I've made a small investment in ShopWell, joined the board, and will be working with the team to help launch the company over the next several months. The company is a spin-off of IDEO, backed by New Venture Partners, and is developing a new service around food and nutrition.

The company is in quiet mode right now, but without describing too much, there were a few things that intrigued me...

First, the growing attention and anxiety around food and nutrition suggests a wave of interest in the topic that bodes well for a start up, and I look for these waves (see Greg McAdoo of Sequoia describe these waves at Startup School 2008, starts at slide 11 or 4:46). Whether it's books like Omnivore's Dilemma, movies like Food Inc and Supersize Me, or a high profile debate about sodas in schools, it's hard to turn anywhere without finding the topic. I was in Borders Books in Palo Alto yesterday, where they were expanding the food and nutrition shelves into a broader section. When it comes to start ups, I like the ones that are working to ride an existing wave to shore, rather than the ones that are stuck trying to generate their own momentum, and this fits the bill.

Second, the top-box consumer demand test I ran was exceptionally compelling, one of the strongest I've run in the last several years, top 10% to be specific. Across almost every demographic, income level, geography, there was a high interest in a simple service that would help optimize health and nutrition. Beyond general interest and awareness, one aspect that seemed to drive this demand was a a growing part of the population that has some food related health condition. Only a fraction of the population may be overweight, or have high cholesterol, or have a food allergy, or be lactose intolerant, etc, but when you combine these factors, over 90% of those surveyed had at least one "condition." Unsurprisingly, one of the significant demographic differences included a markedly higher interest from women, especially those with children, and a lower interest from younger, single, men.

Third, the founding team is from IDEO and highly focused on user-centric design, and I haven't had the opportunity to work with many startups where product design was the core competency, and I'm eager to work with the team to find product market fit. Seeing demand for your concept is one thing, delivering a product that meets and unlocks that demand is another. I like to use the teleporter as an example: if I surveyed demand for a device that instantly transported you to your destination and saved a half-day of cross-country schlepping, demand would be extraordinarily high, but building that product would be a bit of a challenge. Mint's delivering the demand that Quicken and discontinued MSFT Money haven't been able to via a better product. In any case, building a engaging product that unlocks demand is a critical challenge for any startup, and the chance to work with IDEO on the challenge was too interesting to pass up.

Last but not least, I've got a personal interest in health and nutrition that's been growing over the last few years. At 37, I've jumped from the Masters A category in rowing the the Masters B category, where aerobic capacity starts dropping as much as 1% per year. I'm also finding that dropping weight to get to the 155 lb lightweight mark in the spring is a bit tougher each year; where I used to be able to drop the weight strictly by increasing exercise, I now have to incorporate diet.

So that's it. We'll be building the teamover the next several months, focusing heavily on products, user experience, engineering, and operations. Other roles will include metrics-driven marketing (seo, sem, etc), Drop me a line if you'ld like to learn more.

There's a very good post on venture hacks today on how to close a term sheet quickly. I agree with two-and-a-half of the three hacks¹ and want to add a fourth that I think deserves a spot on the summary list:

      4. Have all due diligence ready to go on demand

Due diligence on demand means that the company's due diligence is always current, up-to-date, and ready to be delivered to a potential partner, investor or acquiror at a moment's notice.

Given that financing and acquisitions are rare (once a year), this may seem like overkill. But it actually demands that the company keep its books current and in perfect order, which has a number of other associated and equally important benefits.

At Visible Path, we documented our business operations from day one around a typical due diligence checklist that a public company might use when acquiring another public company. The index has 14 sections and 100+ subsections that include corporate governance, stockholder information, securities agreements, material contracts, product and mfg information, government regulations, litigation and audit information, employee information, employee benefit information, financial information, marketing information, property, employee benefit plan matters, facilities. With thanks to Peter Astiz of DLA Piper (who helped me create the original document) and Neal Williams of Carr & Ferrell (who used it to manage our financings and transactions), I've appended the actual document below:

 

The week we incorporated, we only had a handful of documents in these binders: our Certificate of Incorporation, our Bylaws, our founders Employment Agreements, and a cap table describing the ownership of the company. A few documents and about 100 empty tabs. These empty binders seemed a bit silly when we started but as we ran the business - hired employees, filed trademarks, signed up partners, each relevant document was filed in the appropriate section as it occurred, and the binders quickly filled out.

When we signed a term sheet for our series A roughly a year into the business, we were able to simply hit "print" and send our prospective investors the index above and about 4 linear feet of binders that included every necessary document.

This level of preparation can give a big confidence boost to a prospective investor and the law firm handling their due diligence. In the end, diligence is about confidence. It's extremely rare that a firm will go through every document. The diligence that they do is less about checking every single document and more about getting an overall confidence level that the company is competently handling it's legal, financial and governance issues.

Twenty bounds of binders meticulously arranged around an index make a good thud on a desk, and the sound is deep and hearty - and gives a good boost of confidence to the folks on the other side of the desk. Even if you never send the complete binders - simply sending the index, explaining what's behind it, and offering to send select sections as needed, can be a great boost.

Not having diligence ready can have the opposite effect. I've seen financings delayed weeks because the company's documentation is not up to date and the company scrambles to get them in order. Worse, the first diligence package send to the investor's firm arrives late and incomplete, or contains dated documents with errors. Instead of increasing confident and decreasing the risk around the deal, the exact opposite happens, and the attorneys feel bound to dig in deeper.

Finally, there's a side benefit to having due diligence on demand that relates to Nivi's BATNA point: it subtly conveys, without you saying it, that the company is seriously pursuing its round and engaged with other investors.

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¹ Agree wholeheartedly with point one and point three. I agree with substance of the point two - "set a firm closing date for your lawyers and justify it with something like, 'I’m leaving the country on that date'", but not with the tone implied by the point. A firm target closing date is important, but I think an entrepreneur's relationship with the company's law firm should to be strong enough that fabricated reasons aren't needed. The real truth is pretty compelling - you are a start up and any delay in the deal creates risk that you can't afford. If your counsel doesn't understand that and demonstrate that, you've picked the wrong partner. I avoid prioritizing the pedigree when selecting a firm; instead pick the firm and the partner that understands that you've got one company in your 'portfolio' that you care about, and will sprint like mad when the company needs it.