Great news rolled in today. Leanplum, a Techstars Seattle alumni, just closed a series A round. Leanplum is out of the Techstars Seattle 2012 class. The two ex-Google founders Momchil and Andrew worked immensely hard during the three-months program, or as they call it “our ninety day week”. It initially paid off with a $825k seed-round raised upon Demo Day, and now an additional $4.8m from Shasta Ventures.
The countdown has started, and I'm getting really excited.
I am for economic growth. Now, this shouldn’t be an earth-shattering surprise to you, few people are against growth. However, you might encounter people who are for economic growth, but against immigration. Here is why that is a juxtaposition.
In many ways, immigration equals economic growth. Don’t take my word for it, look at the facts:
- 40% of fortune 500 companies were founded by immigrants or their children (source).
- Immigrants start ¼ of technology and engineering companies in the U.S even though they only represent ⅛ of the population (source).
- In 2012, immigrant-founded engineering and technology companies employed 560,000 workers and generated $63 billion in sales nationwide (source)
These are impressive numbers. To top it up, here are three concrete examples of successful immigrants:
- Jan Koum, born in Ukraine, and co-founder of Whatsapp, which was recently sold to Facebook for $19 billion.
- Jerry Yang, co-founder of Yahoo and born in Taiwan. Yahoo’s market cap: $37 billion
- Sergey Brin, co-founder of Google and born in Russia. Google’s market cap: $379 billion.
This country is built on immigration, our history and our heritage has created a culture and a narrative that is unparalleled by any other nation. The U.S. is where smart people from other nations come to prove themselves, and this brings economic growth for everyone. But, we don’t just need talented immigrants to start companies, we also need them to meet the huge demand from already established American companies.
More than one-fourth of science and engineering firms already report difficulty hiring, and this is only going to get worse. Over the last 10 years, jobs in STEM have grown three times as fast as jobs in the rest of the economy, but the number of Americans studying STEM is growing by less than 1% per year (Source: ESA & McKinsey). The U.S. is facing a projected shortfall of more than 200,000 advanced-degree STEM jobs by 2018 (Source)
As a country, we can’t compete on salaries levels, but we can compete in terms of knowledge and innovation. Unfortunately, the current immigration laws are inhibiting our competitiveness. The latest round of applications for H-1B visas for high-skilled workers exceeded the annual limit within a week. 172,500 H-1B petitions were filed for 85,000 visas, the highest number ever recorded for H-1B demand (Source). Keep in mind, these are company-sponsored visas and thus a reflection of a real demand.
FWD.us and The Partnership for a New American Economy (PNAE) are working on convincing Congress to accelerate an immigration reform and keeping America’s tech sector competitive. As part of this effort, FWD.us and PNAE are organizing 12 events all over the country during the last two weeks of April. Techstars Seattle is hosting one of these events.
Join us, and local entrepreneurs, investors, and leaders for a conversation on why immigration reform is critical to the tech and start-up communities in Seattle. The event takes place on Tuesday April 22 from 6pm - 8pm at 511 Boren Ave N, Seattle. See who is on the panel and register here: http://pnae.us/icodesea
If you can’t attend, help us spread the word on Twitter (click to tweet), and if you are an entrepreneur or an investor, sign the letters urging Congress to advance immigration reform.
If we succeed, an expansion of the high-skilled visa program would create an estimated 10,400 new jobs in Washington by 2020.
After taking a year off, I've started attending weekly open coffee at Louisa's Cafe again. I missed the ritual and the pleasure of sharing coffee with other entrepreneurs....
What is open coffee? Every week entrepreneurs and investors meet to chat about their startup experiences, feel free to come discuss your new startup ideas and meet some cool people. We are usually sitting at the big tables in the middle, event starts at 8:30AM and ends at 10AM. I'm there frequently -- but not always. John Secrest has generously picked up and kept the tradition going so he's there frequently too.
For more info on the meetup click here.
Hope to see you there!
I've been having having breakfast with Aaron Bird, CEO of Bizible pretty regularly since TechStars. His company raised 1.7MM in capital in November 2012. The company has historically been focused on he calls, "closed loop marketing" for the SMB marketplace. Closed loop marketing connects leads from different sources of marketing to sales so you have much more effective marketing spend than you would otherwise. At breakfast today, he stated that his goal was to get cash flow break even on the money he raised. I think it's possible that Aaron and team might be able to achieve this goal. However, after listening to him for a while, I suggested to him that his focus as founding CEO should not be on getting to break even -- rather he should focus on the following in this order:
- Nailing product market fit in a big fast moving market
- Nailing the unit economics of his business
- Getting to cash flow break even
It's important to note that these goals are not mutually exclusive. Rather, solving one often leads to the second and third. But, ranking these priorities in this way has the founding CEO focused on the thing that requires the most psychic attention and testing.
