Mindshare is a an invitation only for the CEO's of high growth companies in the DC area. I receive a fair amount of inboundinterest about Mindshare and specifically the process bywhich a CEO gets nominated into the program.
CEO participants are selected each January by the members of the Mindshare
Organizing Board (OB) from nominations by OB members and Mindshare alumni. I am a member of the Organizing Board.
Candidates are normally:
First time CEOs of exciting technology and life science
companies with less than $10mm in sales,
People who are considered by the
members to be the most likely to benefit from and contribute to the
program’s year-long, instructional program, and
People who are known to at least two alums and/or organizing board
members.
If
you meet this general requirement, please send me a resume and ask either myself, another OB member or alumni to nominate you for the upcoming
class.
The Fox Business Network has a Saturday show called "Your Questions, Your Money" that answers questions related to small business, start ups and raising money. I have been on the show a couple of times and will be posting a few clips on the blog. I have been so impressed with the show and the dedication of the team there. And it has certainly been enjoyable to participate in the production. I am grateful for the opportunity.
The recent phenomena of the Pick Your 5 application on Facebook has generated a lot of press. The most interesting one to me was an article in the New York Times magazine which attempted to explain the popularity and value of the "Pick Your Five" and similiar products. The article didn't refer to LivingSocial or the product directly. Instead, the author noted the popularity of these "types" of products.
The article attributed the popularity of these applications to their effectiveness as conversation starters. That was certainly my experience. When a long time friend would post a list of their first five cars, it prompted memories and conversation. All of which highlights the power and potential of Facebook as a closed environment of real people interacting with people they know in a direct way.
Featuring A
Panel of Local VCs who are actively investing
Wednesday, July 1, 2009 The Greater Washington Area Technology Venture Center (TVC) is pleased
to invite you to our next program to hear about the current state of the VC
market. Despite the lukewarm – yet slowly
recovering! – economy, this group of VCs, each from four different local
funds, is actively investing and optimistic about the future. We are looking forward to hearing from
these four well-known and highly regarded VCs:
John Backus - Founder & Managing Partner, New Atlantic Ventures
Scott Frederick – General Partner, Valhalla Partners
Steve Fredrick – General Partner, Grotech Ventures
Sever Totia – Principal, Edison Ventures
When:Wednesday, July 1, 2009, 7:30 a.m. – 9:00 a.m.
·Registration, networking, and breakfast -
7:30 a.m.
·Program – 8:00 a.m. – 9:00 a.m.
Where: Tech Venture Center
1750 Tysons Boulevard
5th Floor, Room 5052
McLean, VA 22102
If you want to find a match, it is best to understand what you're matching.
All Venture Capitalists can be differentiated on 3 axis; the stage they invest in, the geography they focus upon and their technology opportunity areas. If you're a CEO seeking money and you don't match up with these, you're really wasting your time.
At Grotech Ventures, we describe ourselves as early stage investors in high potential technology companies. Our geographic focus, which is a reflection of our personal networks over the last 25 years in the IT business, includes the Mid Atlantic, Southeast and Mountain West. So if you're outside these areas, because of stage, technology or location, we are not likely to be a good investor to approach with an your idea. Sure, there might be an exception but those exceptions are never going to be the rule.
So, the investment stage of the investor is the right starting point. Seed investors won't want to look at your Series B round, for example, and if you're pitching a Series B -- you really don't have time to waste as you're already running an operating business. As a practical matter, investors will do seed/early, Series A and B rounds, later stage (Series C+) or expansion capital so I don't want to split hairs and advise only approaching those with very specific focus. But one gets the idea, investors don't like leave their comfort zone or neighborhood.
What is the VC's neighborhood? Investment historical data is that 80% of all Venture Capital is invested within 200 miles of the VC's office. It is by and large a regional business. Yes, there are VC's that invest nationally and internationally. But, the bottom line is that VC's want to be close to their investments literally and figuratively. While I don't have data to support it, I would speculate that the earlier stage investors want to be even closer than the 200 mile average.
At Grotech, we talk about staying close to the technology areas and markets we understand and are capable of delivering the best value to our entrepreneurs. And while that varies, to some degree, by individual, we know what we don't know. If you're the latest thing in alternative energy, take it to someone who will "get" your idea and admire your insight. I wrote in an earlier blog about the best way to get a VC firm attention. The jist of which was; the current CEO's are an important conduit and filter. Those current CEO's are also a clear analog about the comfortable technology areas of the VC.
The start up CEO needs one yes answer to the funding quest. The fast way to achieve it is to narrow the search at the beginning by matching the idea, stage and geography to the right candidates.
