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The PBS radio show "This American Life" is a wonderful series. They recently did a piece on the effect of a "bad actor" being placed on a team. The person, who was an actor and instructed to be a negative influence, had a material effect on the performance of the team.
While it is a hour long show, the bad actor sequence is the first ten minutes. Really worth a quick listen.
This American Life - Bad Actor
Enjoy.
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The fastest and most direct way to start up success is an acute, deep understanding of your competition. It is also the most powerful evidence that you can present to potential investors.
Consider the case of an entrepreneur who arrives with a complete understanding of competitors' products. This conveys insight into market, opportunity, sales strategy and product superiority. Alternatively, if the entrepreneur doesn't demonstrate that understanding it undermines everything and I mean, everything, within a business plan or proposal. The management loses credibility as does do the financial projections. Without that demonstrated understanding of competitor strengths and weaknesses, assertions sound like wishes instead declarations of knowledgable intent.
I often advise young people that are striving to contribute and advance in an organization that nothing can differentiate oneself as powerfully as being an expert on the competition. It is available to all but sought by few. Being a known "expert" on the competition will bring people from across the organization to one's door step. Which, if you're young and interested in moving up, is an unparalled platform for recognition.
On the other hand, you may be an entrepreneur and interest in raising VC (ie, you're reading this blog), and if you want to blow the doors off at venture capitalist presentation -- leave no one doubting your complete command of the competitive situation. Doing so will build positive conviction about you and your deal. For that matter, nothing will take your further in quest for start up success. It also makes a lot easier to access investment.
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Women in Technology (WIT) and the March of Dimes organize and execute what will be the ninth annual Heroines in Technology® Awards in a couple of weeks. The awards recognize women and women-run businesses for their exemplary commitment to community service. The winners will be announced at a black-tie gala on November 13, 2009, at the Hyatt Regency Reston in Reston, Va. The event is a great time and a good deal of money is raised in the process. I am proud to be associated with the March of Dimes and this event. Make it if you can, I am sure you'll be glad you did so.
The 2009 Heroines in Technology finalists include:
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Start ups attract and often feature some memorable characters. Consistent with my previous post on the subject, here are 6 more troublemaker favorites.
1. The IT Support Guy/ Flannel Bob
He's busy but he is working? Does every computer need to be taken apart?
And how come you can never make a point that he doesn't already know about like "Did you see the next version of this has that? or "I saw they're coming out with ...." Answer is always, "Yeah, I saw that."
And talk about an understated flair for the dramatic, try "The company is going to run out of disk space in an hour" (Hmm, that gives us plenty to time)
OR "I sent a note that the email system is down". (Helpful)
OR "What you are asking for simply can't be done" (It is outside the scope of human endeavor)
OR "You should know how to do that".
(And you should know I want to kill you)
OR "For me to know how to do that, I need this $2495 training out of town for a week".
(The training certification will be on his posted resume at Monster before he returns to the office)
The IT support position in a start up is no small job. The person is invested with near magical skills from the perspective of peers and yet, manages to consistently disappoint 90% of he deals with. That isn't easy. Defeat is stolen from the jaws of victory by dispensation to most, but not all, of a task. So the printer is installed but it won't print correctly from your computer. Installed printer, you didn't say to test it....
2. The New Marcom Manager/ Captain MoonRocket
He is much cooler than you. He dresses better. And he has come up with a new campaign to re-position the product and company. You just don't know how a picture of a rock in a bed of sand does that. It makes sense to him. Just not to you. Or anyone else. But boy he is convinced and it is as if he needs to reach across the time/space dimensions to reach you. He can really talk with his hands and his framing gestures are intended to create breakthroughs in your understanding. Where did he get those glasses?
Speaking of rocks, and if he isn't stoned, shouldn't he be? How does he talk like that?
3. Joan of Accounting/ Defender of the Realm
New customers and, worse troublesome accounts receivable, just make more work for her. If good accounts don't make it through her screen, it is just less work. Since the collection of bad debt will inevitably fall to her, she sees her primary job as the prevention of bad accounts that will become work for her later. Unfortunately, this has the side effect of making her a tenacious gatekeeper related to allowing new customers in the door. She leads the company's sales prevention efforts. The credit crisis and failure of established banks only validated her restrictive worldview. The salespeople view the whole new account experience akin to negotiating with Jabba the Hutt. And she doesn't tolerate arguments about the real risk being low as the product is only a download whose cost is too cheap to meter.
