Startable - Healy Jones’ & Prasad Thammineni’s Blog

Congratulations to Mike, Bruce, Sandro and Bill of DataXu for raising a Series B investment from Menlo Ventures, a well known Silicon Valley venture capital firm. Atlas Venture and Flybridge, the Series A investors, invested in this round as well. I got to know the DataXu team when I was with Atlas and worked on the Series A investment. Mike has a great team and some solid technology.

I think it is great that important West Coast VCs are making follow on investments in the  Boston area - another prominent investment like this is Scale Ventures investment in Hubspots most recent round. When Boston companies are doing well enough to attract capital from outside the region then you know something good is happening.

Also important - while Boston may the the number 2 venture capital pool in the world, it is nothing compared to the capital available in Silicon Valley. When venture firms from San Francisco supplement local New England funds this means that there is more early stage capital available in the region to support innovation - a really good thing! Let’s hope for some more great companies like DataXu and Hubspot. Actually - let’s try to make them ourselves!!!

Betaworks is another newer seed fund with a different model, as mentioned in PEHub. The group focuses on “new media” opportunities. They are really innovating with the structure of their fund - they are actually not a fund. Instead, they have organized as a company. It sounds like they want to be some sort of new media holding company, with some operations internal to the business (either by acquisition or by founding it internally) or by making seed investments in startups.

When making seed investments (as quoted in the PEHub interview) they “invest as little as $25,000, though our average is in the hundreds of thousands of dollars. We mostly join rounds that are a million dollars or less altogether, and we typically participate with early-stage investors that we work with again and again and again.” This is a great spot, as it is clearly underserved.

It’s clear that they focus on internet and online media companies, with investments/ownership of bit.ly, Stocktwits and Twitterfeed.

I think this is an interesting model. I kind of like it. Build it, buy it or invest in it. Pretty fun options.

I guess my one fear as an entrepreneur pitching to this group is, will they try to develop the idea on their own, since they have developer resources and ambitions of becoming a holding company? I’m assuming they will try to handle this sort of an issue like top tier VCs do, and try to avoid these types of conflicts - but it’s to say from their web site how they approach such competitive issues when evaluating investment ideas.

Their web site is not at all like the traditional VC or angel investment group. I appreciate all the cool stuff on the site, but it is a bit confusing to figure out what their thesis, check size and current areas of focus are.

Dharmesh Shah (a longtime lurker on my blog - but he did comment once!) made a seed investment in Backupify, a provider of backup services back in June. Backupify has just received a larger angel investment of $900k from First Round Capital & General Catalyst (as well as some other really well known angel investors like Jason Calacanis).

Why am I mentioning this? Because it’s important to get the word out about Boston’s angel investment community. Dharmesh and the other initial angels invested $125k in the first round, and Dharmesh is a pillar of the Boston startup community.

I was out with a well known startup’s development group the other night, and one of their VCs from the West Coast was out with them. He and another investor (acting individually, not as part of a VC fund) invested over $500k in a young developer’s startup after just a couple of breakfast meetings. Obviously this was in Silicon Valley. There is just not a lot of this fast decision making angel investing in New England. The West Coast VC made it pretty clear that he thought that investors in Boston would never be able to make these sorts of fast, company forming investments.

He’s correct, in that we don’t have a lot of the “have breakfast, get a check to start a company” investors in NE. So I think it’s important to celebrate the investors who do make company forming investments. I don’t know how much research/effort went into Dharmesh making the initial investment in Backupfiy, but regardless, he helped get something going and we should all be proud that there are investors in Boston who do this sort of a thing.

Finally, TC mentions that Backupify is looking to move HQ…  Let’s make them feel welcome in Boston and see if they will move up here!

I may be a bit crazy, but I more think that Google Buzz is trying to fight Wave and Tweetdeck. Am I nuts? Most of the play for Buzz seems to be forcing things through your gmail inbox.

I like the idea of pre-populating your friend list. Of course this makes sense.

I am a little concerned about some of the sharing things… in the introduction to Buzz video Google highlights how it will share topics that weren’t in your friend group if a lot of your friends commented on it. But I could see this backfiring a la Facebook Beacon (hey, I wasn’t invited to this party that everyone is commenting on or hey, looks like my wife just found out I’m asking for advice on the location of her surprise birthday party.)

What is the purpose of Buzz? I’m sure it is the same as most of Google’s strategy - get as much data as possible so that the core search product can be improved. Mobile is probably the most important part of this play (in my mind.) To get an idea of how Google is watching you (i.e. collecting data) check out this part of the Google intro to Buzz video.

