I cannot believe I skipped the month of May in posts! Yikes. Well, I have to get better – but not here! This blog (as sketchy as it may be) is on the move to 804RVA (http://www.804rva.com/blog.html). 804RVA is Richmond’s premier co-working space and Larkin Garbee who runs it a big supporter of developing a great startup culture in central Virginia. So, I want to help as the process to bring acceleration to Richmond unfolds. That means you should come on over and join the conversation at 804RVA!
It is good to be in Virginia and talking startups these days. Today I had the pleasure of attending the 2012 Virginia Entrepreneur Summit and it caused me to reflect on all of the activity (and that is only the stuff I have been able to learn about) around building great companies and supporting entrepreneurs in and around Virginia.
- Last week I had the pleasure of judging at WeMedia’s PitchIT day. I was the weak link in a stellar group of judges but tried to hold up my end of the mentoring bargain. The eight finalists ranged from collaborative visual storytelling to advocating for special needs individuals and ‘experteering’. I am always excited to see so many passionate founders! Congrats to the winners Screen and Radmatter. I wish everyone could have walked away with a little coin.
- RVA Hackathon surface last weekend through the great team at Mobelux. While my hacking days are in the past it is nice to see the area cultivating and encouraging talent. I know it was fantastic.
- About a month ago Charlottesville VA saw a Startup Weekend event and a similar event is planned in the Norfolk area this weekend.
- The leadership at We Are Titans is launching Hatch and planning an ambitious summer filled with acceleration. Applications close May 15 and if you have an idea that needs a boost I am a fanatical fan of acceleration! Good luck to those hoping to be accepted.
- On May 3rd in RVA entrepreneurs are gathering for a little networking (entrepreneurs only please) through StartRVA.
- And I would be remiss if I did not shout out how supportive and encouraging Jonathon Perrelli and the team at Fortify has been in encouraging the ecosystem grow! Particularly in DC of course but so willing to share lessons learned and work with leaders across the area. Nice!
- Even TechCrunch dropped by Richmond about two weeks ago.
Yes, it is certainly exciting to see all the activity. So if you are in Virginia and you want to start something get out there and get plugged in! If you don’t know where to start then find me and I will try to point you in the right direction.
Jason Freedman has written an excellent commentary, Did everyone see what just happened. The pendulum has swung., on recent investment fever around Y-Combinator out West.
“No business plans, not even pitch decks this time. One 2-1/2 minute pitch and a quick follow up meeting. Seven figure seed rounds that can be closed within days and oversubscribed 2x to 3x. Founders with no experience fundraising and no pre-existing networks, making connections with top tier guys. It was really a sight to see.”
Sight to see, no doubt! And Jason’s own words about the pending “trough of sorrow” are well placed. But what caught my eye was the close.
“And finally, a word to all the investors out there who are crazy-rushed right now with all of us. Thank you for your support. Thank you for putting your money into startups and not some other asset class. Thank you for spending your time on helping this new generation change the world. Thank you for your mentorship, both when we’re looking for it and when we have forgotten that we need it. Thank you for being there for us now when things are good, and thank you for being there for us later when things might not be.”
Let’s be clear. I have not witnessed the same excited investment marketplace here in the good old conservative mid-Atlantic but I certainly connect with the final paragraph. For us to collectively move the ball forward in innovation then we must invest in the entrepreneur-class. We are talking about rapid scale, big dreams and a desire to “change the world.” That comes with a swagger and unfortunately cost. And while we observe the fever in certain areas of the world and potentially shake our heads at how could they do that? That does not seem like a wise play? (And in some cases that is exactly right) We cannot overlook the long term impact of systems that capture belief and passion and attempt to nurture it forward.
