Oregonstartups.com Blog

From TEDTalks (video) TEDTalks : 10 things to know before you pitch a VC for money – David S. Rose

This 2007 video was recently posted on the www.ted.com website. As the Ted blog states:

“Thinking startup? David S. Rose’s rapid-fire TED U talk on pitching to a venture capitalist tells you the 10 things you need to know about yourself — and prove to a VC — before you fire up your slideshow.“

This is worth a listen. In 15 minutes, Rose summarizes all the basics that are so easy to forget!

(I’m republishing this post because of an error in the first posting where I attributed a quote to the wrong person and made an error in a second quote.  I apologize for the mistakes!)

"Don’t be an Entrepreneur unless you have too" (because it’s very hard) was one of the pieces of advice last Friday to the 14 participants in the OEN "Off the Record with a CEO" event (formerly the CEO Bus Tour).  The tour visited Mike Wright, CEO of WellPartner, and Irving Levin, CEO of Genesis Financial Solutions.  Irving is also one of the most active angel investors in the Portland area.

Off the Record is a great event – a chance to spend 90 minutes with two different CEOs and hear some fascinating stories and advice.  The tour on Friday was no exception.

Mike Wright’s advice: be completely transparent, especially with employees.  Although WellPartner is doing exceptionally well today, the early years were tough times, and yet employee turnover has been very low.  Mike attributes that to the fact that all employees own a piece of the company, and to the fact that he has always been open with the employees about the status of the company. 

He commented "if you want to find out how loyal your employees are, stop paying them."  There were times that WellPartner could not make payroll. When a customer payment did come in, Mike would make the rounds and find out which employees absolutely needed some money to pay the rent or meet some other critical need.  With a policy of complete transparency, and treating people with respect. the company lost very few people.

The message from Irving Levin at Genesis Financial Solutions was similar.  Irving stressed the importance of integrity – in dealing with employees, customers, and partners.  In talking about finding the right market opportunity, Irving’s comment was "I hate having competition".  He prefers to find a market nobody else wants, and find a way to be successful in that market.  As an example, one of Genesis’ businesses involves purchasing unsecured consumer debt that has "issues" and turning those loans around.  That’s not easy work, but it’s also an opportunity that the big banks are not interested in pursuing, so there’s not a great deal of competition.

From an angel investor’s perspective, Irving’s advice to entrepreneurs is that because of the difficulties in the financial world, angel investors are nervous, and angel investment will be tougher to get — there will be "more head wind". So, "if you think you need $6 million, find a way to get it done with $3 million".  Figure out how to succeed with less money, and expect fund raising to take even longer than it has in the past.  You’ll need an attractive opportunity, a more polished pitch, a good team, and, of course, integrity.

On Sep. 9, 2008, a panel featuring Martin Medeiros (Swider Medeiros Haver LLP), Brain Jamison (CEO of OpenSourcery) and Jim Wasko (IBM program director for Cloud Computing) discussed open source software benefits and issues at OTBC. It was a great discussion, providing legal, small business, and big corporation views of open source. The program was organized by the Licensing Executives Society.

You can view a video of this 1 hour discussion on the OTBC website.

OTBC Market Survey

• OTBC recently surveyed the local tech community to decide whether a different location would be more convenient location for OTBC events.  Survey results are summarized in the above link to the OTBC blog.

The Inside Scoop on Due Diligence

• Sorry – I just could not resist this one…

Venture Capital, Angels or Bootstrap? 

• A brief overview of the different considerations to think about when looking at VC versus Angel versus Bootstrap

Doing more with less

• In bad times (and in good times, for that matter) it’s a very good idea for startups to make do with less. If you can put off an expense until next quarter, do it.

The Financial Crisis: A Survival Guide for Startups

• Tips on startup survival in difficult economic times.

Me to Customer: Don’t Let the Screen Door Hit You

• Rather than try to "fix" your difficult customers, sometimes it’s better to fire them

What entrepreneurs need to know about Founders’ Stock

• A good overview of founders-stock vesting, and tax traps to avoid.

View all my Ma.gnolia.com bookmarks.

Here are some posts I’ve run across this week you might find interesting. And stepping into the world of social bookmarking, I’m starting to save these interesting online stops at Ma.gnolia.com. See all of my Ma.gnolia.com bookmarks here.

Tips from VCs on Twitter: Great comments in easy-to-digest 140 character chunks from venture capitalists

Starting Up while Keeping your Day Job: Some good tips for “incubating” your startup idea on the side while keeping your day job. Having a startup as a side project certainly slows progress, but for a lot of entrepreneurs, there’s a lot to be said for having a salary (while working on an idea that’s way pre-salary)!

Business and Marketing Templates: This article from the Small Business Trends website has some useful links to business and marketing templates for forms, brochures, etc.