Vivek Wadhwa has started yet another interesting conversation on startups - this time on the dearth of female leaders in the IT space. I left a comment on Brad Feld’s blog in response to his response… and here is my response to Brad’s response and the original article. I guess it’s my response².

The original point is summed up by Vivek as: women make great entrepreneurs but represent a tiny % of leaders at technology startup companies. (That’s not a direct quote, that is me summarizing in a 7th grade book report style.) As usual, Vivek has done a real study and has numbers to back up his conclusion.

Brad nicely hits the point: This is “about innovation, competitiveness, and entrepreneurship.” (That is a direct quote.)

This whole point is something that my wife and I talk about a lot. She is at a tech startup; as am I. (We have some fascinating dinner conversations around HTML and the SalesForce Force.com API.) My comment on Brad’s blog pretty much explains where we are coming out on this issue:

Brad, I think a large part of the problem is pretty easy to understand. My wife and I both work at different startups; last night we were both at work pretty late. She didn’t finish up until around 10:30; I got done an hour or so before her but kept working for a while. We don’t have kids, but this lifestyle is not going to be possible when we do. Our highest performing women tend to marry high performing men (in my case I got lucky with my wife…). Since the burden of taking care of kids tends to fall on the woman, and since our best and brightest women are marrying men who have similar hard working lifestyles, something has to give. And it is usually the women’s careers.

There has got to be a business model taking top tier women with kids and getting them back into the workforce part time. That may be my next startup, but I’d be happy if someone else beat me to it.

This is a real issue. A couple of points that I see as “proof” that our best and brightest women are leaving the workforce: 1) A very high percent of female MBAs drop out of the workforce and become full time moms, much more than other professional female grad schoolers and 2) At the venture firms where I’ve worked, not a single one of the male partners’ wives worked. This is dozens of women, many with advanced degrees and who had very solid careers prior to doing the whole mommy thing.

I know that a lot of these women love being moms, but would also like to participate in the workforce. They are people who added a ton to the places they worked, but who don’t have the 70+ hours a week to commit now. There has to be a way to get them to find fulfilment both as a mom and as a startup exec.

Funny. Last night I was watching the president speak at the state of the union address and fired off a tweet about something that caught my attention - elimination of the capital gains tax for small business investment. From @HealyHoops: Don’t understand how it will work, but sounds interestingRT @jsteig: eliminate cap gains on all small businesses . . . that’s good! #SOTU

Then I stop paying attention to Twitter… but lo and behold, CNN is using some pretty interesting social media measuring tools and somehow decides to mention my tweet on the air. You can see it here - my tweet is about one minute and forty seconds into the clip.

First of all, the social media monitoring and display technology they are using is pretty cool. It’s a pretty interesting segment.

Secondly, I do think that the elimination of small business taxes could be really powerful for sparking investment in local and startup businesses. I really don’t understand how it will work, as in what will stop it from becoming a vehicle for tax avoidance and how will it impact venture investing? Will GPs count as small business investors? How about LPs? Will funds be counted the same as grandma helping her daughter getting her hair salon off the ground? Pretty interesting questions…

Third, thanks to Joseph Steig for the tweet I retweeted/commented on.

Finally - Can I now say that I’ve been featured on CNN? Or As Seen On TV?

Update - HealyHoops on the Daily Show too!

This is getting a little out of hand, but my little (re)tweet was also on the Daily Show. The twitter/CNN bit starts around 9:55 into the show (I found the video navigation a bit difficult with Chrome.) I don’t think the particular sketch is all that funny, but it is amusing to have my tweet mentioned by Jon Stewart. And I don’t agree with Jon that Twitter is totally useless!

Today I use a ton of applications on my iPhone to get the full experience of online services/sites like Facebook, Amazon, LinkedIn, Wikipedia and others. But the beauty of the web (at least on the PC) is that you don’t need to download software in most cases to get a full, awesome experience. I can just log into eBay and start trading stuff; I don’t have to wait for a download to get going.

But on the mobile phone it’s different. To get the best experience I need to hit the app store and download something. It’s a like a weird step backwards from the point where anyone could easily use any site with a browser (from your PC) without downloading software to a place where each site has its own special software that requires a download and install.

According to MediaPost:

Gartner estimates the combined installed base of smartphones and browser-equipped enhanced phones will surpass 1.82 billion units by 2013, eclipsing the total of 1.78 billion PCs by then.

But the firm warns that many sites still are not optimized for the mobile Web, even though cell users expect to make fewer clicks on their phones than on a PC. To successfully expand into mobile, publishers will have to reformat sites from the small form-factor of handheld devices.