A belief that I find well supported in concepts like Y-Combinator, TechStars, 500 Startups, and the Global Accelerator Network. So, while I may write from time to time with my own healthy skepticism of deals like the billion dollar Instagram purchase by FaceBook, I never want that to dampen the spirit the lies behind the rush to fund mentioned by Jason. Sure, it is a rush to maybe get even richer for many but I am choosing to believe it is a rush to believe that we can change the world. In short, I will grab and alter a line from Rumpelstiltskin on ABC’s “Once Upon a Time”: ”All innovation comes at a price, deary“
This past Thursday, the Richmond Venture Form packed the house with a panel on innovation and entrepreneurism. I was fortunate enough to be asked to play a small part on the panel alongside Startup Virginia’s Jonathan Aberman, InnoVArium’s Steve Hutcherson and New Richmond Ventures Bob Mooney. It was clear from the energy in the room that Virginia, including central Virginia and Richmond, is preparing for an exciting future in creating rapidly scalable businesses.
During the day a few key themes emerged (at least for me).
All hands on deck: No surprise but it takes a number of committed organizations and individuals to create a high energy, successful ecosystem. As I have stated before, RVA is not Silicon Valley and does not aspire to be. Richmond and the region will create its own unique flavor and in so doing hopefully will find a way to serve its own investment and business communities while taking its place on the broader global stage. It was good to see so many dedicated to this pursuit!
Keep moving forward: This little phrase Is one of my favorite tag lines inspired by Walt Disney. Building any successful enterprise is a challenge. Borrowing from Coach K after Duke’s opening round loss at this year’s tourney, it can bring the “highest of highs and the lowest of lows”. One thing you cannot do as a business builder is stop moving. You must constantly connect with others and realize that overnight success never happens overnight. I was especially taken in by Bob Mooney as he discussed the dedication required by investors as fuel for the process. He called on the investment community to understand the volatile nature of business building and stay committed to the development of the individuals they support and the ecosystem. Jonathan Aberman added that rarely does a successful exit look anything like the first pitch!
Build relationships: I can honestly say the best thing about attempting to start an acceleration program is the fact you cannot do it alone. Same thing in business. From sales, to internal team, investor support and service providers you are called on as an entrepreneur to be in relationship. Jonathan suggested that the primary purpose of diligence when looking to invest in a company is gaining an understanding of the team’s trustworthiness. I am very excited to report that the region and its leadership is highly supportive of building the right relationships that will serve as the base upon which great ideas grow to ground breaking companies.
It begins with entrepreneurs: For any area to achieve success in encouraging founders it needs to have FOUNDERS and they need to know about each other and what the area can provide to support them! I believe this is a key area of awareness and growth that the region is embracing with programs like acceleration. It is developing more shared working and incubation spaces. It is striving to create more events and groups tailored to entrepreneurial development. It continues to focus on pulling in university support. And the region is creating more organized groups of angel investors alongside larger funds. And all of this activity, focus and effort must begin and end with the founders.
So, yes, I can state with these lessons (and I could have shared more) being learned and shared the region is hungry for success…so stay tuned!
Recently I was flying JetBlue minding my own business when the actions of a passenger a few rows away caught my attention. As you are probably aware, JetBlue shows free TV on all of its flights. The small screen is tucked in the head rest in front of you with controls on the arm rest. As the flight climbs from the runway a welcome video begins to roll.
And this is when that passenger caught my eye. He was tapping away on the screen. Touch, touch … ok, maybe not the middle of the screen so check the corners … touch, touch. No, the corners don’t respond either. Then finally he realized that touching was a no go. He glanced around the seat and finally found the push button arm rest controls.
What in the world does this have to do with company building? While I will not lay the reaction of the passenger at the feet of the iPhone/iPad it is clear that we now believe glass + touch = action. The market is now conditioned to a certain experience in interacting with technology.
When building your next great startup what are the basic assumptions of the market you are attacking? You may be looking to change the game entirely but you still have to be ready to understand how the current market and its expectations will impact your success or failure. If you fail to engage the basic expectation or clearly light the path forward you will have placed your company in the position of dealing with potentially unnecessary obstacles to adoption. This is not just a UI issue, almost every area you deal with from market message to functionality carries basic assumptions and expectations.
