Category Archives: tech & business

A.B.F. – Always Be Fundraising

The CEO of any startup has three primary roles:

  1. Raising capital
  2. Setting the vision and overall strategy
  3. Hiring the right people

As anyone who has built and run a business from the ground up will tell you, being a CEO is not the easiest gig in the world. With so many different distractions pulling you in so many different directions, it’s easy to get overwhelmed by the minutiae of the day to day and lose sight of those three responsibilities.

To be fair, CEOs are responsible for more than just those three things. Each CEO has to wear multiple hats. But the fundamentals are still true.

Raise Money—And Then Raise More

I’ve noticed a pattern amongst entrepreneurs—even the good ones—where many of them forget the importance of the first responsibility listed above: raising capital. They forget that fundraising is an ongoing job that needs to be done regardless of the current cash balance.

Raising money is hard enough as it is. But by not working on it in between rounds, CEOs and founders make it that much harder on themselves. To be successful, CEOs need to take the A.B.F. approach to fundraising: always be fundraising.

A little maintenance goes a long way—just like heading to the gym on a regular basis is good for your health and fitness. Don’t get fat and lazy in between fundraising rounds—getting back into fighting shape (or fundraising shape!) is 10 times harder when you don’t have a base.

Some readers will almost certainly blow this off as easy-to-say/hard-to-do VC advice, but I actually screwed this up in the past too. Knowing what I know now, I wish I could go back in time and talk to my former-self. There were times when I was terrible about A.B.F. and other times when I was much better at it. The results of each approach were pretty clear.

I now see the difference between CEOs who take the A.B.F. approach and those who treat it as as a finite transaction. If you are not talking to and engaging investors between rounds, you are not A.B.F and you’ll pay later. When it’s time to raise (even in a “things are awesome and I need to fund the growth” scenario) it’s way more work as you are starting the relationships from scratch in many cases. The biggest difference is the fact that, with an A.B.F. mentality, whenever it’s time to raise more money—regardless of whether it’s a big up round or a “leap over the valley of death bridge”—the rounds get done faster, easier, and with more support from investors…and often on better terms.

Here’s a simple contrast between A.B.F and transactional fundraising: 2-3 hours a month woven into everything you do or 3-5 stressful months on the road herding cats during only two good windows per calendar year. Am I getting through?!?

Tips for Making A.B.F. a Reality

So how exactly can you become an someone who lives and breathes A.B.F.?

  • Maintain two investor lists. The first list should include current investors who you share monthly or quarterly updates with. The second list is for the investors who’ve passed at some point but left the door open. (You know the “if you were at YYZ in MRR we’d take a closer look, keep us posted” folks). Add new contacts to this list as you do the A.B.F. groundwork (networking, taking intros, etc.) This list becomes your target list for the next round.
  • Update the first list monthly. Be consistent—make it part of your routine. Put the asks at the top followed by the wins & metrics. The data should be telling a story clearly so there is no ambiguity about what is working and what isn’t. You might even find that they realize it’s time to add more capital to the business before you do. VCs are great at pattern recognition (for better or worse). This is low-hanging-fruit in terms of helping investors follow along as the chart moves up and to the right!
  • Solicit feedback and advice from the second list occasionally. You don’t want to be too annoying, but you don’t need to completely disappear either. In a previous blog post, I talked about the idea that when you ask for advice you get investment and when you ask for investment you get advice. Play the game and engage. Ask for feedback on metrics, messaging, and progress to ensure they’re thinking about you and your company.
  • Update your target investors every quarter. Put in some face time with investors on that second list. This can be a 20 minute video call. Just say top of mind if you can. Spread it out and mix it up. Personally, I’m way more likely to take a coffee meeting or a quick call to help an entrepreneur I know or to hear how things are going vs agreeing to be pitched formally if the company isn’t on my radar.  ­Asking for quick feedback on a high-level deck or just sending over news of a few wins will get the job done. The occasional business ask will test to see who is really paying attention. Put these at the top of the emails!

Are you the kind of CEO who’s always thinking about raising money but not doing it? Or could your fundraising game be enhanced? The sooner you adopt an A.B.F. mindset, the less time you’ll spend actually fundraising!

