Howard Hartenbaum, Draper Richards

VC2PR is an occasional series of interviews with venture capitalists, and their take on public relations and the start-up environment. The first in the series is Howard Hartenbaum, of Draper Richards.

Howard Hartenbaum, Partner
Howard Hartenbaum placed investments in Skype, NetKraft (acquired by ADEA Solutions), Sapiens Technologies, Securewave, Marketworks and Commsec. In the past he worked at Hughes Electronics, supporting business development, marketing and sales of satellite, information security and automotive technologies developed by HRL Technologies. He was regional manager for a $300 million satellite project, conducted a sourcing evaluation for DirecTV Japan's encryption technology and supervised the defense conversion of DARPA-sponsored technology contracts. He also spent several years working for Honda R&D and Teledyne Relays. Mr. Hartenbaum has worked overseas for a total of ten years in Luxembourg and Japan, is professionally fluent in Japanese and a graduate of M.I.T.

How much of the marketing mix do VC firms think start-ups should dedicate to public relations?

Well that totally depends on the type of company and focus. We are technology investors: chips, automation design, software services, manufacturing related, consumer technologies, consumer Internet. Every different company has a different profile, and how it can take advantage of public relations.

For early stage companies that we are involved with, none of them use formal public relations to get the word out. They are not paying a PR firm, for PR counsel, nor do they have in-house PR. The internal people set-up their own the design automation tradeshow schedule, handle the direct mailing efforts to reach the core audience and target, and the other easy-to-do marketing and PR duties.

Very rarely do they hire PR people to do the work. When the company is very early, it's goal is to get its first set of customers, get those customers implemented and to use them as references. That's the stage of the companies we are working with. Later stage companies do need PR, but that's not what we focus on. Except for Skype, which did use PR for messaging development.

What do you believe is the best use of PR - are there worries that a funded company might launch too early, using up their cache of PR good will?

When a company is too early, it really does not have too much PR. Some entrepreneurs want to get the word out, and they have nothing. And, if that does happen, it will hurt the company. I never understood the press release announcing funding or an executive hire - those are the entrepreneurs that think that the buzz is going to help the company, when most of the time I wonder who the person is, and why we should care, or if the company is going to use the funding for what they claim it is for.

Those that minimize the use of PR early on are the better suited for long-term survival. Those companies talk to the analysts, but concentrate on getting and implementing customer bases. When they do use PR to let the market know what is going on, they already have implemented customers that are paying money and can be used as customer references for other sales and for the press.

When a company says to me that "we should hire a PR firm to do press releases," my instinct is that you don't have anything interesting to say. Wait until you have full customers that are paying and can be references, then start the PR campaign.

It is extremely important to help get the message correct, getting the right message out there, but that is when the company is ready. PR specialists can help companies focus, and make sure that the company executives are not too aggressive and begin making lofty statements. Good PR people will keep the entrepreneur in line and in check, outline what PR is and what it will do for the company and keep it on track.

With many entrepreneurs, they have been trying so hard to get people to believe in what they are doing and they are so excited that it is finally happening, the entrepreneurs want to do a press release and announce everything. It's a partial ego-feed to validate what they have been working on, and partially for team and company recognition. From a third party perspective, though, it's a "what's that." moment. We see a lot of personnel announcements, but it can be damaging if no one has heard of the people. The best companies do something significant, and then use the press releases and PR to announce what they have done. It begins with market traction and paying customers. I never understood why people announce funding, except to scare the competition.

The only things that a young company should care about are: customers, good references, and implementation. There's no need to tell everyone what you are doing. The worst thing that a small company can do is tell the market what they are doing, and then have the large competitors provide the same service or product. There is no benefit for a young company to announce all its great things. They can call and get a great reference - all they need to do is to tell the other companies in the space (customers' space) and that will do more than a press release.

Are there worries that the VC community might be supporting a rebirth of another dot-com era? Is the era of funding until maturity - like how FedEx was VC funded - over?

There's a wide range of VC firms, and some focus on earlier stages, and plan on continuing to put money in as the company moves forward. Some firms start to fund at the start and continue to fund all the way through to maturation.

In my opinion, the best companies are those that are capital efficient. When companies come to me asking for $35M, it makes me wonder what is happening. When companies come to me for lower funding, and show how that will help them be on the path for profitability, those are the companies that make sense to invest with.

Those entrepreneurs - the ones that come back again and again for funding - are not using the funding for what they claim it will be used for, and the claims of what they are working on do not come to fruition.

Look at FedEx. They went through many rounds of VC funding, and are a very successful company. But what happened was that the first investor and second investor made no money; the third investor put in the money and got out the money. The first two did not get what they expected out of the company.

From a VC perspective, we like companies that don't need a lot of funding to move forward. Build the product, validate and prove the market, get the customers that prove the product. Many times, if I don't give the additional funding, I lose my initial investment.

Is this potentially another bubble? It depends more on the entrepreneurs and if they will build good businesses, do what they say they are going to do with the money. Then, there is no concern for additional funding.

Do VCs look to the existing PR structure - the early buzz - as a reason for investing in a company?

It is true that buzz will catch a VC's attention, if they are looking at a company and paying attention.

But, it's the numbers that really matter. We invested in Skype, and these are the reasons: claim of a stable P2P network, which we believed in because of their past involvement in Kazaa and VoIP knowledge from prior telco jobs. In regards of PR and Skype, it was obvious that if you looked at all the press Kazaa had, and then all the press that a telco play would get.

It was an easy PR pitch to sell: they had the history with Kazaa, and they were entering a hot space with a product that could change the industry. It was obvious that when these guys launched the product, people and the press would go crazy, which would drive more users and more press, and help get Skype to reach its critical mass and more. That's exactly what happened. Skype launched, and made the cover of Fortune a few months later. Then, the press would come around, since the past stories had traction, and there was a good story to tell. It was an easy pitch.

The second round VC firms were looking at the press, but looked at the numbers first. The Skype press helped guide customers, but if it had not driven customer numbers, there would not have been the second round of funding.

Many VCs have launched formal and informal blogging initiatives to personalize the system, and to put forth their own ideas. Have you thought of launching a blog for yourself or for Draper Richards? Do you think the VC blogs are a good idea?

If Draper Richards did a blog, it would make sense for Bill Draper to do it. For me, I have only been doing VC funding for a few years, so not sure what I would bring to the table, or would write.

I am involved in the consumer Internet, and learning a lot from Skype. After Skype does what it does, maybe I'll possibly begin blogging. I've never considered myself that good a writer - I did one post on Always On Network. When the site launched, they asked me to do a post on international investment. It was fun, but I didn't really have much more to say.

VC people and bloggers want to read about what they are looking for, and then have people modify the pitch to fit into the parameters. VCs and VC bloggers want to know what the future is, and I am not sure if I have that vision or insight yet.

As for the VC blogs, I think that those with more name recognition than Draper Richards that are involved in make good bloggers, like Tim Drapers at Draper Fisher Jurvetson.

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