Report from the June Agile Funding – Agile Hiring Event

By Alan Brody

Speakers: Ian Sigalow, Partner, Greycroft Partners, Stephen Brotman Managing Director, Greenhill & Co, Graham Lawlor, Founder, Ultralight Startups

As we continue our Job Generation series of matching senior execs to Start-Ups, we had the June event to take stock - from the VCs perspective. Our featured speakers, 2 active New York investors spilled the beans on the money side while our dean of agile Start-Ups kicked in with confessions from the entrepreneur side.

The result is an eye-opener - and if you are looking to boost your Start-up or work with one, pay attention.

1.    Very few companies get funded.

2.    Angel-funded companies still have to grow to the next level – there is a very small chance of a follow-on round if you do not grow dramatically

3.    Your best chance for breaking through is by building a savvy, connected team that includes some industry veterans. But you need to make it worth their while to come over to your side.


What we learned from the two VCs who do $500K - $2 million deals, is that you need to have high-growth potential in a rapidly growing marketplace in order to have a chance at funding. Then, the best way to get their attention is to have other people in the industry rave about you because word gets around in this community’s echo chamber. Getting a savvy player on board can help make the connection and will help you when they come calling.

The problem is that very few companies qualify for this kind of funding. Some get lucky and find an investor of one kind or another. This is not always to their ultimate benefit if they don’t use the money wisely and they don’t grow - but at least they have raised capital.

For everyone else, listen up, there are still plenty of opportunities. Some part of this is domain knowledge and experience – if you really know your business and you’re savvy, you will generally prevail. But a certain kind of faith and positive flexible vision is also key. Why - because you have to believe that you can prove yourself with whatever resources you have. Money is not everything. Too much of it can kill a company. Also, most start-ups find their real business or revenue opportunity down the road and it is usually starkly different from what they anticipated. So, being able to change direction to catch the right wind is key and investors have to feel comfortable that you will find that wind and adjust accordingly. Passionate amateurs tend not to do that.

Luckily for us, Ian Sigalow, a partner at Greycroft, LLC, Alan Patricof’s venture fund was on hand to break it down.

The single biggest thing he looks for is market size. If it’s not in the billions and growing rapidly, don’t bother. They need to make 10x within 5-10 years. In reality, they are searching for deals that are more likely to make them 100x. Seriously, is that you? If not how could you steer your enterprise toward that goal?

First, don’t be desperate. It takes at least 3 months to structure a deal usually longer. Your credibility is a huge issue. This is true even if you are the first to a huge new market. Who you are and what you bring to the table a big issues because if you fail to execute, there are so many others waiting in the wings to jump on your market.

That is one of the reasons that VC money tends to go to serial entrepreneurs. People who have done this before and succeeded are always preferred. They get the big bucks, the quick deals and even have the right to do a “me-too” company just because it is assumed they can execute.

If this is your first start-up you need help. You need to create buzz and then you need to have at lest two VCs looking at your deal to raise values and create a sense of closure. Otherwise, you wind up with meaningless phone calls, useless meetings and 90 day lockups. (Preferred no-shopping clause is 30 – 45 days)

VCs often refer promising companies to angels if they are pre-revenue and still working on their product development. That is usually a good thing. However, when VCs do their own Angel round that has its own special danger because unless you succeed spectacularly you are not likely to get follow on rounds from anyone other than the VC who may be even more disappointed than everyone else when you don’t beat projections.

[For the record:
Series A requires revenue and 3-4 customers
Series B 10 – 20 million valuation
Series C $100MM+]

Valuations – so here’s a big secret – go for a convertible note. Angels will ways try to hold you to a valuation. The lower the better. VCs on the other hand are more likely to prefer that you took a convertible note at a discount to the series “A” valuation – typically 25%. That means the company is more accurately valued and they know they are getting the best deal while you, the entrepreneur get to keep more of your company to sell to the VC. This is where find out how angelic your investors are – by whether or not they will accept the convertible note.

