Get Venture: Venture Made Transparent

Launching My Latest Startup

2010-03-18T11:30:14-04:00

After 10 months of incubation, Davis & Co is proud to announce the launch of its latest startup: Avery Skye Davis. She arrived yesterday at 9:13AM and is 6lb 2oz and 19" tall. Mother and daughter are both doing well.

Apologies if I'm slow to respond to folks over the coming weeks.

(Thank Sarah Tavel from prodding me into writing this cheesy post)

Domain Discrimination

2010-03-16T08:26:16-04:00

Image Provided by Shutterstock

Eric Friedman, a friend of mine at Union Square Ventures, wrote a post awhile back about domain discrimination. Domain discrimination is the act by which tech snobs judge people based upon email domain. While at first I thought this was merely a funny concept, I now believe that this is a fairly yet prevalent (albeit minor) form of discrimination in the tech community.

To be clear, while Eric goes on to provide insight about numerous considerations for creating a professional email address, in this post I am referring solely to which email service provider you choose to use (e.g., Yahoo!, Gmail, AOL, Hotmail or other). I believe that this is one basis by which members of the tech community form first impressions.

Ultimately, I suspect that this judgment comes from the view that your email domain time stamps the extent to which you are current with the latest technologies. Since many would argue that email service providers have not evolved substantially from their initial offerings, they have become increasingly dated and represent somewhat clear generations in the evolution of email technology. As a result, the logic follows as such: if you’re using an older platform, you’re likely using a service with less functionality and therefore are seen by bleeding edge technology adopters to be behind, outdated and not as technologically savvy.

It is worth noting, however, that email addresses using company or private domains appear to be well respected. The judgment appears to be limited to the decision to use a less technologically advanced service over a more advanced once – especially when they’re both free.

I recognize that for many the choice to stay on one email platform was merely an attempt to avoid the pain of informing all of your contacts about your new email address. I believe, however, that the perception remains.

I don’t have a good solution for changing this mechanism for forming opinions, but I do think it’s worthwhile to understand. While in the venture capital decision making process this topic receives very little consideration, I suspect that it does inevitably play a very small role in the first impression you make on many technology-focused VCs. When you submit an executive summary from a very outdated email platform, some of these VCs take notice, consciously or not.

As such, you may want to signal your tech savvy by using one of the more modern email platforms. Doing so may or may not help you make a good first impression, but it can’t hurt.

NYC Startup Career Fair: April 9th

2010-03-11T14:54:59-05:00

Since founding the Columbia Venture Community a few years back, I have watched the group continue to thrive due to the efforts of the talented leaders that have taken it upon themselves to drive the organization forward. It has indeed come a long way.

Initially the group was focused on creating a vibrant entrepreneurship community within the Columbia population. Now that the group has become increasingly institutionalized in the fabric of the university culture, the organization is now working towards fulfilling its broader community responsibility: helping to build the startup ecosystem in NYC.

I'm very proud to announce, a major step in that direction, our first NYC-wide startup career fair for job seekers from any university. We're also very excited to take this step in conjunction with the NYU Venture Community (founded by Chris Gimbert).

Special thanks to AOL for hosting the event and to the event's organizers (especially Alex Horn, Dave Whittemore, Mike Brown, Nick Hurley and Chris Gimbert) whom have worked hard to pull this together.

If you're a startup seeking talent or a student seeking a job this is the event for you. The details of the event are below.

NYC Startup Job Fair
The Columbia Venture Community and NYU Venture Community are thrilled to present the first annual NYC Startup Job Fair. The fair will bring students, young alumni and startups together to connect bright, motivated individuals with exciting and innovative New York-based companies. Our hope is that the NYC Startup Fair will foster grassroots awareness for startups throughout campuses across New York City.

Where: AOL HQ (770 Broadway)
When: Friday, April 9th 2010
What Time: 1:00PM – 4:00PM

The event will be opened to all students and recent graduates; please RSVP if you would like to attend.