I totally buy this argument. While one can quibble around the exact number of mobile devices vs. PCs, there is a clear and obvious trend that mobile devices are becoming an important secondary, and to a lot of people, the primary web access device.

So I wonder - will web sites just automatically be optimized for mobile viewing, or will the “app” become even more important? Is this whole app thing for using online services a real of “de-evolution” of the web - or a mere blip before mobile browsers and bandwidth become powerful enough to support the real web experience? What do people think, are mobile web apps here to say or just a strange passing fancy?

Using the power of Google Analytics, it’s easy for me to see which Startable blog posts were the most read in 2009. Keep in mind that I’m merely looking at the number of views, so stuff posted earlier in the year has a distinct advantage of making it to the top.

10. The hidden cost of down rounds - the antidilution provision. When venture backed companies’ values drop, the pain is not felt evenly amongst the shareholders. With venture backed companies’ valuations falling like rocks due to the financial turmoil and bad-economy-induced-missed projections, I’m not surprised that this post got a lot of traction.

9. 4 Ways to generate business ideas. Prasad’s post on idea generation and ways to come up with innovative businesses and solutions still attracts good traffic to Startable.

8. The Entrepreneur in Residence. The first in a three part series explaining what an entrepreneur in residence does at a venture capital firm. The follow up posts talk about how to deal with an EIR and how to meet with one. I think this post will continue to get good traffic; it is actually the number one search term driving traffic to Startable.

7. MBAs and Startups.  Right when I was fresh from leaving venture capital and starting actually doing the entrepreneurial thing, I responded to a Dharmesh Shah post on 10 things MBA school won’t teach you. Now that I’ve been a “real” entrepreneur for the past 6 months, I agree with what I wrote. This post also had a bit of a TechCrunch boost.

6. Early stage venture capital valuations. Right after I left venture capital I felt that I could reveal the truth (as I saw it) on how VCs value startups. VCs have a target ownership, and the more you raise the higher valuation you startup will get. I continue to stand by this.

5. So you want to be a junior VC. My advice to someone who emailed me asking for tips on interviewing for a non-partner position at a venture capital fund.

4. Angel groups are professionalizing and I’m not sure VCs realize it. I was pretty impressed after attending a meeting of the Northeast ACA (Angel Capital Association.) This isn’t a meeting most venture capitalists get to attend, and I was pretty shocked at the level of sophistication. Angel groups are really getting good. Somehow this post got a lot of stumbleupon love.

3. The venture capital investment memo. Since I worked at a few funds, I thought it would be fun to compile the “average” investment memo put together during the investment process at a venture firm. I get good monthly search traffic to this post.

2. Leaving venture capital. Well, this is when I officially announced I was leaving Atlas Venture. I guess people wanted to read about it!

1. It’s not me it’s you, the real reason many startups can’t raise venture capital. Many, many startups are rejected by venture capitalists for the simple reason that the VC doesn’t have confidence in the founder. However, this is rarely communicated. I list some tips that the founder can use to tell if they are the problem.

Wow, so I’ve written a lot this year. Hopefully I’ll continue to have some good content going forward. I am always available over email or twitter, so don’t feel bad reaching out.

Happy New Years!!

Last summer I was lucky enough to be an advisor to Boston TechStars. It was an awesome experience, and I highly recommend the upcoming Spring session. Applications are due January 11th; you can apply on the TechStars web site.

I’m not affiliated with TechStars at this moment, and I want to make it very clear that I have absolutely no involvement with the application screening process. However, I do have some opinions on what made some of the Boston companies successful, and I have a strong suspicion that the screening process is designed to bring in a certain type of entrepreneur(s). By a “certain type” I mean someone who will get a ton out of the program, engage with the mentors and create something really cool. I also happened to have been around Shawn, David and Brad when they were talking to the Boston mentors about what they look for when picking entrepreneurs. So, I’m no expert, but…

Here are my opinions on some of the characteristics TechStars is looking for:

Tech rockstars

You need one, preferably two plus rockstar developers. You are going to be creating something from scratch over the course of a few months. Whatever you are going to make would likely take a big corporation’s tech department a year or more to build. But you are going to have a working demo and hopefully customers in just a month or two. So you better be pretty awesome in the technical department.

How you prove it: Have real, working demos or alphas that blow their socks off. Really impress them. Do something totally new with a piece of technology, even if it is not related to what you want your company to do. Check out what Brad Feld says about why he liked the founders of RedLaser.