4. The Time Traveling Middle Manager/
Always ready to visit in your office and spend some time, he is ready with insightful commentary, nay advice, related to everything that HAS BEEN done by you or anyone else. If you had that advice AND a time machine, you would really have something. But you don't have a time machine. And neither does he. Now he's in your office critiquing the execution of your recent launch/project/product, but, you can't replay the favor because there's nothing to talk about. He has never done anything as he sees himself as the start up's conscience. His job is to observe, to comment and to offer advice.
He isn't here to do anything.
5. The Triathlete Production Assistant
She arrives at the Monday morning staff meeting to describe an extreme fitness weekend which included a 48 hour race with running, swimming and cycling. She got almost no sleep at all. She looks ok. And she will be fine for the next couple of hours. Then she begins to fade. Completely fade.
Guess what, she's tired and she hurt her ankle. She will be out tomorrow at the doctor and for the rest of week keeping off her ankle. She can't work from home because of the muscle relaxers and as she says -"The doctor says if I don't stay off my ankle this week, I won't be ready for this weekend's '72 Hour Race to Exhaustion' and I have been training for that for months".
All the while, our uber fit production assistant looks askance at her ultra unfit co-workers who may miss a day here and there over some unwise drinking decisions at Monday Night Football. Those unfit, cigarette smoking, fried chicken -pizza-junk food loving folks who have better attendance if not a healthier lifestyle.
6. The Project Manager
It can be dis-spiriting to create fabulous GANTT charts for unfabulous goals. All the start up organization's dysfunction in a walking, talking person. He is characterized by his unanswerable questions --"How can the developers lose more than one week in their completion date, when only one week has passed?" or "Couldn't we have known that people will take off work on Christmas day? or "Why does our one and only Q.A. staff need a month notice when they're going to test the company's only product?"
All this planning and effort to rise above the simple challenge that the job should take 15 people and there are only 5 available to do it.
Here's the original 7 Troublemakers Post
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Maybe your capital needs are expanding beyond the ability of your existing capital sources. Or maybe you see a special opportunity that can only be pursued with an influx of cash. Maybe you're ready to take your business to the next level. No matter the circumstances that have brought you to this post, you're wondering -- Am I ready to do a financing?
The decision to pursue a financing for your small business brings on a process which at times can be daunting, exhausting, tumultous and potentially -- uplifting. The process itself can seem a little unnatural and it always prompts questions. So if you're expecting some financing, here's some questions about what you can expect....:
What are the steps in the process?
Step one: Conceptualize your pitch and refine your investment thesis. Step two: Carefully research potential partners and approach them via introduction by a third party. (Hint:The third party must be known and trusted by the target investor partner. ) Step three: Close the deal by generating multiple interested parties and negotiating the best combination of terms AND partner.
My friends who have had a financing warn me about S.C.D.C fatigue; what is this?
Yes, of course, Same Circus Different Clowns fatigue is quite common during the financing process. This syndrome arises when you pitch many different investment groups with the similar investment thesis in quick succession. The investment groups begin to blend together in your mind. They may, and often do, raise many of the same issues related to your financing. Each potential partner will also likely offer a unique piece of advice that is contradictary to what the others raised. And while it might be easy to zero in on the unique, contradicatory advice --This is the curse of SCDC fatigue. It is better to act on the common advice that you're hearing through this process. While the fatigue will fade, the experience will remain with you for a long time.
I feel so warm most of the time, and I sweat a lot. Is this normal?
The sale of part of your business and the involvement of outsiders is sure to prompt some uneasiness. It is normal to be uncomfortable. It may pass with time. However, with the wrong investor partners or barely passable results, it may not.
How will this affect my business?
Well, while youre' expecting a financing you'll lose some focus on your core business tasks and revenue slippage is common. Soon after you start the financing process, your business problems will become larger or more numerous, but this is a natural result as your focus is distracted away from daily business operations and becomes fixated on the financing. Amongst previously funded CEO's this is jokingly referred to as the "problem fairy". Not to worry, however, as your problems will go back to normal after the financing.
Are there any other physical changes?
