I got a glimpse of the launch of Giant Thinkwell today and was totally impressed. There were about 20 some odd people hanging out in various forms of military garb, low grade house music wafting in the air, lots of computers and screens, and Sir Mix-a-Lot orchestrating the whole thing -- what were all these people doing in our conference room. Well, drinking energy drinks, eating salami and Dick's Burgers and creating an online buzz the likes of which I haven't seen. This small team was able to get over 20K likes in a period of hours which in my calculation means they went from zero to a million page views in no times flat. There were multiple aritcles written in blogs and press....all in all a job well done by a creative, ambitious and hard working team. Love the energy guys! Nice job
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.
Our Founder's Co-op office supply list
little yellow lined pads (3 dozen)
post it notes
pens blue generic (4 dozen)
pens (blue) 1 dozen better ones
staples
coffee cups
plastic cups
paper 2 boxes
some kind of snack
Nuts(almonds) sea salt & vin
white board markers
paper clips 1 box
eraser
paper towels (lots)
clorax wipes for white boards
cream (for coffee)
dishwasher soap (cascade)
scrubber brush for sink
dishwasher liquid for sink (i.e. joy)
sponges
And of course Makers Mark
You should check out Simply Measured
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!
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:
- 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.
Just my -- albeit biased -- $0.02.
Simplicity As a Compliment to Powerful...introducing Big Door's 5 minute gamification process!
We all know that making things easier for users is the right thing to do, but here is a real-time case study of that concept. Our portfolio company BigDoor announced their public beta in June and since then they have had over 500 publishers and developers register to use their platform. That's an impressive number, but while their stuff is flexible and powerful it has also been relatively difficult to use. Until now. They have been hard at work to create a simple oboarding process for new partners and also significantly simplifying the initial implementation. Gamification isn't a one-size fits all solution, but most websites have similar needs in the beginning. So BigDoor has taken the approach to build all of the bells and whistles for their power users, but at the same time they have now made the initial install brain dead easy. They announced this big improvement to their platform first thing this morning, with the headline "BigDoor Launches the Five Minute Gamification Process". So far today they've had 97 new publishers and developers signup just this morning, and it's not even 9:00 AM on the west coast yet.
It will be interesting to watch how this day unfolds for them, but this is a real-time example of how simple can be a great compliment to powerful. Click here and gamify your own site in 5 minutes.
The story behind RevenueLoan...and why I'm excited about the company
I started RevenueLoan because I am on a mission. I have a passion for entrepreneurship. I've been starting and running technology companies for 15 years now. I love entrepreneurs and generally find myself spending all my time trying to help them with all aspects of their business.
Why do I do this? Well, two reasons. First, I received lots of help as a young entrepreneur. I wouldn't have been nearly as successful had it not been for the help and mentorship of lots of kind friendly people. Second, I believe MANY people aspire to be entrepreneurs and to build something that they and their employees believe in and can be proud of. To accomplish this goal, financing is a often a core impediment to realizing small business success and growth.
Two and half years ago My partner Chris DeVore and I started Founder's Co-op because we thought that the traditional venture capital model was broken. We thought success for a startup company was better facilitated by a super angel entity than by a traditional vc fund. We continue to believe this....and are in the process of proving it! I want to be clear -- this does NOT mean that I think venture capitalists suck or are useless. On the contrary, venture capitalists play a vital role in the startup process.
During the first year of operating Founder's Co-op, we perceived another opportunity to support a group of underserved entrepreneurs. These entrepreneurs had small businesses and big visions and were impeded because they didn't fit traditional bank debt or traditional venture capital or angel equity models. This market insight-- which was facilitated by Erik Benson and the partners at Voyager Capital -led to the creation of RevenueLoan, the company. We did the first two RevenueLoan investments under the Founder's Co-op umbrella (or flag) before determining that the opportunity required a separate investment vehicle. One of those deals has already proven to be very successful for the entrepreneur and for us!
Founder's Co-op is on a mission to innovate in the area of financing of early stage technology companies. RevenueLoan is a vital innovation. The reason I'm so excited about the company is because I think it's the best investment agreement I know of that truly aligns entrepreneur and investor incentives. RevenueLoan puts an extra focus on increasing top line revenue growth which for any entrepreneur is a critical success metric!
In conclusion -- and just to put a fine point on it -- I'm excited about RevenueLoan because I think it is going to help a large number of entrepreneurs grow their businesses.
