A Sack of Seattle

Boring can be sexy....in business

This statement doesn't apply to life and interactions with the opposite sex. But I've been pitched two pretty boring ideas by really good entrepreneurs and I thougth that both businesses had the potential of being pretty sexy and attractive.  The first one had to do with online manuals for products and the second had to do with backend plumbing and glue for email.  See what I mean -- boring stuff.  Yet, each entrepreneur saw something unique in these starting points that made me interested to follow the progress of the company over the next 6 months.  While these businesses might turn out to be nothing -- I'm guessing there's actually likely something there.  One of the big challenges for both entreprneurs will be in making the boring sexy to customers and to investors. 

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 Founder's co-op is helping Seattle?

 

This may be a repeat for some of you, and is a bit self promotional....but Mark Suster (General Partner at GRP in Los Angeles) wrote a thoughtful piece in TechCrunch yesterday about the startup scene here in Seattle, including a very generous mention of what we're up to here at Founders Co-op. 

Last night I was fortunate enought to be voted Best Angel / VC Investor at the Seattle 2.0 Awards. I am truly honored -- and feeling undeserving. I will work harder to actually earn this award. There are lots of more experienced and better vc's than I in Seattle -- They may not be as good at promotion but when it comes to making great bets on great companies I still have a lot to prove.  I'll get there though. Thanks for the acknowledgement. 

 

FirstMark Capital is spamming our companies with this email

Everyone one of the CEO's in our portfolio got an email like this.

Hi [CEO NAME],

Hope this note finds you well.  I’m with FirstMark Capital, a $2B venture firm based in New York City.  A friend of mine who runs a startup here in Manhattan shot me a note to check out [COMPANY NAME] over the weekend, and I had chance to spend some time on your site last night.  I found your [SITE DESCRIPTION] to be really interesting, and thought that your company seemed to mesh well with several of the investment verticals that we focus on as a firm.  I’m not sure if you’re familiar with FirstMark or not, but we invest in early-stage tech companies in a number of sectors like emerging media, retail/commerce, vertical apps & services, and infrastructure software, among others, and count a number of awesome companies like SecondMarket, Shopify, Clickable, Knewton, and Riot Games as current investments.

If you’ve got a few minutes sometime this week or next, I’d love to connect and learn more about your company as well as introduce you to FirstMark and tell you more about some of the ventures and initiatives that we’ve been involved with recently.  I look forward to hearing back on if and when you might be available.

Best,

Paul

No harm in this really....just kind of funny.  And thought I'd call it out. Sincere inquiries like this are always welcome and it's hard as a CEO to sort out the wheat from the chaffe. It might be worth a follow-up call if you see a fit but be aware that it's not all about their love for your unique business ;)

 

When money = relationship

I had an entrepreneur in my office that I've been working with for a few years. He's took a small angel round that I'm an investor in. The business has taken longer to get off the ground and in the last 6 months they're really starting to make strides. That said, the company is running out of cash and is about 10 to 15K per month from breakeven. Yesterday, he was in my office talking about raising 50K to get him to breakeven. I told him he should try to raise 200K so he can play for success. The terms of the 200K are going to be tough to the company and existing investors. The entrepreneur is doing all the right emotional things to make the company a success. He could easily throw in the towel and call it a "lesson learned". Instead, he wants to plow ahead. In the meeting, he told me he was committed to seeing this company through to success. In that moment, without knowing the terms of the deal, I told him that if he was in -- then I am committed to participating in this next round (personally and not as a fund). It was the right thing to do. And fortunately, I'm in a position to be able to do that.  In that moment -- money equaled relationship and support.  And fortunately for me -- I didn't miss the moment. There have been plenty of times where other friends I've worked with in the past have asked me to invest and support their ventures financially and for whatever reason -- I missed the moment when money equals relationship. This is a rare and important moment when even a little money gives the right emotional support and solidarity to help an entrepreneur. I suspect that this applies to famliy matters as well -- but tomorrow -- time willing, I'll write about instances where I have missed this opportunity...and how it bums out the asker as well as me. 

Should more angel investors consider a royalty based investment model?

I just answered this question on quora -- please vote it up here.