Some CEO's who raise funds experience "Balance Sheet Hearing Loss" which is an inability to hear your investors' concerns when the balance sheet is flush with cash after the funding. This will likely be only temporary as cash will reasonably drop over time and then your hearing returns. Many report that a bad quarter or two restores full hearing almost immediately. Your CFO will not likely suffer from Balance Sheet Hearing Loss and should be relied upon to help you here. Remember you guys are a team.
I have heard that you can lose a deal after signing a term sheet, is that likely?
Unfortunately you can lose a deal at any point in the process and many firms will sign a term sheet with you when they haven't completed appreciable diligence. You need to stay focused and keep driving your company and deal forward. It can be compared to landing a jet on an aircraft carrier -- don't let off the throttle until after the tailhook has caught the cable. No deal is done until its done.
I am worried that my new investor directors will want to meddle in my business after the financing, how do I keep them from undermining me?
Well, like so many other things, this is about communication and boundaries. Be sure to communicate a lot and be clear about what assistance you would welcome on a regular basis. Best to be understanding of first time investors or those with few other investments, as they'll be hyper-focused on your progress and seek as much involvement as possible.
My friends who've financed have told me about post deal depression? I think the acronym was P.P.D?
Yes, Partcipating Preferred Depression isn't uncommon after the close of a financing deal. Because Participating Preferred stock is common in most small company financing deals, this condition is also fairly common after a financing.
Participating Preferred stock means that investors receive their investment back prior to any other proceed distribution and then -- additonally -- the investors participate in the distribution of remaining proceeds at their ownership level (i.e. 20%) . You may struggle with a perceived inequity here or wonder if you'll get your fair share of a company sale. Talk to your lawyer along the way and especially if you're struggling with P.P.D., as he or she will remind you of supporting market conditions and the necessity of honoring signed agreements.
Will things ever be the same afterwards?
No.
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I have just finished Chris Anderson's "Free - The Future of a Radical Price" and loved it. It is insightful and educational about the past, current and future potential uses of "free" as a price point. I am a fan of open source and this approach to cost effectively acquire market and customers. That said, I've seen three areas where start up CEO's tend to over estimate the power of "Free".
1. Product Acceptance and Forgiveness
Just because its free doesn't mean it doesn't have to be great. Distributing free product will influence people to try a product but it won't influence whether they like it. Those are two separate actions. It is a grave over estimation to think that people will accept inferior quality or usability because something is free initially.
2. Marketing
If you want people to try and use your product, you're going to have to market it well. It doesn't hurt to be clever, innovative, creative and /or persistent. But the marketing burden to drive demand remains regardless of price. I've seen CEO's assume that a "free" distribution forgives or at least lessens the marketing challenge. It doesn't.
3. Support
As an example, open source software products, generally create and foster a community. That community provides improvement, iteration and support within the community around the product. But the community cannot and will not do it all. The author(s) must stay actively involved and be fully open about their contribution and planned contributions. That a community exists doesn't lessen the support mission or its priority. It also heightens the need to produce and keep producing great documentation.
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Conservative. Conservative like an American Flag tattoo? Or another kind of conservative? That's what one wonders when they hear forecasts described as conservative which are based upon multiple assumptions including many outside the speaker's control.
The critical C word in a Venture Capital pitch is credibility. Any other words that serve or might undermine credibility are to be avoided strenuously. And almost no word so powerfully undermines credibility like conservative.
No forecast should ever be described proactively as conservative. After the fact, if you want to call it that you could -- but even then -- why would you? Much better to say, "yeah, it was a tall hill to climb, but we really made it happen, this is a strong group." Doesn't that sound better than "it was conservative, don't go thinking we are a great team or anything, we just set low goals".
So how should one cultivate investment interest while building credibility? Speak to a range of outcomes. Talk about what will drive revenue, the associated risks, critical tasks, special skills and execution oriented focus that will allow your team to achieve various revenue outcomes. Given the venue, one might speak to these possibilities, use of funds and how invested capital will be used to drive revenue. For every 20 times, I've heard someone say conservative in a pitch -- I've heard Return on Investment once. Venture Capitalists are an ROI crowd.
You're talking to a room that is determining your credibility and skills at using capital to drive progress. And by progress, we mean revenue. Don't kill belief in both your credibility and skills by unnecessarily characterizing something as conservative.