Why Your Startup Should Eat A Debt Sandwich

I’ve given this talk at various Techstars programs quite a few times now, and most recently gave it in L.A. at our awesome Healthcare Accelerator in partnership with Cedars-Sinai. I always do this talk off-the-cuff (no slides) to keep it interactive. You won’t find my talk online anywhere, so I’m excited to share some of the key points for the first time here.

Founders are often given valid but over-simplified advice when it comes to debt financing. Some of the “mostly true” points include; debt rounds cost less from a legal standpoint, that you can negotiate a high conversion cap (implicit next round valuation target) than are priced equity rounds, and you can raise money progressively (one investor at a time).

All of this is often true. Debt rounds can be easier and can also keep costs down for all parties involved. That’s why I’ve often heard it said: “If you don’t know what to do just raise debt”, or “if you don’t want to price your company, just raise debt.” Venture Deals does a great job of discussing these dynamics in more detail.

Don’t get me wrong, I’m not here to say debt rounds are bad news. At all. All I’m saying is avoid raising two (or more!) debt rounds in a row.

Instead, sandwich debt between equity so the debt won’t come back to haunt your company later.

Why Sandwich your Debt?

Your cap table can end up like a sandwich with too many condiments stacked on top of each other. We all know what happens, and only about ½ the sandwich ends up in your mouth!  

Debt rounds become problematic because each round of debt comes with its own discount, it’s own conversion cap, and other rights/terms. It becomes particularly complex if one of the rounds has a low conversion cap and the next has a higher one. The cap table math gets complicated, the founder/common dilution gets significant, and the new money investors end up with less ownership than they are looking for.

All of this has to be sorted out by legal or the VCs, messaged to the existing investors, and managed by the lawyers in papering the round. This causes problems for everyone, and some investors will just walk because the deal becomes complicated.

The early investor sometimes get asked move the cap up, and no one feels good about that move. I often remind founders that $1.00 isn’t actually $1.00 with debt, it’s either a $1.25 (remember the 20% discount & interest) or more like $1.50+ if your next round is well above the cap.

It’s good to go in eyes open and to realize that stacking debt means the discounts, the interest, and the cap all end up driving up the actual dollar leverage to the investor and the company sells more equity in the round but gets no additional net-new capital to spend from it.

When you sandwich your debt between equity rounds you are mitigating the risk of the next equity round toppling over due to complexity or having to do a massive amount of negotiating with both old and new investors and having the dilution get out of control.

Real World Example

  • One company I worked with had 3 different note rounds with escalating caps and discounts (1M/50%, 2M/20%, 3M/20%). The 1M cap round was the 1st money in and what a deal that was (for the investor)!
  • The timeframe across all of the 3 notes was ‘too short’; The 1M note was only 6 months from 3M – new investors felt the cap/discounts on the early notes were a ‘deal that never should have been done’ and there was friction from the get-go. Naturally the founders didn’t want to sell any more debt at that 1M/50% level.
  • Without a restructure of the early debt, it would have amounted to an approximate 5% additional dilution to founders when the priced round closed.
  • The early note holders were friends and family, but despite that, getting them to agree to changing the debt terms was very challenging. Who wants to give up the better deal they got for taking the early risk?
  • New investors have a range (ownership model) that keeps founder/early investor/new investor ratios balanced  – the successive debt rounds painted the company into a corner where it was almost an impossible equation to solve for. It became messy – and almost killed the deal.

The Solution

The company ended up renegotiating the 1M cap notes to 2M. This cost the CEO 80 hours of time, the co-founder another 60 hours, and a substantial legal bill. Let that sink in for a moment. The founders lost a good month of productivity on this.

Had they raised the 2nd/3rd round of notes as a priced round, the first round of notes would have been converted in early. The 1M note investors would have gotten a quick 2x on their investment and then owned equity.  None of this process and extra dilution would have taken place. The company would have raised that seed round with a pre-money around the same valuation as the later note caps, so they would have also saved the 20% discount.

Avoid this kind of headache, and just eat a debt sandwich instead.

