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Interview with Jim McDermott, co-Founder of Stamps.com




Jim McDermott is one of the three co-founders of Stamps.com, which was the result of a UCLA business plan competition. Stamps.com recently had a blockbuster IPO, and has been getting lots of attention from investors and others because of their high profile strategic alliances. I asked Jim a few questions about the genesis of Stamps.com, and some of the lessons that he could share with aspiring entrepreneurs.

Jim McDermott:

BK: How did Stamps.com come about, and how did you decide to pursue it as a business?

JM: Jeff, Ari and I were in the same section at UCLA business school. I lived across the street from the Post Office at the Federal Building (corner of Veteran and Wilshire). During my job search between my first and second year of business school, I ran out of stamps one night. I thought to myself, why can't I buy stamps online? I pitched the idea to Ari and Jeff and they liked it. So we wrote the business plan as part of Alan Carsrud's "Business Plan Writing" class.

BK: Did you find it difficult to find financing for your idea?

JM: Initially, it was very difficult raising funds. From the moment we finished the business plan to getting our first check from Brentwood, it took almost a year. We were rejected by no less than 25 venture funds. As a sidebar, we wasted time and money looking for funding up north with the Sand Hill Road crowd. There is plenty of angel and venture capital money in southern California and in the end most investors like to be close to their investments. The main reason VC's didn't like our deal was the government. Most felt that there was a strong possibility that the Post Office would never give us the license and, as a result, their entire investment would be lost.

BK: You've been through the full process now from idea to startup to IPO. What would you have done differently now that you've gone through the experience, and what advice would you give aspiring entrepreneurs?

JM: I know it sounds trite, but the best advice I can give about the fund raising process is go with personal contacts. An hour spent figuring out how to establish a personal connection with a potential investor is worth fifty spent mailing out business plans. Investing is a very personal thing and convincing someone to part with their money has much to do with what the investor thinks of you than your idea.

As I think back on Stamps, I think I learned the following lessons:

1. Beg, borrow or steal from your friends, family and angels before you go to a VC because $100K early on can be worth millions later.

2. That said, once the deal is done with the VC don't look back. If the company is a success lots of undeserving people will make lots of money. And, still more will attempt to take credit for the success. Don't worry. In the end, investors rarely forget who did the real work.

3. If you believe in your idea, don't listen to naysayers. Many people prefer others to fail so they never have to confront their own shortcomings.

4. Always keep in mind that you are the talent and that great companies are built by highly motivated people pursuing compelling ideas. Money is but one element of the equation and shouldn't be overvalued.


 

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