A Sack of Seattle

the game is changing

I'm speaking on a panel next week as part of the MIT Enterprise forum here in Seattle. The topice of the talk is Venture Funding - It's a New Game. The game has for sure changed, and I think the success of Founder's Co-op, TechStars and Lighter Capital shows some of the ways entrepreneurs and investors are adjusting. 

The panel is a good mix of people across the startup funding landscape, with a wide range of experiences. I think it should be a really interesting talk, so no matter where you sit in the startup funding world (entrepreneur, investor, service provider), I think there will be some juicy nuggets you can catch here. Check it out next week - details below.

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Have you heard about recent exits in which start-ups have been acquired for several million dollars within a couple of years of founding with little or no outside investment? Or clean energy start-ups that can’t raise the millions needed to grow their business? Or a game company that sold for hundreds of millions of dollars with relatively little VC participation? What’s going on? 

Join us as Rebecca Lovell, Chief Business Officer at GeekWire, moderates our panel of industry insiders including:

• Frank Artale, Partner, Ignition Partners
• Tom Duterme, Corporate Development Director, Groupon
• Andy Sack, Co-founder of Lighter Capital, Judy's Book and several acquired tech companies
• Dan Shapiro, Kept Entrepreneur at Google

Our panelists will tell us where acquisition and venture money is coming from today, including specific deals. They will explain new venture funding models such as revenue financing and incubators that offer mentors, connections to investors, and significant cash. More importantly, they will provide a framework for understanding how funding in the Northwest has been transformed by increased capital efficiency, technological development, and the global economic malaise, as well as explain the impact on entrepreneurs and funders, such as angels, VCs, and corporations.  

Audience Takeaways

Audience members will learn:

• Details of recent Northwest exits and financings
• What has changed in the last two years
• About the explosion in new ventures and trends in capital efficiency
• What acquirers and investors are looking for today
• What is hard to fund and why
• About new venture funding models such as revenue financing and incubators with advisors, connections to investors and cash

How to be a fintech company

There are 5 fintech companies that I've been paying attention to as I try to figure out the model for Lighter Capital -- actually -- there's many more than that...but for the purpose of this blog post, let's focus on:

1. Second Market
2. Receivables Exchange
3. Wanga (UK)
4. Kabbage
5. OnDeck Capital

There are lots of differences and variants to these businesses but I like all of them and it seems like they follow a somewhat simple formula.

• Market segmentation -- Each company in its own way focusses on a market that is underserved by the capital markets.  One way or another, the underlying businesses need capital. 

• High rents (i.e charge a lot) The above businesses make capital available to the customer via the internet and charge a rather high rent. Wanga is off the charts!

• They've figured out repeatable customer acquisition --  to varying degrees the above customers has each figured out how to acquire customers cost effectively.

At lighter capital, we're trying to make sure we accomplish these goals as quickly as possible. 

Risk adjusted returns: Struggling to balance the gas and brake pedals

My career as an entrepreneur and as a seed stage equity investor has me look at a company and a team and think about what could go right.  It has me dream the possible. While working on refining the boundaries of a RevenueLoan, I find myself really thinking hard about reality -- and what could go wrong.

I find myself focused on risk-adjusted returns and yield. Prior to Lighter Capital, I never really thought about those concepts. Internally, we're debating the benefits of providing smaller revenueloans to companies earlier in their revenue life cycle. So, I find myself wondering -- what risk am I taking by moving earlier? Traditionally, people would say that moving earlier increases the risk -- and that's the obvious answer. But there's some benefit from a risk perspective to moving earlier. The main thing I find myself thinking about is that the fixed costs that get a company in trouble further into the revenue life cycle are not yet in place and so the entrepreneur is able (theoretically) to better able structure the organization to include those fixed costs.

The other thing to I find myself wondering about is that for each marginal dollar earlier in the revenue life cycle, I think I'm likely increasing my potential return by much more than one dollar. One dilemma for me is how to think about pricing this risk -- and there, frankly, right now, I have no clue! ;-)

Market education and awareness is top of mind

One of the topics that is top of mind for me at Lighter Capital is where and how are we going to get customers familiar with revenue based finance broadly and our RevenueLoan product specifically.

