Startable – Healy Jones’ & Prasad Thammineni’s Blog

1. First of all I’d like to congratulate oneForty of TechStars Boston for closing on a seed funding round. There are some other interesting companies in the TechStars Boston program and I’m hopeful that they too will be successful in finding funding to continue to grow their businesses.
2. Secondly, congratulations are in order for the team over at CloudSwitch for closing on a second round of financing recently. Commonwealth Capital has invested capital into the business, shortly after the company closed on an investment from my former employer, Atlas Venture, and Matrix Partners. There is a simple reason as to why this company was able to raise capital so efficiently in such a difficult funding environment. A well-respected founding team led  by Ellen Rubin was joined by John McEleney, an experienced Boston-area CEO. As I’ve blogged about before, team matters when raising venture capital. (I know, I’m pretty much linking to Innovation Economy today. I guess Scott Kirsner is just writing about interesting stuff today!)
3. Microsoft is going to sell Razorfish, according to the Financial Times. Pretty interesting stuff. Razorfish is the “creative” arm of aQuantive… Other online ad technology companies have proven that they don’t need a real ad agency arm to do well in the space (such as Google). So does creative matter for online advertising? Well, beyond the basic idea that more interesting display ads are more likely to get clicked, yes, I think it does. Here’s why: social media is growing in importance in online marketing. I’m not talking about targeted ad campaigns run through Facebook’s ad service, but instead the need to engage customers with interesting messages through Twitter, fan pages on Facebook, via engaging iPhone apps, and in other one-to-many social media services. I think it’s pretty clear that customers are getting really good at cutting out the clutter, but are getting pretty into fun “messages as a game” or “messages as entertainment” type marketing programs. I do not believe that simple mathematical formulas can create solid engagement in these areas yet.
4. Finally, the thing I’ve been thinking about for a while: “The Top 100 Networked Venture Capitalists.” I actually think the title to this Techcrunch article is a bit off, it should be the top networked venture capital firms, but anyways… a while ago some academics parsed venture capital returns by how many other co-investors a particular venture firm invested along side of:

They looked at historic venture returns and found that “better-networked VC firms experience significantly better fund performance,”

But who cares about venture capitalists’ returns. What the entrepreneur needs to think about is which venture capital funds are going to help his/her startup the most. The list presented on Techcrunch is a pretty good indicator of the funds that adopt an aggressive investment syndication approach. As I’ve mentioned several times in the past, syndication is a very good idea. If you are an entrepreneur and you are looking for a list of venture capital firms that you should try to network into, this list isn’t a bad place to start. These are the VCs who have the relationships you will need to find additional capital to support the growth of your company. Your fund raise doesn’t stop after the Series A, and these funds are the best at helping their portfolio companies find their next round of financing.

I was at a private luncheon 10 days ago with Scott Cook, the founder and Chairman of Intuit. Coincidentally, Microsoft officially withdrew MS Money from the market on the same day – a huge achievement for Scott Cook and Intuit. When asked how he managed to stem off competition from Microsoft, this is what he had to say:

Solve Customer Pain Point(s)

Most companies are founded with an objective to solve a pain point but only few firms continue to focus on the customer after they have achieved success. What Intuit has done in the last 25 years and is relentlessly focussed on what the customer pain points are and then go about solving them. They engage the customer before, during and after each release cycle to ensure what they build is what the customer wants.

Delight the customer

Solving the customer pain point is not just enough but doing it in a manner that the customer loves it is what counts. The customer interact with a company and its products in various ways and various times. The post-sale customer experience is even more important than the pre-sale experience. How the product satisfies the needs, how accessible the company is (customer service) and how involved the user community is play a major role in enriching the customer experience.

These according to Scott, will create a loyal customer base for life and continue to generate word of mouth. When Scott asked Bill Gates what the main reason to acquire Intuit (in the mid 90s) is, Bill responded by saying that they could replicate everything that Intuit did but not the word of mouth. No wonder, Microsoft pulled out of personal money management market.

Wow, there is an incredible amount of customer feedback that can be collected through a customer support number. I’ve learned some interesting stuff by listening on conversations the Pixily team has had with users of their service. This got me thinking – why don’t more internet-based businesses have phone numbers?

I guess it’s pretty simple to understand why Google doesn’t have a help desk. Think of the calls they would get: “Hey, I can’t find the address of the restaurant I’m going to on Google Maps,” or even more likely, “Why isn’t my company at the top of your search results?” (Or me a few weeks ago: “what the hell just happened to gmail?” This afternoon at TechStars I attended a talk by Nitzan Shaer, who was at Skype for a few years, and he mentioned that Skype consciously did not have a customer service number available because there was no way the service could handle the number of calls they would receive. I can buy that.

