If you’re a regular listener to my radio show --- especially on Saturdays --- then you probably know of Regis McKenna.

A Pittsburgher by birth, Regis is unquestionably the brightest mind I have ever encountered in terms of understanding high technology, especially high technology marketing.

The man is a genius.

At its high point, Regis McKenna, Inc. employed more than 200 full-time consultants. If you had a business in Silicon Valley between 1975 and 2000, you were well aware of Regis’ capabilities. Included among his clients were and are: Intel, Apple, Compaq, Genentech, Lotus, Microsoft, to name a few.

Regis has also written more than a dozen books on high technology; including my all-time favorite and the book I’ve probably recommended more than any other in my lifetime: “The Regis Touch.” TRT was actually how I “discovered” Regis --- I just remember reading his book and thinking, “Where was this guy my whole life? Especially when I needed him?”

How we became good friends, I’m not exactly sure. I do know this --- he once made a very generous contribution to the Entrepreneurial Studies Program at Duquesne University (another of my entrepreneurial endeavors) and after I finally convinced him that I wasn’t coming back for more, he agreed to be a guest on my radio show.

That one appearance led to multiple appearances which in turn led to regular appearances. Now, he’s appearing on the show roughly two out of every five weeks.

Regis shows no signs of slowing down even though he is probably now in his late 60’s. Evidence of this is made manifest by the content of an e-mail I just received from him.

Regis opens this particular e-mail by saying, “Ron: Looking through some of my old e-mail ‘saves,’ I came across this one that I sent to a friend who was starting a new venture capital firm. These are lessons I learned while choosing and investing in start-ups. Of course these are not iron cast decision points as there can be many reasons for investing in a new opportunity. Anyway, I thought you might find these of interest.”

After which he gave me seven absolute gems.

I remember sitting down to read them. It was a school night and I said to my assistant, “Mia, can you copy these so the students can read them tonight?” I didn’t want a minute to go by without me sharing this brand-new wisdom with someone!

(By the way, I have now invested in sixteen start-ups. I have violated every single one of Regis’ admonitions; many of them more than once.)

Anyway, here they are. Enjoy.

1. I have found that it is best to have other investors committed to the deal and not be the only early investor. I have ended up being the sole investor in several companies and it is hard work and very time consuming. You will end up raising the money as well as being an integral part of management. Not a good leverage model. So it pays to have a few partners to share the responsibilities and investments.

   All I can say here is, “I agree!” The trouble is, it took me the better part of five years and probably a half-million-dollars to learn this (in retrospect) very simple lesson.

   
   
2. 



   Try to develop some synergy among the various investments. Having a number of companies in the same space leverages your knowledge of a market and facilitates relationship building. Example: in a few weeks, I will have the IT staff from Eli Lilly visiting four of my investments in two days. Lilly could use the products of all four and be an investor in three of the companies.

   While I see and agree with the wisdom in this one, I’m proud to say that I really only partially violated it. This is primarily because while almost all of my investments are in software, they probably were not large enough to warrant the kind of “cross pollination” Regis is talking about here. This is also due to the fact that I tend to invest in companies as early as the business planning stage --- not a lot for any visiting IT staff to even chew on.



   
   

3. I have noticed that new funds as well as new players in the venture business tend to invest in everything they see. This happened to Sevin Rosen when they started years ago and it happened with Softbank and me. There are a lot of deals out there with good...and bad ideas. The problem isn't throwing out the bad deals, it is understanding what it will take in terms of management, resources, alliances, etc. to turn a good idea into a good business venture. BE PATIENT.


   This one was like a stake in my heart. Did it ever hit home! Of the sixteen investments I have made, all tolled eight or nine of them were made within eighteen months of my windfall. And, as you might have already guessed by now, almost every single one of them is a loser.

   I invested with my heart and with the foolish strategy of a kid with twenty-five pennies in a candy store.

   I’m also sure that my intrinsic predilection for gambling played some role here. You see, I wanted to get as many bets down as possible --- probably thinking, “If I put ten horses in the race, at least one or two of them will come through.”

   What a sad way to blow a million dollars.

   
   

4. Don't invest in products but rather invest in people, markets, extensible platforms and businesses.

   How true! How true. Again, when I started out as an investor, all I could see were “shiny baubles.” Slick products that had attractive packaging and/or addressed niche markets that probably still haven’t materialized.

   It’s markets and it’s people, folks. In that order. A vortex market will make a millionaire out of an idiot. And a great jockey can sometimes snatch victory from the jaws of defeat. Products can only serve to fill up your garage.

   
   

5. The three biggest challenges facing an entrepreneur:

   • Get quality investors – it is more important “who invests” than how much they invest.
   • Get market verification of plan, strategy and new product/service. And I don’t mean hold focus group meetings! Develop a cadre of potential users and advisors --- these are experienced and knowledgeable resources you can continually tap for opinion and advice.
   • Develop a bulletproof channel/distribution strategy. Long sales cycles are the nemesis of start-ups.

   All gold. Just plain 24-karat gold. Cut this out and stick it in your wallet. Especially the sentence about “long sale cycles.” Start-ups are like newborns --- they need a steady and constant supply of food or they die. Your start-up can easily be “starved” by an unwitting big corporation with long sales and pay cycles. Better yet, stick it on the mirror you look at when you shave every morning.

   Gold.

   
   

6. Remember, follow-on investments are important to consider when you first get into a deal. I have found that follow-on investments, necessary to maintain pro rata share, can be 3 to 5 times the original investment. Many, many individual investors miss this point and see their investment share cut away because they cannot come up with the money to invest in later rounds. Each round gets more expensive the more successful the business becomes and therefore often well worth keeping every share point.


   Truer words have never been spoken and I only wish I had a dollar for every first-time “investor” I’ve witnessed learning this lesson. This is one that sneaks up on the naïve and the ignorant.

   And when one starts investing, one is both naïve and ignorant.

   Put this one in your wallet too.

   
   

7. I like to get corporate investments into deals early. Most VC firms don't. They want to increase the value of a deal then make the corporate investor pay a premium. Some corporate investors add a lot to a deal -- Intel for example. These investors take a bit more time and are usually brought in after the seed round. They give a deal instant credibility, access to distribution channels and oftentimes technology. 


   Agree, agree, agree. And, a damned good way to help your investment’s chances as well. This is one of those cases where “everybody wins.”

In all, just marvelous advice, folks. (And, a terrific way to knock off a column without working that hard!)

Regis, it seems as if I’m forever saying this to you --- thanks!


* Listen to Ron on The American Entrepreneur Radio Show. Ron and his colleagues can be heard on PBR stations seven days a week! Tune in M-F from 3:00 - 6:00 p.m.; Saturday from 9:00 a.m. - Noon (all on AM 1360). Ron can also be heard on Sundays from 10:00 a.m. -12:30 p.m. on FM 104.7.