and we decide whether we should contact those people to see if they should be clients.


And this is done on the Web site?

It's all Web. Pure digital. Which is a big advantage, because now every business plan comes in in the same form. It's much easier to read. We can also forward the information to many people electronically, whereas if it came in on a business plan on paper, that's a big problem. It's also searchable.

It's a lot more efficient to do this electronically, and that's a key advantage we have over anybody. All the plans that come into venture capitalists on paper are returned, usually. In our case, we have them captured, and we can search in their keyword field for "gigabit Ethernet," whereas somewhere else they'd go "Yeah, about a year ago we got a plan like this; wonder what happened to those guys?"


It might not be a real prospect now, but something might come along in six months that makes it a perfect fit.

Exactly. And in fact, many people are joining Heaven to have that service, the ability to search plans.

So now let's say they've gone through the short form, they've gone through the long form, we met with them, we've cut our deal. I just did this; I asked for a copy of their PowerPoint presentation, and I just go over it slide by slide, what I would do to make a change. We go over their pitch and their one-page executive summary word by word to make it better.

And then we start figuring out, well, in our investor database, who are the people who are likely to be interested in this? If it's a biotech startup, who are our angels who are biotech millionaires? If it's design software, who are the people in our database who are design software experts?


So you want their expertise as well as their money.

We actually want their expertise more than their money. The assumption is that these good ideas will get funded--the question is, can we bring them value-added money? That's one of the things we offer.

Federico Faggin investing in a new semiconductor company is a powerful statement--much more so than a rich doctor. That's what we do.


You add a lot of expertise and credibility to the company as a result.

To the point where--let's say a rich doctor will give you a $10 million evaluation on your company, but Federico will only give you $5 million. You should take Federico's money.

He'll get you a lot farther.

Oh yeah.

On the other hand, if it's a medical device, a doctor as an investor is better than a guy who owns drycleaning stores.

So what's Heaven, and who's in it?

Heaven is a protected area of our site that contains three kinds of people. They are wealthy individuals, the angels; they are institutions such as venture capitalists; and they are institutions such as corporate development arms. Adobe, Cisco, Bay Networks, Philips, Kodak...

What happens is they're presented with a list of the deals that we've selected as clients--they get to see the postings. Then they click on it, they see the elevator pitches, and then they can proceed by contacting the entrepreneur to get more information.


They can keyword-search?

Not yet, but soon.

One point to make is that the entrepreneur is in control of how much information the angel sees. Because one situation we have to avoid is when two guys are working for Large Computer Company during the day, and founder of Large Computer Company, as angel, clicks on their plan and says "Mm. These two guys work for me."

Not a good idea.


What does it take to get into Heaven?

For the institutions, you really have to be a venture capitalist or a corporate development arm. Those people pay $10,000 a year. To be an individual member, you pay $2,000 a year...


That's a membership fee, exclusive of whatever they might invest?


As an individual, you also have to be what's called Regulation D. Reg D basically is a law that determines you can make these private investments if you're wealthy enough to afford to lose it. These people have to say that they're worth $1 million, or that they've made $200,000 in the past two out of three years, with likelihood of continuing such a level of income.

The concept is that these people are wealthy and can afford to take flyers, as opposed to the little old lady or little old man who's living on a fixed retirement fund and somebody comes along and swindles them out of their retirement funds.


At a certain level, this is gambling, and only those who can afford it should play.

Yes. So they're Reg. D; they also have to have a technology background. Someone who's worth $20 million because they have a chain of restaurants passes the Reg D part, but does not pass the technology sophistication part. That person would not be let into Heaven.

So you get the two parties together. The two garage people meet the investor. Then what happens?

We more or less let them do their own thing. We don't get involved at that stage. They may ask us for advice, but we're not representing one against the other. They've cut their own deal, their own valuation, their own whatever--and then at the end we say, well, you're raising a half a million dollars, we would like to also put in $25,000.

But we don't set the price. The price is set by the angel working with the entrepreneur.


How do you make your money?

We make our money with these membership fees. We also want up to 5% in a placement fee if and when the deal comes through. So if you're raising $1 million, we want $50 ,000.

And we would like to buy a small percentage of the company that gets seeded, because that's where the real action is.

The theory is that we will own a few percent of these companies; some of them will go public; some of them will get acquired; and that's how we make our wealth.


You seem to engage in a lot of activities that aren't directly related to matchmaking--I subscribe to several of your mailing lists, for example, that send me stuff every day.

What we're trying to do is brand the name so it's synonymous with "high technology startup."

In any given instance, most technology startups are not looking for funding, or most entrepreneurs are not looking for funding. What we're trying to do is make sure that people know that when you want funding, is the place to go to.

We don't want to be known only as a place to go to when you need money. We want to be known as a place for resources for technology startups at any given time. So all of those lists are designed to be brand equity. Get on Geoff's Gems, for example, because this guy Geoff Baum is searching the Internet for the best technology stories of the day.