Clearly, it is important to take note of the environments you will attempt to influence! If everyone around you is ‘touching glass and expecting an action’ and you produce ‘glass without action’ you are already starting with a deficit. It is also notable how quickly basic customer expectations change and new table stakes appear. As fast as markets and indeed whole industry segments move make sure your plan can factor in, keep pace with and even drive the change. You certainly don’t want to find your customers touching away and coming up empty.
So, if you stand as a founder in front of potential investors and especially in front of angels what is going on on the other side of that table. You have done your homework:
- You know the job for which your technology is being hired
- You have clear focus
- You know your audience
- You are avoiding that big technical uh-oh moment
- You display complete confidence in achieving the dream
And you stand and deliver a solid presentation. It is obvious to you that you are well equipped and ready to turn angel money into pure profit. Will they say yes? (I sure hope so but probably not)
Let’s face it, most deals do not get done. So what is happening with investors? Well perhaps a few lessons from the angel side of the table are important to understand. Again, I am no top notch investor so I will defer to better resources on the topic like askthevc.com, http://www.feld.com among others. No, I will just share from experience and hope that helps.
Lesson 1: Great financials do NOT equal investment!
I contend that the early, early angels are motivated for many reasons and it often involves a perfect storm of events and a little bit of luck. Let’s start with a common believe that the numbers are the beginning and end of the story! Sure, absent clear lines of sight to exit and a solid financial story you may have issues. But as Brad Feld describes in an excellent book, Venture Deals, “your revenue forecast will be wrong, your cash flow forecast will be wrong.” In other words, the magic spreadsheet is not the beginning and end of the story.
It is in fact a complete fabrication – and everyone knows that. How you present it, however, says a lot about how you think through business issues and hedge toward success. Do you understand the burn rates you are looking for and how to control them? Do you account for lagging cash flow? Have you placed money to work in key spots that drive the business forward or tend only to the knitting? In fact, many successful stories brag about not having monetization methods. Can you get away with such a story? Well, before you decide check lesson 2.
Lesson 2: Hey, I like these guys
One of the thoughts that strikes me as I ready sites like pandodaily, techcrunch, uncrunched, maskable and others is the closeness of the entrepreneurial community – almost family – complete with bitter fighting and self important praise! What does this have to do with the angel on the other side of the table as you pitch? Well, much of an early decision is about WHO you know. The company you keep. Let’s face it, if a good friend asks for help to move from one house to another you are more likely to say yes then to that “jerk” down the street. [Except for me because I just don't like moving, but that is another story].
If you connect on an emotional level I believe your are in a far better position to win. (Too obvious?) Case in point (sorry I don’t have a reference): I was just browsing around blogs one day when I came across a post about a new entrepreneur in residence at a major Silicon Valley VC firm. The post literally bragged that this individual had largely failed in previous ventures but had great talent and was an idea factory. So, the firm provided an office for this person until they all decided what was best to pursue together! They wanted this leader. Do you think that raise was difficult?
If you can find ways to avoid the cold pitch then I find it always goes better. It may be a casual referral or known friend willing to help. It may be you have to work your way into the active angel group by seeking advice (no pitch, no strings attached) from its members. Anyway you can try to connect emotionally and reveal your character and commitment (which I am sure is stellar) will benefit you when it comes to pitch time. We have all heard it: ”I would rather invest in an A team with a C idea, then a C team with an A idea.” Cliche? No, human nature. We bet on each other. We are in relationships no matter the business like terms and we want to root for success for those we believe in personally and that is often something that cannot be fabricated. I have witnessed several instances of this over the years of attending pitch days and know personally that going in with a warm handshake and hearty recommendation can be a major boost! Find ways to connect!
Lesson 3: It solves MY problem
Several years back in a Live Fire event I sat and watched a respected set of investors respond to founder after founder.