But what about smaller/startup internet companies? Can they have a help desk and actually not get overwhelmed helping customers? Should they? I’m starting to think that maybe… I’m pretty sure that for each customer who cares enough to contact a startup there are many, many other users who don’t bother. When you are trying to get something totally novel accepted by an as-of-yet undefined market, any customer feedback that you can get sounds pretty good, even if it is negative feedback. Early product decisions should probably be based on more than just the founders’/programmers’ gut instinct. Most startup internet companies have such a short runway to develop a product that will actually be accepted by the market that minor tweaks to the UI, content, etc. can have a huge impact on customer acquisition and retention.

I realize that actually talking to people is sometimes scary. And constantly picking up the phone can be very distracting. But you may be able to carefully expose a customer support phone number and not only help your business but also help some customers.

I’d imagine that the right way to have a customer service number starts with an easy way to REMOVE the customer service number. After all, if you end up having a Skype level of user adoption you just can’t support a support line very easily. So I’d go with one of those easy to throw away 800 services for the original number. I mean, you don’t want mooches like Mark MacLeod constantly bugging you… On the other hand, if you are an accounting software company and a well known startup CFO is constantly raving about how great your service is, maybe you do.

I’d also think that you will want your developers/product managers to answer a lot of these calls. I know this will slow them down, but on the other hand get the customer info into their hands asap. Also, if they build something that sucks shouldn’t they be the first to hear?

The feedback you get should also be taken in the context of customer segmentation. Maybe the particular user group that you are targeting just can’t “get” your product. Or maybe you want a help line specifically for bigger or corporate customers, or as a way to differentiate your free vs. premium app.

I obviously don’t have most of the answers on this topic. I’d love to learn from others who have or have not had a successful experience with their customer support line.

Matt Greitzer of Razorfish posted a thought-provoking piece on the evolution of the ad agency business last Friday over at MediaPost. In his post, Matt talks a lot about how the ad business was wed to a business model of creative + ad buying, and attempted to add value by its ability to make better (i.e. cheaper via volume-type discounts) ad purchases for their client… and then marked up the ad buys by 15%.

Obviously this model is challenged by online ad networks, where anyone, regardless of their volume, can purchase the same online ad unit at auction for the prevailing price. As Matt says:

In an auction-based environment like search, or the budding ad exchange field, buying clout is meaningless. Creative is still important, but what’s even more important is campaign optimization and segmentation, the effective use of which enables the creation of highly qualified audiences independent of the media on which those audiences are found. The media themselves are now interchangeable (feel free to debate me on this last point). Optimization and segmentation require people and technology, and the relentless downward push on agency commissions causes the agencies themselves to under-invest in both.

This got me thinking. Under-investment in technology may end up killing a number of ad agencies, but the forces that cause this sort of under-investment make a lot of sense when put into the context of the agencies’ business models. They can only charge a certain percentage above the end media buy. Their customers have decent visibility into the markup that any give agency is charging. And there are numerous other providers who could claim to offer a similar other service (in other words, it is a very competitive space.) Where is the ability to charge the customer more for a technology purchase? Or, who within the agency has the power to cut the margin on a particular piece of business to buy technology? I’d imagine that there would need to be a solid mandate from the top…

When technology innovation fails to come from within an industry it is sometimes thrust upon an industry from outside. The Google example is over used to the point of being a cliche, but it is true that the company has really challenged the way advertising works. I’ve very excited to see where the next wave of change in the advertising world comes from. I’m not convinced it will be from the agencies…

So, I’ve seen Prasad pitch quite a bit recently during his fund raising process. And I have to admit, the view from this side of the table is pretty different from the venture capitalist’s side. Thus is born the 12th tip for startup entrepreneurs pitching their business to venture capitalists – and this one is actually useful!

VC Pitch Tip 12 – Have the ability to complete your entire fund raising presentation in 10 minutes

I know that I mentioned in my last VC Pitch Tip that your fund raising presentation should be short. This is a slightly different topic – regardless of how long your formal pitch is, you should be able to deliver the entire pitch in 10 minutes if needed. Yes, most VCs will give you an hour or so to make your presentation, but I guarantee that there will be times when you have to be able to deliver a convincing pitch FAST. There are many reasons why this could happen:

• The VC is running late
• You luck into a quick meeting at a conference
• This is a follow up meeting with several VCs to quickly get them up to speed after one partner has already gotten excited about you
• You have some outside expert coming in for a particular diligence discussion and you want them to quickly know what the businesses is about
• Or, best of all, you are having such a good conversation with a potential funding source that you get really behind in your presentation.