Resource – Getting from Seed to Series A

ICYMI, Techstars has launched a new live AMA series for Entrepreneurs which I’m super excited about. We are recording the AMAs for later consumption, so no need to worry if you can’t make the live event schedule.

I recently hosted a live AMA with Michelle Crosby of WeVorce and Todd Saunders of AdHawk (both Techstars Ventures portfolio companies) that was a continuation of the discussion started at CES 2016 around “Getting from Seed to Series A” which I then blogged about here.

There are so many great posts and resources already out there on this topic but here’s a quick hit list of items that popped up in the last week to add the to the reading queue.

Bookmark this post as I’ll keep adding links to new content from Techstars and others around our network on this important topic!

One Thing Every SaaS Company Should Do

TL;DR

I had a recent experience with a CRM eval that left an impression on me, and I came to the conclusion that running a SaaS evaluation of other solutions on a semi-regular basis can be super helpful.  Keep reading for a few tips/learnings.

Long version;
If you are in the business of providing a cloud-based service and you want to get better, one of the absolute best things you can do is to perform a proper evaluation of OTHER companies’ SaaS offerings. Many companies are constantly iterating and tweaking the sales process, but its not hard to end up somewhat lost in your own world of what you think works best. Bigger changes can be hard and risky. A/B testing takes resources. Blah, blah…. If you run a proper evaluation of another set of SaaS solutions that have reached scale, you can learn a ton about what’s working and what’s not. It might even be smart to do this once every few quarters to ensure you aren’t missing something. Another approach would be to ask a friend to anonymously run through your process and that of 2-3 of your competitors. Its a cheap way to help you see the forest through the trees.

 

From my recent experience, the key here is “proper evaluation”. This means running a process, having requirements, and being thoughtful about methodology. I’m not sure this works if you just sign up for 1-2 services and play around for an hour. Build a spreadsheet, document your process and the data collected. Actually use the products with real data. Try the import tools. Enable the integrations. Use the tools in anger as the Brits say.

I recently went through the exercise of selecting a new CRM platform for the fund, and rather than just pick one I thought would meet our needs (or keep what we had), I decided to run a full-blown competitive evaluation. It was an awesome eye opener. I work with a lot of SaaS companies, and there was something magical about going through the normal interest>trial>shakedown>decision process with 5 products at once. The magic was that I saw strengths and weaknesses in every vendor’s approach and was able to directly compare what I felt was best-of-class against what was happening at some of our portfolio companies. It highlighted a lot of low-hanging fruit and areas to fine-tune, I.E. things that our companies were not doing that would improve the 0-60 or qualification experience, as well as confirmations about what was already where it should be.

In some ways the project was a nice change of pace and a thing to really sink into for a week, and I learned a ton about which companies had a really dialed in process and which didn’t. For many prospective buyers, that initial experience with the brand and product set the tone for the entire evaluation process and perception of the company itself. You can learn a lot about a company in the first few hours after you sign up for something!

A few standout areas from my CRM evaluation:
  • It starts with the form. If you are B2B SaaS and you are not collecting a company name and a phone #, why not? Its a great qualification filter for B2B solutions.  Learning: don’t be afraid to collect the necessary info up front. Its part of qualification!
  • The category leaders got in touch with me within hours. Sometimes under an hour! Not a form email, a call. I didn’t find it annoying because I was actually a qualified lead and wanted to talk to them. Learning: Engage quickly and show me you are hungry and responsive and want my business! It tells me what kind of company you are. Don’t wait a week to call me.
  • Qualification best practice – They qualified me out of the gate in a polite way and then often got me in touch with the “private equity” specialist that understood what I was trying to do. In one case, the company dis-qualified themselves because they knew they wouldn’t be an ideal fit. Bravo! Learning: its ok to be direct and cut me loose if I’m not an ideal customer. Qualify quickly. I’ll respect you more. 
  • Email and human engagement were in sync. No surprise that the two companies that called me within an hour or so had their act together with the marketing email drip campaign also. I wasn’t getting pinged by a human rep and a different robo-marketer at the same time. Learning: consistent and intelligent communication are key to a good experience. If your organization ins’t in sync before I give you my $$, how will it go after? 
  • Help, don’t push. In some cases it was pretty clear the company wanted to just be available to answer questions, but in others they wanted to push me along, like getting shoved from behind in the line for Space Mountain. Guess which one I liked better? Learning: Direct and friendly = great, but there is a fine line. Don’t cross it. You are telling me about the culture of your company. 
  • Product Experience – What I found to be optimal was the built-in wizards to orient me around the UI, and then a pre-sales human available to answer questions. When someone tried to schedule a demo I declined because I didn’t want to sit through them, I wanted to see how intuitive the UI was. It was a leading indicator and a key criteria for us (usability). Learning: Features are important (tablestakes!) but UI and UX matter a ton. I have to actually like the product, regardless of reqs. 
  • Hand-Off – One company in particular did a great job of handing me off from the pre-sales / qualification team to the actual sales rep. Both were on one call, both had the same data on my needs, and I never had to repeat myself. This built a lot of trust. I knew who to call and who was going to work with me going forward. Learning: Be consistent and ensure your workflow between lead-gen, pre-sales, post-sales, etc is seamless. You can lose me at any of these steps if you fumble. 

