Fundability Blog

Veepstakes and Balancing Your Own Ticket

Steve — Tue, 02 Sep 2008 06:32:00 -0700

This is not a political blog. I’d rather stay away from politics in this space but I’ve been really fascinated by this year's US presidential campaign especially the Veepstakes, aka, the vice presidential selection process. Choosing a running mate is a presidential candidate’s first big decision. It’s also more than a little symbolic. It reveals something about the candidate’s judgment and decision-making style. The right VP choice can give the candidate a bump in the all-knowing polls. The wrong choice can doom the campaign. See McGovern-Eagleton-Shriver, 1972.

Naturally, I see parallels to the venture world. The VP selection process is a high stakes example of team building. The presidential candidate is similar to the startup CEO/Founder who needs to surround himself or herself with the skills and experience they lack. Electability drives the president’s VP choice. The CEO/Founder seeks a fundable team that attracts investors. (Let’s call it fundability!) The CEO has the luxury of building a team of VPs which is really more like filling out the Presidential Cabinet. Team diversity in background and experience is prized by investors. It’s even better if the team also has a history of working together in a successful venture.

The President's VP choice and the Cabinet also play a huge role when it comes to Presidential succession. The VP is a heartbeat (or lack of one) away from the presidency. The rules are simple. The VP assumes the role if the President is “unable to discharge the powers and duties of the office”. The line of succession goes all the way down the list of Cabinet members ending with the Secretary of Homeland Security at #18.

The succession rules are a lot simpler for a venture-backed company. There usually aren’t any. CEO succession plans tend to sidestep life and death issues. There are no automatic lines of succession or guaranteed terms because the Board of Directors decides who’s going to run the company. There might be some politics involved but Board members know that change at the top is a necessary part of the growth cycle. As a venture matures it needs different leadership skills:

Founder’s Vision > Raising Capital > Company Building > Business Operations > Getting to an Exit.

When a Board votes for the company’s next leader, it’s not democracy in action. It’s just smart business.

Self-serve frozen yogurt: the SaaS of desserts

Steve — Tue, 05 Aug 2008 11:21:00 -0700

Frozen yogurt has been the next big thing at least three times over the last 30 years. When it first came out I’m pretty sure they just threw some yogurt (“yoghurt”?) in the freezer at a time when it only appealed to a cult of health nuts. (Full disclosure: including me.) Not surprisingly, the market remained cult-sized. Then there was Penguin’s in the ‘80s. They hit the right balance between healthful and sinful. Where else could you order non-fat yogurt covered in hot fudge and Reese’s Pieces? Less guilt but all the sugar. Penguins exploded and franchised until Big Ice Cream joined the froyo fray. Baskin-Robbins added frozen yogurt to the menu and it wasn’t long before Penguin’s slid into Chapter 11. Sadly, their assets were frozen. After that, frozen yogurt seemed to fade into the woodwork until a year or so ago when an innovative new trend emerged: SELF SERVICE!

Non-fat Software!

Now it seems self-serve yogurt shops are popping up everywhere. The idea is simple. You grab a cup and decide how much you want; which flavors and toppings. Get your personalized concoction weighed at the counter and you pay by the ounce/pound. It’s faster, more hands-on and more fun. It occurred to me that self-serve frozen yogurt aligns perfectly with the popularity of SaaS. Software as a Service is the culmination of 30 years of software evolution. It represents a fundamental change in the way software is purchased, used and delivered. Pay as you go and just pay for what you need. SaaS is non fat software whose time has come thanks to low cost bandwidth, anywhere access plus a growing confidence in “the cloud”. Like self-serve frozen yogurt, SaaS has combined the right ingredients into a winning business model.

Fundability's Frozen Yogurt

We embrace the SaaS model and just launched our second Fundability SaaS product. It’s called CoFund – Company Fundability – and is designed for private company CEOs and CFOs who need a secure way to communicate with prospective investors and current shareholders. CoFund is personalized and highly configurable (self-service!). It provides tools for raising a round of capital plus a secure platform for ongoing investor reporting. CoFund is the complement to our InFund SaaS product which helps VCs and other private equity investment firms manage their deals. Both products are sold on a monthly fee model. What’s also great about SaaS is that you can try before you buy. We don’t have sample spoons like a yogurt shop but we do offer a 14-day free trial on CoFund and InFund. It’s all-you-can-eat (the full product) and guaranteed to make your business a little healthier.