Once entrepreneurs and small business owners understand what we're doing, we should be a lot more effective in coming to terms with them and closing investments. That said, it's clear to me that we're in the early stages of market development for a new type of financial product. We have this new product that has some compelling advantages over other types of funding -- but if no one knows about the product and those benefits, it's hard to get customers.  We have the added challenge of not only having to educate small business owners and entrepreneurs but we also have to educate the lawyers that represent these business people.

In order to educate people about our product and our firm, I think I need to be communicating more about the process of growing this company. This should be straight forward as long as I have the time -- there's lots of interesting nuances and challenges we face.

blogging at Lighter Capital

Phew, in case you didn't hear - TechStars demo day happened last week which was both an awesome event with a lot of great people and another great moment for Seattle startups. For me personally, it marks the end of 3+ months of hectic schedule balancing the whirlwind time I spend running TechStars here in Seattle with my ongoing work at Lighter Capital and Founder's Co-op.

Among the things that I struggle to keep up with (sleep, family time), it's harder for me to find time to blog. So expect me to get back into the swing of things very soon. But as we build Lighter Capital into a full fledged, web-based site, I plan to split my blogging time between here and there. There's stuff I write about here that wouldn't fit for the brand we're building at Lighter Capital, and vice versa. 

As such, today I wrote my first blog post yet on the Lighter Capital blog. Expect more to come, and it may not be of interest to you, but wanted to let you all know that there's now more literary gold from yours truly that you can find over at www.lightercapital.com/blog.

My first post is about fighting financial fraud as a tech-enabled lender. Sound awesome? check it out over there.

Opening a Community Section at TechStars Seattle Demo Day!

TechStars is all about the community. Community-driven, community-supported. So, for the first time ever in Seattle, I'm excited to open a Community Section* at TechStars Demo Day!

Come join us November 3rd, 2 - 4:30pm at the Showbox Sodo. 

The 10 TechStars companies have been working around the clock for the last 3 months - doing more, faster. The most hyper-productive months of their lives. We're showcasing all their progress with presentations from each company. Come check out what they've built!

I can't wait to celebrate with you!

The first 100 people to do these two things will get to join us at TechStars Seattle Demo Day!

1. Tweet about why you love TechStars Seattle. Best, most creative, funniest tweet wins TechStars swag :) We'll track via hashtag: #tsdday. 

2. Make sure you follow @andysack I'll DM you the invite.

See you there, Seattle!

*Important disclaimer (aka buzzkill)...totally excited to invite you to demo day, but unfortunately that does not include the after party. Immediately following the presentations, we will ask the community section to exit. Please forgive me in advance (I've actually sicked Kayla on this - she'll be doing her best bouncer impersonation). We don't mean to be rude, but we have to set up the dinner and investor networking portion of the event. Thanks for understanding!

 

Inappropriate Use of Email

Financing is top of mind here at the TechStars offices. Not surprising...10 of 10 teams are raising capital. I'm happy that most of the companies already have commitments and are actively looking for angels/vcs to close out their round. At today's all-hands meetings, I was asked questions about financing. Here's a quick peek into how the conversation went today...

ME: "Don't discuss terms or ask for money over email. It may seem more efficient but deals don't get done over email. And worse, emails can be misinterpreted. The process of raising money is relationship management. And if you're managing a relationship...it's gotta be verbal...I mean telephone or in person. 

It's like trying to manage your girlfriend, your spouse or mother via email...can't be done. You gotta talk to her."

SMART ASS QUESTION FROM TECHSTAR: "But what if you have multiple girlfriends?" 

MY SMART ASS RESPONSE: "Well, then YOU certainly don't want your answers in writing." 

Full steam ahead...Demo day is 2 weeks from Thursday!

p.s. Are you an investor or member of the press and want to come to Demo Day on November 3rd? Email kayla@techstars.com for an invite.

Adding Rocketfuel: TechStars Seattle Demo Day partners with Seattle Interactive Conference

Seattle is brewing.

Killer, world class Startups, born and bred in the Pacific Northwest.

And im telling you, it's only going to get better. TechStars and Seattle Interactive Conference are on a mission to invigorate the Seattle ecosystem and showcase the talent of the Pacific Northwest! Consider this the North by Northwest event you don’t want to miss!

TechStars Seattle Demo Day – November 3^rd, 2 – 6pm. 