He does a hell of a job.

He does.

And the key is, you're on Geoff's Gems, and four weeks from now you meet a guy who says, "I really need to find some financing, Mary, do you have any ideas?"--and just because you're on Geoff's Gems, and you're part of the thing, you go, "Oh,!"

That's all there is to that.


Whose idea was this anyway?

It was Craig Johnson's idea. He's the founder of Venture Law Group. It's one of the hottest technology startup law firms, so Craig would always get contacted by people who want to get represented by him.

Many times these people also needed help in getting financing. If the plan was absolutely perfect--management, marketing, prototype, everything was perfect--he could call up anybody on Sand Hill. But in reality, with some of those calls, the companies didn't get to the final step. They had two or three meetings, but they just didn't pan out, or no one was interested, or whatever. So then he'd call up his platinum Rolodex of individual angels--Federico, Joe Costello, and others.

What he figured out was that he wanted to make this a regular business. And not just his Rolodex, but the sum total of wealthy individuals in the Valley.

That's what this idea is. It's Craig Johnson on steroids, basically.


How did you get involved?

Well, Rich Karlgaard and I were meeting with Craig to ask him to be our lawyer for a company we were going to start called Boom Cities. Boom Cities was going to be a business version of Sidewalk or CitySearch, a business guide to a city. Who are the best lawyers, venture capitalists, accountants, where should you eat to cut a deal--business inside information.

It was going to be based on an advertising model--Il Fornaio advertising on the Boom Cities Silicon Valley page.

We told that idea to Craig, and Craig said, "You know, the advertising model sucks these days. But I see the germ of a great idea, and I know this great idea will work, because I'm doing it all the time...." Which is--how do people get startup capital in a city.

And that's how Boom Cities became


What's Rich's level of involvement?

He's the publisher of Forbes right now, so he's on our board of directors, basically.


What do you see doing long-term?

I see us having offices in other cities, so two guys in a barn in Austin can reach out to Silicon Valley venture capital and angel capital, as well as Austin capital. One could make the case that the people who need us most are outside the Valley, because the Valley has a pretty good network.


People are pretty plugged in here.

Yeah, so we're looking at expansion to the other major technology cities in the US, then going international. But I think we need to prove our model here. If we can't prove it here...'s certainly not going to work in Austin.
So is the recent stock market craziness affecting you? Are the VCs more cautious? Lately a lot of IPOs seem to be getting canceled and turned into acquisitions.

I'm more concerned about--let's say you're a rich individual angel, and one day you wake up and you're worth 30% less. Probably you're going to make less investment.

That's my concern. But being the evangelist I am, Mary, I believe that can singlehandedly prevent a recession in the technology market. (laughs)

We will continue to feed a system with great technology startups.
Nothing grandiose there!


So what's in your upcoming book?

It's called Rules for Revolutionaries, and it's about how to create and market revolutionary products. It's everything I know, sometimes the hard way, about bringing out innovation.
The book was being written prior to; it's absolutely a guidebook for high tech entrepreneurs.


At what level?

At the level of, "Well, you've got a good idea, let me tell you how to really do it."

The first thing is, you've got to Think Different--if you really want to change an industry, you have to go outside the box. That's the first chapter.

The second chapter is Don't Worry, Be Crappy--in other words, you cannot wait for the point where you believe you have the perfect version 1.0, because you will never will.


There has never been one.

There never will be, and if you wait too long, it's too late.

The third chapter is Churn Baby Churn--I'm saying it's okay to be crappy, I'm not saying it's okay to stay crappy.

My books are based on examples, so I have example after example of how to think outside the box, and don't worry be crappy, and how to churn.

So that's what it is.


One of the things I've noticed about your books is that they actually age pretty well. This is unusual for Silicon Valley books, which have a shorter life than Moore's Law. When we did the interview last year I went back and read Macintosh Way. Some things in it are obviously dated because it's ten years old...

But the principles are there, right?


The principles are there, and the core validity is there. A lot of it is put in this sort of deceptively superficial smartass way, but then you go back and think about it--"Dang! there's really something in there!"

(laughs)"Guy really has a brain!"

The book that inspires me most is a book called If You Want To Write, by Brenda Ueland. It's ostensibly a writing teacher explaining how the process of writing works. But if you substitute the word "program," 'market," "crochet," "teach,"--if you want to teach, if you want to be a programmer--it's all about unleashing creative force.

This book was written in 1938, and it is as relevant today as it was then.

One of the big challenging points of my book is cover design. So I had this argument with my publisher--they wanted to have one of these swim-with-the-sharks-and-don't-get-bitten themes, this combative attitude, and I don't want that. I want a timeless cover.

