Confessions of a Venture Capitalist: Inside the High-Stakes World of Start-Up Financing
By Ruthann Quindlen
Warner Books
218 pp $25.95

The Monk and the Riddle: The Education of a Silicon Valley Entrepreneur
By Randy Komisar with Kent Lineback
Harvard Business School Press
181 pp $22.50

Not long ago, many among the who's who of the dot-com world considered red ink a fact of life. "Sure," they'd say, "we lose money on every sale -- but we're building a brand!"

That war cry of the New Economy, epitomizing the euphoria of the dot-com industry in the late 1990s, was the slogan for a strategy that would have old-school financiers like JP Morgan cartwheeling in his grave. Profits didn't matter, only revenues -- and even those didn't count, so long as you were making a name for yourself. Getting big fast was foremost. The rest, theoretically, would come later.

But suddenly it was a different world. The Nasdaq stock market stalled then spiraled quickly into its worst one-year decline ever by 2001. Young companies with promising technology were shutting down because they couldn't get funding.

It is fascinating, then, to read these two recent accounts of how the venture capital industry operated as the bubble grew. Reading these books after the bubble has ruptured is almost unfair, since we already know what happened after the glory days of 1998 and 1999. In fact, Ruthann Quindlen writes early on in Confessions of a Venture Capitalist, "I am wondering as I begin writing this chapter whether the Internet stock market bubble will outlast the publication date of this book." It did, but just barely.

Quindlen is a former financial analyst who became a venture capitalist. Randy Komisar, author of The Monk and the Riddle, served as a lawyer and executive with Apple Computer and Claris Corp., and was the CEO of Lucas Arts Entertainment. Both books are written with an acute awareness that the authors, insiders in the small world of venture capital, were in business in an unusual time.

Quindlen has penned not so much a confession, as the book promises, but a primer for would-be startups. Komisar offers a parable. And both suggest that there are fewer than six degrees of separation if you travel in the financial circles of California's Silicon Valley. In fact, Komisar worked with Quindlen's husband at ill-fated Go Corp.

Quindlen gives budding entrepreneurs a detailed inside look at what to expect as they contemplate approaching the mysterious VC (venture capital) world to fund that big idea (a response that can probably be summed up now, for many Internet wanna-bes, as "get lost"). She lays out the nuts and bolts of business plans and the funding process, sprinkling the data with sound advice about markets, people, and leadership.

Her list of five common mistakes first-time entrepreneurs make is relevant pre- and post-bubble: hiring the wrong person to fill a key position; thinking small to reduce risk; telling venture capitalists what you think they want to hear; believing your competition is incompetent; and focusing solely on the money.

She illustrates her points with real-life stories, mostly of failure. Why? "These are the stories that are truly valuable, and the lessons that are most effectively conveyed," Quindlen writes.

"Selling a dollar for ninety-five cents is not a winning business model," Quindlen titles a chapter that focuses on the benefits of starting small and maintaining a reasonable cost structure. She adds a caveat: "Unless you are starting an Internet company, don't be blinded into thinking all you need is a huge market opportunity."

Oops, scratch that theory. The elephants' graveyard is littered with "huge market opportunities" such as iMotors and Petstore.com.

Komisar's book is an account of the education of an insider -- Komisar himself. He was transformed from a cutthroat attorney who believed winning was everything into a "virtual CEO" who advises companies on the transcendent qualities of excellence and satisfaction with one's efforts. He's helped fund and advise companies, too, most notably WebTV and TiVo. "Silicon Valley does not punish failure," Komisar writes. "It punishes stupidity, laziness, and dishonesty."

The parable in The Monk and the Riddle stars Lenny, a peripatetic insurance salesman who wants to start Funerals.com. And there is Frank, the wise VC Lenny is hoping will fund his idea, and Allison, whom Lenny hopes will be his partner. In the tale, Komisar acts as an adviser to both Lenny and Frank. He uses conversations and e-mails to counsel entrepreneurs to look inward. His message is the Zen-like mantra of living in the present moment. "What if you had to do this the rest of your life?" he asks. Follow your passion. "When all is said and done, the journey is the reward."

Lenny is driven, the sort of intense salesman-turned-entrepreneur who gravitates to Silicon Valley seeking his fortune. He just knows Funerals.com will make a pile of money. But Lenny's inspiration came after his father died. It wasn't to just make money; he wanted to create something for families coping with loss -- a way to connect and share using the Internet. Funerals.com's business plan turns from a noble experiment into just another e-tailer selling caskets. Partly it's because Lenny thinks he has to prove to investors the site can actually make money.

Komisar advises Lenny to return to his instinct. "Don't confuse drive and passion," he writes Lenny in an e-mail. "Drive pushes you forward. It's a duty, an obligation. Passion pulls you. It's the sense of connection you feel when the work you do expresses who you are. "[It's] the romance, not the finance that makes business worth pursuing."

Passion and romance may motivate us to achieve excellence, but VCs and Wall Street want to see profits. Venture capitalists will continue to fund good ideas as long as they have a reasonable likelihood of making money.

No. They've gone back to the pre-1998 formula: A good idea and hard work will attract venture funding. Success, according to Quindlen, requires three things: being in the right place, at the right time, with the right idea. And even then it might not work. Venture capitalists used to count on one big success out of 10 tries. They'd break even on another two or three. The days of every whim being a guaranteed windfall are over.

Read together, Confessions of a Venture Capitalist and The Monk and the Riddle reveal, even today, what an entrepreneur can expect from the venture capital game and what is expected of them. Common lessons: Have a clear idea what you want to accomplish, be absolutely committed, and yet be flexible. When there is evidence that your decision is wrong, change it.

That advice rings true for venture capitalists as well as entrepreneurs. We've seen how venture capitalists changed their minds about money-losing dot-coms.

J.P. Morgan would have been proud.

-- Guy Lasnier is an assistant business editor at the San Jose Mercury News.

First published July 2, 2001
Last updated March 6, 2008
Copyright © 2001 Consumer Health Interactive