Beware of balloon lawn chairs on your roadmap

Steve — Mon, 28 Jul 2008 03:24:00 -0700

Kent Couch is crazy like an entrepreneur. He’s the Oregonian who tied 150 helium balloons to a lawn chair and flew to Idaho. Kent had a dream and a clear mission statement: “I’m not stopping till I get out of state!”. A balloon lawn chair is the perfect metaphor for the first stage of a startup company. It starts with a big idea - his volunteer crew wore “Dream Big” t-shirts - but lacks a plan. His web site boasts that when you ask Kent where he is going, he always says, "I have no idea." Still Kent turned his dream into a 9-hour flight and landed safely after 235 miles with the help of his Red Ryder BB gun and a ballast filled with 15-gallons of cherry KoolAid. He had a fun adventure. Nobody got hurt and - if he’s really entrepreneurial – his monetization phase and Letterman guest shot are in the works.

Kent’s balloon lawn chair got me thinking about planning and roadmaps. For the past two weeks the topic of our company roadmap kept coming up in conversations with VCs. We already had what I thought was a pretty good product roadmap. The reality is it went from excruciating technical and functional detail for next week’s release to progressively looser definitions. When we got out into years 4 and 5, I realized that our roadmap was sounding like balloon lawn chairs: big ideas without enough planning to fly to Idaho. It’s natural when you’re balancing short term goals with a 5-year plan but it’s still no excuse. So, yes, we are working on our own roadmap.

Roadmapping is strategic forecasting.

Investors like to see how you think. There is no better way than a roadmap to show clear and logical thinking about how your company will address the market and create or adopt new technology. The roadmap should also guide technical decisions and help build a framework for your intellectual property. It can even help you plan hiring priorities and potential partnerships. Think of your roadmap as the strategic version of your financial model. Keep it simple and keep it current. It’s OK to dream big about balloon lawn chairs but, without a roadmap, be prepared that investors with their own Red Ryder BB guns will shoot you down!

Miss Universe & John Keynes for “What It’s Worth”

Steve — Mon, 14 Jul 2008 11:14:00 -0700

They crowned Miss Universe® last night. Dayana Mendoza, Miss Venezuela, beat out 79 other contestants to bring home the crown. Our planet should be proud. She is the 57th earthling in a row to win the coveted honor as the most beautiful woman in the Universe. This is no small achievement when you consider that the Universe is defined as everything that physically exists: the entirety of space and time, all forms of matter, energy and momentum, and the physical laws and constants that govern them. Pretty heady stuff for a 22 year old who, before last night, only wanted to be an interior designer.

For serious VCs, beauty contests conjure up thoughts of John Maynard Keynes and venture valuations. The Keynesian beauty contest is his economic theory that a stock pick is not based on fundamental value but on what investors think everybody else would pick. Beauty isn’t in the eye of the beholder. It’s in the average eyesight of many beholders. It’s no wonder Miss Venezuela was in tears when she won the crown.

Fundability's Beauty Contest

When it comes to early stage valuations, VCs are trying to figure out what the company will be worth in the eye of the ultimate buyer. That’s why they start at the end – the exit. There are benchmarks and market factors but early stage companies have few fundamentals to throw into a calculation. On the flip side, company founders lack the valuation experience or perspective of VCs who can spout pre-money/post-money numbers like batting averages and RBIs. It’s scary when you consider that a 5% swing in valuation can be worth millions in a future liquidity event! At Fundability, we decided it would be, well, valuable, to provide early stage companies with access to a professional equity valuation. We have partnered with Paschall Capital, a professional business valuation expert and investment banker, to offer Certified Equity Value Calculation Reports for $795. To launch the new service we have created our own beauty contest: Fundability’s What It’s Worth Contest. The winner will receive a full Equity Value Calculation Report prepared by Paschall Capital in compliance with the latest and most comprehensive professional Statement on Standards for Valuation Services. Entries will be accepted until August 15^th. You can save your tears of joy for when you get funded because this is really not a beauty contest. The winner will be randomly selected on August 20^thplus we nixed the swimsuit competition. So, get your entry in and find out What It’s Worth.