In one case, a founder with a rich history and literally a life saving product (as in cure for cancer life saving) was up in front of the group. The enthusiastic response from the team: We never invest in life sciences, you need to find people ready and willing to do just that. Good luck. Wow! I mean this solves a potential MY problem, no? Certainly, it does – but in this case life sciences investments which tend to be capital heavy with long cycles just did not fit the investor profile and exercising that investor discipline meant it fell into the NOT MY category. Goes back to knowing your audience – and to be honest – this founder was speaking towards a bigger assembled crowd and knew the panel may not be directly interested. I can say I was ready to invest!!
In another, a company was pitching GPS enhanced audio tourism. One of the judges said, “I travel in silence and like it this way.” Instead of just moving on the founder pushed the issue and kept drawing back on the amazing opportunity. Finally, a dismissive, “I would NEVER invest in anything like this.” That is not a feeling you want in the room. In this case it simply did not hit a pain point for this investor. When that happens, understand and move on!
Finally, I heard the story of a local investor running across a pitch around bicycles. It so happened that the investor was an avid rider. The investor agreed to make a few introductions and eventually a deal was struck! It solved (or at least appealed greatly to) that investor’s interest. Nice.
So, if you have more then a hockey stick spreadsheet, connect on an emotional level and provide a simple, clear solution that solves an investor’s problem you have the beginnings of that perfect storm. But make sure that simple, clear problem is big enough!
Lesson 4: It solves a BIG (enough) problem
This loops back around to the financial story. Please realize that bootstrapping might be the best way to build a successful start-up and make sure you really need investment before you seek it. As soon as external money (beyond friends and family) gets involved then returns (despite other lessons) become important. It may be that you really are better at providing consulting services or that visionary product is simply an app that will generate a nice yearly income for you and a few friends. But when money starts to go to work, it is hungry for return.
I have first hand knowledge of an organization that is very successful but not wildly, exit ready successful. Why? Well, to make the story short when the curtain was pulled back on the target market and focus moved away from overall market size the real market simply did not have enough juice. Sometimes that is easy to see but often it really is not. Continue to challenge yourself to know your REAL markets. Do not let vanity metrics, see Lean Startup, blur your vision.
Solve a BIG (enough) problem. You don’t have to change the world to succeed but it is a nice goal. If you can close less than 10% of sales, build-measure-learn lots of times and still have plenty of space to make an impact then you are trending towards the right size problem. Hint: If you are looking at an 80% adoption by your target clients in order to generate profits then your problem is probably not BIG (enough).
Little Lesson 5: Wow, that was way better than the last pitch I heard
And finally a personal note. I simply did not practice enough. Nail that elevator speech and know your presentation! Helps with all the other lessons. Remember, angel groups and investors are constantly being pitched. No shortage of ideas and people who want to separate wealth from the wealthy. So, you may be a little off on financials, market and idea but you are flat out the BEST in the room! Think that being the best in the room will not be a difference maker? Investors have an expectation of quality and want to fly to it. So, while it may not get you through final diligence on those terms, making sure you have your game together and care about your audience can at least leave you with one more conversation! And plenty of founders never get that far!
Recently I had the unique opportunity to observe an organized angel group listen to two new companies pitch for seed stage capital. In this particular club, each angel is welcome to invest independently but the group must decide if it makes sense to engage in due diligence first. This is certainly not an unusual setup. What was unusual is that instead of presenting as a founder, I was on the angel side of the table watching the presentations and Q&A unfold. As the companies presented I anxiously observed every word. I know that for those presenters everything is being laid bare: passion, drive, ideas. It took me straight back to my times in front of such groups – and unfortunately – my less than successful times. I knew as I listened why I failed to strike the right note for seed funding. At least five lessons where on display, for good or bad:
Lesson 1: Know the job your technology is being hired for
It is tempting to say ‘solve a real problem’ here but instead I will take a tip from Innovator’s Dilemma. You see, my partner and I had created award winning technology. We had clients and pushed the foundational technology on which we built our product to its limit. We were going to change the way data was integrated, used and understood: on the fly! Sweet! But I was technologist first and business problem solver second. Oh, we did have a job our technology could be hired for and it would perform that job better than any existing solution back in 2007 and would still do a pretty decent job today.