I received a call on Friday from an entrepreneur I've known for a 7 years. He's a few years younger than me and has a company backed by venture capitalists. He's raised approximately 6MM dollars and has been trying to strike lighting -- professionally speaking -- for about 3 years. He started the call by saying, I've got a situation and thought I'd phone a friend.
He proceeded to tell me that he had already pivotted the company once about 1 year ago. He's since come to the conclusion that the path he's put the company on is a losing one. He's torn between two choices:
- Pivot again -- to something bold and he isn't exactly sure what that is
- Return capital -- Of the original 6MM raised, he still had 1.5MM
I empathized with his predicament....and his instinct to phone an entrepreneur (friend).
It was approximately 6 years ago that I made a similar call to a entrepreneur friend of mine name Tom Higley. I remember it vividly. It was a Friday night. I was CEO of Judy's Book at the time. We had pivoted once and had not caught lightning in a bottle. On that call, Tom asked me what my gut was. I told him I thought that I should shut the company down and return $0.50 on the dollar to my investors. By Tuesday of the following week, that's exactly what I did.
I did two things on the call with my friend. First, I asked this entrepreneur the same question that Tom asked me. I asked him what his gut thought he should do. Like most of entrepreneurship, there's no right answer to situations like this. Second, I told him the story of Judy's Book, what I did and what I learned with the benefit of hindsight. I told him I was glad I was decisive and acted on my guy but if I had a re-do I wish I had persevered. I think the fear of failing is worse than actually failing and in the situation with Judy's Book many things happened in the market after we sold the assets that would have totally changed my perspective. The iphone and twitter became phenomena providing the market context for Judy's Book and local search to take off. I could never have known these market externalities in advance. Ahhh....hindsight is 20-20 :-)
It was a fun call. I don't knwo what my entrepreneurial friend is going to do. I gave him some shared experience that I am sure he'll consider as he weighs his gut and his options. It's moments like this that make entrepreneurship so exciting and profound of a choice. There is no right answer and he's a meaningful player in determining a positive or negative outcome. He's on the field of life and business!
Well, it's really just a "hack things" meetup sponsored and organized by one of the great entrepreneurs in Seattle and better human beings :-) Joe Heitzeberg. It's a meetup of Hacker + Startup friends: if you're interested in how connected devices like the Fitbit are actually made, please come here Jon speak at the inaugural "Hack Things" meetup in on Feb 21st in Seattle - http://www.hackthings.com/meetup. This should be very cool. I wish I could make it...I'll be at the next one.
It's been a whirlwind 2 weeks since the first public launch of Code Fellows on Jan 2, 2013. Last night, we had a great job learning event called "How to get an awesome job at a Seattle startup?" -- the event was aimed at high growth early stage technology companies with a focus on engineering and design candidates.
Overall the event was really good. Feedback was positive from both the companies attending and from candidates. We had over 100 candidates there and 10 recruiting companies in attendance. We learned a lot -- and it's funny the kind of lessons one learns when you launch stuff like this.
A lot of the lessons are tactical and trivial. For example, big tactical lessons were lighting for our CTO panel was terrible. Also -- there was a tv on behind the panel that was super distracting to the audience. These lessons came from simple feedback from the attendees. This feedback is great -- and critical to us doing a better job next time.
The more valuable feedback was :
* The fact that we were able to pull this event off as successfully as did is a tribute to market validation that we're onto something. In many ways, this first event was our MVP and we wanted to see if we could event get attendees -- we actually had a waitlist to attend the event and we soldout the company spots!
* Lots to do as we prepare for the first class of Code Fellows which we will be sold out as well.
Onward and upward.