What if George Carlin were a VC?

Steve — Mon, 07 Jul 2008 16:10:00 -0700

George Carlin always made me laugh and think at the same time. He was a social observer who skewered everybody for their absurdities and hypocrisies. Everybody. When he died on June 22^nd I was in the middle of reading his book “When will Jesus Bring the Pork Chops?”. His irreverence is on full throttle offending religion to politics to business to, like I said, everybody. He once said that it is the duty of the comedian to find out where the line was drawn and cross it deliberately. He crosses the line on every page.

The guy who gave us the 7 words you can’t say on TV was actually keeping watch over language as it got softer, more politically correct and inflated with self-importance. He warned us that in the future we will all speak the same language but no one will speak it well. He said that euphemisms obscure meaning and shade the truth. His death got me thinking about some of the euphemistic language we use in venture capital. He probably would have had a field day with the VC speak we take for granted:

“crowded space”

“customer traction”

“fundable team”

“scalable model”

“visibility to an exit”.

I’m not exactly sure what George would have said as a VC but it would be have been blunt, funny and peppered with f-bombs. He would have offended most entrepreneurs and driven the faint of heart back to their day jobs. George would have been a one man due diligence buzzsaw separating the wheat from the chaff. He even sounded like a hard boiled VC partner prepping for a startup pitch in his rambling poem, A Modern Man:

"I'm a rude dude, but I'm the real deal.

Lean and mean.

Cocked, locked and ready to rock;

Rough, tough and hard to bluff."

Plus every company needs a Board member like George who believed that most people work just hard enough not to get fired and get paid just enough money not to quit.

George Carlin didn't believe in much but he did create frisbeetarianism , the belief that when you die, your soul goes up on the roof and gets stuck.

So, rest in peace, George, up on the roof.

Long Silicon Valley, Short (Your Region Here)?

Steve — Tue, 24 Jun 2008 03:39:00 -0700

Geography matters in investing but should it? A new study found that investors like to invest locally but that it doesn’t necessarily translate to better returns. The study analyzed publicly traded stock patterns but may have lessons for private equity. At Fundability, we can see that a startup’s locale is a huge factor for angel investors. Conventional wisdom that angels invest within 50 miles of where they live because they like face time with entrepreneurs and the chance to influence strategy.

It’s not a news flash that Silicon Valley is the epicenter of venture capital. The region invests nearly 4 out of every 10 VC dollars with most ending up in the hands of Northern California entrepreneurs. In the first quarter, Dow Jones VentureSource reported that VC investments in the Bay Area rose 10 percent ($2.56 billion in 213 deals) while VC deals across the US were falling for the first time in 3 years.

Ok, what about the returns for local deals? The study is called “Long Georgia, Short Colorado? The Geography of Return Predictability”

It was conducted by George M. Korniotis of the Federal Reserve and Alok Kumar of the University of Texas, Austin who discovered a local bias after studying the stock holdings of 75,000 investors over 5 years. They found that investors tended to favor and invest in companies from their home state. With too many choices, investors choose the familiar. Korniotis and Kumar also demonstrated that investors would be wise to guard against the local bias which is vulnerable to local economic ups and downs.

My unscientific opinion is that the geography will matter less to investors in a world that continues to gets flatter every day. So, what’s the takeaway for entrepreneurs, angels and VCs? Beware of your local bias…unless you live in Silicon Valley.

Indiana Jones and the Quest for Venture Capital

Steve — Sun, 15 Jun 2008 05:14:00 -0700

I give a big thumbs up to Indiana Jones and the Kingdom of the Crystal Skull. George Lucas and Steven Spielberg neatly tied up the series with another cinematic thrill ride that was plausible if you suspended disbelief and cancelled your subscription to ARCHEOLOGY magazine.

Indiana Jones is one of thousands of mythical heroes who pursue a quest for the ages. We want to believe the hero-myths because we all want to be the hero. My well-read friend Keenan tells me that all of the hero-myth stories derive from the same basic plotlines. He gives full credit to Joseph Campbell - the scholar who decoded mythology and heavily influenced George Lucas’ creation of both Star Wars and Indiana Jones.