Know thy VC: do your homework. Know what kinds of companies they fund and why. Funds must be also be active – with the economic hiccups, many are walking dead.



Steve Brotman, the Managing Partner at Greenhill SAVP was quick to concur and we got to hear about his investments. Once again, your research is everything. VCs have areas of interest and their own theories of the marketplace. If you understand how they think you can determine who to go to and how to present your idea. Greenhill, and to a large extent, Greycroft, favors technology platforms that help automate services. Advertising can be transformed this way, so can financial products, even search engine optimization. If your product does something spectacular in those areas, and the market is getting B-I-G, they will probably want to hear from you. Or better yet, hear from a few of your credible fans.

What you need to know about VCs is that most exits are M&A driven at between $50 – 100 million. They want to see a minimum 10x and preferably 100x returns, so you can see how sharp the numbers have to be to get their interest. On the other hand, Steve spilled the beans on negotiating from the book “Hacking the Human Mind”: time pressure, lack of information and perceived opportunity can make otherwise intelligent people do strange things.

[For the record: Snapshot of Greenhill Investments
5 year old company growing faster than Twitter.
Medical metadata co. for testing.
Yellowjackets to consolidate IMs on trading floor.]

Graham Lawlor
Graham is the founder of Ultralight Startups which is a lively forum for the kinds of agile companies that are sprouting everywhere. Graham quotes the patron saint of the movement, Steve Blank whose book, “4 Steps to Epiphany” lays out the case for these companies. They key issue is that it doesn’t take much to start a company today, whereas ten years ago it cost plenty. Making them work is lot like using the steps taken by savvy corporation in a successful product roll out. The problem is that everyone seems to be starting a company because they can, and in the noise, some key issues are forgotten. The point about a successful roll out is having something customers seem to want and not just something you are able to make. So step one is having a minimum viable product. You learn from early adopters what they really want and pivot your development around their actual needs and desires of these people. Then you build your customer base with leases and marketing and then you build a company.

That’s the theory. In practice, the market throws a lot of curve balls and the interest of the early adopters may be very different from the later adopters. So being nimble and agile and listening to the market and also knowing when not to listen is a whole other issues.

Bottom line: anytime there seem to be a lot of buzz as a promising market emerges and you get people to talk about you, investors will come calling.


Start-Ups Presenting
Hal Charych has RFID automated gates for ski resorts. Generally seemed like it was a great idea but ought to be aimed at much broader markets. New York is not a ski investors market.

Alex Combos, EventNow. This site enables event planners to put their events out to bidding rather than having to go chasing after venues for pricing. Seems like a great idea but there are many big name like eVite that seem to be lurking in the wings.

Executives
James Mancuso, a former executive and CTO at Platform Computing Inc. a, Financial Services company in NY gave these Start-Ups helpful advice about growth and positioning.


COMING  JULY 28 – The Exploding eBook/iPad Marketplace

Cleantech Exec Comments on Westchester's Disaster Response

Disaster Recovery: Are We Too Focused on the Big Bang to See the Deadly Little Bangs?
 
Introducing The Falling Tree Syndrome: Electrical Internet, Houses with Crash Helmets and Trees with Seat Belts.

By Alan Brody

Last Sunday The Scarsdale Forum at the Scarsdale Women’s Club hosted a lecture on “Dealing with Local Disasters: What Can Nuclear and Pandemic Disaster Planning Teach Us?”-  a timely topic one would think, following the disastrous March storms.  The trouble is, you quickly realize that Indian Point has a way of dominating all disaster conversations to the point that we may be overlooking the clear and present mundane disasters that surround us: trees and power outages.

After 40 years, Indian Point remains controversial but no one seems to have died from it. Yet, in the March storm 7 people were killed by falling trees. Over 200 trees fell in Scarsdale and Greenburg, thousands of homes and businesses went days without power, dozens of streets and even schools were closed and downed power lines threatened lives.