The subtitle of this book is "The Capitalist Manifesto for Creating and Marketing New Products and Services," or something like that. So my dream come true for this book would be that 60 years from now somebody's saying "the most inspiring book I ever read is Rules for Revolutionaries. It was written way back in 1998, but that's what inspired me to create my time-travel machine"--laughs--"or whatever they're creating in the year 2058." That would be the test.

Somebody told me the test for a book is not what today's reviewers and people think of it, it's a century from now. That's the test of it.


A lot of really good stuff is completely scorned in its original period.

Not that I want to be scorned in my original period!

You have to read If You Want To Write. It's the best.


Where did you first run into it?

Probably Kepler's. That's one of the lessons in Rules for Revolutionaries--


Hang out at Kepler's?

In a sense, yeah. You have to eat like a bird and poop like an elephant.

Eating like a bird--a bird eats half of its body weight per day.

Pooping like an elephant refers to the fact that once you get all this, you should spread it out, not just keep it to yourself, proprietary.

One of the lessons in eating like a bird is that you have to perch in different trees, okay? Most people perch in the same tree, so if you're into programming you go to Kepler's and you only go into the business section and the programming section. Your idea of a hot book is Inside Secrets of C++.

Meanwhile, a more relevant focus is probably If You Want To Write, which is probably in the writing reference section, or maybe a book by Stephen Jay Gould, which is in the biology section, or maybe a book about physics by Freeman Dyson in the physics section. Meanwhile all you're reading is Programmer's Secrets of C++, so you have to perch in a different tree.


You have to see things through a different set of filters from the ones you usually have. Looking back on it, I'm not sorry I spent 11 years in retail. just for the difference of perspective.

But also, it's a matter of people in a vacuum designing the most incredibly beautiful point of purchase display, and they don't realize that it's somebody making $2.50 that has to take that thing out of the box, set it up, and make it beautiful. It just doesn't happen, because that guy could give a shit. They don't get it.


So what kinds of companies are you particularly interested in talking to?

I'm particularly interested in talking to any kind of high tech. I don't have any particular prejudices there.


Can you give some examples of companies you're working with?

This one company we've already helped get funding is called Reality Fusion. They won DemoGod at Demo..

They use a digital camera on the computer, and it puts a picture of you in the computer. Let's say this is the monitor--the camera's looking at me, so I see myself. If I reach, I reach in there.

So let's say you wanted to do an aerobics exercise. It's an aerobic tape, so Jane Fonda is saying "Get the green ball. Get the red ball..." and you watch yourself doing this.It's very useful for education, for instructional materials, for kiosks, and for a new user interface. So you're a couch potato, you want to change the channel, you see yourself interacting with the switch.

It's the best demo I've ever seen in my life.


From you that's high praise, because lord knows you've seen them all.

I've seen them all.


...and you've done a good many!

(laughs) I've done a good many. this is the best demo I've ever seen.


Who are the people involved?

Four guys in a garage, in Santa Cruz. Rejected by venture capitalists, almost out of money, no one could figure out what they do. So Craig Johnson and I got involved.

I set them up with a friend who owns a toy design company. He loved 'em, got 'em together with Hasbro. Craig called up Joe Costello from Cadence. Then Craig talked to Federico Faggin who's now at Synaptics doing user interface things.

Federico and Joe Costello put money into Reality Fusion, and so did I, so did Craig, and off we go. That's how it's supposed to work.

So now Reality Fusion gets to say "Well, these are my investors: Federico Faggin, Joe Costello, Craig Johnson, and Guy Kawasaki."


Instant credibility.

Yeah. So that's the plan.


One thing that seems to be going on in the startup world is that the minute somebody has something that looks like it might work, everybody tries to clone it.

It's really interesting. We get plans in absolute waves. One week we'll get five plans from people who want to create a Web site where you can keep your medical information in case you go to a hospital in Paris. We'll get four or five of those in two weeks.

Then comes the next thing, and we'll get four or five of those. It's really strange.


You wonder if they all went to the same conference or something. Then there's the thing where companies base their existence on things that are obviously going to happen, but it won't happen for ten years and the company needs it to happen in two.

That's just youthful overenthusiasm.


You see a lot of startups afflicted with the belief that everything's going to happen in 18 months.

Yeah, but it's also true that when we were their age we thought like that too, and we thought that people who were older than we were didn't get it. Just like we think they don't get it.


So, from your new perspective of mature wisdom, how do you deal with that?

(laughs)Try to remember what I was like back then!

I didn't want to listen to anybody. Indeed, that's what made the Macintosh successful. If we'd listened to everybody, we would have been mediocre. Maybe profitable, but mediocre.

I think one thing is, you've got to be open to being proven wrong. In fact, you should delight in being proven wrong. Like, we reject 24-25 companies a day, and my attitude is, "...and I hope you prove me wrong. I really do."

I hope they prove us wrong.