Does this plot sound familiar?

The reluctant hero is presented with a challenge.

The hero encounters tests and finds helpers.

The hero seizes the prize.

The hero is chased by enemies.

The hero returns transformed.

Substitute “entrepreneur” for “hero” and you have the story elements for a real world blockbuster. Who needs Hollywood when we’ve got Silicon Valley? The successful entrepreneur is a true hero of mythical proportions.

The Kingdom of the Crystal Skull is the last in the Indiana Jones series. Or is it? The rumor mill hints that Lucas has registered other working titles for Indiana Jones (“The City of Gods”, “The Destroyer of Worlds”, “The Fourth Corner of the Earth”, “The Lost City of Gold”). They all sound predictable. For my money, if you want real heroes and box office gold, go see “Entrepreneurs and The Quest for Venture Capital”!

Keeping Private Equity Private with InvestorFundability

Steve — Mon, 09 Jun 2008 03:09:00 -0700

On the big screen, Marlon Brando “could’ve been a contender”. In real life he could’ve been a VC when he said, “Privacy is not something that I'm merely entitled to - it's an absolute prerequisite!” The word “private” is a big part of the professional investor’s vocabulary. Private equity starts with companies whose stock is not publically traded. “Private” also means “proprietary” – as in the exclusive right to invest in a company. And we can’t ignore the confidentiality meaning of the word. With this past week’s announcement of our Investor Fundability we created a private-branded SaaS solution as new way for private equity firms to manage their proprietary deal flow and maintain confidentiality about their deals.

When we talked to VCs and investment bankers they told us:

“We have brand equity. We don’t want to be listed in a clearing house with every other firm.”

“We’re bombarded with deal submissions and need a better way to manage the deal process."

“We already see more deals than we can invest in, but we can always use more quality deal flow and we want to have the first look.”

“Our proprietary deal sources create a competitive advantage."

We built Investor Fundability as an extension of a firm’s web site including branding, logo and colors. The idea is to makes it easy to capture and filter potential investments based on the firm’s criteria matched against pre-defined meta data. When a deal makes the cut Investor Fundability can be used by the fund team to work the deal through the process of research, due diligence, syndication and deal closing. Once a deal is closed, there are secure digital reporting tools for ongoing investor relations as well as for Board-level communications.

Investor Fundability product works closely with our open Fundability Marketplace where early stage companies and accredited investors can connect on seed stage rounds. Firms using Investor Fundability can refer deals that are too small or too early over to the Fundability Marketplace which might be perfect for individual investors. They can also go to the Fundability Marketplace when searching for fresh deals.

Investor Fundability is the first of two new SaaS products. We will announce our second SaaS product in a few days to address the needs of later stage companies – private companies, of course.

The Killer PowerPoint is the World’s Deadliest Joke

Steve — Mon, 02 Jun 2008 15:08:00 -0700

Remember the Monty Python skit about the World’s Deadliest Joke? It was a powerful secret weapon unleashed on WWII battlefields to turn the tide for the Allies. Specially trained British soldiers shouted it in German as they advanced across the battlefield causing Nazi soldiers to die laughing. My German isn’t very good but I’m told that the joke was really just German gibberish. (Keep reading and - if you have a strong heart -I promise to tell you the actual World’s Funniest Joke...) The World’s Deadliest/Funniest Joke reminds me of the whole myth surrounding entrepreneurs and their INVESTOR POWERPOINTS. The myth goes something like: “Deliver a KILLER investor pitch in 10 slides and you’ll have them climbing over the table to write checks!” I’ve easily heard more than a 1,000 investor pitches - not counting the dozens that I’ve given - and there were definitively some entrepreneurs who really killed (in the standup comedy sense). Still I’ve seen more deathlike reactions (OK, maybe heavy eyelids) than any VC excited enough to break out the checkbook.

The Investor PowerPoint is a necessary evil in the world of ever shortening attention spans. The limitations of PowerPoint inspired us to create the Fundability Company SnapShot. It’s a live link to an interactive executive summary which is designed for quick scanning or deeper digging via the company’s virtual data room which we call the DiligenceRoom. In less than the time it takes to create a new deadly PowerPoint, an entrepreneur can set up a Company SnapShot and secure DiligenceRoom to store all sorts of digital documents – including exec exec summaries, financial models, term sheets, PowerPoints(!), you name it.

