Many entrepreneurs privately disparage venture capitalists as egoistic, autocratic, and increasingly unnecessary. Not serial entrepreneur Mike McCue. He believes in VC.
Case in point: McCue’s newest startup, Flipboard, a 20-month-old iPad application that transforms social media feeds into an elegant, print-like magazine. Though the Palo Alto-based company has yet to develop a business model — McCue is contemplating running full-page ads and allowing publishers to charge subscriptions to their Flipboard-rendered content — Flipboard has already raised $60 million in venture capital from Kleiner Perkins, Index Ventures, and others.
One can certainly see what some of the excitement is about. Thanks to the work of company’s 40-odd employees, Flipboard is a slick product. Nevertheless, when I asked McCue earlier this week if he knows how many people use the application on a daily basis, he answered, “Yes, I do,” laughed politely, then offered some metrics that Flipboard prefers disclosing, including that the app has been downloaded 2.8 million times, and that every month, people “flip” between 400 million and 500 million pages.
The numbers suggest some meaningful engagement, but McCue’s confidence in his ability to turn Flipboard into a billion-dollar company seems closely bound to his track record with his investors.
McCue and Index Ventures’ Danny Rimer speak each other’s unspoken language fluently. Two times in the past, Rimer has pulled out his pen and written McCue his first check with nary more than a cursory description of McCue’s plans for the money. “It’s great to have people who believe in you,” said McCue.
Meanwhile, McCue is so tight with Kleiner Perkins that when he was appointed to Twitter’s board last December, many assumed his role was to serve as Kleiner’s inside man. (Late last year, Kleiner led a $200 million Twitter round but couldn’t take a seat on the company’s board because of conflicting investments.)
McCue’s ties to the VCs stretch back to the early nineties. McCue jokes that it was Rimer, then an investment banker, who “discovered” McCue and introduced him to John Doerr, who led Kleiner’s foundational investment in Netscape in 1994. Indeed, in 1996, with Doerr’s blessing, Netscape paid $20 million for McCue’s first startup, Paper Software, and installed McCue as VP of Technology.
When McCue left Netscape in 1999 and began raising money for his voice recognition startup TellMe, the first $25,000 came personally from Rimer; much of the rest came from Kleiner.
Though TellMe quickly raised a seemingly absurd amount of funding ($263 million, all told), it was money that TellMe wound up needing. It wasn’t until 2007 that Microsoft bought TellMe for $800 million in a successful and hard-earned outcome for all concerned.
McCue, an almost preternaturally optimistic person, is taking the long view again with Flipboard. In fact, he says has banked so much funding expressly “to be able to build our business in a way that enables the right kind of revenue model as opposed to the wrong kind of revenue model, [one] that would be easier but not as good for our consumers and partners. We’re optimizing for our partners first and for us second, and we’ll only expand as revenue opportunities start to become clear.”
It’s an enormous financial gamble that has put Flipboard in a position of having to swing for the fences, but McCue clearly isn’t wasting any time second-guessing the decision. “You can only accomplish great things with capable people,” including VCs, he told me.
An entrepreneur “who isn’t orienting around getting the best investors and is instead optimizing for the most ownership for themselves isn’t going to be successful,” McCue continued. “You can own 100 percent of a $100 million company, or you can own 20 to 30 percent of a $10 billion company. It takes the same life force, trade-offs, and commitments.
Either way, it’s hard. But in many ways, it’s harder to become a dominant company in a small market than going after a multibillion-dollar opportunity and surrounding yourself with people who’ve executed on those opportunities in the past.”
If that means giving more of your company away than you were planning, “then you have to do that,” he said. “If you can get the best VCs, if they want to help you, take their money.”