People’s Software Company

We’ll be live in alpha within days with the first proof of concept application, with more to follow over the next few weeks (and iterations of the products as well.) Our Investor Day, the big TechStars presentation that puts us in front of a 100 plus angels and investors, is happening this month, and we’re drilling down on our budgets, expenses, valuations, revenue projections, etc.

But here’s the deal–this is ONLY THE BEGINNING.

Back in April, when Lisa and I were thinking about starting a company together, we were passionate about helping people connect locally, in their communities. We wanted to do TechStars to have three months in the same room to craft the product vision, the business plan and the company, and to meld in a way we could eventually work remotely (and travel alot, of course, we knew that).

But on some level, I think I had this magic hope that TechStars would empower me to walk out with funding before the summer ended, that the BradFeld/David Cohen seal of approval would get me some magic unicorn prince angel investor. (I also thought we’d be out live in alpha by July 27th, so those ideas were all proven to be unrealistic, stuff happens.) Now, I realize that what Brad and David and all the other great mentors who have and are giving us their time have helped us do is to get ready to present ourselves as a professional company, well in command of what our opportunity is, and to be credible and through WHEN WE GET OUT THERE AND START PITCHING.

Yep, Investor Day isn’t the end of the first phase; it’s the beginning of the next one, the one where we become an angel-backed company that has investors, a board, consumer users and business partners–and where we go down an accelerated development path that will enable us to make good on the revenue projections we hope to achieve.

In other words, I now recognize that Investor Day –and these days leading up to it–is the launching pad for our company and our next stage of development–And that I’ll be pitching as long and as hard as I need to till I find the right group of investors to close our first angel round.

To me, this feels incredibly exciting–we have some great ideas, some powerful customer and revenue models, and a problem to solve that we know our tools can solve and address–so now the start of rolling it all out.

So, we have about 15 more days of TechStars left. At the end of May, Lisa and I arrived here and starting forming this company. Now we’re going to leave with a product, a customer focus, a business model, a revenue strategy and a sense of just what we need to ask for in terms of money (unless we decide to bootstrap).

We’re drilling down on the business stuff now: customer pipelines, expenses and revenue goals, user acquisition strategies, and of course, our investor day preso and our ask.  Within a week, we need to lock our presentation; within a few days we want to fine tune our numbers(with the help of some mentor input).

Just doesn’t feel like there is enough time to do everything, and yet, we keep getting stuff done. Part of that is ruthless prioritization and part of it is working long hours. And then working long hours again. One foot in front of the other, one milestone after another…we keep going down the list.

Last night was the amazing Boulder Denver New Tech Meet Up, the powerhouse monthly gathering at the CU Boulder law school that Robert Reich presides over every month. As usual, the house was packed, only this time, it was 5 of the TechStars teams who were on display.

You can see pix and read comments here ; the teams did a great job getting up in front of the crowd and doing their 5 minutes of demo and then 5 minutes of Q&A.

Brad and Jason rules:

• It is either going to be really hard or really easy. Focus on yourself, not how you compare to everybody else.
• Having an easy time raising money doesn’t mean success.
• Some of you will fail. At least one team in this room will not succeed in raising a round or will raise less and will struggle.
• Go after it with everything you’ve got–but success is not a foregone conclusion.

(Transition): Make sure you pause after you do your first few minutes of your investor pitch.