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One of the greatest adventures in life is working within a start up. The twists and turns across uncertain and unfolding landscape can make a veritable roller coaster. That uncertainty and potential tend to draw a cast of characters as participants. Some are memorable. Here is my list of 7 troublemakers (not all inclusive by any means but these are favorites) that you meet in a start up.
1. Ms. Strategy
This capable, driven, articulate young lady will meet any requests for tactical execution with a discussion of strategy. In a start up, everyone is close to both the strategy and the supporting tactics. Some people can't help themselves from knowing better about either or both. Plus, talking is a lot easier than doing.
2. Mr. Big, Hollow, Pipeline
He made $300k at Cisco before taking this job. Now he has a huge sales pipeline of brand name companies with massive revenue potential and no disciplined approach to characterizing possibility of closing them. Ask him how a 30% likelihood of close defers from a 70% likelihood of close and he will talk about people and conversations rather than steps and actions. I now assume that Cisco pays all failing salespeople $300k.
3. Goldilocks
The ever changing roles and challenges of a growing start up provide an endless set of opportunities to try new jobs and responsibilities. Most people love being stretched and many discover or develop new skills or interests. Not Goldilocks, however, as this individual tends to be too heavy for light work and too light for heavy work. In any other words, no matter what the challenge or organizational needs at hand -- Goldilocks will fail you.
4. The Big Time Scaler
No sense building any system today that won't scale to size of General Motors. Yes, every start up organization has plans and dreams but sometimes you need to sell one house to get another, larger one rather than live in a mostly empty, expensive one along the way.
5. Mr. Artiste - the programmer
He is creating software (sometimes the company's core product/hope of future success) and he isn't limited by the contents of the requirements document. He isn't limited by it because he isn't reading it. He is creating, damn it, and brings his own vision. Definition: Artiste Plus, staying consistent with his vision keeps him closer to his imaginary specification with its imaginary time line (and yes, he's on schedule).
6. The Holiday Maker/Union Rights Leader/Salary Surveyor
Yes, a long title, but its a big job. First, this person will seek the addition of incremental holidays to the company calendar. What no Veteran's Day? We don't get off the week between Christmas and New Year's? Friday before Easter or the Monday after? Well, you get the idea.
This contributor will also "represent" the feelings of employees to management without consulting many of them first. There's no who in this group, its a group of "everybody". So, if you're a company leader and you ask "who" said that, the probable response is that everybody says that. Unless, the question is "who thinks I'm being a jerk about this?" and the Union Leader has a score to settle with someone.
Finally, this person usually investigates and shares salary data for the purpose of fomenting general dissension within the company. This can be useful between two parties or as another representation to management -- "People are unhappy that Sam makes so much" or "People over at comparable start up make more than us". You might ask how do you know this information but the source will be akin to "that's what I'm hearing". It is also fun to say "Do you think Sam is fairly paid or could you do his job?".
7. The Angry Support Person
I can never figure out what makes them, or keeps them angry, but they can be the Energizer Bunny of anger. Maybe the line of work, or being the starting point of a feedback loop for whatever is going wrong with the product or customers, but in any case, the Angry Support Person can create a special kind of crisis. I had one tell a customer to "F#@$k off" and another talk obscenely with a customer (apparently to the delight of the customer but displeasure of co-workers - so maybe not an Angry Support Person in the technical sense).
Ok, there are more that should be on this list, but in the interest of brevity, I'll end it. If you think I left an obvious one off this list -- leave a comment or send me an email.
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If you visit our Virginia office, you'll see this guy in the lobby on the coffee table.
Yes, he's impressive. But to understand why he is in Grotech Ventures lobby, one needs to read the inscription in his skull.
My partner, Joe Zell, found this treasure and brought into the office where we agreed -- it belongs in the lobby. Because in life and this business, there is great danger in getting "ahead" of oneself. We all have something to learn from each and every entrepreneur who comes to speak with us. And while we don't fund everyone, we do hope they benefit from the experience of speaking with us.
We're all former business operators at Grotech Ventures and we've raised venture capital ourselves. And in the process of raising venture capital, we had the frequent experience of meeting some "very, very, smart" VC's. We are committed to being great partners but we don't want to be "those" guys.
This little guy doesn't have a name, however, and he probably should .........