How to Interview Key Hires: Jeremy Liew provides some tips on how to interview for key positions in a startup

In the post Plan B for Fund Raising Guy Kawasaki describes the implosion that can result from the traditional ("Plan A") approach to startup fund raising, which involves making a bet on raising a large amount of money.  If all does not go perfectly (does it ever?) the startup that has ramped up overhead in concert with the money invested can be left with few options.  As Kawasaki describes it:

• Step 6: Out of the blue, the lead-dog venture capitalist calls up the day after a partners meeting and says, ‘We just don’t see how you’re going to make it…

• Step 7: The entrepreneur hangs up the phone in a state of shock… She calls the investors ‘stupid, arrogant bastards who don’t get it’ in her staff meeting-conveniently forgetting that she’s missed three years of forecasts by 90% and has burned through $3 million.

• Step 8: The company rapidly implodes.

His solution sounds a lot like bootstrapping: take as little money as you can (preferably none from investors), get a product out, get into revenue — and then look for investment dollars to grow the business, not to start it.

I’m a big fan of bootstrapping.  As described in the OregonStartups.com Startup Road Map, here are some additional reasons to bootstrap:

• Unless you are a successful serial entrepreneur with a great track record, you’ll have no choice.  Investors don’t invest in ideas.  No investor is likely to invest in your company until you’ve made some level of headway to reduce the risk of their investment…
• You will, by necessity, keep your expense overhead low.  When things take longer than you thought (they usually do) you’re in better shape to survive without running out of cash.  Instead of dealing with difficult Board meetings and raising more money to fund yourself through the schedule slip, you can focus on getting the business back on track.
• You’ll retain control over your company.  As soon as you accept investment money, the investors get significant control, even if they’ve purchased less than half of the company because investors usually get special rights that give them a lot of leverage.  But perhaps the biggest leverage is that once you bulk-up the company to where expenses are way above your revenue (which is exactly what you do when you obtain investment financing) and things take longer than you thought (as is usually the case…), you’re in the awkward position of needing to raising more money to survive — even though you’ve missed your milestones.  At that point, you’re addicted to investment money, and you can’t survive without it.  And the investors decide when (and if) you get more money.  Believe me, that’s control!
• You’ll have much more time to spend working on your startup.  Raising investment dollars from angels or venture capital firms takes a huge amount of time.  It’s virtually a full time job that usually takes at least 6 months – often longer.  That’s a problem when running your startup is more than a full time job all by itself.  Even after you raise investment money, you’ll spend a lot of time dealing with your investors.  Overall, if you can bootstrap, you’ll spend much more time on your business!

But I have to agree with Guy.  The biggest benefit of bootstrapping is that the implosion that all to often happens in the "Plan A" approach is much less likely to happen if you bootstrap!

Bob Rice (former attorney and startup CEO, now at Tangent Capital) posted “A Beautiful Irony — V.C’s Displaced by Technology” on a Portfolio.com blog where he argues that virtual offices, cheap servers, computers and bandwidth, and reduced cost of finding customers (thanks to the Internet) have driven down the cost of starting a business. Meanwhile, the size of VC funds keeps increasing, so they have to look for deals that need big dollars, which the typical software startup doesn’t need. “… a system doomed to failure.”

Although I agree there is something to Rice’s argument for software/web companies, there are at least a couple of considerations that might keep VCs from becoming extinct any time soon.

1. Software may be less expensive to develop than it used to be, but marketing can (and often does) cost a lot.

2. There are still a few technology investment opportunities that involve building something that involves actual hardware — and building things does tend to take more capital!

Angelsoft announced their 3.0 software release this past week, claiming that it allows entrepreneurs access to over 400 angel groups and VCs. One option is to check out the groups that are geographically closest to you. That made it easy to find the Oregon listings, and they include:

Oregon Angel Fund
Portland Angel Network
Women’s Investment Network
Next Step
Angel Oregon
Emergent
Oregon Sustainability Angels
Southern Oregon Angel Network
Oregon Angels Online

Not a bad start! The list for Washington is pretty extensive too. If nothing else, this is a convenient list of many of the angel groups in the northwest. As for the application process, I’m probably a bit old fashion, but I think there’s still value in connecting with a member of each angel group, rather than relying entirely on applying online.

As described in a Science Progress article, Better Patents through Crowdsourcing, the backlog of patents faced by the US Patent Office is huge, and examiners simply are not keeping up. The issue is the volume and complexity of analysis required to research each application.

Leveraging the Internet to tackle complex problems has worked in tasks ranging from mapping the starts to folding proteins. The patent office is trying a similar Crowdsourcing approach to help research and analyze prior-art for patents. It actually tried this out from June 2007 to April 2008 on 40 applications, and the results were encouraging:

But it worked well enough to earn it a second year of life and an expansion to include the related field of business methods, such as Amazon 1-Click, an online shortcut that makes buying books and other goods on the commerce site as simple as a single touch of the mouse. And as it grows, Peer-to-Patent raises the possibility that as the information economy gets ever more complex, the U.S. government won’t insist upon making sense of it alone.