• How much do you want to raise?
• Ranges are bad–didn’t you already learn that? You want a number, not a range.
• Go out to raise less than what you think you need; it is better to be over subscribed than under subscribed.
• How do you come to this number? Most of you will raise enough $$ as a seed investment to be able to get to the next place..but you don’t know what that is–so much of it is time-based. The most credible thing to say is this is what we need for X months of life and we need that to get from this early stage to stage where we can demonstrate XXX.
• The exit value means less to an early stage angel; the worst way to predict value is to give comparables and numbers–it is just too early too know–and angels know that.
• Series A investors who are obsessed with that are not always very good investors.
• A really good company should be able to meet its cost projections–you need to manage to that.
• The less you raise the better you are right now–most of you need more bake time–if you raise too much money you will add too many people and do the wrong things-raising less keeps the constraints on and that is good.
• Averages for last year’s teams were 250K, 150K, 500K, 850K….natural angel points
• Big question: Should I raise debt or equity? There are two beliefs–raise debt and structure in a way that gives early investors a discount for the future equity round. But the discount may not be proportional to the value they help you create. On the equity side, angels price the round and buy in at a valuation, the theory there is you fix the valuation today at an attractive low price and get everyone incentivized to get you to the next round. Equity has more work attached around valuation, and terms, and there is a risk that you pick a valuation too high and your next round doesn’t support that valuation so your angels loose money. (Brad says this decision gets made either by a lead investor who favors a specific approach; it pays to make sure someone is driving this decision…)
• Jason: Warrants are good–VCs have huge egos and big calculators.
• Debt financing documents are often 2 pages docs–pay attention to what the investor is giving you, what the discount is, and what happens when the debt expires or matures..is it converted to equity at some price, do I get your house, etc? There is a range…if the company gets acquired before the debt converts, what does the investor get?
• Market pricing–Brad says the pre money market price is between 1 million and 1.5 million pre money (!!!)–At the low end 1.5 mil, high end 2.5 tops. So if you looked at Colorado venture stage companies and took the outliers out, that is what you’d see–there is not a big correlation between the pre money and the amount that you raise.
• If you raise money at too high a valuation and raise too much, you end up with money at a lower price and there is anti dilution–so the founders lose their equity–you cold end up with a down round and get everyone upset just so you can survive.
• The going in price doesn’t matter–only the exit.
• Three positive exit choices: another private company buys you, a public company buys you, IPO–so far in the future not to worry about that.
• What is the right valuation? Most institution seed investors, like EON or First Round, has thoughts about what they want their returns to look like; when Brad did it, he didn’t have as structured expectations.
• Your early angel investors should be helping you to succeed. Your mentors are your pipeline. You need to sidle up to them if you have not done so already. Ask yourself: Is there a future role for this person as an advisor or a board member? Do you want to provide incremental equity–.25 percent to 1 percent total? Juice to fuel their involvement…Active mentors vs incidental mentors…
• Don’t loose sight of the fact you want to get people engaged in your business.
• Ask angel groups if you are talking to someone who can make an investment decision. Negative indicators: a) if you pay me X I will help you find money; I can help you raise X if you give me Y percentage. (I agree!!!!)
• You should be able to raise equity or debt on the same terms….what is it people want to accomplish in working with you?
• If you need financing, watch out for people who do not want to invest, but want to be an advisor.
• “We have our own evil plans.” (Brad on advising the techstars teams).
• “When are you going to exit?” is a negative indicator from an angel prospect.
• What does the lead investor get (in the pie chart?) You want a lead investor who will take a third of your round, plus or minus–if you can do that, you will be able to make your round. If you want 250, you need one investor to do 75 or 100 K–it could be a group who invest together–It could be a chunk.
• So you can define the chunk in different ways, but you want to get one chunk to give a third of your round–if you have trouble finding that, it’s an indicator you are going to probably have trouble.
• You have to work to find your lead investors–but don’t limit yourself to the people you already have worked with. The frustrating moment in when you can’t find the second third and you can’t stall–you just have to keep the pressure on. It doesn’t matter what amount of money you want to raise–you need to keep your momentum and keep your eye on the ball.
• Focus now on trying to identify that first third. If you can’t imagine someone writing a check for $200,00 you have no business raising $500K. Use that to calibrate yourself.
• Last year, no VCs invested in techstars companies, except for two.
• Friends and family can be part of your population..there is definitely someone who will put money into your pre existing network–if you don’t have the courage to ask people you know, how can you ask people you do not know?
• Who provides the term sheet? We should have term sheets to work with…as will our angels.
• Get a credible person to help you put your term sheet together (like Brad F.)–worst thing is to have people commit to term sheet and then have other people veto the terms–don’t be too rigid.
• What about your existing investors? Sheep, already in the deal and hoping you will be more successful…lead investors set the pace. Once you build momentum around a deal, people will show up and want to invest…recognize the leaders and the herd as you try to put the financing together.
• It’s delightful when you pitch and pitch and you have people on the fence and suddenly they decide they want it–the maybes are the most common and you have to sort out the early yesses and get them to yes..the maybes are VERY frustrating!
• Vesting: typical schedule is to have simple 4 year vesting agreements, vesting monthly for founders, and a one year cliff for the staffers. Start the clock at the beginning of the summer, like June.
• Get your documents together-file everything!

Okay, I am a list maniac, to my regret, but this is a pretty good list of areas where a lack of skill are fatal for a CEO, CTO, CPO, etc.

• Lack of Financial Acumen
• Failure to Manage Operationally
• Failure to Lead/Motivate/Inspire
• Failure to Execute
• Failure to Build World Class Team

Favorite quote: ”
At the end of the day, our jobs are all about creating and maximizing shareholder value. Failing to bring products to market in a timely fashion, releasing products with unacceptable levels of defects, and failing to meet contracted delivery dates are all examples of failing to execute to the expectations of your customers, partners and, ultimately, your shareholders.”