This article has been updated from the original post with the supporting video from Fox Business Channel.
It appears that Larry Cheng of Fidelity Ventures has built the end all, be all listing of VC Blogs. Larry was previously with Battery Ventures and Bessemer so he knows his way around the industry. If you have interest in a very functional VC list, where you can spend some time in order to gain the perspective of various VC's, this is your list. I think Larry has done entrepreneurs a favor by building this list because as I have written previously, this is a match making effort for VC's and entrepreneurs. If you're looking for money, invest some time on these blogs to find the VC(s) likely to be interested in your opportunity. Avoid the most common mistake of pitching VC's, which is pitching to ones that will never have an interest in your business.
I am always impressed by the number of people interested in working for a start up. Both from the students I teach and audience members from various speeches, there is consistent and ongoing interest in the start up work environment. For good reason, start ups give people to opportunity to perform my roles and progress rapidly on a professional basis. But choosing the right start up is no easy task for most people. Clearly, one of the differentiators amongst start ups is which have received outside investment. And even among those receiving outside investment, which have received venture capital. The distinction of venture capital in a start up is significant has it usually indicates both current and future backing based upon the judgment of investment professionals and the completion of extensive diligence.
So where does one look for these jobs in venture capital backed startups?
Startup Hire was founded by one of the Grotech General Partners, Steve Fredrick, and has achieved impressive acceptance and sponsorship in a short time frame. The National Venture Capital Association as well as other marquee groups have put their support behind this effort.
This annual event which recognizes the "Hottest" companies in a variety of categories, including "Hottest Venture Deal", "Hottest Management Team" and "Hottest Buzz" among others, will be held on June 24th this year. This is a fun, popular event which typically sells out.
Zenoss won "Hottest Venture Deal" last year and LivingSocial is nominated in the same category this year. Clarabridge is nominated in both the "Hottest Management Team" and "Hottest Buzz" category. Good luck to both of them.
From time to time, I will write about some of the terms and conditions of employee stock option plans that can have a major impact for the founder(s) at the end of the day. Given reader response to my previous blogs on the option subject, I want to call attention to vesting.
The vesting of stock options over some designated period can have dramatic economic impact for founders.
Vesting
Stock option plans will have a vesting period where the right to purchase the granted stock options increases annually and sometimes monthly. So the stock optionee gets 1,000 options that vest over a four year period in quarterly amounts, meaning that employee vests and has the right to purchase the options following the completion of each year of employ. In our example, Employee has the right to buy to 25o options after year one of employment. The Employee will usually have that right for some period of time so long as they stay in the employ of the company. It can be up to 10 years to purchase the vested options.
The question arises -- if the founder is the source of the original stock options to supply the stock option pool -- where do ungranted or un-vested options go when the company sells? Consider an example where the ungranted and granted but un-vested options total 10% of the company at the time of company sale. These options were all originally the founders' shares. Where do they typically go at exit? The custom is for them to divided on a pro rata basis amongst existing shareholders. So if investors hold 70% of the company and management/founders hold 30%, then the shares will go 70% to the investors and 30% tothe founders/management.
In this oversimplified example, the issues are obvious. In real life, the sale frequently occurs after the original option pool has long been exhausted and the bulk of the options are vested to the grantees. That said, better to be in command of the issue than not.
The DeVenCI consultant team members serve two year terms so the group was recently refreshed as some of us re-upped for another two year term while some new folks joined the team. Another change is while we previously worked as two sub-groups, IT and non-IT, we will now work as a single unit.
Some 8 years ago now, I joined with some other alumni to launch a business plan competition which is now in its eighth year. By way of background, the College of Business at JMU requires business majors to complete a single, 12 credit hour course in which students are paired into cross functional teams (management, marketing, finance and accounting) to develop a business plan. Each year over 140 plans are produced by the student teams across Spring, Summer and Fall sessions. The competition invites the teams to enter their plans following the completion of the calendar year each January. Typically, 30 to 40 teams submit entries and in late spring the Final 5 compete on a Saturday morning. Parents, friends, faculty and alumni gather to watch the competition.
Tension runs a little high for the students (and moreso for the parents) and the day concludes with trophies and scholarship prizes totaling $26,000. Alumni present as judges as well other alumni provide the scholarship monies.
It is a challenge for the students to compete in front of a packed house in a pressurized moment for real money in scholarship prizes. My suspicion is that they leave this competition an inch taller and they should.
Off all the things I do, few give me the satisfaction and pride of this event. If you have an interest or opportunity to attend next year, please do so.