If you still want some tips on preparing your Killer PowerPoint, Guy Kawasaki advocates the 10/20/30 Rule of PowerPoint: no more than 10 slides, 20 minutes and no font smaller than 30 point. Plus he defines the 10 topics that VCs want to see on those slides. It’s all good advice. No joke.

Ok, you’ve read this far so you deserve to hear the award-winning, certified World’s Funniest Joke. It's attributed to Spike Milligan who inspired Monty Python but never gave a PowerPoint. Enjoy.

Two hunters are out in the woods when one of them collapses. He doesn't seem to be breathing and his eyes are glazed. The other guy whips out his phone and calls emergency services. He gasps, "My friend is dead! What can I do?". The operator says "Calm down. I can help. First, let's make sure he's dead." There is a silence, then a shot is heard. Back on the phone, the guy says "OK, now what?"

Lights, Camera, Action! (and don’t forget the makeup…)

Steve — Mon, 26 May 2008 09:08:00 -0700

This was a first. My wife offered to let me use her makeup today. I didn’t ask her for it and – for the record – I declined the offer. She thought I needed makeup to look better (younger? healthier?) on camera. I was reshooting my video elevator pitch for our Fundability SnapShot. I was feeling the pressure – especially since my last video from a couple of weeks ago made me look pasty and sound like Too Much Coffee Man. An investor who saw the choppy video emailed his concern that we were having video server problems. The servers were fine. I had to confess that the jerky video was because the guy on the video was jerky. Makeup wouldn’t have helped.

So I decided to reshoot my video pitch and to use the webcam on my laptop. After all, this is what we tell entrepreneurs to do and we like to eat our own dog food. It’s clear that an updated video with OK quality is better than broadcast quality with stale information. Think CNN Breaking News vs. The History Channel Plus we know from our site analytics that SnapShots with videos get 2-3X the views than SnapShots without videos. Smart investors invest in people – the management team - and the CEO video pitch is the quickest way to get a feel for the CEO’s personality. Not everyone can be a Steve Jobs or a Meg Whitman so be yourself and make sure that your passion and confidence about your business shine through.

Here are my Top 5 Tips for making a good video elevator pitch:

Quiet on the set. Close the door. Put your phone on vibrate or better yet leave it in another room. I used my laptop’s built in microphone which was a little fuzzy sounding so I just bought a Logitech USB mic for next time.
Turn on the lights so you don’t look like you’re in the witness protection program. A natural full spectrum light makes a big difference.
Even pros can’t do it one take. Break up your pitch into smaller 20-30 second segments which you can easily edit using Windows Movie Maker or Apple iMovie.
Just the facts. Investors want to know: Who are you? What’s the problem? The market opportunity? What’s unique? What do you need (capital, partners. etc.)? 2 minutes max.
Convert your video to Flash (.flv file). On2 Flix works well. Once you've uploaded the to your Company SnapShot to Fundability you can also send it directly to an investor as a simple link.

It's easy. Take a look at my video and just remember I did it without makeup!

Where the Entrepreneurial Drive needs a Titleist

Steve — Tue, 20 May 2008 13:36:00 -0700

I used to be a pretty good golfer. Then I started a company. I still love the game but I don't have enough time or passion to get back down to a single digit handicap. Maybe golf is too easy compared with the challenges of a startup. What got me thinking about losing my golf Jones was yesterday's Velocity Venture Capital Entrepreneurial Drive golf tournament. It's a fundraiser for non-profits that support entrepreneurs in the Sacramento area like SARTA, CleanStart and University of California, Davis' business plan competiton among others. The crazy fun part was the tee box pitch. The 36 foursomes of golfers/investors were pitched at every tee by entrepreneurs in full fundraising mode with demos, contests and giveaways. (Special bonus for investors: No PowerPoints!)

There were clean tech companies like Marquiss Wind Power, medical devices like VuStik and new healthcare search engine from Healthsphere. I had the chance to golf but I was more fired up about doing a Fundability tee box pitch. Over and over and over. We're fundraising too so the choice was easy. Play golf with 3 other guys for 5 hours or present to 140+ potential investors and customers in the same amount of time? To be fair, I had help all day from David Pitta our VP Sales and Brian Ostrovsky our product guy. Brian, a low handicapper, was ready to challenge investors to a long driving contest for equity but we decided that SEC or the PGA might have a problem with that.