Yet, the conversation returns to Indian Point where you quickly find that few people have any idea where to gather or where to hide in case of an emergency. Almost no one has emergency food or Potassium iodide pills, the cheap, essential radiation protection. Is it possible that by worrying about the really big thing, a nuclear disaster, about which we feel we can do little, we see no reason to worry about the smaller, more pressing issues and so we wind up doing nothing at all?

Maybe, like the “broken window theory” in crime-fighting which was effective because clamping down on small outrages lead authorities to its larger sources, we should think of an equivalent “falling tree” philosophy. If we prevented the giant trees around us from falling on power lines in storms and lowered the vulnerability of the networks massive power disruptions our lives would improve significantly.
 
Houses with Crash Helmets - Trees with Seat Belts?
Trees don’t have to fall – or at least, not where we don’t want them to. Con Ed and the towns may prune trees or even clear-cut them around major transmission lines, but the remnants of the 200 fallen neighborhood trees show they have shallow root systems thanks to our rocky soil. Yet they tower over 60, 70, 80 feet leaving our power lines as vulnerable as our houses.

So why not think out of the box? My neighbor’s 65ft tree fell on his house but caused no damage t because of a large abutting arbor which cushioned the tree fall. Maybe this is the key to thinking of ways to protect houses from falling trees? Reinforced protection trim? Eaves with foam buffers. Rooftop airbags? A non-lightning conducting roof rim and tree catcher?

Half-timbered colonials may seem untouchable but once upon a time, so did cars without seat belts and footballers without armor. Injuries changed that – so why don’t we learn that lesson within the fragile sanctuaries of our own homes?

Could the trees be restrained? If you go to any circus, you will see acrobats hanging from threads – so why shouldn’t trees be similarly restrained by cheap, invisible non-conducting Kevlar-based materials. In some cases, they might use roof nets. In most cases, groups of trees could be networked, some harnessed others restrained. One day, we might be able to genetically shorten our trees, extend their roots or somehow anchor them in rock - but right now they are looming giants that threaten us with every storm.

Microgrids – Personal Energy and a Power Internet
Once a tree falls on a power line whole towns and even regions pay the price because the power grid is an interdependent and not very fault-tolerant mid 20th Century contraption. The obvious answer is to cordon it off into Microgrids that can provide their own energy outside of the Grid. These are ideal for downtown business districts, the town hall and schools but could also apply to whole neighborhoods. This would use a combination of Con Ed power and locally produced solar, wind, cogeneration, sound-baffled generators, fuel cell, clean natural gas or a new advanced technologies.

There are also major safety advantages because these Microgrids can use non-lethal DC transmission: streets will not be closed by downed lines and temporary workarounds are easy. The wires are smaller and therefore easier to hide or bury. They can generate their own energy during expensive peak hours while buying cheap off-peak power from the Grid. They also enable smart measuring, metering and powerbalancing appliances during peak periods – something that will only increase if we adopt battery-powered cars

When you consider the savings from tax credits the ability to create local energy (according to the U.S. Dept of Energy, as much as 9.5% of power is lost on AC transmission lines) and funds from the recovery budget Microgrids start to make economic sense. Most of all, there is a growing consensus that these represent the future of power and towns that don’t take advantage when they can will be left behind.

While we applaud the quick cleanup after the storm and the willingness to discuss the issues – the agenda has to move from the familiar and politically hardened debates to a realistic look at our immediate vulnerabilities and the rapidly evolving technologies that will transform our energy usage. Otherwise this storm will be a true disaster when it just might have been a blessing in disguise – one that opened the door to smart, safe and lower-cost green energy.

Alan Brody is an internet entrepreneur who recently graduated from the NYU-Poli Cleanech Execuive Program whose classmate Mathew Fairy and professor Mel Horwich assisted in developing these ideas.

Start-Ups and Execs – A Match Made in Heaven? Event with Columbia Business Club

 [Report from the Columbia Business School Alumni Club event at Duane Morris, LLP moderated and co-produced by Alan Brody of iBreakfast/iEvening.]