Here's a link to an article about the competition:
As many of might know, I've chaired the Northern Virginia Technology Council's Private Equity Committee for the last few years. The committee meets monthly and produces 5 to 6 events each year. Some of the events are annual, State of the Venture Capital Market and Angel Investing Update, while others are specific within the "Meet the Capital Players" series. Meet the Capital Players seeks to highlight a new investor in the region or a recent deal.
The recent deal events are some of the best. The investor and entrepreneur of a deal tell the deal's story which is instructive and entertaining.
In any case, my time is done, I will step down from the chairmanship in June to be replaced by the worthy, Sever Totia of Edison Ventures.
I wish Sever all the luck in the world with the committee and want to thank all the folks that have contributed to my time on the committee. We were consistently fortunate to have great speakers and strong sponsor support.
I'll be joining a panel at this year's conference and cannot recommend this event highly enough. It is well executed and attended by a broad, diverse audience. The team that puts it together does a great job of recruiting speakers you just hear often. (Though I may be more of an exception to this....)
See below:
2009
Panelists & Moderators
Mike Kelly Senior Digital Media Investment Advisor Veronis Suhler Stevenson
Paul Levine President,
New Media Current TV
Tim O’Shaughnessy CEO and
Co-Founder
LivingSocial
Alice Kim SVP Digital Distribution
& Partner Relations MTV Networks
Ali Partovi
CEO & Co-Founder iLike
Ross McNab Director of Digital Advertising Solutions
Eyeblaster
Jason Seiken SVP,
Interactive Public Broadcasting
Service (PBS)
Bill Crandall Vice President
Editor-in-Chief AOL Music
Massimiliano
Pellegrini CEO,
Dada
Entertainment
(a Dada &
Sony BMG Music Entertainment joint venture)
Trevor Madigan
Global Head of
Sales, Operators Nokia
Music
Colin Gillis
Man. Dir. of Internet Equity Research Brigantine Advisors
Dina Kaplan
COO & Co-Founder blip.tv
Aydin Caginalp Partner, Entertainment
& Media Group
Manatt, Phelps
& Phillips, LLP
Randy Bennett SVP,
Business Development Newspaper
Association
of America
Mike Vorhaus President Magid
Advisors
Adam Kasper SVP, Director
of Digital
Havas Digital
Peter Yared CEO iWidgets
Gene Barton
Principal Fish & Richardson
P.C.
Rick Edmonds Business Analyst, Researcher & Writer Poynter Institute
Chris Adams CEO,
View2gether Co-Founder, Participant
Productions
Mark Fischer Attorney Fish &
Richardson P.C.
Neil Budde President &
Chief Product Officer
DailyMe
Ted Cohen Managing Partner TAG Strategic
Ned Sherman CEO
& Publisher Digital Media Wire
Todd Grossman VP,
Client Services MultiVu (a PRNewswire
company)
Kara Walsh CEO,
metromix
(a Tribune Interactive/ Gannett joint venture)
Brian Steel CEO
VoloMedia
Tim Repsher
Managing Dir., Mobile Business & Prod. Dev. Netinformer (a
Media General company)
Gary Arlen President Arlen Communications
Paul Sherman Co-Founder &
Editor-in-Chief Tech
Wire Publications
Daniel Ruben
Odio-Paez
Co-Founder &
Chief Operating Officer PointAbout.com
Jon Aust
Vice President NavigationArts
Paul Levine SVP, Corp. Strategy, Development &
Extended Platforms National Geographic's Global Media Group
Jeff Litvack General Manager of Mobile and Emerging
Products AP
Digital
Lin Dai VP, Interactive Business Development
Alloy
Media & Marketing
Don Rainey General Partner Grotech Ventures
Phil Bronner General Partner
Novak
Biddle Venture Partners
Sid Banarjee and the team at Clarabridge deserves the recognition for what a strong solution they've created and the customers they are serving with state of the art customer sentiment tools. Last night, they won the prestigious Red Herring Top 100 award. Here is the article link. http://www.pr-inside.com/clarabridge-honored-among-this-year-s-r1253637.htm
During a recent DeVenCI session in San Diego with the US Navy, we took a field trip to a US Marine training facility. As I have written previously, I am fortunate to volunteer with the DeVenCI program (Defense Venture Capital Initiative) which pairs a dozen VC's to help the DoD fast track innovative technologies into their portfolio. The program has us meet 3 times a year to review specific unmet, Department of Defense technology needs -- wireless, storage, networking, etc. and then we look within our portfolio as well as everywhere else to surface technologies to meet these needs for the DoD.
Our last meeting included a visit to a Marine Urban Combat training facility. The facility includes mixed media, live actors, piped in smells (camel dung, diesel and other aromas) and a fair amount of pyrotechnics. We watched a small unit's training session. Here I am with some of the actors.