So, after you are done re-reading Bessemer’s awesome 10 Laws of Cloud Computing guide and gut-checking where you are with the core elements of SaaS, I’d encourage you to run a proper competitive analysis of SaaS solutions in another category.  Hold your own process and customer experience up to what you think is best of breed. You’ll learn a ton, and I’d be surprised if you didn’t find at least 5-10 tweaks that could end up making a real difference.

 

I’d love to hear from you after you do this, or if you have recently and what your experience was!

 

Chasing Rabbits

I was on an email thread earlier this week – a conversation between a Techstars company and its mentors. There was a healthy discussion around the current areas of focus and whether to start monetizing or focus on users/growth (or do both).

Wayne Chang,  another (awesome) mentor on the thread shared a great quote that really resonated with me:

dogchasing
“The hunter who chases two rabbits catches neither”

This stuck with me for the rest of the day. Such a simple thing, but so very true.  Its a great gut-check. Are you focused? Are you about to catch your quarry? FOCUS! is a startup rallying cry, almost to the point of being a cliche’ at this point, but its valid.  Early stage market validation and finding product-market fit are so, so important and yet many companies get distracted and try to do too many things at once.

To be fair, I’ve also observed there being a lot of grey area around what it means to be truly focused. For some companies, focusing on user acquisition and raw growth vs trying to monetize those users is enough. For others, driving success with one user case, or in one vertical may be enough. I’m working with a company now that is super early but is doing 4 things at once. They are laser focused on the mission and vision, but the tactics  require doing many things at once. They are focused on winning the market, and everything they do rolls up to that strategy.

In all cases, its the end result that matters. Every business is different, but if you sit with this quote for a minute…it just might illuminate something valuable. Happy hunting!

Welcome to the Future

2013-05-26_techstars_ID_final_bug with typesetWhen I was a kid, I was always fascinated with technology and mechanics.  I could not get enough of anything that seemed complex or innovative. When I was a kid I built model planes, I built and raced RC cars, I also built and flew gas-powered RC planes for a few years. Then I shifted my focus to computers and cars as I got older. I grew up in the bay area and was surrounded with early tech and I was just drawn to it.

I also seemed to have a really hard time staying focused on just one thing for very long. I wanted to absorb as much as I could. I’ve always been interested in what’s next. Its not ADD, its curiosity (or so I tell myself).

I was still in high school when I applied for an internship for a valley tech company. My duties were split between the QA lab and writing a Investor Relations database for the CFO. Looking back, this split duty may have laid the foundation for my entire career. I’ve always found the most rewarding and challenging work to be a combination of business strategy and technical details. My early career path followed this model, now that I think about it. I’ll spare you the details but what’s relevant is that I couldn’t really figure out what to major in when I went to college. I loved tech, but couldn’t commit to being an engineer, and I loved business but didn’t love numbers enough to want to be an Accountant or Finance major (ironic, right?). I decided to split the difference and selected Marketing as a major at the CU Leeds School, and they had a brand new Entrepreneurship track that I hopped on. I haven’t looked back.