Speakers:  

Chris Fralic, Partner, First Round Capital

Tom Bennett, co-founder, Pond5.com

Tommaso Trionfi of Lusyte

David Blumenstein, The Hatchery

In this challenged economy it would seem the obvious place for jobs growth is with Start-Ups. For an executives of a certain age and status, and for Start-Ups struggling to find their way, it would seem like a good match – good for the economy and job creation too.

As it turns out, it’s not that easy.

Start-Ups have long offered execs the opportunity to be on their advisory committees, but this is usually for stock and almost never for cash. Often, this appears to be for window dressing or networking - their advice not actually needed.

That changes when the execs are considered instrumental in raising money or are believed to have the “golden rolodex” for sales or business contacts. So, in the Start-Up world where advice is not that sought after, capital is key and payments are hardly made, why bother?

As it turns out, for execs who make the right relationships early, Start-Ups that succeed can scale quickly, according to Chris Fralic, a Partner at First Round Capital, whose largest portfolio company grew to 600 employees in less than 4 years.

According to Tommaso Trionfi of Lusyte, who helped a flailing Start-Up that had just 2 months of capital left raise $900,000, it took a modest investment and a restructuring of the company. Then the Start-Up went back to the same investors they had already approached and were able to raise an eye-popping amount for this economy.

One of the reasons expertise is less valued than plain cash is the relationships have to work – the chemistry can’t be piped in. With Tom Bennett, co-founder of Pond5, a start-up that got funding through the iBreakfast/iEvening Entrepreneur program, he worked with an experienced executive in the video business that first came on in an advisory capacity. Over time, the relationship thrived and Bennett went on to bring him on board as COO.

David Blumenstein of the Hatchery, which searches for deals among many Start-Ups, the issue is one of readiness for the entrepreneurial world. There is no support staff, you wear many hats and there is no 9-5. For many execs coming from the big corporation world, there is a step-down, re-education process.

Nevertheless, as start-ups grow, they need to get experienced executives on board. Either they choose for themselves, says Triomfi or the VCs will do it for them later. At least if they make the choice, they can find out if the chemistry works while the VCs may impose someone on them they don’t really like.

The VC view, according to Fralic, whose company is considered a “Superangel” - investing up to around $500,000 per deal - these issues are viewed on a case by case basis. Often, they prefer executives who grow within the company, where the chemistry is better and the cost of hiring may well be cheaper. But in any case, the re-education process has a few steps – some on the inside. Some on the outside.

Execs need to think small, be savvy and innovative. They can’t expect the same pay and have to take equity. Even advisors cannot expect the fat corporate fees. If they once got $350 an hour they will have to accept $50 and $75 and consider the rest an investment in the future of the company or their relationship with the VC. They will have to live, act and think cheap. Expense accounts barely apply and the work hours are not family friendly. The start- up will probably change course several times as it seeks its true market.

Finally, there is the issue of outward appearance. Experienced execs know they have to reinvent themselves for the new, fast-moving media and technology business world which is vastly different from the same world just 3 years ago. That can be daunting but, if done well, their experience still counts for a lot – for example, the former Polaroid exec who tells a Facebook photobook start-up what decades old research says about their true marketplace, and is right. Bbut they have to learn Facebook, Twitter, FourSquare, iPhones, iPads. More importantly, they need to start flashing around these totems of the new workplace or they won’t even be considered.

Reinvent, talk tech, buy gadgets, start relationships, get hired …..

Next Job Generation iEvening: Agile Funding - June 23

Report from Job Generation II - May 2010

Speakers:Will Porteous, General Partner, RRE Ventures
Paul Borgese, Digital Strategist, AP
Graham Lawlor, Ultra Light Start-Ups

Hosted by Alan Brody

 

[Job Generation is covered again on NY1.]