There will always be a point in your fund raise when you need to very concisely bring someone up to speed on your startup. And there are so many outside people involved with the diligence that you will need to repitch and repitch, even when the actual pitch isn’t the core reason for the meeting. Read the rest of this entry »

I’ve been spending a day or two a week over at the TechStars Boston office, and so far it’s been a ton of fun. I think that the TechStars teams are building some potentially very cool applications attacking real markets. After having interacted with a number of the teams, I’ve decided to post my ideas on how they can get even more out of the program. Keep in mind that these tips, plus $3.50, will get you a coffee at Starbucks. (In other words they might not be worth that much! And they are in no particular order.)

Tips for the TechStars Boston people:

1. LinkedIn is your friend, and if you’re smart you’ll be LinkedIn buddies with every single mentor you meet. This way, if you need to try to reach someone in a particular industry/field/company you’ll be able to see into the mentors’ networks. Remember that you can search in your nearby networks for specific companies or job titles/descriptions. I’m willing to bet that many of the mentors will be happy to make intro’s to people in their network, and LinkedIn will give you the ability to know who knows who where.
2. Carry your business cards, because I get the feeling there will be very interesting/relevant people wandering around the halls here in Cambridge over the next few weeks – even if you don’t have a real chat with someone you will probably want to get their contact info, and giving them your card is an easy to get them to reciprocate with theirs. Of course, I like the sexy little Moo cards, but as the Baydin and Localytics guys have pointed out, I’m a bit of a walking Atlas portfolio company advertisement.
3. Start promoting yourself on Twitter. I’ll follow you on Twitter, and I’m sure many of the other mentors and TechStars entrepreneurs will. You’ll probably find that members of the local and tech media will want to follow you too because of your association with the program.
4. I want to hear your pitch. Hit me with it as often as you can! Since the pitches keep changing I want to keep up to date on your thoughts.
5. Be aggressive in asking the mentors if they want to get your weekly progress update emails. These updates make people feel like they have a stake in what you are doing.
6. Bother Shawn a lot. Try to get intros out of him, even to people who aren’t mentors. Need an expert in a particular field? See if he can help, or at least point you to a mentor who may have a contact or two.
7. Start thinking about your funding needs. I may be bringing this up before the TechStars organizers want me to, but the program will be over before you know it. How are you going to continue to fund the business?
8. Do you want to hire any of the mentors? (Ok, this is the most controversial thing I’m going to say.) Some of these mentors are real tech-community rockstars. Some of them are legit leaders. Some of them may bring loads of venture capital to any company that they join. Do you think that you could get any of them as the CEO of your company? Or as a head of marketing, engineering or something? If your team has holes and you think one or more of the mentors would be the ideal person to fill them, start gently courting them now. Coffee chats, email updates, asking for intros to people in their network who you can impress and learn from – carefully get this moving.

Good luck to all the awesome entrepreneurs at TechStars this year!

This is my follow up post on what to do if the venture capitalist who invested in your startup leaves their firm. (For the first post on what it means when your VC leaves click here.) My first thought for you, as a startup CEO in this situation, is “wow, you’ve just become an orphaned deal and you might be in trouble.” But all is not lost, and there are steps that you can take to make the situation better; perhaps even a positive. The amount you freak out depends on your particular situation. 

Your situation when the VC leaves

Let’s hope that you’ve picked your VC wisely. Some venture funds have good internal information and responsibility sharing on existing investments. These funds also force rank their investments across the entire portfolio. I think that many of these funds will handle partners leaving much better because they have real understandings of which investments will be supported, regardless of which partner works with the portfolio. Why don’t all funds do this? Because it is a huge amount of work to develop these rankings and keep them up to date. While I was at Atlas we did this exercise several times, and it required the attention of every investing partner, principal and associate, plus the CFO and several members of the administrative staff for two of full days, plus hours of preparation time. And it wasn’t fun. But I think that the exercise gave the fund a much better, more rational understanding on how each portfolio company was performing and the key value drivers and risks faced by each. If you are a portfolio company that is doing well at a fund like this then you will be handled with care during a partner transition. I still suggest you think about following some of the steps I list below, but you are going to probably end up being in good shape.

However, if your fund seems disorganized and doesn’t seem to know who will be managing their investment in your startup after your partner leaves (for example, if you first hear that your partner left in the media/news and not through someone from the fund contacting you), or if your startup is not exactly … kicking ass then you need to be very pro-active.  