The last 15 years of my professional life has been an amazing journey across a number of different industries, markets and models. As it turns out almost every one of the companies I’ve either founded or been a part of was angel and venture backed (7 of 8 to be exact). I’ve had days where I loved VCs, and I’ve had frustrating days when I’ve hated them. For years I thought about getting into venture capital, and the idea that I could be involved in a larger number of businesses at once really intrigued me. I told myself that if I ever had the opportunity, I’d carry with me all of the lessons and scar tissue I had accumulated over the last 15 years. It had to be the right platform, the right team, and the right culture. I’m proud to say the time has come.

On Wednesday we announced a new $150M venture fund at Techstars. There has been a bunch of great press on it, and David wrote an phenomenal post that touches on how Techstars got to this point. Brad Feld also posted his thoughts on our evolution, and Mark Solon wrote a great post about his own journey to this point. I could not be more excited and humbled to be able to call David, Mark, Nicole and Jason my partners. I learn from them every day, and enjoy the unique strengths and perspectives we all bring to the table. I’m incredibly thankful to have a seat at the table.

I met David Cohen in 2006, when I was running Newman Venture Advisors. We had just sold off an early stage company I was the interim CEO of, and he casually asked me what I was going to do next. I pitched him on an idea I had been developing. Something to do with filtering the web and improving the signal to noise ratio. David pulled a two page exec summary he had written out a file cabinet. (We still used those back then). It was, almost verbatim, what I had just pitched. He suggested I apply to this new thing he was doing called Techstars. I demurred, and thought it wasn’t a fit for me. I think he said something like “just apply, it will be a good exercise”.  Always up for a challenge and immediately seeing the value of the application process, I agreed. On the way out the door he mentioned “oh, by the way…applications close in two weeks and you have to provide a functional prototype.” After the mild panic subsided, I put my head down and Filtrbox was born. Thanks for the nudge David, you changed my life!  David also introduced me to Tom Chikoore who became my co-founder and CTO at Filtrbox. We clicked quickly and although we barely knew each other we shared a huge vision for what was possible. Reflecting on how this all started,  there is something magical and serendipitous about being part of the team at Techstars today.  My future is here, and it all started almost a decade ago. There are no coincidences.

I wish I could tell you I was in constant disbelief about how this has all come about, but I’m not. I’m blown away, and at the same time not surprised. Techstars is the real deal. This organization lives and breathes its #givefirst mantra and entrepreneur-focused mission every day.  I’m constantly learning, constantly inspired, and super excited for this next chapter.

I’ll do my best to “do it right” and remember my experiences as an entrepreneur pitching other VCs. I’m not sure I agree with this Venn diagram (thanks @yoavlurie), but 15 years as an entrepreneur and operator won’t be easily forgotten.

I moved to Boulder in 2002 with my amazing wife Leslie because we wanted to find balance. I wanted to do awesome things in tech, but on my own terms. Brad Feld was a huge early inspiration and supporter (and later, we had a walk around a lake in Slovenia that had a profound affect on me). Jon Callaghan and Phil Black at True Ventures were some of the first VCs I met whose care for the entrepreneur was clear and evident.  Trevor Loy at Flywheel taught me the value of looking around the bend. Simon Khalaf, my boss and soon-after co-founder at JustOn taught me how to get shit done and execute on a vision in ways I could have never imagined.  And the day that Seth Levine said “we” in a Mentor meeting during Techstars in 2007 instead of “you guys” has stuck with me to this day, and I’m lucky to count him as a good friend.

David and Mark both talked in their posts about how the people around them have shaped their careers and personal paths, and I could not agree more. I’m so thankful to have amazing people around me, and I look forward to meeting many, many more amazing and inspirational people in my journey as an investor.

 

2015 – The Future is Here

I woke up this morning with the thought “I can’t believe its 2015!”, but truthfully I can and I’m actually super excited about the year to come. In many ways, I feel like the future is here, now. We are always in a state of evolution, improvement, optimization, etc. with technology, but 2015 feels like its going to be like a tipping point.

