Fun Friday – Internet FSBOs, Business YouTubes

A few items on the Internet front. For years realtors have been hammering customers that selling their home with them gives the buyer a 16%+ sales advantage. This has made Internet-based FSBO sites a queasy deal for somebody’s biggest investment / nest egg. So a bet on who got the best deal from their home sales between a couple of bored economics profs at Northwestern (one used a realtor, the other did a FSBO) resulted in a detailed analysis of a successful (20% of the market) Internet FSBO site versus realtor sales in Madison. And guess what – the Internet site did just as good at the end of the transaction (considering size, locale, and so forth) as the realtor-mediated transactions. The FSBO site did take longer, but that may simply be due to the reluctance of buyer’s agents to show any FSBO houses – a problem that may disappear as buyers demand to see houses they see on the Internet. The future is starting to look more rosy for Internet-based realty businesses.

Business Week has decided to launch a “VC” video pitch competition, where desperate entrepreneurs line up to convince cynical readers their ideas, like Frosted Flakes, are “Grreat” (thank you Tony the Tiger). Those ideas that survive the slings and arrows of ridicule (likely those so stupid or so obtuse nobody can understand them) undergo a final beauty contest via a biz plan competition for the princely sum of $500,000 “from a VC firm to invest in the proposed business”.

No word as to what serious VC would put half a million on a business by public acclamation, but I’d place my money on a series of Sanjaya-inspired hair salons. Wow, think of the possibilities.

I’ve been involved in a number of biz plan competitions over the years (along with real meetings with real investors), both as a participant and a reviewer. I’ve done video pitches. I’ve developed video pitch technology for CEOs. And I’ve watched other CEOs do video pitches. And while the views were great (they were restricted to VCs invited by the CEO – business plans are actually very valuable), nobody believed Internet video would ever “catch on” enough to matter. Amazing the difference one Sequoia with one YouTube can make!

Don’t believe this? Think that everybody knew YouTube would be a success before 2006? To illustrate, I once decided to enter the Berkeley Haas business plan competition in 2004 with an interesting Internet video startup idea I had while I was working with the physics department on our alumni greeting card video project. It seemed a good idea at the time. People were watching, the system worked, and it was easy and fun. And I made sure to run the business plan by some pros in the Valley. I do my homework.

So it was a straightforward business plan to evaluate – good customers, good technology, and good numbers. A no-brainer, really. I looked forward to seeing how Haas dealt with it – remember, I’ve participated in and co-founded a number of venture-backed companies over the years, so I’m no novice. But did they evaluate the business? No! When I got back the comments, I got things like “They have some TAM numbers from an analyst. But…they really haven’t done a good job in showing the SAM” (nobody had, and nobody could). “Their exec summary is 3pp long. In general, I tell people I won’t look at anything over 2pp” (such terrible food and such small portions). And finally, “regardless of their domain experience, etc., I would never back this team. I will NEVER back a team where it appears that the founders are husband and wife or domestic partners. We did it once; it was a painful lesson”. I always wondered if this last comment was their usual fallback ploy for businesses presented by African-Americans or Jews or single women – funny how you don’t hear they won’t invest in white / Indian / Asian guys because they “did it once” and it failed. It’s hard to fight prejudice.

After the inept evaluation and overt bigotry I received at the hands of Haas biz school, I resolved only to talk to real professional VCs who could afford the time to actually read a 3pp exec summary and understand the business. In other words, don’t go this route if you really care about your business. Do the hard work of developing the relationships instead, or get someone in the biz who can.

Don’t hold your breath to see all these cool startup ideas anytime soon – Business Week is still shopping around for someone to build the site for them. Knowing mags as well as I do, it won’t be a lucrative deal for the site designer.

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