Job Generation II unfolded yesterday at Herrick, Feinstein, LLP on Park Ave. Now with a revised format and your host Alan Brody, back at the helm, this event moved at a quick pace showcasing new business ideas and interesting executive crossfire.
Job Gen is where Executives have the chance pitch Entrepreneurs with their ability to manage, rethink, grow, finance or otherwise get a Start-Up off the ground.
There is always a VC in residence - in this case Will Porteous of RRE Ventures - and a couple of sidekicks, Graham Lawlor, Founder of Ultralight Startups and Paul Borgese, a digital strategist with Associated Press.
This new format moves quickly with entrepreneurs not only being able to tell their story to the investment community but also to find out what a brain trust of savvy execs would make of their enterprises. For most of them it was invaluable advice.
How many Start-Ups understand the true value of their company? How many know how to position it or who to sell their services or products to. Our savvy group weighed in with enough good insight to improve their chances of growing their businesses and raising capital.
We began with a quick story from Tommaso Trionfi of Lusyte who helped a social media start-up, running out of money, to raise what today is an unheard of amount of money - close to $1 million - simply by spending time with them and reshaping their business plan.
On that note we moved into our presenters:
Bahar Gidwani of CSRhub.com was advised to become a kind of Moodies of socially responsible companies and consider bringing on a famous spokesperson in lieu of or as a way to raise money.
Paul Orlando of chatfe.com, a voice chat system, was advised to take the enterprise route - selling it to companies that need to call up for internal advice between employees.
Autoslash’s Jonathan Weinberg, a discount car rental booking service was advised to find a travel partner.
Dora Tarver’s e-projectmanager.com ran into some crossfire from execs who saw her as competing with the giant Project Manger’s Institute. But execs in the audience saw a difference picture and were encouraged by her 16,000 project manager subscribers worldwide. Adding a social media angle seemed like an obvious and potentially lucrative route.
ConeXus’s Hunter Cohen, a kind of behavioral targeting method by tracking social media relationships, was advised to find a media partner - no small task.
The executives on the panel voted the Most Valuable Players were:
Dan Cohen, as Chief Executive Officer, clearthink.com
Laura McCann Ramsey, as Chief Marketing Officer. Wsywygllc.com
Other participants included: Bill Reinisch, XIV River; Martha Lorini, Bill Simon and Paul Wegener, waveberg.com

What’s the Secret Sauce in an Out Sourced World?

Are you a linchpin or a munchkin? We have an answer…..and its management.

David Rose’s keynote at NY Entrepreneur's Week put the question of what is valuable in a "virtual business world?" Once upon a time, Ford Motor was a vertically integrated company with 100,000 employees in the Rouge River plant making everything it needed down to the actual paper in their car manuals. Same with Fleischmann’s yeast in Peekskill, NY. Nowadays, only a fool would operate that way when you can outsource everything, minimize your overhead and start a business on a dime.

Great, but then who holds value here? The Entrepreneur, of course – you can’t outsource Entrepreneurs, said Rose. You could feel the room swelling at the thought of being the economy’s new linchpin (as defined say, by guru Seth Godin). But then they heard that only about 1% of start-ups ever get funded and, in the virtual, cloud-y, outsourced age, they don’t get that much by way of valuations, thereby making them feel more like economic munchkins. 

Despite that, the investors all say the bet is not on the idea, it is really on you, the entrepreneur and your ability to execute. You are the real talent.

Its been my experience that anytime someone calls you a genius - or linchpin, for that matter - they are definitely not paying you, or they are paying you more compliments than cash. You may be a genius Mr. or Ms. Entrepreneur but not a rich one and not with a lot of equity to hold on to.

Still, the entrepreneurs hang on to every word hoping to hear where that check is coming from. And for how much! That is obviously the purpose of Entrepreneurs Week. But should it be, when in age of 8.4 million unemployed where the cheapest resource may be talent and not Angel VC dollars?

In the outsourced world, why do you even need all this investor money when you can get most of the development on your own dime with a credit card or two and some friends and family money? One answer is that many Start-Ups think of Investors as a kind of jackpot winning. The other is that they think investment translates into sales.

It does neither.

Even Rose complains that only 1 in 10 of his investments pan out.