The Entrepreneurial Drive actually worked. It was for a good cause and we connected with some new investors and generated a stack of leads for our soon-to-be-announced private-labeled SaaS solution. Best of all, I spent a great guiltless day on the golf course even though I never even hit a ball.

VC Titans not the Vultures of Venture Capital

Steve — Mon, 12 May 2008 10:02:00 -0700

Looking to get in front of VCs? You should have hung out at the lobby bar at the Hyatt Regency Santa Clara last week. The annual NVCA meeting drew nearly 1,000 venture capitalists including the industry's luminaries such as John Doerr and Brook Byers of Kleiner Perkins, Dick Kramlich of NEA, Mike Moritz of Sequoia, Paul Ferri of Matrix and on and on. It was a members only conference so you had to be a card carrying venture capitalist to get into the sessions and socializing. I attended in my role as a venture partner with Velocity Venture Capital. Since I identify myself as an entrepreneur first I felt like a sheep in wolf's clothing. A fly on the wall. Behind enemy lines. This was a chance to see what the biggest most powerful venture capitalists are really like behind closed doors and talking to their peers.

I hate to disappoint you but forget the vulture capital label. These guys are more humble than arrogant. They feel more lucky than smart. And they really identify with the trials and tribulations of the entrepreneur. John Doerr who described himself as a failed entrepreneur, called venture capital " a service business - serving entrepreneurs and we better serve them having been in their shoes." He advised the ballroom full of VCs to "Watch our language... and useless pontificating in front of entrepreneurs". When Mike Moritz was asked how he transitioned from a Time Magazine journalist to his legendary success as a VC with Sequioia he paused then answered, "as soon as you think you know what you're doing, you get a rude comeuppance and you fall on your backside...". These were from VC titans whose firms have invested together in 50 companies, including Google, Apple, Amazon, AOL, Apple, Citrix, Yahoo, Intel, Intuit, PayPal, Sun, Lotus, Cisco, Oracle, YouTube, etc. You get the idea. Their shared portfolio is the Who's Who of Silicon Valley.

It's good to know you may get their respect as an entrepreneur but how do you get their dollars? Moritz gave away a secret if you want to improve your odds with Sequoia and Kleiner Perkins. After 50 syndicated investments between the two firms, they still haven't invested in companies whose name begins with H, J, Q, U, X, Y or Z. When it comes to raising capital, you've got to do whatever it takes. We like our name but for the right terms I could be swayed: Hundability? Jundability? Zundability?...

Welcome to Deal Stage, the Fundability blog

Steve — Thu, 24 Apr 2008 03:21:00 -0700

Welcome to the new Fundability blog: Deal Stage– the voice of our company and a source of fresh insight about capital fundraising and early stage investing. We are entrepreneurs and investors who launched Fundability to accelerate funding by simplifying real-time communication between companies and investors. The money hunt is a high stakes game without written rules

- Last year angel investors and VCs invested more than $55,000,000,000 in 50,000+ companies.
- Another 350,000 companies tried but failed to raise a dime.
- Only 12.5% of companies were successful in raising capital last year!

A company’s “fundability” is in the eye of the investor and you can’t find it solely in a formula or a checklist. This stuff is not for the faint of heart, it’s full of risk and is constantly changing - which is exactly why we love it.

Deal Stage allows an open dialogue among our growing community – and the hard working Fundability team. We plan to:

- Discuss the ways that deals are getting done.
- Highlight how subscribers have accelerated their fundraising efforts - including our own!
- Keep you informed and solicit feedback on our product roadmap.
- Give you a heads-up on any site upgrades and enhancements.

We encourage your feedback. Tell us about your experiences and share your opinions.

Subscribe to Deal Stage via the RSS feed or by e-mail and we’ll let you know of any new posts.

You’ll hear from Fundability Team members (Sales, Marketing, Product, Operations) and other guest writers. We also would like to add Fundability users to our blogroll. Tell us about your blog. If relevant, we’re happy to let the Fundability Community know about it!