Lookstat founders are growing up
Just had lunch with the LookStat founding team. They're a little annoyed that their numbers of users and revenue haven't taken off as much as they'd like. In response to this, the team spent some time this week asking themselves "why"? Well, they came up with some great answers. Turns out they've been selling features not benefits. Also, turns out they haven't explained to users "why" they should use their product at all. Lastly, turns out that users don't know what to do when they first come to the web site. These insights are spot on -- and relatively easy to start fixing and addressing. Lesson learned in business: every breakdown is an opportunity for a breakthrough. Go Rahul and Casey -- you guys have game. Business game that is ....not golf game :-)
The first big door dinner meeting is in the books
Just returned from a lovely dinner with Brad Feld at Foundry Group, Keith Smith and Jeff Malek of Big Door. The meeting had 2 bottles of wine, 7 plates of food, and 3 desserts. Good food and drink helped make the conversation flow.
The meeting was interesting to me for a lot of reasons. First, from a big door investor perspective, I think Keith and Jeff are really onto something. The response from the market in terms of interest in what Big Door has built is awesome. It's made Keith giddy and busy just trying to keep up with responding to the interest. Now, the trick for the company is to figure out what the conversion rate is going to be of leads to customers and customers to revenue. A year from now, we should be able to look back and see what an ideal customer is and what the average expected lifetime value of a customer is. We'll also be able to state what makes a bad customer fit. All of these facts are very important to learn and all impossible to know today. So the conversation at dinner was about how best to deal with this ambiguity and at what rate to respond to what appears to be real demand in one's product. Brad made an interesting point that when demand is real entrepreneurs often make the mistake and constrain growth because of capital (i.e. they don't lean into demand enough). He's also seen entrepreneurs make the opposite mistake in the 90's -- spend in the absence of real demand. So the trick here is to figure out how real the demand is....
Second, as a person running RevenueLoan, the conversation was totally relevant to me there too. I've been impressed (not quite giddy) with the amount of interest and demand in our company and I found the conversation about Big Door instructive with how I should think about aggressively pursuing demand.
Notes from second founder only meeting at Founder's Co-op
We had our second founder only meeting last night at Founder's Co-op. You can see the video that was produced from the first meeting here. This meeting was even better. We had about 16 attendees. The agenda was the same as last meeting
- Opening toast and optional shot of Maker's Mark
- 1 word answer to how you are feeling right now
- 3 minute update of business and personal high and low
- open discussion
We really started to get into sharing around core issues of sales and marketing as well as partner dynamics (either hiring or firing). At the end of the meeting, I asked what we could do better so attendees got even more value. People made the following observations:
- Request for more regular meetings -- happy hour fridays so informal sharing and social building increases
- Even though we share an office, actually sharing tactics and know how is hard. As people understand what each company does and what each founder knows, people are really excited to collaborate more!
- Have focused meetings on specific topics like SEO, white labels, infographics, AWS, etc.
- Play more beer pong.
The Big Door financing history: an insiders view of Keith Smith's comeback
Founder’s Co-op has been an investor in BigDoor since shortly after its inception in2009. The CEO and co-founder of BigDoor is Keith Smith, and Keith and I have been friends for going on seven years now. It is a friendship forged in the board room, sales pit and the business trenches – yet cemented over drinks and political debate. I think there is a good lesson to be learned from Keith’s story over the past couple of years, so I thought I’d tell it. The economic tsunami of 2008 left Keith and his company in rubble. The company that once had annual revenues north of $78MM and significant monthly profits that placed its worth well over $100 MM in market value was sold in April 2009 for for pennies on the dollar. In an attempt to save his company, Keith mortgaged his home and poured every last dollar he had into the company. Despite those investments, all of the proceeds of the sale went to the company’s lenders and Keith’s personal fortune went the way of his company, south….way south. Shortly after the company he had spent a decade building and running Keith was offered the job of CEO of an Internet company located in the Midwest doing double-digit millions per year in revenue. He then began debating whether to take this job (and go work for someone) or begin again and start his own company. When he sought my advice, I told him that he should do what’s right for him – that he’s captain of his own ship and needs to make the call about what direction to take his career. I told him there’s no shame in working as a hired gun for someone else. Keith took a trip to Cancun with the plan that he would spend a week on the beach to make a decision about what would come next. Rumor has it that he drank a fair amount of tequila and partied hard on the beaches for a week. When