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BizReport : Internet : May 30, 2000


Exclusive Interview with Guy Kawasaki, CEO of Garage.com

Only about a half-mile from Guy Kawasaki's headquarters (a Queen Anne-style mansion in Palo Alto, Calif.) is one of the most famous garages on the planet: The one that David Packard and William Hewlett used in the late 1930s to launch what would become perhaps the first Silicon Valley tech startup, Hewlett-Packard. It's quite fitting, considering that Kawasaki is the chairman and CEO of Garage.com, a matchmaker of sorts for startup entrepreneurs and investors. Garage.com's mission? It tries to connect startup ideas with the funding that will propel them to the next level. For entrepreneurs in those crucial first stages of private capital funding (Garage.com concentrates on the $500,000 to $4 million range), the right partner can make all the difference. And for investors--increasingly cautious because of a volatile stock market and a growing roster of failed dot coms--finding a concept commensurate with their risk tolerance has become vital.

by Michael Grebb, Special Correspondent

To assure that only the best business plans and most credible investors make the cut, Kawasaki screens all of his applicants and takes pains to match the right investors with the right startups. In 1999 alone, he hooked up 40 different startups with over $101 million in capital. Although that kind of pace keeps Kawasaki in constant motion, he took time out of his busy schedule to give BizReport his take on Garage.com's mission, the current funding environment, and what the new economy means for both investors and the legions of startups out there looking for funding.

MG: Why did you start Garage.com, and what do you see as its primary mission?

GK: We started Garage.com in order to help two guys, two gals, or a gal and a guy in a garage to start the next Apple, Netscape, or Yahoo!. Our mission is to democratize venture capital so that companies seeking seed capital are considered on the basis of merit, not simply connections. Some of our clients that have been funded include Drdrew.com, Startups.com, Gator.com, Tripwire.com, iCopyright.com, and CobaltCard.com.

MG: How has the volatile stock market--and the related decline in tech stocks--affected the landscape for Internet entrepreneurs? Is money harder to come by these days?

GK: The stock market has definitely affected the availability of capital. There are much greater requirements for business models that can show a profit in the one- to two-year timeframe. Valuations are also declining. None of this, by the way, is necessarily bad. The market has simply gotten a lot more discriminating, but a good company need not fear the fund raising process.

MG: Garage.com has a pretty extensive screening process that entrepreneurs and investors must pass before becoming members. What do you look for as qualifying factors?

GK: The three primary areas that investors care about are the team, technology, and market. Investors vary on the weighting of these factors--some care mostly about the team. Others figure they can improve the team if the market is big enough. The big picture, though, is whether a company has an unfair advantage. Sophisticated investors don't expect the company to be perfect, but it has to have great strengths in some areas that overarch the weaknesses in others. Sophisticated investors fund companies with great strengths, not companies that have acceptable weaknesses.

MG: Okay. Let's assume somebody makes the cut. How, then, does Garage.com make money? What's in it for you?

GK: Garage.com's model is based on adding great value to a company in order to make it a fundable entity. This means we make a market of the company's offering after improving it on an outpatient basis in the areas of business model, business plan, presentation, buzz, and human capital. Our compensation is derived from warrant coverage, placement fees, and the right to co-invest.

MG: So what have you learned about entrepreneurs and investors since founding Garage.com? Any surprises?

GK: What has surprised me is just the level of passion and breadth of ideas that entrepreneurs embody. I have the best job in the world because I get to work with dozens of cool companies every year.

To assure that only the best business plans and most credible investors make the cut, Kawasaki screens all of his applicants and takes pains to match the right investors with the right startups. In 1999 alone, he hooked up 40 different startups with over $101 million in capital. Although that kind of pace keeps Kawasaki in constant motion, he took time out of his busy schedule to give BizReport his take on Garage.com's mission, the current funding environment, and what the new economy means for both investors and the legions of startups out there looking for funding.

MG: Why did you start Garage.com, and what do you see as its primary mission?

GK: We started Garage.com in order to help two guys, two gals, or a gal and a guy in a garage to start the next Apple, Netscape, or Yahoo!. Our mission is to democratize venture capital so that companies seeking seed capital are considered on the basis of merit, not simply connections. Some of our clients that have been funded include Drdrew.com, Startups.com, Gator.com, Tripwire.com, iCopyright.com, and CobaltCard.com.

MG: How has the volatile stock market--and the related decline in tech stocks--affected the landscape for Internet entrepreneurs? Is money harder to come by these days?

GK: The stock market has definitely affected the availability of capital. There are much greater requirements for business models that can show a profit in the one- to two-year timeframe. Valuations are also declining. None of this, by the way, is necessarily bad. The market has simply gotten a lot more discriminating, but a good company need not fear the fund raising process.

MG: Garage.com has a pretty extensive screening process that entrepreneurs and investors must pass before becoming members. What do you look for as qualifying factors?

GK: The three primary areas that investors care about are the team, technology, and market. Investors vary on the weighting of these factors--some care mostly about the team. Others figure they can improve the team if the market is big enough. The big picture, though, is whether a company has an unfair advantage. Sophisticated investors don't expect the company to be perfect, but it has to have great strengths in some areas that overarch the weaknesses in others. Sophisticated investors fund companies with great strengths, not companies that have acceptable weaknesses.

MG: Okay. Let's assume somebody makes the cut. How, then, does Garage.com make money? What's in it for you?

GK: Garage.com's model is based on adding great value to a company in order to make it a fundable entity. This means we make a market of the company's offering after improving it on an outpatient basis in the areas of business model, business plan, presentation, buzz, and human capital. Our compensation is derived from warrant coverage, placement fees, and the right to co-invest.

MG: So what have you learned about entrepreneurs and investors since founding Garage.com? Any surprises?

GK: What has surprised me is just the level of passion and breadth of ideas that entrepreneurs embody. I have the best job in the world because I get to work with dozens of cool companies every year.

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