My friend, Dan Levine, introduced me to a nice young Jewish boy named Grant, the 21 year old. Grant is going to graduate UW in May 2013 and wanted some life advice. Grant emailed me and asked me if he could bring his friend, Tony, the 22 year old who graduated in May 2012. I scheduled to meet them this week at Zoka, a local coffee shop for 30 minutes. We were scheduled to meet at 4PM. I showed up at 4:10 and Grant and Tony were sitting by the door. We had never met but I knew it was them that I was meeting. They jumped up and introduced themselves. I got a soy latte and sat down with them. Grant started to talk. I wasn't sure exactly where the conversation was going to go but it was the end of the day and their enthusiasm was engaging. It became clear -- 3 minutes into the conversation -- that they wanted to talk about their mobile app and business that they had been working on for the last 6 months. I heard about the founding of the business -- Tony had started it while he lived in San Diego. He had moved back home to Seattle and had partnered with Tony while Tony was finishing up at UW. They weren't making any money yet. But they had this little business and were trying to figure out whether it was worth continueing to pursue. I'm not going to divulge their business idea -- but in the past 6 months they clearly demonstrated some learnings from the market. I was impressed with what they had figured out -- and I was more aware than them of what they didn't know that they didn't know. But in the end -- I end up staying and talking with them about their idea for 2 hours. Trying to help them and give them tips so they might actually turn this thing into a success. At the end of the coffee meeting, I reflected and realized I had learned at this meeting...
i) Naivete and enthusiasm are an entrepreneurs friend. These attributes can be a HUGE asset and what may seem impossible ...may in fact not be.
ii) Writing down ones key assumptions and figuring out what tests one wants to run is the entrepreneurs job. The definition of the test reflects the frame or lens of the entrepreneur. These assumptions and tests point the direction of the most likely learning that will be obtained. A lot of the learning that one actually does in these market tests can not be known a-priori.
iii) Listening AND selling are equally critical skills to accomplishing the entrepreneurial goal.
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:
- Second Market
- Receivables Exchange
- Wanga (UK)
- 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.
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! ;-)
A couple weeks ago, I wrote about how naming a company is a real pain ....but never mentioned the results of our naming efforts. Well, in this post, I'm happy to share with all of you that RevenueLoan is now LIGHTER CAPITAL.
Why Lighter Capital, you ask?
- We’re about more than RevenueLoans
- We're a lighter financial institution, as in fun and lighthearted
- And we plan on making raising capital lighter, as in easier and faster funding for small businesses
We’re about more than RevenueLoans
As we worked with small businesses over the past year, we realized there’s a lot more opportunity to disrupt the small business growth capital and lending incumbents. We intend to be the team that causes that disruption. What’s screwed up about small business capital now? That really merits its own post, but…let's just say there's lots that's screwed up and if you're an entrepreneur with a business that is growing getting access to capital to grow your business is way too hard and the process success. Getting money takes too much time, hassle, and work and the investors ask for too much (equity, control, interest rates, etc.) Lighter Capital changes all that -- and we do so with a deep understanding of what it takes to be an entrepreneur.
Lighter, as in fun and lighthearted
We aren’t your father’s local 3-6-3 bankers. We don’t wear suits. Our offices don’t smell of rich mahogany. We know building a business takes hard work - getting funding shouldn’t make your life harder. So we wanted our name to represent our focus on keeping business upbeat and lighter. And even it we don't fund your business, we want to do so with respect and a smile and leave you feeling like you haven't wasted your time or had to dress up to be someone your not. We like quirkiness and appreciate weirdness and generally want to have fun building this company as you should have fun building yours.
Lighter, as in lightweight funding
I’ve been in both the entreprenuer’s shoes and the financier’s shoes for long enough to have seen where taking outside funding can get painful. Under the right circumstances, taking bank debt or VC funding can make sense, but we’ve seen a lot of companies where those sources of capital start to weigh-down a company instead of lifting it up. RevenueLoans give companies more flexibility without demanding your first-born-child. And we’re working to make it faster and simpler to get our money, so entrepreneurs can focus on what they do best – building exciting new businesses.
Expect to see some of these changes in our company and loan process in the coming months. I’m psyched out of my mind about some of the work our team is doing, and this name change is an exciting step in the direction we’re taking.
In the interest of being open and light – check out this video of our team debating the name change:
A couple days ago I talked about why it’s so hard to name your company, it's harder to name an existing company than I had thought. Coming up with a new name for RevenueLoan lead me down some funny paths. Throughout the process the team and I got frustrated enough that we tried some random strategies to keep the process fun and lighthearted. Some weird things we tried:
1) Roll the dice
2) Riff on James Bond movies
3) Name after your intern
Roll the dice
At one point, we had reduced the list of possible company names down to 3 names, all of which we decided were "good enough". After spending too many hours sitting around and debating the pros and cons of each name, I wrote the names on 3 slips of paper, crumpled them up, and threw them on the ground. The plan was to name the company with the name on the first piece of paper I picked up. I picked the first one up, read it aloud, and as I did....I changed the rules of the roll the dice game. I knew instantly that the first name was not the name I wanted and said "no, that's not it". And then there were two crumbled up pieces of paper and I declared that we were now in a roll the dice process of elimination game for the name. I picked the second piece of crumbled paper and the second company name didn't feel that good either. And low and behold, the third name felt pretty good. So I went with it. We announced to the team that we were [name on crumpled paper #3] (to be announced).