I absolutely think that royalty and revenue based finance should be considered by angels and funds. Ok -- I'm biased. I'm so convinced that revenue based finance is important that I started a company called RevenueLoan in addition to my equity orient Seattle based angel fund Founder's Co-op to pursue this model. Why? Because I think that there are lots of instances and lots of companies where this model is preferable for the entrepreneur than straight equity. Let me explain, revenue based investments have the following benefits when compared to straight equity:

1. Generally, revenue based investments are cheaper for the entrepreneur than straight equity. Often, significantly cheaper. If you think about selling equity -- often that's for 20% of the company. One can think of that equity sale as a 20% perpetual royalty.
2. Revenue based investments don't involve significant control provisions. Entrepreneurs who don't want the hassle of dealing with investors on the board of directors are attracted to royalty based finance.
3. Revenue based investment align entrepreneur and investor incentives in growing revenues and growing the revenue line and thus, growing the business. This is GOOD! And the right focus. When the entrepreneur and business increase sales, the entrepreneur wins and the investor wins. When growing sales takes longer, the entrepreneur isn't punished. This is GOOD!
4. The main objection to revenue based investments in my opinion revolve around the precious commodity of cash and not profit. It's true, revenue based investment require the company to have sufficient margin to pay them off and they take precious cash out of the company. That said, no investment is free and the benefits of revenue based investments far out weigh the costs.

In short, in my opinion, royalty and revenue based investments are a great tool for angels to have in their tool chest.  

Just my -- albeit biased -- $0.02.

 

Naked Juice with Vulcan Steve Hall ....interpret that!

  
A picture or two should help you interpret the post title.  
I had coffee and juice with Steve Hall yesterday. Super fun. Steve is a really smart guy who understands where technology and business intersect. He convinced me to try evernote. It's the third software product for the week I'm going to give a trial month to -- Quora, Evernote, and The Shared Web.

In my opinion, the rate of change of the web seems to be increasing. I can't keep up with all the new ways to post, share, and consume.  Can you?  

Lunch with Greg Gottesman

 
 
Had lunch today with Greg Gottesman of Madrona. We ate at Portage Bay Cafe and I had a great cheeseburger. We debriefed on the past class of TechStars in Seattle as well as Founder's Co-op and RevenueLoan. We also chatted about PHPfog a deal that both founder's co-op and Madrona participated. Thanks to Greg for his help with TechStars and for paying for lunch. 

An inbound email to RevenueLoan

I thought I'd share this from an inbound email inquiring about the possibility of a RevenueLoan:

"We are not interested in dilution at this time, we have no venture and would prefer to keep it that way. Hence, flexible financing against our future subscription payments is very attractive. We have a major product launch (product is entering beta) at the end of this year and this will require additional funding upfront."

On the surface, this sounds like there may be a fit....look forward to talking to this entrepreneur!

Open Angel Forum and TechStars DemoDay in Seattle - be sure to register now!

As many of you know, I'm busy trying to cultivate the start up scene in Seattle!  Thus, my endeavors -- Founder's Co-op, RevenueLoan, and TechStars.  I am deeply passionate about helping entrepreneurs and early stage companies get capital to grow!  

About a year ago, I became aware of an initiative run by Jason Calacanis called Open Angel Forum (OAF).  The program tries to marry high quality angels with high quality angel investment opportunities at NO cost to the entrepreneur.  This kind of event resonated with me a lot - I attended OAF in Boulder and thought it was great! I've known Jason since the 90's and I recently agreed to host Open Angel Forum the night before TechStars DemoDay in an effort to attract more angels to the Seattle event.

So it's my pleasure to announce --  two exciting angel events for investment opportunities in Seattle – ever! Hosted back-to-back on purpose, this is going to be a two days of angel and entrepreneur events in Seattle!  These events are invite only so follow instructions below!

I) November 10^th – Open Angel Forum, 7pm.

Join Jason Calacanis, myself and many other angel investors for the first meeting of the Seattle chapter of the Open Angel Forum!   We'll have food and drinks while hearing 5 minute pitches from 6 start up companies.  We're planning for plenty of fun and time for networking - even a poker game after!   Register online here: Angels, Entrepreneurs, Service Providers. 

 

II) November 11^th – TechStars Investor Day, 9am.

Ten exciting new companies from the TechStars class of 2010 in Seattle will give short eight minute presentations highlighting the business and investment opportunity. The style is fun and entertaining, it's a different kind of pitch event that includes amazing opportunities for networking as well.  This event is invitation only and registration is required. Please email kayla@techstars.org if you’d like to attend or if you have any questions.