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The $10 Million Photo and Other VC Stories

July 21st, 2011

When we were trying to raise money for E.piphany, my last startup, I was negotiating with a venture capital firm called Infinity Capital. They really wanted to invest, but it was the beginning of the bubble, and I wanted (what was then) an absurd valuation. All we had were six slides, and I wanted a $10 million post-money valuation. But it was my eighth startup and my partner Ben was even more experienced. So when I wanted to start a company, Infinity wanted to fund us. We had gone back and forth with them on valuation, but this was a new firm and they wanted to close a deal with us.

Steve Blank is a retired serial entrepreneur, educator, thought leader and creator of the rigorous "Customer Development" methodology detailed in his book, "The Four Steps to the Epiphany." Blank teaches entrepreneurship at Stanford University and UC Berkeley and blogs at steveblank.com.
After about our fifth meeting, I'm in their conference room. I say, "Why can't you guys do a $10 million post-money valuation?" picking the biggest number I could think of for three founders without a product, a semi-coherent idea and badly-written slides.

Finally they admitted, "Steve, we're a new fund. Everybody will think we are idiots if we do that." I said, "All right. Can you do some other number close to my number?" So I stepped out of the room as they caucused, and they called me back in 10 minutes later and said, "So, listen. We can do $9.99 million." I'm trying to play poker with the deal, and one of the partners at the time was a great photographer - the firm had big prints of his on the walls. I was really in love with the one in the boardroom. So, without thinking, when they made me that offer, trying to keep a straight face, I reached behind me, grabbed the photo off the wall and slammed it on the desk, and said, "If you throw this photo in, you got the deal!"

The $10 Million Photo

I reached behind me, grabbed the photo off the wall and slammed it on the desk, and said, "If you throw this photo in, you got the deal!"
The look on their face was utter astonishment. I was thinking it was because I was being creative by throwing the photo in, but then I noticed that this cloud of dust was settling around me. I turn around and looked at the wall and it turned out the photo had been bolted into the drywall. And there was now a hole - I literally ripped a part of their boardroom wall off as I was accepting the offer. Without missing a beat they said, "Yes, you can have the photo. But we're going to have to deduct $500 to repair our wall." And I said, "Deal." And that's how E.piphany got its Series A.


Invest in the Team

Before we closed our Series A with Infinity, I had called on Mohr, Davidow Ventures, the firm which had funded my last company, Rocket Science. The senior partner at the time was Bill Davidow, a marketing legend and a hero of mine who had also funded other Enterprise software companies. I went in and pitched Bill the idea about how to automate the marketing domain. He gave me 15 minutes, then as politely as he could do it, walked me out the door and said, "Stupidest idea I ever heard, Steve. Enterprise software means across the Enterprise. Marketing is just one very small department."

"Stupidest idea I ever heard, Steve. Enterprise software means across the Enterprise. Marketing is just one very small department."
As he was walking me out, I remember as I physically crossed the threshold of the door that: A) He was right, and B) I figured out how to solve the problem of making our product useful across the entire enterprise. So E.piphany went from a bad idea to a good idea by being thrown out by a VC who gave me advice that made the company. He has reminded me since, "Sometimes you invest in the idea, but you should always be investing in the people. If I would've remembered who you were, I would've known you would figure it out."

(Kleiner Perkins would do the Series B round for E.piphany. After our IPO, Infinity's and Kleiner Perkins' investment in Epiphany would be worth $1 billion dollars to each of them.)

I still have the photo.

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Steve Blank is a retired serial entrepreneur-turned-educator who is changing how startups are built and how entrepreneurship is being taught. He created the Customer Development methodology that launched the lean startup movement, and wrote about the process in his first book, The Four Steps to the Epiphany. His second book, The Startup Owner's Manual, is a step-by-step guide to building a successful company. Blank teaches the Customer Development methodology in his Lean LaunchPad classes at Stanford University, U.C. Berkeley, Columbia University and the National Science Foundation. He blogs about entrepreneurship at http://www.steveblank.com
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