We are proud to present the 2011 class of TechStars Seattle to the investment community on November 3rd at the Showbox Sodo.  Join hundreds of angel investors and venture capitalists from all over the country as TechStars take the stage to pitch – in a quick and fun way - their business and investment opportunity. After presentations, we invite you to stay for a dinner buffet and networking.  Followed by a great after party! http://demodayseattle2011.eventbrite.com/ For angel investors and venture capitalists only, email kayla@techstars.org if you would like an invite! 

Seattle Interactive Conference - November 2nd & 3rd.

This event is bringing together industry leaders from tech, entertainment and the arts. Its a spectacle of merging cultures fueling the internet and changing the way we think and live. Its a celebration of disruption and the people, ideas, and technologies that fuel that disruption. World class, provocative, and delivered in a distinctly Seattle manner.  And TechStars Seattle is getting in on the action!

This is an exciting partnership between TechStars and the Seattle Interactive Conference. (Peep all the goodness here.) We are thrilled to co-produce this event. We continue to be humbled by the volume and depth of support this city has shown us. Thanks for the love Seattle!

We got it all here folks. Traction, growth, and the determination to make this city one of the best place to build a startup in the world.

Thanks for proving just how much this city takes care of it's own. We won't let you down.

Now go get your tickets! We're going to be way oversubscribed.

BigDoor acquires One True Fan -- and the crowd goes wild ...at least I do!

I’ve been joking with the BigDoor folks for a while now about how quiet it is in their new office space. I often come down on Friday afternoons and everyone’s working, heads down….it’s as quiet as a college library. The dedication from the team is remarkable and quite frankly a little bit scary but I think a lot of that dedication is starting to pay off.

For one thing the company has been working diligently on a private beta of their truly innovative solution they call the Engagement Economy, which is a new program that will impact how the digital world engages and monetizes their audiences.  That alone is exciting stuff but today BigDoor announced they have acquired San Francisco-basedweb services company OneTrueFan.

BigDoor provides a gamified loyalty platform and since they launched two years ago they have more than 300 partners. Recently the market demand has been outpacing their ability to keep up, so they turned to OneTrueFan as a means of accelerating their product development and overall growth. The demand has been so great they have turned to the OTFguys – Co-founders Eric and Todd and team to help accelerate their product development and growth.  Eric and Todd are pioneers in the game and social networking space (Co-founders of MyBlogLog ,acquired by Yahoo in ’07, as well as IGN.com, Gnip and Cloudspace). By joining forces, this acquisitionfurther cements BigDoor’s role as the largest provider of gamified loyalty solutions (OTF has 1,000s ofpublishers currently using their site). This also gives BigDoor a presence in Silicon Valley.

The former OneTrueFan team will be primarily focused on building and running a BigDoor branded rewards program that is targeted to long tail and medium size web publishers. When they launch BigDoor Rewards next month, it will carry with it many of the same characteristics publishers loved from OneTrueFan; brain-dead simple to implement, great analytics, increased content sharing, and far more user engagement. Shortly thereafter BigDoor will be taking the wraps off of their Engagement Economy private beta, and making it publicly available to larger publishers and online communities. 

I guess the college library atmosphere is working -- these guys are kicking ass!
Congrats to Keith, Ring, Jeff, Matt, Todd and Eric and team!

6 ways Poker is like a Startup

It's no secret that I'm a bit of a poker fan. I run a regular game and the odd "pickup" game has been know to spontaneously erupt around the TS/FC offices with some regularity. There's lots of reasons for that.

Poker is fun, a great way to network, and has a significantly lower risk of being rained out then golf.

But beyond that I feel the poker has a lot in common with being a startup founder.

1. You get in the game with a couple of cards that seem like they might be a good idea. As the data changes, you might realize you're not as sure about those cards as your were to begin with. Maybe time to pivot into a new hand.

2. The best flop in the world can't make up for a crappy team of hole cards.

3. Sometimes your opponent looks like they're holding all the cards. But when they finally flip them over, you see they weren't as far ahead as they represented.

4. Being aggressive (and smart) is a powerful stategy.

5. No matter how "good" a player you are, sometimes you're going to go all-in and lose. The question is are you going to get up from the table and leave?  Or are you going to call for a new rack of chips and play another hand?

6. Being low on chips is not always bad. In fact, it can add the perfect amount of pressure and imminency to help you win. It forces you all-in, in a way that being the chip leader doesn't. 

Now you'll have to excuse me, my chips are waiting for me downstairs and getting blinded away.