You can see us holding our protective face masks which are necessary as the Marines use kind of a super paint ball bullet in this facility.
It is truly impressive to speak with the young Marines as they are remarkable people. One can't help be proud of them and awed by the commitment and professionalism.
I had the opportunity recently to discuss online advertising progression recently with Ed Barrera of ADOTAS. We covered a number of points but foremost among them was the state of internet display advertising.
The death of internet display advertising as been much exaggerated within the industry. My thinking is twofold, first we're seeing the ongoing the destruction of unreasonably high expectations for this limited form advertising medium. It is one dimensional and one way as compared to so much else on the internet.
With that in mind, I also think that the display advertisement has new potential in Social Media. The Social Media user is in an active state. The typical browsing (read skimming) user is not fully engaged on any page per se'. The user who is interacting with the Social Media context is by definition communicating in an active, alert fashion. Here the display advertisement is presented in a superior context for action.
That superior context isn't the only environment variable that is positive for display advertisers. Social Media also delivers the predictable context that advertisers would receive from TV display advertising, i.e. - the advertisers knows the network standards, time, TV show appeal and audience demographics, and all other external factors which deliver a safe place for the brand. Prior to Social Media, the internet presented very little of the safety components for a prominent brand that TV delivers everyday. With the closed nature of a social network, advertisers can present display advertising within a whole, new, predictable context.
For a VC to say "yes" to a company in a new market area, they have first believe that there will be a successful company in that market. The second key, that the company pitching will be that successful company only matters if the first point is made to the VC audience.
These two points are best made in this order and are better made separately. For, if you can't convince the investor that there will be a market and successful companies within it -- well then, the second point hardly matters. In my regular experience, the first point is often assumed by the presenter and all the energy goes into making the point about the company becoming the winner.
But, if the investor, doesn't believe in the market -- no amount of story telling is going to get a deal done.
The question often arises, "how do I portray a compelling opportunity in a market that doesn't exist?". The short answer is find the analogs of existing markets, make the connection as to the similiarities and use the parallels to project a reasonable future.
Making the point about the market competently will dramatically increase the chances of a successful pitch.
For start ups in 2009, there is a high likelihood that no new competitors will be funded in this stressed environment. So, for those already funded, the challenge is to take advantage of this absence of new entrants. Competition exerts a variety of pressures on resource constrained startups. Most of which serves to drive development, marketing, sales or management in unintended and frequently inefficient directions.
Yes, it is tough to gain attention and interest for new solutions in an atmosphere of reduced budgets but it is arguably more manageable than facing an army (small or large) of emerging competitors. My continual advice to CEO's is to continually assess and focus upon items "within their personal control" and the absence of competitors makes that much easier.
The downside is that funding will be tough if you need and really tough if one tries to "fall back" over those burned bridges. This is arguably the worst year in memory for first time funding. And on the flip side, perhaps one of the best years to put it to work growing a business.
So you been offered 3,000 or 200 or 15,000 or 100,000 stock options in a start up? What does that mean? How do you determine their worth now? What should you expect them to be worth later?
First things first, let's look at the options themselves. The stock options cannot be understood without knowing the "entire fraction" -- that is to say that the offered options are the numerator of a fraction. To know the whole fraction, meaning the numerator as well as the denominator is the starting point for evaluating a stock option. Having 3,000 stock option shares in a company with 30,000 total shares is 10%. Having 200 stock options in a company with 30 million shares is nice but it may not be all that profitable. Here again, the value of the shares is the ultimate determinant of value but one can't discern too much of anything based upon the raw number of options (the numerator alone).
The options should be worth nothing when they're granted. Since options usually vest over time and the U.S. tax laws dictate that unless the options are provided to you at today's cost then it it is a current taxable event, one wants them to be worthless on the day they are granted. If the options are granted at less than the fair market value, then the granting of them creates a taxable event. So, the correct answer is that the options are valueless when you receive them.
So what will they be worth? Knowledge of the numerator and denominator is necessary to begin this estimate. What will the company be worth in 2, 3, or 4 years? This answer is typically derived at looking at the valuation of public companies in the same or comparable industries. The key ratio is usually the sales multiple. That is what is the value of the company expressed as a multiple of its sales. A company with $50M in sales that has a market capitalization of $200M has a sales multiple of 4. So, what are the common sales multiples in your industry? With that number in hand, the equation becomes estimated sales of your company times the industry sales multiple times your ownership fraction. Or, $50M times 4 equals $200M and your .25% options equate $500,000. So a little can be a lot with stock options. Or a lot of options can be worth a little.
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