You see, we had already won business in disease management and vulnerable population tracking. We could grab mobile health information in the field and analyze it in real-time alongside a multitude of other health related data streams without every compromising the integrity of any given source of information. Participation in data visibility with complete control for each participant. The only problem: it was on SLIDE NUMBER THREE! If we were going to win the hearts and minds (and believe me you need a story that generates passion) we needed to tell a compelling solution story, not a technology story! We needed to know that job and lead with it!
Instead, we were all too happy to share how our technology not only worked to perform that job better, but solved all kinds of problems. Too numerous to count, so many it boggled the mind. Which leads me to lesson two…
Lesson 2: Clear focus
I know you think you have it as a leader, as a founder. 10 slides that follows the Guy Kawasaki formula (timeless). You know the market, competitors, competitive advantage, barriers to entry and you even have a perfectly formed hockey stick of revenue with no end in sight. Oh you have it all. Including a message that tries to say it all. In 20 minutes. That weaves a complex story of technology, meets market demand, meets overnight star! And it is just the tip of our ‘bowling pin’ plan. [Yes, I have used all those phrases and tried to tie off every detail in every area without taking a breath] See how many different use cases (did I really say use case, yes) we fit with our unique solution? And after a confident presentation you step up to face the first question from the crowd: What are they selling again? Why exactly do I need this? I see where you are going but…?
What happened. Did you fail to live in the harsh world of the 5 second impression? The 140 character tweet that must say it all. A post from notable investor and business thinker Vinod Khosla’s Five-Second Rule challenges the limits of clarity, simplicity. I know for a fact I failed the five second rule (and still struggle) – can we have 10 please? And no matter what you think about explaining complexity you should never try to boil the ocean! Even if you have a really large pot.
Share your passion – just make sure you share it clearly, with the focus and dedication it deserves.
Lesson 3: Know your audience
Remember that presentation. Full of awesome sauce! You have practiced it a 100 times (and yes, I stopped in the 20s, another bad idea). You have it nailed, it states that problem and your solution with crystal clarity. You can bring it out time and time again. But should you? Do you know your audience? I certainly could wax poetic about “mash-ups” and “semantic integration” but I failed to understand my audience did not always appreciate the nuance of lightweight, web service integration. (Or even want to) No, they had another agenda. Understanding how this turns the precious working capital they are about to fork over into a positive return. Now that was what they wanted to know! If I wanted to make a technology pitch then find technology-centric investors!
In short, know the audience first and while you still may need to check the appropriate boxes make sure you understand what they NEED and CONNECT with them first and foremost.
Lesson 4: Avoid that live demo thing
Ok, lesson 4 falls in the practicle category. Before you throw over to your partner to show the ‘cool live demo’ remember you only make a first impression, once. And you don’t want that impression to be a dropped wifi connection or “this was working when we practiced” comment followed by dead space. If you have a compelling solution that is clearly great for the job it is designed to do, a clear focus and a bead on what your audience needs to know to help make you a winner don’t drop the ball by relying on the potentially reliable. Should you have something real, no matter how small? Probably! Can it be a video demonstration? Yes. Pitched effectively from a few compelling screen shots? Maybe. Then let yourself of the hook and run to toward simple! And make sure that demo is telling the same story you are telling (with that clear focus, know your audience stuff)!
Lesson 5: Never let them see you sweat
And one last note (one I actually did know way back when) – if you are going to ask for money, be confident, believe in your team and demonstrate your determination to win. Transparency is fine but avoid dropping to one knee and begging. Believe me, it will feel right sometimes when you look at that bank account but it rarely is!