If you are a local startup interested in participating in the fair, please fill out the following application and submit it to NYCStartupJobFair@gmail.com. While we would love to accommodate all startups, we are unfortunately constrained by the size of the venue. Our goal is to have a diverse range of companies and opportunities available for job seekers.

For inquiries, concerns or if you would like to help promote the event on your campus, please email Alex at NYCStartupJobFair@gmail.com.

You can find the website for the event here: nycstartupjobfair.com.

Venture Region Survey Results: Comparing The Valley, Boston & New York

2010-03-09T09:39:15-05:00

Two weeks ago I posted a poll which surveyed readers about their perception about the relative attractiveness of their regional venture community. Now that about 1,500 questions have been answered and post is no longer in the top portion of my blog it’s time to share some of the results.

I created the poll on a service called Urtak which enables people to both answer and create questions. I like this functionality because I often feel like surveys are not asking all of the right questions. This was true in the case of this survey – readers added questions that perhaps I should have included initially. There’s nothing like the power of the crowd.

A few readers pointed out that the survey didn’t follow protocol. Some questions were probably leading, others may have confused readers. Furthermore, the number of responses from each population may not have been statistically significant. Nonetheless, people from each region answered the same questions and there were enough answers from Boston, Silicon Valley and New York to make the results interesting, if not scientifically accurate.

Lastly, before I share the results, there were a few regions included in the survey, such as Atlanta, Israel and the EU, that didn’t get enough responses to report here. If they accrue more responses over time, I’ll report back.

The Takeaways: Comparing Perceptions of Silicon Valley, Boston and New York

The big picture: The responses to most questions (there are a few exceptions) illustrated less difference between the perceptions of the various regions then one might have expected. If you take the average percentage of respondents answering ‘yes’ to the 7 most interesting questions (the ones which I’ll discuss in this post), NY, the Valley and Boston averaged 74%, 77% and 84%, respectively. That’s a pretty tight clustering given the sample size. This is a finding in and of itself as it could suggest that the banter in the blogosphere and conference circuits about the relative attractiveness of the various startup regions might be more hype than reality.

Entrepreneurs love their hood: Consistent with the big picture takeaway mentioned above, there was a very positive and consistent response to the question “Is your region a great place to start a company?” Despite the variances across a few of the questions I’ll describe below, about 90% of respondents from all three regions answered ‘yes’. Whether this questions appealed to the regional loyalty of the entrepreneurs or it indicates that the negative marks that the entrepreneurs gave their region in other categories receive less weighting in their evaluation, entrepreneurs from all three regions appear pretty happy to be based where they are.

It’s easier to find mentors & partners in New York & Boston: The respondents indicated that it’s easier in NY and Boston to find mentors or partners for your startups. Note that respondents from the Valley do still give the valley a pretty strong overall rating on this front – 75-80% of respondents indicated that they could find mentors and partners, respectively. A hypothesis - the relative shortage of mentors and partners could be from the relatively higher population of entrepreneurs in the Valley. Finding mentors and partners could be easier in regions where a smaller percentage of the population is starting a company.

Finding engineering talent is easier in the Valley, but not difficult in Boston & New York: While all of the respondents from the Valley indicated that they could find engineering talent, >85% of respondents in both Boston and New York claimed they could find engineering talent in their region. I suspect as the startup ecosystems continue to proliferate that gap will increasingly close over time.

Boston perceived to be the most affordable region; New York and Silicon Valley on par with each other: 80% of respondents from Boston felt that their region was an affordable place to start a company (taking rent and labor expense into account). While both New York and Silicon Valley were a step down from Boston; receiving only 42% and 47% of respondents saying each region is affordable respectively, it’s good to hear that New York is considered on par with Silicon Valley. With often less expensive startup engineering talent and startup hubs in low cost parts of Manhattan and Brooklyn, this poll (albeit limited in its scope) supports the viewpoint of many New Yorkers that choice between starting a company in New York and Silicon Valley shouldn’t be based upon cost.

