SM: Many times I do not think VCs have any class.
JL: I think people misunderstand VCs. They are financiers.
SM: It does not matter. Their business is dealing with human beings.
JL: They confuse you about it. Their business is dealing with entrepreneurs, but they [the entrepreneurs] are a piece of meat. If you are an entrepreneur, you are a sucker if you take the human side too seriously. Don’t let the schmooze go too far. You are not on a team together. I work on EchoSign 70 hours a week, and my investors work on it a matter of hours a month. They are my investors and I am eternally grateful for them; one of them is even my old boss from Venture Law Group. I love them, but we are not on the same team. They are one piece of the puzzle.
VCs are very important because the equity model is so important to funding startups. You need the ability to deploy risk capital in stages. As an entrepreneur, if you listen to the “we are all on the same team” speeches too much you will get frustrated because your interest are not aligned. VCs have no downside and have incredible upside. As an entrepreneur you have massive downside as well as high upside.
SM: As an entrepreneur, your life is at stake. Most entrepreneurs do what they do with their lives.
JL: With EchoSign we have only raised single-digit millions, and we are not going to fail. Even if we did, it is not material to our investors.
SM: Let’s get back to your story. After you sold NanoGram for $50 million you were free. What year was it, and what did you do next?
JL: That was in 2004. I did nothing for nine months. I had a son. I cooked and cleaned for my wife. I got into shape. Then I nominally worked as an entrepreneur-in-residence at Storm Ventures, which is one of the funds that invested in EchoSign. Ultimately, I had a very good friend who really wanted to do a startup.
We were very different and complementary in our styles. He is very creative and extremely driven. I am pretty business- and partner-savvy. We went through a couple of ideas, among them the idea that ultimately became EchoSign. We built a prototype in the spring of 2005. We started to get excited about where the web was going to be in 2007 and 2008. We thought it would be the province of business. We were most excited about businesses that were not web-centric at the time.
In 2005 you might have a vendor or partner in Italy, and you could connect with them via email. Material web penetration was starting in all businesses.
SM: That was around the time of Google AdWords. Did that help you?
JL: I wish it did, but it did not help us at all. My co-founder, Jeff, was an SEO expert. He was incredibly cost effective with Google AdWords. What we learned in 2005, which is just as true today, is that if you are in a high volume established category, AdWords is terrific. You might have ROI issues, but if you have volume you will be OK there.
At a simple level we are doing electronic signatures. At a deeper level we are doing electronic contracting. The search volume there, even on Google, is non-existent. Today we probably get about 10% of our customers off AdWords.