An hour later, I was driving home, and I decided I didn't like the name. So I sent an email to everyone saying I was having brand remorse and we needed to go back to the drawing board. Ugg. I was totally indecisive and was dragging everyone through a terrible process. I felt crappy.
Takeaway: Using the roll the dice strategy actually can work. I just wouldn't commit to which ever one you pick first or last (too much chance)....rather, I'd suggest picking them with an idea that the last one you pick is the right name and then watch your emotional reaction to the names that you pick first or second. If you feel instant regret that the 3rd name is the name that chance picked for you then you probably have the wrong name. In other words, let your immediate reaction to the names shed light on which company name you choose. And whatever name you decide on using this process, sit on the name for at least a day before you just go without it. And it's OK to try again.
Riff on James Bond movies
Yes, this was something we tried. Basically, we plugged "Fund" into a bunch of James Bond movie titles. We came up with the following names
The Fund who Loved Me.
The Spy who Funded me.
You Only Fund Twice.
Live and Let Fund.
You see where this went. Right into the toilet.
Takeaway: In a funny way, we had fun doing this and the names provided some comic relief. We actually liked a couple of the names - Funderball and The Man with the Golden Fund, but ultimately it was too bizarre for us to use as our actual company name.
Name after your intern
Kenton is an awesome developer working for us this summer before he goes to graduate school. In lieu of having an actual name, we began to refer to ourselves as Kenton, or The Kenton Group, or Kenton Financial. There were 2 problems with naming it Kenton - the first problem is that the story wouldn't exactly work. With Judy's Book , the name made sense - it was my mother in law's name and the site was inspired by her book of trusted local services. The second problem is that it sure can get confusing having an employee and a company with the same name - we imagined not knowing who or what we were talking about!
These tactics didn't exactly work for what we’re calling "the company formerly known as RevenueLoan" but they did help us keep our minds open and keep the process fun, or at least less sucky!
I've known for about 6 months that RevenueLoan was not a good company name. I determined that it is a product and not a company and so I started a process of creating a new company name about 2 months ago. I thought that naming was important but didn't want to waste a lot of time, money and resources on getting a good name. In the past, I've seen companies get totally derailed by company naming and be totally unproductive while in the process of naming. I was determined not to let that happen here. At the time, I thought it would take 2 weeks. I was wrong. It turns out naming your company is harder and sucks worse than I thought. I thought I knew how to name a company!
Well, I stand before you today a humbled man. I’m going to share a bit about the process we went through and some tips for naming your company more efficiently than I just did. This blog has 4 parts and should help shed light on why naming your company sucks:
- It's your baby
- Domain squatters hate you
- All the good names are taken
- The team needs to be on board
It's your baby
Your company becomes a huge part of who you are. "Hi, I'm Johnny from Crummy Co." becomes the new way people know you. So the naming decision is hugely important - way more important than making sure you don't have mustard stains on your shirt or your fly isn’t down. Those things last at most a day. Your company name stays with you for a long time.
We had a lot of things that we wanted to convey with our name, so coming up with a name that fit all of those at once was more than a pain. In fact, we had too many objectives and too many people to satisfy with our new name. Naming a company with 6 people is like naming a child with input from both sets of grandparents -- it's a nightmare.
Domain squatters hate you
I was shocked how hard it was to find a domain. We couldn't find anything. It's amazing how domain squatters seem to think of every possible word ever. It also becomes an addicting game - is this one available? Nope. How about that one? Nope. I got totally sucked into the domain name availability game. You can try adjusting the spelling or add a word to the domain, but the further away you get from an actual word, the harder it becomes for people to find you.
All the good names are taken
About 3 weeks into the process, we had a name. It was good. We hi-fived each other and drank whiskey. As a final step, I emailed our attorney to file a trademark for the name. Bad news - the name was taken. To quote one guy on our team "Pretty sure none of us are excited about going back to the drawing board…" There's no trademark on children's names i.e. there can be lots of Andy Sacks in the world ....but in any given industry, you only get one company name, and trademarks are specifically designed to reduce confusion in any one market.