Susan sez: Amen!

I’m at the start of the business cycle with People’s Software, but I’ve helped build lots of business and been around many acquisitions. I understand how, as a founder, the joy of a successful sale is tempered by the sadness of letting go of what you created–and, all too often, seenng growth level off or the product/business die.

I thought of Dave Morgan, Tacoda’s founder, when I saw the announcements today about AOL integrated Tacoda into their platforms and, in effect, shutting it down (or folding it into ad.com, not totally clear). I remember when Tacoda rolled out and how excited I was about their targeting; since the sale to AOL, the company’s shrunk and most of the key business side staff have left.)

And now we hear AOL’s also buying another TechStars company, SocialThing–will that be in pieces in a year, too?

This is the tension of the exit–but it’s a tough one.

We’re headed for the Big Time!

Originally uploaded by socialthing!

Congrats to Matt Galligan and Ben Brightwell of TechStars 2007 company SocialThing — news just leaked out that they got bought by [drumroll plz] AOL.

Congrats, guys!

We slipped. Well, we didn’t slip, our release date did. And we were bummed, big time(at least I was). In my perfect vision, we’d already be out in the market for a week or so, iterate, release, iterate–and head toward the end of techstars with lots of feedback from users. Only, we hit a bug. Something we had decide whether we’d work around or work through. And that kicked everything back on the sked.

And I got really depressed about this. Totally bummed. For a day or so, I walked around feeling sad, thinking that doing a start up was like one of those inflatable clown toys with the weighted sand bottom where you knock it down and it springs back up and then you knock it down again. How many times did I want to face setbacks I had to fix? How many times did I want to get knocked down and get back up?

And then, I got over it. Lisa and I hunkered down on the problems, like we always do, and we started to find solutions and ways to move things ahead. And then we had a talk about how being in a program like techstars has the benefit of making you go fast and accelerate development, but how it can be very artificial in some ways. In other words, if our brand new company had a one to three week product slip on its first release out in the world, would we be as upset as we’d been feeling earlier this week? Were we being too close in on the immediate situation and was that getting in the way of our moving ahead?

The answers were yes, and yes, combined with the real world acceptance that stuff happens and all you can do it fix it and move ahead.

So now, we’re all back on track. The programmers are working away, we’re doing our business plans and meeting with people, and the next three weeks are filled with milestones and things on which we need to focus. And of course, the takeaway is that doing a start up is always going to have moments when you feel like the beaten down clown, when things go wrong and it is just terrible. But there’s room to rebound from that, and that’s what we did.

Yes, I feel a litle bruised, but mostly I feel wiser, because I’ve learned that what doing this requires isn’t only the strong execution and action-oriented skills I have, but an emotional resilency that can survive multiple set backs and still want to move forward. And you know what, I have that.

Greg Sterling’s got a good post today on how he appreciated entrepreneurs who want to build viable businesses, not just built to flip products; Some of what Greg says:

” Stepping back, it strikes me that there’s something quite “dysfunctional” going on in the way that many entrepreneurs and funders think about building online businesses. Historically people in the real world who start businesses have not gone in with the attitude: in three years someone will buy me and I’ll never work again or maybe I’ll go start another business that will be acquired in another three years.”

Greg also says: “Whenever I enounter an entrepreneur who is seeking to build a business or is passionate about an idea and trying to bring it to life — without regard for whether it will be bought — I’m impressed because a long-term view of the market is both rare and exactly what’s needed to make many of these ideas succeed.”

Lisa and I have been thinking about these issues as we build out our business plan, costs, and revenue plan–and model what the next 18 months might look like, on both the cost and revenue side. We’re too new to have an accurate sense of what will play out, but we’re working on building a realistic model, one that seems to suggest we can be sustainable if we release X product to Y user base and generate X page views.

A start-up I respect and admire posted this–is there any start-up that wouldn’t want all these qualities in their tech and product managements senior team members?

“Today we kick off a search for that perfect engineering leader to come join (redacted) for the next set of challenges. The right person will champion our engineering ethos, while delivering a fantastic product, on-time. The team will be growing quickly, so a candidate should be an able manager who excels at rapid company growth. They must know how to ship desktop software, particularly with today’s tools and challenges. They must know how to add or remove process as a company grows, and they must command the team’s respect through their hard work and character.”

(Okay, source here.)