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Ok, it won't be terribly scientific or data driven or reliable beyond being a conversational starter, but, here is a method to determine what the CEO position could or should pay at a particular start up. (Blog Note to my current CEO's -- this posting is for entertainment purposes only).
We'll assume that the company is in a major metropolitan area in the United States and that the job in question relates to a recruited CEO. Founder CEO's would get plus or minus 20% of the numbers below. (This could be another blog post entirely but the discrepancy relates to a Founder's large equity position as a basis for lower compensation or irreplaceable status for higher compensation).
So here goes, base number is $100k if you've made at least twice that in a previous job. If one hasn't made twice that prior, taking a CEO job may not be the right next step.
Now, the adjustments, add $10k in annual salary for every million dollars in revenue above $3M if the company is not profitable. If the company is profitable, add $20k in annual salary for every million in revenue about 3 million. Bonus should be around 0 to 15% in an unprofitable company and 20 to 30% in a profitable company (especially if one was at the helm during a transition to profitable operations). One might ask about caps on these amounts, though I would argue that somewhere between $15M to $20M in annualized revenue -- the company is no longer a start up.
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This looks like a great event for those interested in the latest internet and social media technologies. Aside from the star power of the speakers and Jason Caplain, it is also reasonably priced. I am going to try and get there.
It appears to the be 2nd time this has been held so I would appreciate comments from any previous attendees.
Here are the featured speakers:
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If one is doing a good job at growing a company the amount of issues, challenges and successes will grow over time. With that the days and nights become full and the concern arises in the CEO's mind as to the prioritization of the things. And yes, most CEO's can readily assess and order priorities. They also worry more than your average bear because situational analysis skills are critical to success. Worry enables many start up leaders to anticipate what will go wrong and contemplate possible reactions. Yet, the time spent worrying isn't time spent defining responses and decreasing time to react.
Nonetheless because of worry, they don't always react as quickly and as well to things as they would, upon further reflection, wish they had. I argue that time spent worrying is a waste for start up leaders. Why, well, one can't always anticipate what will go wrong. So, my thought is produce action plans, think about responses, reduce reaction time while limiting scenario creation effort. Just make up possible problems and spend time contemplating responses. Short response times with effective plans is the order of the day.
Woulda, Coulda, Shoulda can haunt anyone in any position. This is particularly true for someone who makes many critical decisions. In talking and working with those folks, I find there is more regret about arriving at the right conclusion sooner than the occasional mis-step.
To counter that, I typically ask CEO's to tell me what would be the content of two headlines in tomorrow's paper -- one of which is the best news possible from the company's perspective and the other the worst news possible. You would be surprised how many times the imagined headlines actually make into reality and the paper. In any case, the act of imagining these headlines prompts the CEO to do some critical things. First, the CEO can assess possible steps to progress the best headline and mitigate the effects of the worst headline. Second, the CEO can prepare an action plan in response to the arrival of either headline into the company's future.
The process of preparing for these 2 events shortens the response time while enhancing the quality of the company's response in the moment.
The CEOs I have done this with will often muse about how unlikely they thought either headline was at the time of its creation.
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In the recent piece from Fox Business Channel's "Your Money, Your Questions", I talk about the 4 C's of business lending. One needs to show cash flow, credit worthiness, collateral and character to a potential lender. Character is commitment, integrity and delivering on your promises. A lot easier said than done for most people but probably the fundamental component to accessing O.P.M. (Other People's Money) in the real world. And that one delivers on their promises can be more quickly and clearly demonstrated than one's integrity and commitment (in the short term, at least).
For all the people who come into our offices to tell us what they're going to do, few return to show us that is what they've accomplished in a reasonable period of time. When they do so, we are all ears.
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This article and supporting video go a long way to address some fundamental and important questions people have about their VC pitches. Including how proven do I or the product have to be, how direct should I be and what role does passion play in empowering a pitch.
Here is the article:
And the video:
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I connected last week through the magic of Facebook with Chuck Cascio. He, as a high school teacher and mentor, changed the direction of my life. And last week, I got to thank him for doing so.
And maybe, you might read this and not wait 31 years to thank the Chuck Cascio in your life.
Chuck Cascio was the faculty sponsor of George C. Marshall High School's newspaper the "Rank & File" in 1977. That spring he asked me to take over the editor position that fall at the beginning of my senior year. In the previous years, the editorship had been shared between two co-editors. I was honored by the chance to be an editor in chief and excited by the potential of the publication.