On the personal front I’m committed to getting my body and heath put back together. My recovery from the back surgery almost two years ago is in a good place and I’m able to ride a little, swim and lift again. However I’ve put on almost 15 lbs since my bike racing days so I’ve got real work to do. I’m fired up about it though, and you can bet that technology will help keep me focused on my goals. I’m using LoseIt, Withings scale, my Garmin & Strava for starters.

On the work front I couldn’t be more excited about where we are taking Techstars next. Our recent announcements around the new Mobility Accelerator in Detroit and the Qualcomm Robotics Accelerator, powered by Techstars are super forward-leaning programs that aim to bring tomorrow’s tech into the hands of consumers and businesses today.  These two markets, Mobility and Robotics specifically, are places where innovation means better safety, utility and environmental responsibility.  Its going to be a big year and I can’t wait to see what the companies come up with!

When I think about the state of the art in terms of IoT, home intelligence, and just sheer cool-factor, its hard to believe where we are when you stop and think about it. A few years ago when things like Nest and Dropcam were just hitting the mainstream we knew it was all coming, but its happened fast.  Sure, we don’t have jetpacks, hyperloop, and sadly there is no light rail between Boulder and DIA yet (cough, cough), but a 3.2 second electric sedan, AI for drones, touch-surface headphones, smart HVAC vents, smart sensors for your home and the like all tell me we are hitting a tipping point where the groundwork laid over the last few years in these areas of tech-driven efficiencies are going to reach a point where we really see the benefits as consumers. In fact, you don’t have to look much further than our holiday gift guide to see some really cool innovations that are hitting the market.

What’s also got me inspired is that I’m going to CES for the 1st time next week. I’ve always wanted to go and am excited to check it out, although I know its crazy and exhausting.  A good number of Techstars companies will be there, and I’m speaking on a panel on Wednesday about raising capital for your company, alongside some great folks from Qualcomm Ventures, Andreessen Horowitz and Silicon Valley Bank.

Bring on 2015! Perhaps I’ll get that jetpack after all.

FG Press & Uncommon Stock – a new Startup Thriller!

Sometimes 140 characters just doesn’t do it. (still love you @twitter!) so its time to dust off this blog and offer up a few more words. I haven’t posted here since the back surgery. I’m mostly better, more on that soon.

I just read  an advance copy of Uncommon Stock, a new novel by Eliot Peper, published on FG Press. (Full disclosure, I’m also an author on FG Press). I’m not going lie, its hard to put down! Its a fun and all-too-real fictional journey through the dynamics that are building a tech business.

I won’t spoil it all here, but you can grab an excerpt on the FG press page or go directly over to Amazon and get your own copy today! Eliot does a great job with this book. It’s really fun to read if you are curious about the 1st person experience in startups, have lived it yourself, or want to escape for a little while. I’m sure its enjoyable for 100 other reasons as well, but that’s my short list. Pro Tip: Follow Mara, the protagonist, on Twitter!

Related: I’m really excited about what the Foundry team is doing with FG Press. I’m honored to be on the platform as a first time author, and can’t wait to see more books launch this way. It does feels like this is the future, jetpacks and all!

I’m a Techstar (again!)

Exciting News – I’ve just joined the super awesome Techstars team!  I’ll be focusing on alumni and acting as conduit and enabler for the incredible network of entrepreneurs, mentors, and investors the platform has grown to encompass. Check out the cool infographic we posted yesterday to see what I mean. My company, Filtrbox, went through Techstars Boulder in 2007 – the inaugural class! Since that time I’ve stayed close to Techstars and acted as a mentor, investor and supporter over the years.

I took a partial sebbatical over the summer after leaving Jive (more on that in another post) and am super psyched to jump into this role. I’m joining Techstars at a really exciting time –  David and team have truly stacked the deck with some great people who share the vision and passion for helping entrepreneurs get off the ground.

I’m posting this from Techstars #foundercon – our annual founders meeting. It feels great to have come “full circle” and now be part of the organization that helped launch Filtrbox a good 5 years ago!

In other news, this also means I’m going to start blogging (here) again and be in regular communication on all my favorite topics. Switching on Creator mode again!