The thing that matters, the secret behind the sauce and the thing no-one was talking about is the management. The entrepreneur may be like Dave Brubeck, but Dave (and I have seen him play) needs at least 3 really professional musicians to make his sound come alive. That’s management. He may be CEO of his jazz band but those players are not lackeys, they are key ingredients to his extraordinary success.

Yet management, better management never came up in the conversation. It was missed in a few other panels except fleetingly in the bootstrapping one which Scott Shuster managed so well…….

This may not be oversight so much as a belief that real start-ups can’t afford good management. How wrong are they! The country is full of great executive talent thrown out of the marketplace at the peak of their experience. They are available and yet no one even hinted at the possibility! Fortunately, as savvy souls in our own right, we at the iBreakfast can help!

So here’s a modest proposal, check out Job Generation, our new program that lets Entrepreneurs interview really savvy execs to find out how they would run their company for them. Get free advice and a wealth of powerful contacts. You may hire them, a VC might pay you to hire them or they may come on board with their own money. One of these execs we know raised $900,000 for a Social Media start-up by going to his former Wall Street colleagues. Try doing that at an Angel group!

Most importantly, it is management – a superior team of high-functioning execs that sell things which, in the old days, is how people used to make money. They can also raise your valuation dramatically, not just in dollar figures but in the termsheets themselves. Inexperienced start-ups get one kind of termsheet (lousy) savvy execs get the better one.

The real opportunity is like no other – thousands of savvy execs are waiting around to meet you. For now, and for now only. When the economy picks up you can pretty much forget about them, they won’t be taking your call. If they do, you won’t be able to afford them. Today they are like your server, a part of the cloud…..

So do yourself a favor, get those savvy execs on your side and then talk to the VCs. Not the other way around. The execs can make you the genius you really are because they benefit by increasing your value, the investors only care about improving their odds and downplaying your value. Sorry, but it's true.

So while everyone was hyping the cloud and open source and the low cost wisdom of the crowd, they forgot to tell you about the real talent that's available: the once-in-a-lifetime firesale of Harvard, Wharton, Columbia, Fordham, Kellog and you-name-it, MBA’s who like to share with you, a minute or two of their time. 

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Additional notes:  One audience member actually complained, in a long-winded way, that investors never give him enough time to hear his story.........

Job Generation - Report from 1st Live Event

Job Generation went live last week and it resulted in this amazing report on NY!

Thanks to all of you who followed this new event, Job Generation. There will be more and in many cities because the need is so all-encompassing: 8.4 million jobs lost, 2.1 million gone forever.
 
Our experience with the first live event is that executives realize the need to reinvent themselves. This is an ideal forum to make a case for their expertise in public where they can display how they think on their feet.
 
Start-Ups are less certain. As we discovered, many Start-Ups are leery about reaching out to veteran execs. Part of being a Start-Up is doing your own thing - until you need to raise money or just grow the business. That's where the savvy set kicks in.
 
In return for getting great advice and chance to acquire talent, the Start-Ups get to tell their story to the business community which increases their chances of raising capital and building their businesses. The sooner we get the message out the quicker we generate opportunity.
 
Investors, were also an interesting case study. The objective of JG is to find the exec and start -Up combination that offers the best increase in value. Of the executives they picked for working together, the VCs tended to go with the most thoughtful and analytical while being averse to the more outgoing and sales-y. Are the VCs right? Or do they just prefer the studious type on a personal level, perhaps viewing them as more "coachable".  
 
Come to the next Job Generation and you be the judge.
 
Thanks to the feedback, we've figured out how to tweak this model so it will really crackle with creative tension - we'll be doing several more events as iEvenings, at Business Schools and in other cities.

Job Generation - Like an Investor-in-Residence Program?

According to the New York Times, VC’s spend thousands on Investor-In-Residence programs. Job Generation makes it happen in front of you - and for a fraction of the price. By putting seasoned execs in front of Start-Ups to see what VCs think make them more investible we are doing much the same thing – but the for the benefit of the public.

Sign up for our first Job Gen iEvening event on March 18.