The Rank & File was a quality product when I inherited it that fall. It wasn't without its challenges as the paper had never covered its costs in a single year of operation and had an accumulated deficit of $4300 (lots in 70's dollars). I had big plans for the paper and Chuck encouraged me to pursue them.
But, the budget was the budget and big plans have to be funded somehow. So, I as a young manager, a first time CEO if you will, was confronted by the limitations of capital related to my ambition.
I wanted to grow the paper in all the ways that I could do so. The quality of the product, the number of issues, pages printed, circulation, etc. I wanted a great product. Something for the staff and school to be proud of.
So how to do it?
First, I figured we needed to raise revenue by selling advertising. Second, we needed to cut costs wherever possible. And third, we needed to improve quantity and quality of our output.
So I found myself in ill fitting, cheap suit pitching some of the largest local ad agencies in the DC area. I don't know if they found me earnest, convincing, crazy or cute but they signed on. Palmer Dodge -- a prominent firm, in particular, bought the back cover for a year for its client Zippers in a $2000 deal. It was a home run for our little endeavor and it help convince others to jump on board. Getting revenue in the door, I learned, was a key enabling step. I don't knew if Chuck knew initially what to make of it. But, he never imitated that we couldn't or shouldn't ---- so we sold, sold, sold. Download Zipppers
To cut costs, I shopped our printing contract and found a printer that would allow me to work the presses with him in order to save money. I took the galleys to him, worked with him to print them and then carried them back to school in my '74 Vega for delivery.
We initiated "in locker" delivery where we would place the paper into the locker of subscribers late at night. I walked the halls the next day with an eye to seeing if any were discarded unto the floor. Few ever were.
Finally, as a manager, I assigned 30 pages worth of articles for our twenty pages of space in each issue. My 28 staffers reacted as you would expect -- some badly and some well -- but our quality rose. More than one appealed this decision to not run written articles to Chuck. He backed me up. The reporters knew if they wanted it to run it had to be good. And it was. I learned the power of doing what's best for the enterprise regardless of its popularity. And some people will really step up if challenged to do so and others will not.
So, that year we published a record number of pages and issues, introduced 4 color printing for the first time, won awards and ran a big profit for the year. So big, that we retired the entire historical debt of $4300 and left a $1500 surplus for our successors. I had driven revenue, watched the budget and managed a team to create a quality product. And it was a revelation to me how much I enjoyed this effort.
Along the way, Chuck supported and advised me. He even encouraged us to tackle the controversial issues of the day (sex and drugs) in our reporting. Download RF Cover It couldn't have made him popular with the administration but he never said anything other than do quality work. When the year concluded, I realized that I wanted to go into business and, importantly, that I could find happiness in start up businesses. There is something magical and powerful in a plan coming together and being the master of your own domain is satisfying in ways that are not always anticipated ahead of time.
And I learned the power of a good backer and mentor. That it is important to back first time CEO's.
Last week, after 31 years, I got to thank Chuck for being the first to believe in me, back me, advise me and to show me something in myself that changed the direction of my life that followed. I work as a venture capitalist advising and backing mostly first time CEO's. And I tell them to sell, sell, sell, keep costs under control and make the product great. And I understand that being a mentor is no small thing though it can sometimes take a while to be appreciated as one.
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When I first raised venture capital in 1990, the world was a different place but one very similar to today. Our company was a software business, we were growing, losing money, and achieving trailing twelve month revenue of $1.5M. Our burn rate, as I recall it, varied between $25k and $75k monthly. We ended up receiving $1M of vc money at 1x trailing twelve month revenue valuation and we were pleased to get the money we needed to grow the business. So, we sold 40% of the company and with a 1x liquidation preference (meaning the VC's would get their money out first) -- we gave up a lot. And our VC's were well positioned to make money on almost any positive outcome. Which they did.
This thought is prompted by an excellent article by Matt Asay on cnet.com. Matt's article talks about the big changes needed in the VC industry -- back to smaller funds making smaller investments in earlier stage companies. Matt's Article
At Grotech Ventures, we couldn't agree more with this line of thinking. For me personally, this shift to a smaller fund doing earlier investments prompted a move to Grotech two years ago this month. Grotech Ventures made this shift in recognition of opportunity , which was for Grotech, a shift back to its future.