NOTE: While this was painful, I STRONGLY recommend doing trademark searches before you go too far down the road as a company with the risk that you don't own the trademark. i.e. it's much costlier in the future to change a company name than now!
The team needs to be on board
If you've already hired a few employees, you need to be sure the team buys into the new company name. This isn't the worst thing in the world, but it adds another level of complexity to the naming process. Too many cooks in the kitchen, kind of thing. If you hired an employee with the name "Earth Friendlies" and suddenly change your name to "Cow Eaters" you risk putting your employees in a position where they aren't with you on your mission. Nobody on our team got too upset about any of the names we came up with, it just makes it drag on longer.
Ultimately, I'm happy to be done with the process. Look for another post about some of the ways we went about choosing a name and what we've finally decided on.
It's that time of year again! TechStars Seattle applications for the 2011 program opened yesterday. Judging by the number of applications already received, the response is huge!! 2010 was a great success for the entrepreneurs and the entire Seattle community. We’re really excited about making 2011 even better.
We are on a mission to make the Seattle startup scene kick ass ASAP by:
1. Recruiting even better quality founding teams (which will be hard given how well the teams in year one did)
2. Improving mentor engagement and
3. Increasing investor engagement post Demo Day
Reviewing the Results from 2010…they look great to me…how about you?
TechStars Seattle had a really impressive inaugural year. We took the top 2% of applications and 8 of those 10 companies are still active (7 funded, 1 bootstrapped). I’m really proud of all the hard work that went into that ratio and the sheer talent that graduated out of TechStars Seattle.
Kicking off 2011: How to Apply?
This year we’re expecting even more applications – making competition for those 10 spots even more fierce. We’re looking for smart, cohesive teams that can iterate quickly and execute. If you are one of these people then join forces with TechStars Seattle and see what three months of top-notch mentorship could mean to your startup.
Want to play the TechStars Game?
We’re laying an element of fun onto recruiting for Techstars. To play the TechStars Game, login with Facebook Connect at the bottom of this page then start broadcasting applications and sharing from the toolbar. You'll automatically start accumulating Influence points! Check back often at www.techstars.org/seattle to track your points, badges, and rank.
I'm on a diet and have lost about 10 pounds. It's been a gradual weight loss. The diet is simple.
- No pasta
- No bread
- No snacks after 7PM
Superbowl weekend was a bad diet weekend. I had all three of the above. Ate some pizza, spaghetti, corn chips with salsa, and some chocolate at 9PM. Both days were lost.
Then it occured to me -- dieting is about the present and future, not the past. Woke up yesterday and got back on the routine. Feel on it today.
And that's where the metaphor of entrepreneurship begins. Entrepreneurship starts with 3 simple rules. You make them. Stick to them. When you fall down and feel like shit -- start over. It's that easy. That's an Andy Sack line :-)
Why is dieting so hard?
Simply Measured is a great story. The company started just over a year ago and was known as Untitled Startup (truly www.untitledstartup.com was the URL). Damon Cortesi and Aviel Ginzburg were the original co-founders. The company attempted to crowdsource their way to a business in the social media space. In the process of doing so, they created row feeder over a weekend. RowFeeder gained instant traction because of it's simple message and implementation -- the site was known for tracking tweets in a spreadsheet. But it wasn't until Adam Schoenfeld, the third co-founder, joined the company in April that the company really started to make sales and realize that it was in the business of taking data and giving the data back to customers so that they can manipulate it, play with it, and analyze it -- usually in a spreadsheet. Their customer list is friggin impressive -- Major PR companies, Fortune 500 companies, and social media elite all use the product. They have over thousands of customers relationships in less than a year! Check out the products rowfeeder and exportly. Guess what -- simplicity sells -- when executed well. This is going to be a big company one day soon -- you should check them out now!
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:
- 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.
- 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.
- 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!
- 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.
T.A. McCann of Gist fame spoke with the TechStars founders today and shared some solid ideas about building products with the customer in mind. One key takeaway that I felt was especially relevant as the founders dig into the product development phase was:
Your elevator pitch should follow a simple "ad-lib": We focus on ______ (target customer) who need _________ (market need), so we provide _________ (feature set) and we charge them ______ (business model). This standardized elevator pitch actually simplifies some of the challenge that the founders have been facing in explaining their business to mentors. His idea is to adjust the answers to the blanks until the statement feels exciting and feels like it accurately describes what you do. I couldn't agree more and hope the founders take this to heart as they hone their business plans.
Thanks to T.A. for coming by!