Perceived shortage of capital in New York – investors flocking: When asked “Is finding early stage capital appropriately easy in your region?”, 60% of respondents from Boston said ‘yes’, 53% from Silicon Valley and 44% from New York. I interpret this metric to speak to the relative shortage or surplus of capital. While the Valley has lots of capital it also has lots of entrepreneurs – the demand for capital may outpace the supply. Boston also has a relatively established venture capital industry, but may have a relatively less developed startup ecosystem. If there is less competition for term sheets, money is easier to come by. As for New York – it’s not surprising to hear about perceptions that capital is harder to come by. The venture capital industry here is trying to keep up with the rapidly developing entrepreneurial ecosystem. The shortage of capital has already attracted at least a dozen firms from the Valley, Boston and beyond.

Founders pick the home for their startups based upon a lot of different reasons including personal/ family considerations, existing business ecosystems and networks. While there are arguably pros & cons to each of the regions evaluated here, my big take-away from this poll was that perception that Silicon Valley, Boston and New York are all pretty good places to start a company.

Should You Outsource Development?

2010-03-04T09:43:22-05:00

I am often asked by entrepreneurs if they should outsource the development of their initial prototype. Outsourcing is pretty sexy as it can be a relatively inexpensive and fast way to create a product. While the cost savings can be real, however, so is the level of risk. In bad scenarios, entrepreneurs can find themselves with a product that needs to be rebuilt, often from scratch. The cost and time savings can turn out to be an illusion. I do, however, know many entrepreneurs that successfully outsourced development.

So how do you know whether or not you should consider outsourcing the early development of your technology?

While there is no simple answer, there are a few considerations that I will highlight which could help you make that decision. If your technology is an original technology or depends on complicated logic or algorithms you may want to avoid outsourcing at least that portion of the project. The vision for the product is always partially lost in translation when a business team tries to communicate with a tech team. This dynamic, however, is further amplified when describing the product via video chat and even more challenging when there is a middle man or a development team with a limited mastery of your native tongue. While these challenges can be mitigated by robust product specifications and wireframes, an already challenging process is even more challenging.

This isn’t to say, however, that you can’t get a great product from an outsourced shop. You can. The key is to outsource elements or even entire projects that are more limited in their logic or algorithmic complexity, to over-communicate your specifications, and to practice careful, diligent project management.

Your sensitivity to this risk should be heightened if you don’t have a technical lead inside your company. If you consider your outsourced provider to be your CTO, you’ll have a difficult time vetting the progress of their work and may find that they’re off course too late in the development cycle. Furthermore, evaluating the product will likely be challenging without an engineer on your side, making it even riskier to completely handoff the development of complex logic.

In sum, if you’re aiming to build a very simple technology, outsourced providers can standalone as a great strategy. If you’re looking to develop a more rigorous technology you may be better off building it in-house or having an in-house technical lead oversee the outsourced work.

Social Media Revolution Video

2010-03-03T16:50:57-05:00

This is for the tech lay-man, but has fun stats.

The Three Ingredients Of An Entrepreneur’s Return

2010-03-02T09:24:07-05:00

Image provided by Shutterstock

If you ask the average entrepreneur what the ingredients are for generating a great payout, the answer will probably include some combination of the key words market, pain point, competition or some of the other usual topics relating to picking a good strategy. Taking a step back, I want to put some structure around the answer to this question. Some of the key drivers of an entrepreneur’s returns should receive more attention. I propose that there are three main ingredients in this recipe: the concept, the operation and the financing structure. Note that there are many other ingredients in the success of a startup, not the least of which is luck, but I think these three are necessary components for determining the payout of the founders.

The concept includes the business model and the corresponding target market and competitive landscape. In sum, the concept speaks broadly to the strategy of the startup. This is the side of the business that typically receives the most focus from entrepreneurs in a company's earliest days.