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Michael Hirschland of Polaris Ventures has done a great blog post on the phases of a start up. Specifically, he notes draws the distinction between prior to completion of the product and market fit to after product completion and market fit.
Absolutely worth a quick read.
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We recently encountered the phenomena in popular culture of "Too Big to Fail". Start ups can often appear to be - Too Big to Succeed -- when the management team size exceeds the need (and budget) at hand.
Now, let's consider that there are two primary jobs or missions within any start up. They are build/create product and to market/sell product. In truth these two can frequently be summarized as "Sell product". Any person who cannot completely and totally relate their job and everything in it to the two primary missions should change what they're doing so that it is matched to the missions. Otherwise it is time to leave the start up and go to a larger company where more esoteric contributions are valued and rewarded.
We typically see the assembled management team in venture capital pitch. Just as there aren't jobs in a start up unrelated to the product and its sales, there aren't non-speaking roles for company executives at VC pitches. If an executive doesn't contribute in one of these meetings to the discussion, they shouldn't be in the room. It isn't much a spectator sport nor was it designed to be one. It also doesn't convey good prioritization for an organization whose only real asset is the time and effort of its team. Silent Sam or Sara raises more questions in our minds about the team and its focus as well as its efficiency. Questions mean doubts. Doubts mean no deal.
So here's the point, start ups will often bring a full compliment of management team members to a meeting to impress us with breadth and depth. The intention is to strengthen their case but in the process they do the opposite by opening the door to suspicion that they may be too big to succeed -- or at least capital inefficient by using our investment to pay an over sized management team.
Plus, it can create an odd moment in time (read loss of credibility) when the start up CEO says "we are going to be lean and mean as we grow this" when that same CEO is accompanied to the meeting by 5 vice presidents. All for a company with an incomplete product and no sales. When does lean and mean start? Do we really think the addition of millions of investment capital will cause a company to become "leaner and meaner" than it was before the money? Capital comes from investors, capital efficiency comes from management.
When these 5 VP's don't all relate to the primary mission or speak in a pitch meeting or otherwise appear to contribute anything obvious - these team members look like a liability and cash drain for any invested capital. The team looks riskier for its size and less likely to be capital efficient. It looks Too Big to Succeed.
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Here they are:
1. We see a lot of ideas, all the time, week in and week out. Most say, if you make an investment in our company, we'll really be able to make progress on all fronts. Some say, we haven't had much money to date, but look at what we have been able to achieve with little money in a small amount of time. People that can make progress without money tend to be the ones who make the most progress when they have money.
2. Our scope and interests are limited. We focus our plans on stage of investment, types of technology and specific geography. We win by staying close to our plans. We won't make an exception for you because any off plan successes are considered luck. Any off plan failures make us look stupid.
3. Market timing can be the most important factor in success. More important than management or product. Again, not all the time is this true. But, if you're late, we are likely to consider it game over.
4. We're in a hurry to produce returns but not necessarily in a hurry to invest as we need to be careful. Careful in a number of ways including your idea, team and timing. Your need for the money right now isn't often a factor in our investment process. Repeating that you need the money now frequently, doesn't change that.
5. Sometimes, you may need to consider that your storyline needs to change. What you focus on in the pitch is important to proper interpretation. Commonly, people emphasize the product over the market and the team over the business. We are investing in the business that will be derived from a market.
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The Fox Business Network has a Saturday show called "Your Questions, Your Money" that answers questions related to small business, start ups and raising money. I have been on the show a couple of times and will be posting a few clips on the blog. I have been so impressed with the show and the dedication of the team there. And it has certainly been enjoyable to participate in the production. I am grateful for the opportunity.
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I contributed an article on the auto industry and interactive advertising which was posted yesterday.
Here is a link to it.
ADOTAS Article
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The recent phenomena of the Pick Your 5 application on Facebook has generated a lot of press. The most interesting one to me was an article in the New York Times magazine which attempted to explain the popularity and value of the "Pick Your Five" and similiar products. The article didn't refer to LivingSocial or the product directly. Instead, the author noted the popularity of these "types" of products. 
The article attributed the popularity of these applications to their effectiveness as conversation starters. That was certainly my experience. When a long time friend would post a list of their first five cars, it prompted memories and conversation. All of which highlights the power and potential of Facebook as a closed environment of real people interacting with people they know in a direct way.