he returned to Seattle, he declared he wants to start a company. He had a vague notion of starting a company focused on offers; kind of like Offerpal but aimed at non game sites. I told him I’d like Founder’s Co-op to lead the financing. My rationale was simple: I wanted to bet on Keith. I think he’s one of the best CEOs I’ve met and personally he is one of those people that knows how to make money. He’s also someone that I’d never want to bet against. My assessment had much more to do with the attributes of Keith than with his new business. I just know he’s smart enough to figure it all out – and now he has a chip on his shoulder to prove to everyone that he can do it again. We decide to go to Las Vegas for the weekend and try to pencil out a deal while drinking by the pool. The negotiation was none too hard. We both put our key limitations on the proverbial table – there’s a lot of trust between us and neither of us tried to over optimize the deal. We left Las Vegas with the following deal: Founder’s co-op leads a 500K investment in Big Door
In November 2009, Keith & Jeff and I returned to Vegas for the annual sojourn to pubcon . On the plane, I looked back to see Keith and Jeff in a deep conversation. Jeff twisted around in his seat talking intently to Keith in the seat behind him – who is furiously taking notes. Upon landing in Vegas, Keith & Jeff tell me they’ve decided to alter the direction of the company. I asked them lots of questions and their thought process made sense. I encouraged them in their new direction but I told them to get a customer. Customers will validate whether their change makes sense. Also in November 2009, Brad Feld (Foundry Group) and Keith met for the first time at the TechStars in Seattle event. I facilitated an introduction over a beer and a burger. In January 2010, Keith closed his first customer on the revised strategy: BuddyTV. The sale of this customer is a milestone for the company. Around this time, my confidence in Keith and the plan he was pursuing began to increase significantly. I began to see the wisdom of the change in direction that Keith and Jeff had made. I began making introductions for Keith to a bunch of local and non-local venture capitalists. Keith and I both knew that the company is going to need additional capital. Fortunately, a number of the venture capitalists got interested in the company. In February 2010, Brad Feld started to engage more with Keith. They began to develop their own relationship. . Keith closed his second customer: the Cheezburger Network. Around this time a few other venture capitalists started to request 2nd meetings with Keith and are began to express serious interest in the company –but the chemistry and momentum and fit was nothing when compared to Foundry Group. In April 2010, Brad and his partner Seth came to Seattle . We had breakfast and then Brad, Seth and Keith had a 2 hour meeting with Keith. A few days later, Keith calls me from the SFO airport and tells me he ran into brad at the airport and Brad informed him that he will not be investing. Brad really liked the company but for a few reasons couldn’t get himself off the fence to actually invest. Keith was a bit surprised and disappointed. Frankly, so was I. Up to that point, the chemistry and momentum between Brad and Keith kept pointing to a likely term sheet. I kept thinking that Brad would put a termsheet down but the valuation would be too low for Keith. I told Keith not to give up and to reach out immediately to Brad to tell him he made the wrong decision and I told him to get on a plane and get to Colorado. Keith reached out to Brad and Brad was receptive, so they setup a meeting for later that week in Colorado. They meet at the Foundry offices for a few hours and by the end of the meeting, Brad had tentatively agreed to change his mind. BUT, Brad wanted to discuss the investment with his partners. I encouraged Keith to keep the heat on and to email Brad’s partners and tell them how much he wants to do the deal with Foundry as opposed to other investors. I also told Keith he needs to work on a backup plan. Two weeks later Brad agreed to invest. The deal closed 21 days later (i.e. last week). The big lesson to learn here is; never give up. Whether you have a company that fails, or a deal that falls apart – don’t get discouraged, don’t give up, keep going.
Opening the door to a more imaginative future: Big Door Media raises $5 million dollars from Foundry Group and Founder's Co-op
I'm happy to let you all know that one of Founder's Co-op portfolio has raised $5MM dollars in venture capital from the Foundry Group.
As I pulled my car into the parking lot this morning and was thinking about Big Door I imagined myself getting points for getting to work on time, or for parking in the worst spot in the parking lot, or for getting to work in less than 5 minutes when my average time is 5:30 seconds. You may think I'm a bit nuts, but working with BigDoor has me imagining the future differently (and admittedly I am a bit nuts). And the future I see is all about games.
Keith Smith, the CEO of Big Door, pointed out the opportunity to create a platform to help publishers enable game mechanics and virtual economies. Once he pointed it out -- I jumped on board and started to imagine life with points, points, and more points. And all I could think about was how FUN! This post may be a bit abstract ...but it's because I'm rushed. I'll try to fill you in more as the weeks go by...if you want to see a practical implementation of Big Door check out cheezeburgers new implementation of trophies...it's powered by Big Door Media.