Is this the only fund that invested in your startup, or is there a syndicate? This is one of the reasons why you, as a startup CEO, should want to syndicate your early financing with more than a single venture firm. If there is a syndicate you may be in better shape. Hopefully that other fund will continue to be supportive – if so this will make raising follow on financing from new investors much easier. And hopefully this other member of the syndicate will be able to help you meet near-term capital needs.

I am operating under the assumption that you have a good view into what your cash needs will be, and that you know when you will need to raise additional funds for your startup. (If you don’t have a fresh financial plan get it together ASAP!) You should be less concerned if you have 12+ months of cash runway.

Steps you can take when your VC leaves

Figure out what is happening at the venture firm. Read the rest of this entry »

I don’t know if you’ve noticed, but the venture capital industry is undergoing a bit of a contraction. The WSJ recently noted, “Not since the dot-com bust has the industry experienced as much turnover as it is now. Since the end of 2007, the number of venture-capital principals, who make investment decisions and are directors of start-up companies, has tumbled by more than 15%, according to the National Venture Capital Association.” There is a ton of discussion about how the shrinking of the venture industry will impact “innovation in the USA,” and “what does this mean for new companies chances of getting funding.” However, there is another group of startups that is being impacted by this personnel exodus – funded companies. What happens when you are a startup that has raised venture capital and the VC who sits on your board leaves their fund and your company becomes an “orphan deal.”

Well, you should probably freak out a bit.

Let me explain. Everyone knows that there is a lot of rational, thoughtful analysis and diligence work that goes into a venture partnership making a new investment in a startup. However, there is also a bit of passion that goes into any given investment. Fred Wilson recently blogged on this topic when he discussed the leap of faith that goes into any new investment. This leap is mainly taken by the partner who is leading the investment. That partner stands up to the venture firm’s partnership and says: “I believe in this. Here is my work and here is my thought process, and here is why I want to risk our investors’ money in this business and with these founders. If the going gets tough, it will be on my back to figure out how we save this investment.” 

The lead partner knows the startup better than all the other partners at the fund. When the startup hits the inevitable bump (or two) on its road to world domination, it is that partner’s job to pound the table at the fund and say “we need to continue to support this management team.” It is much easier for the partner who made the initial investment in the startup to provide this level of support because the partner: 1) was supportive of the company during the first investment, and assuming the startup has been doing well, has probably also been providing positive updates to the partnership; 2) has seen the team in action, and (assuming the team is good) has developed confidence in their ability to execute; 3) understands the Read the rest of this entry »

June is Innovation month in New England and in the spirit of fostering innovation, I have been reading up some books and sharing those ideas.  Vikram Kumar, CTO of  at Pixily, shared a video interview of Scott Anthony, the author of Silver Lining. There are some simple and yet powerful ideas  recommended in the book. Take a look at the video:

Onto my 11th tip for the entrepreneur pitching his/her startup to venture capitalists! 

VC Pitch Tip #11 – Keep the actual slide deck short but sweet

A 50 page PowerPoint presentation is too much. There are plenty of resources online that can point you to good examples of fund raising presentation (I like the CommonAngels one here); but it’s important to note that these presentations are all 10 to 20 slides long. If you have additional information that you MAY need to present, put it into an appendix that you can skip if that particular subject doesn’t come up.

Too long of a presentation causes several potential problems:

1. You risk running out of time, and thus missing important aspects of your business. VCs are pretty judgemental, and if you don’t get to a particular part of the presentation due to time constraints the natural instinct is for a VC to assume that you don’t have a strategy for that part of your business! This is crazy but true. I saw this happen several times when I was a VC – a CEO I had invited in to pitch to partner didn’t make it all the way through their presentation. Whatever section that was missed by the CEO is what the partner thought was the major flaw in the startup’s business model. You have to hit all the important parts of your business. Do not run out of time because you have too many slides!
2. You will look disorganized. It’s hard to navigate through a huge presentation if you are jumping around answering different questions. A simple presentation makes it easy to find the slide that you are looking for.
3. VC’s value brevity. They don’t want to sit in long board meetings with a management team that can’t get their point across quickly. Your pitch is the first chance to help the VC imagine what life would be like if they sat on your board of directors. Make them think you’ll manage the board efficiently.
4. You’ll look like a novice. Experienced fund raisers know to keep their pitch short to leave plenty of time for questions. Even if you’re not experienced, fake it ’till you make it! 

Keep your pitch deck short and impactful. If a slide isn’t getting across a major point in the business plan or strategy it probably doesn’t belong there.