The operation includes the team and processes related to delivering the product or service and administrating the company. This is the “how” – how this business is going to be built. The operation speaks to the tactical side of starting a company. This category often receives the second most consideration initially, but consumes nearly all of an entrepreneur's attention once the business has been started.

The financing structure includes the type (angel, venture, debt, etc.) and timing of capital used to build the company. For many this topic is an afterthought. Once the founders have decided what they’re doing and how they’re doing it, they scrounge around for whatever capital happens to be available at the time. While this is in part due to the relative scarcity of capital in the venture ecosystem, the financing strategy deserves far more consideration than it often receives, as this ingredient can be one of the single largest determinants of an entrepreneur’s payout.

While entrepreneurs may not bother to spell out all three of these elements in a casual conversation or a pitch to an investor, entrepreneurs should be thinking about each of these elements because the wrong approach for any of them could leave the entrepreneur little in return for his effort.

Venture Debt: An Option If You Have Cash Flow

2010-02-25T09:08:44-05:00

Venture debt is another source of capital available to early-stage companies. Venture debt, however, is typically not available to very early-stage companies as the company must be able to 1) demonstrate a steady cash flow or 2) be backed by a VC which will guarantee the principle in order to receive the loan.

If you do qualify to take venture debt you should expect the lender to take a limited equity stake in the company – they seek to primarily generate returns through interest payments made by the company and warrants, which given them the right to buy stock in the company at some point in the future at the current price.

This investment model differs from venture capital firms, as venture capitalists generally do not require the company to re-pay the principle of their investment until the company’s shares are liquidated. Venture capital returns are generated by the appreciation and liquidation of their equity stakes in the company.

While venture debt isn't typically a form of capital accessible to very early startups, it is an option that entrepreneurs should keep in mind as a future financing option.

Venture Region Survey (Using Urtak)

2010-02-23T09:59:17-05:00

Today I'm launching a survey on my blog to better understand how accommodating entrepreneurs think the various venture regions are. While you can find the survey in this post and on the right side of my blog, this isn't your typical survey.

I'm using a new polling service called Urtak, which allows anyone taking the poll to both answer and create questions. While I seeded the survey with 15 questions, the community can add as many questions as they want to the survey. Since Urtak randomizes the order of the questions, questions added by the community get as much attention as the ones I added. This crowd sourcing model will help to ensure that we're asking the right questions.

A little about Urtak - it's a NY-based start-up founded by its chief trouble makers Marc Lizoain and Aaron Gibralter. Check it out.

Put your votes in. Ask your questions of our community. It's addictive.

Make Sure Sweat Equity Vests

2010-02-18T10:47:10-05:00

Once you grant an employee, partner or service provider equity for their future contributions to your company, you can’t take it back (without legal action). While you can dilute their ownership by issuing more shares that’s difficult to do and can create a liability for the company.

As a result, it’s very important that you make sure to vest every equity grant that you make – giving the recipient rights to more equity as they achieve milestones. This enables you to pull the plug on the relationship at any point down the road, preventing the recipient from receiving more equity.

While equity can vest based upon milestones, such as the acquisition of a key partner, meeting sales targets or the development of a product, time is the most commonly used determinant of vesting. Employees and founders typically vest their equity over a predefined period of time. Most often this is a three to six year period, whereby vesting occurs on a monthly basis.

Some structures will include a “vesting cliff”. Before the cliff, no equity vests. At the time of the cliff, the recipient catches up on his vesting so that it is as though there was no cliff. For example if an employee is set to vest on an equal monthly basis over four years but has a one-year cliff, they would receive no equity until the end of 12 months at which time they would receive 12-months worth of vesting – in this case 25% of their total grant. Cliffs are very useful tools for founders as they provide a trial period. If an employee or partner doesn’t work out before the end of the cliff the company can part ways with the recipient of the grant without giving them any equity.

Most first time bootstrappers end up giving away equity to people who don’t do much (if anything for the company). A vesting schedule with a cliff can help prevent this.