This investment has been a blast. Nice job Keith, Jeff and the whole team. (Welcome back Roy)
I plan on writing a long post about the story of this company and this financing in the next week. But I am so swamped with work that I can barely make this post. I'm busy with my own announcement yesterday of RevenueLoan which is pioneering an innovative approach to financing early stage companies (i.e. companies of 1 to 5MM in revenue).
Join me in welcoming Geoff Entress to Founder's Co-op as a partner
I just wanted to welcome Geoff Entress as a partner at Founder's Co-op. Chris DeVore and I are super excited to have Geoff join us. His work as an angel in the Northwest generally, and Seattle specifically is unparalleled and makes him a perfect addition to the Co-op. As we ramp up our activities in the very early stage investing area, Geoff is a perfect addition. Geoff brings a great track record of successful deals and complements Chris and I from a personality and skill set perspective! Special thanks to Voyager Capital in making this transition smooth from everyone's perspective -- they're very supportive of Geoff and Founder's Co-op union and we very much look forward to working together with them (i.e. Voyager) in the years to come.
You can look forward to more news from Founder's Co-op over the next few months.
No BBQ allowed. Any thought on how I should respond are welcome?
I received this pleasant email today:
Hello:
I got a report from other tenants in the building that there was a BBQ in the parking lot with alcohol being consumed today. Alcohol or not, this is an office building and both of these activities are inappropriate for a professional setting. Other tenants have clients coming to the building and this is not something that should be going on. If people need to be involved in an activity like that there are parks nearby that can be used. The report that I got was that it was your office that was doing this. If this is true please contact the people on site and make sure this does not happen again.
Thanks,
Rich
There are a number of responses to this email that I can think of....but I'm not sure yet what the best one is yet. Any thoughts of how I should respond?
Feedback on symbolic corporate cocktails
I got this email from NearlyWeds, one of my companies that does awesome wedding websites --
"we are sophisticated and complex, hence the reason for the difficult drink decision. we would like to say to our customer that we are the veuve clicquot type. And we appreciate the widow very much, and do enjoy her beverage greatly. day in and day out though, we are micro-brew sort of people. we love a good handcrafted micro brew or monk-brewed belgian. but if we were to celebrate after an acquisition or something, then we would probably skip the microbrew and enjoy a bourbon or scotch, or maybe even a bourbon drink like a bourbon sidecar. our customers are sophisticated, so are we. you don't wear the same clothes everyday, why would you drink the same drink for all occasions.
and just like brides, we love to be difficult about simple questions." Thanks John
If your company were a drink, what drink would it be? Help me name TechStars corporate cocktail
Since the publishing of the video about Founder's Co-op, whiskey and entrepreneurs on TechFlash, there's been an ongoing conversation about each company's symbolic drink. You can think of these as corporate cocktails. You know - a drink that you start each corporate meeting with (if you were drinking during the day) Here's what we've come up with so far:
- LookStat - La phroaig - Single malt scotch
- Untitled Startup - Dewars
- NearlyWeds - Perseco
- Frugal Mechanic - tap water
- Appature - Russel's Reserve
- Cooler Planet - Patron
- AppStore HQ - Maker's Mark
- On Top Leads - Jack Daniel's
- Big Door Media - Stoli and soda with a lime
(Please note that I didn't get ALL Founder's Co-op companies drinks by date of publication....those that are outside of Seattle were omitted. Sorry guys -- the need to publish dominated making this list comprehensive. If you send me a drink I'll post it)
Next week at the TechStars for a Day event, I'll be revealing TechStars in Seattle choice of symbolic drink. I'm not sure what it is yet, but I'm open to suggestions.
Please note -- these corporate cocktails do NOT have to be alcoholic. It's probably not a coincidence that the above list is mostly alcoholic.
Inside Founder's Co-op: whiskey, dogs and entrepreneurs
Here's a brief video look at life inside Founder's Co-op.
Notes from Founder's only meeting at Founder's Co-op
Last night we had most of the founder's come to the Founder's Co-op office for our second "founder's only" event. We now hold these meetings every other month. I'd say the event was a win. We met for 2.5 hours and then had dinner. The meeting started with everyone doing a shot of Maker's Mark whiskey. I blogged last time how we were going to have an symbolic drink at each Founder's Only meeting -- last time, we didn't have Maker's so we had Patron tequila. The Maker's Mark set the right tone for the meeting. The agenda was as follows:
- Everyone go around and give a 1 word assessment of how they're feeling
- Go around and get high's and lows report from each company. Followed by -- what item would you like to talk about in small groups? or more succinctly, what issue would you like input on from other entrepreneurs?