Ability to accept criticism

If you are accepted to the program you are going to be exposed to some of the most successful technology executives in the Boston area. These are people who have walked the walk and who are involved with the program because they want to provide mentorship. Being provided mentorship means you can accept criticism and be flexible in shaping your vision.

How you prove it: This may be one of the hardest things to prove in the application. But other entrepreneurs have done it, so I know it’s possible.

Have a business model

Understand how your idea will make money. This means you understand how customers currently solve the itch you are going to scratch. Is the way you want to make money consistent with their willingness to pay? Check out David’s post on the business models from previous TechStars companies.

How you prove this: Make it clear you understand what customers already pay to solve the problem; who the competition is and how much money they make selling a solution. Look for similar business ideas and see how those companies are monetizing. The way your company actually makes money in the future can be different, but you need to prove that you are thoughtful and that you are more than just an awesome developer - you are an awesome developer with some business savvy.

Have goals

When you raise venture capital, you try to raise enough so that you can hit critical value creation milestones. In TechStars, you’ve got three months of reasonable funding, free office space and dry humor provided by Shawn. What the heck are you going to accomplish with that? You had better be able to achieve some real milestones by the middle, end and a few months post program. Know what the metrics are that show you’ve created value. I don’t know what your business is, but if it’s anything like the other TechStars companies I saw perform well then you will want to have 1) a working product (even if it’s a minimally viable one) and 2) highly visible customer traction.

How you prove this: Have an aggressive developmental timeline that you can actually hit. And, see my next point:

Hit goals during the application process

I remember Shawn saying “we admitted these guys because look what they did during the application process.” The company he was referring to launched product, on the schedule the proposed, in between the time they applied and were accepted. Set goals on development (or marketing) milestones that will occur between January 11 and Feb 1 when acceptees are notified.

How you prove this: You do it! You say, we are going to launch our iPhone app in three weeks and you do it. You say we are going to have the private alpha ready on January 20th and you get it out.

Vivek Wadhwa had an interesting post today on selling in TechCrunch. I’m learning some serious lessons on selling now that I’m the head of marketing at Pixily - although I am very much still a novice sales manager! I reserve the right to be completely wrong/change my mind on any or all of these points

1. Aspiring to a touchless sales model is great, but small business customers like to know they can reach you on the phone. Many great SaaS companies have a great sales funnel that terminates when a customer signs up online without speaking to a sales rep. I think most small business SaaS startups hope to create this type of sales cycle. After all, how can you have a profitable company if you need to have a sales person on the phone closing $15 per month sales? But, at Pixily, we’ve found that phone calls result in sales and great free to paid user conversions. We offer a free trial, and a decent number of our paying customers choose to sign up for the free trial and eventually convert to paying customers. The highest converting (free to paid) lead source is the customers who call us and who we sign up for the free trial over the phone. The convert to paying customers by over 3x vs. the next best source. (Note: “source” is probably not the right word to use, but it’s Saturday and my coffee isn’t kicking in quite yet…) Is this sustainable in the long term? I’m not experienced enough to know at this point.
2. Customer service reps make great sales people too! Vivek mentions how developers make great sales people. I’d very much agree, since our developers often drive closed leads from networking events they attend and from conferences they speak at. But we are having success with our customer service reps doubling as sales people. First of all, they know the product. Secondly, they understand how live customers are using the product. Third, when a free user calls in to ask a question it’s the time to try to sell them on an upgrade!
3. Customers do the darnedest things with the product - asking them “why are you interested in my product” is really helpful in selling. For example, one of Pixily’s products is a simple document scanning service. We happen to be pretty good at scanning documents, and can offer it profitably as a stand alone service. We had a bulk scanning customer who was a magazine publisher. He wanted to get his old magazine issues (from the 80’s and beyond) online, but only had them stored in print. Once we actually really understood how he wanted to use our product we were able to sell him - even though we were more expensive than a couple of local scanning providers in his area. We’ve sold this particular product a few more times, mainly because we “get” what the customer’s end goal is.
4. Managing a sales pipeline is harder than it looks. When you are the VC, you get to see all these pretty sales funnels at board meetings. When you are the person trying to grow the business, keeping the different campaigns and leads all moving along in the funnels is much more challenging! I guess it’s just in my nature to enjoy playing/measuring our sales channels by output, but I have to fight the instinct to not spend too much time in analytics and not enough time in selling/content creation.
5. When selling online, content is king. I’ve had a ton of luck getting great content out of a marketing intern we recently hired. Not only has he built an entirely new site dedicated to document scanning, he’s also put out some very helpful blog posts and made content upgrades to our web site. All this content is producing - both in terms of us moving up on Google, getting more traffic and improving our conversion rate.