Some mainstream....
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Some more industry related....
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If you want to find a match, it is best to understand what you're matching.
All Venture Capitalists can be differentiated on 3 axis; the stage they invest in, the geography they focus upon and their technology opportunity areas. If you're a CEO seeking money and you don't match up with these, you're really wasting your time.
At Grotech Ventures, we describe ourselves as early stage investors in high potential technology companies. Our geographic focus, which is a reflection of our personal networks over the last 25 years in the IT business, includes the Mid Atlantic, Southeast and Mountain West. So if you're outside these areas, because of stage, technology or location, we are not likely to be a good investor to approach with an your idea. Sure, there might be an exception but those exceptions are never going to be the rule.
So, the investment stage of the investor is the right starting point. Seed investors won't wa
nt to look at your Series B round, for example, and if you're pitching a Series B -- you really don't have time to waste as you're already running an operating business. As a practical matter, investors will do seed/early, Series A and B rounds, later stage (Series C+) or expansion capital so I don't want to split hairs and advise only approaching those with very specific focus. But one gets the idea, investors don't like leave their comfort zone or neighborhood.
What is the VC's neighborhood? Investment historical data is that 80% of all Venture Capital is invested within 200 miles of the VC's office. It is by and large a regional business. Yes, there are VC's that invest nationally and internationally. But, the bottom line is that VC's want to be close to their investments literally and figuratively. While I don't have data to support it, I would speculate that the earlier stage investors want to be even closer than the 200 mile average.
At Grotech, we talk about staying close to the technology areas and markets we understand and are capable of delivering the best value to our entrepreneurs. And while that varies, to some degree, by individual, we know what we don't know. If you're the latest thing in alternative energy, take it to someone who will "get" your idea and admire your insight. I wrote in an earlier blog about the best way to get a VC firm attention. The jist of which was; the current CEO's are an important conduit and filter. Those current CEO's are also a clear analog about the comfortable technology areas of the VC.
The start up CEO needs one yes answer to the funding quest. The fast way to achieve it is to narrow the search at the beginning by matching the idea, stage and geography to the right candidates.
This article has been updated from the original post with the supporting video from Fox Business Channel.
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It appears that Larry Cheng of Fidelity Ventures has built the end all, be all listing of VC Blogs. Larry was previously with Battery Ventures and Bessemer so he knows his way around the industry. If you have interest in a very functional VC list, where you can spend some time in order to gain the perspective of various VC's, this is your list. I think Larry has done entrepreneurs a favor by building this list because as I have written previously, this is a match making effort for VC's and entrepreneurs. If you're looking for money, invest some time on these blogs to find the VC(s) likely to be interested in your opportunity. Avoid the most common mistake of pitching VC's, which is pitching to ones that will never have an interest in your business.
Here is a link to Larry.
And here is the list of VC blogs ranked by their number of Google Reader subscribers.
Global VC Blog Listing
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I am always impressed by the number of people interested in working for a start up. Both from the students I teach and audience members from various speeches, there is consistent and ongoing interest in the start up work environment. For good reason, start ups give people to opportunity to perform my roles and progress rapidly on a professional basis. But choosing the right start up is no easy task for most people. Clearly, one of the differentiators amongst start ups is which have received outside investment. And even among those receiving outside investment, which have received venture capital. The distinction of venture capital in a start up is significant has it usually indicates both current and future backing based upon the judgment of investment professionals and the completion of extensive diligence.
So where does one look for these jobs in venture capital backed startups?
Try:
StartUpHire
Startup Hire was founded by one of the Grotech General Partners, Steve Fredrick, and has achieved impressive acceptance and sponsorship in a short time frame. The National Venture Capital Association as well as other marquee groups have put their support behind this effort.
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This annual event which recognizes the "Hottest" companies in a variety of categories, including "Hottest Venture Deal", "Hottest Management Team" and "Hottest Buzz" among others, will be held on June 24th this year. This is a fun, popular event which typically sells out.
Zenoss won "Hottest Venture Deal" last year and LivingSocial is nominated in the same category this year. Clarabridge is nominated in both the "Hottest Management Team" and "Hottest Buzz" category. Good luck to both of them.
Here's a link to the full list of nominees:
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