- We then broke out into 2 smaller groups: one group was the sales and marketing group, the second group was the strategic prioritization group.
I met with the strategic prioritization group. The question we talked about was given the wide range of options of tasks to undertake at a small group, how do you prioritize? The following tactical steps came out of the meeting:
- Schedule in your calendar a day a month for the founder's to leave the office and talk about strategy and priorities
- Every day come in and write down on a piece of paper the highest priority thing to accomplish that day. Get it down before lunch.
- If you're making revenue traction, be satisfied with where you're at and what you're doing. It's too easy to get distracted by the company that just sold for 1 Billion dollars and wishing it was your company. It's ok if you're not Groupon or Zynga.
- It's your job to know where you're headed.
- When in doubt, focus narrower rather than expand.
- Get dominance before expanding. To do this, you need to define very clearly and quantitatively what dominance means.
- Business is hard -- don't expect it to be easy. Growth is hard.
Why Founder's Co-op made a seed investment in Untitled Startup?
There's a simple thesis at play in this investment. UntitledStartup is a great example of the following investment thesis:
i) People First
ii) Market Second
iii) Product Third
Oh and above all -- while you're doing all the above -- has a sense of lightness and fun. I've spent the last 60+ days co-officing, contributing and collaborating with Damon Cortesi and Aviel Ginzburg (the "gentlemen" and I use the term loosely depicted in the photo below) as they've figured out what their startup was going to do. The funny thing is -- I made the decision to invest and have invested and I still don't know exactly what it is they're going to do -- and neither do they. Now that may sound crazy -- stupid even. I don't think so.
Damon and Aviel currently embody the new way to build a startup. They are working hard to invite their early adopters into every aspect of the business -- in a kind of continuous collaborative innovation. When you go to their site -- be sure to go to the backstage tab. Why is this important? Well -- hopefully, it's going to accomplish the following:
i) Product Market Fit -- Getting feedback and dialogue from the marketplace in every aspect of the product development process increases the likelihood that what they build will serve people's needs
ii) Ensure early customer enthusiasm -- the first 10 and the first hundred customers of any product are always the hardest to attract and engage. The manner in which Untitled is conducting business, hopefully brings UntitledStartup these first early critical customers. Moreover,The customers of the US will view the product development as a process and thus will roll through the necessary bugs etc that inevitably occur in the release of a new product. Well that's the theory anyway.
iii) PR and Buzz -- rising above the noise of all the other startups out there is HARD. Having a story and an angle and a sense of fun make accomplishing buzz a little bit easier. It doesn't guarantee it -- but it certainly doesn't hurt.
I'm super excited to have made this investment and look forward to the unfolding story that all of you help write at UntitledStatup!
Maker's Mark vs. Patron: Founder's Co-op defining drink dilemma
Yesterday, we had our now regular all monthly Founder's Meeting at the Founder's Co-op offices. It. was a really good meeting! At the start of the two hour meeting, I declared that Founder's Co-op and the Founder's meeting were different -- we're different than other "investors" and "venture capitalists" and one way to signify the difference is by making drinking bourbon as a part of the investor-founder meeting.
The only problem was -- yesterday afternoon before the meeting when we went out looking for bourbon nearby -- all we could find was bourbon. So I took a shot of Patron....and liked it. So, now -- big decision for next meeting is to stick with Maker's Mark or switch to Patron? Decisions!
Why is having a defining drink important to Founder's Co-op? I'm reminded of my first start-up in Cambridge -- we were called abuzz technologies. We used to work all hours of the day and night in the mid 90's and then climb on top of our building and sit on the roof top and drink whiskey. I'll never forget the freedom and fun and bonding of the founding team that occurred on those nights. Having a defining drink at Founder's Co-op is an homage to that memory. I also think it sets the right tone for sharing at the founder's event -- not everything that is shared is glory and victory... and it's important to have a forum for those conversations. Even if you don't drink -- Chris and I do and will start the meetings off with a toast to that kind of meeting. And --No -- you don't have to drink to be part of Founder's Co-op....but you do have to understand the spirit of having a defining spirit (pun intended).
