Startable - Healy Jones’ & Prasad Thammineni’s Blog

There is a (sort-of) new fund in Boston - Volition Capital has just formed by spinning out of Fidelity as an independent growth capital fund. The old Fidelity Ventures group has a new name, but similar focus. The move was announced yesterday, January 11 2010 and is now being reported in the press.

Volition Capital’s Investment Focus

Volition’s investment focus may be changing a bit from what it was when the group was part of Fidelity Ventures.  The fund will invest in growing, founder-owned tech businesses based in the U.S. and Canada. I’m not quite sure how this compares to the old Fidelity Ventures, because I know that they invest in VC funded businesses (like SeatWave). Volition is defining “growth companies” as ones that have between $5 million and $50 million in revenue. I do not believe they require the companies to be cash flow positive, but this may have changed as well since leaving the Fidelity umbrella. Volition Capital specializes in software, Internet, information services and tech-enabled services companies.

Volition’s portfolio

Since the group will be managing the old Fidelity Ventures portfolio they will be starting out with legacy investments. The firm’s portfolio comprises 26 companies in the United States and Europe. Having this existing portfolio is probably a good thing for them, since they’ve got some solid companies in their portfolio and this will help the group establish the “track record” they’ll need to raise their first stand-alone fund. Some of these companies include Intralinks, BlackDuck Software, Flock and Seatwave. It is interesting because on their portfolio page they indicate if an investment is an early stage investment or a growth investment - and they seem to be pretty evenly split early stage and growth.

Good luck to the Volition Capital team, including Larry Cheng and Geraldine Alias!

I hope that the team is able to successfully manage out their existing portfolio, make a few new good investments out of their remaining fund and raise a new fund!

I’ve really had my head down at Pixily recently and am behind in keeping my New England SaaS company list up-to-date. If you know of any NE based SaaS companies not on this list, please leave a comment or ping me on Twitter or over email: healy (at) startabledotcom. As long as the company has launched their product and is HQ’d in the New England area I’d love to have them on the list. Thanks!

Michael Greeley, Chairman of the New England Venture Capital Association (NEVCA) and Partner at Boston-based Flybridge Capital Partners predicts that New England companies will raise $2 billion in venture capital in 2010. That’s down from $3 billion in 2009. He points to the fact that NEVCA currently has 108 members, down from 138 members in 2009.

Yikes.

Hey startups… time to get really friendly with those angel investors who still have cash money!

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.

There are some very cool new startup and innovation blogs on the scene in Boston, and they are definitely worth checking out!

ForEntrepreneurs.com - One of the best venture capitalists on the East Coast is David Skok. David is a partner at Matrix Partners, and previously founded several companies. David was on the board of a startup where I was a board observer - and I learned a ton from watching him. (A few of my older posts were inspired from comments he made on the board.) I am still working my way through all of his posts on forentrepreneurs.com. So far I really like the Building a Sales and Marketing Machine series.

startupblender.com - Adam Berrey is an experienced startup/technology marketing professional in Boston. I’ve had the pleasure of meeting him a few times, and he really knows a lot about getting startups focused on their right target customers. His new blog compiles his experiences as a startup marketing professional. Check out his post on how SaaS businesses changed the software marketing world.

bostinnovation.com - A new site devoted to covering technology innovation in Boston. Their stated goal is to help bring together the startup community in Boston. Since the whole New England region is constantly trying to find its innovation center of gravity I welcome their efforts and wish them luck! Check out the posts by my marketing intern, Matt Fellows.

Vivek Wadhwa will be speaking at Babson Monday night, December 7th 2009 at 6:30 pm. The topic will be “Babson, Boston, And Beyond: Globalization Facts And Myths.” For those of you who do not know of Vivek, he is not only a strong researcher of entrepreneurship at Duke and Harvard - he’s also a successful technology entrepreneur. I really respect some of the opinions he’s expressed recently on TechCrunch, even though he takes a purposefully controversial tone. One of his great posts ripped the venture capital lobby for claiming aggressive figures on how many jobs had been created by venture funds and the level of innovation that had come from venture investors. (My post in response got some good traction too.) I’m very curious to hear his take on globalization in light of his recent comments on how much better SF is than Boston for technology innovation these days.

Afterwards I may try to roll over the Webinno - and the famous after-party.

Following up my post from yesterday on exciting seed funding developments in Boston, The Founders Collective is officially launched. At least, their web site is now up. I know they have been attending various tech networking events recently and the word was already out that they had money to invest.

More seed funds for Boston = better

Boston needs more very early stage investors, and this fund looks like it will help fill a very critical fund raising gap. From their stated positioning on their web site, it looks like they will actually address the biggest hole facing the Boston technology investment scene:

Two guys and a dog. Unless one of the three is Bill Gates, it’s hard to get funded here in the North East.  Believe me - I know from both sides of the table now. New England VCs (and many of the local angel groups) love supporting previously successful CEOs and founders, but are slower to pull the trigger on unproven talent. If the Founders Collective is really willing to step up and fund new startup talent this could be a real boon to the local tech scene.

Is this the new early stage VC model? Most of these partners have real, full time jobs as founders/leaders of their own companies. Doing the math, there is no way a $40 million fund could support this many traditional VC partners salaries w/o the expectation that the next fund(s) would be much larger. Since the Founders Collective states that they want to keep the fund size small, the expectation must be that most of them keep their day job. Since I am now all too aware of what it’s like to work at a very early stage startup, I should probably say “day and night job.” How are they going to be able to do this? It’s going to be a ton of work, but I hope that they are successful.

How many new investments can they reasonably make in a short period of time? I wonder how much involvement the full-time CEO partners will be able to make. Will it be a consensus driven fund, where each partner needs to agree to a new investment, or can a single partner push the funding button? I’ve got so many questions on how this will actually work. It’s quite exciting.

They also state that most of their investors are successful entrepreneurs who are hoping to be involved in mentoring the fund’s startups. This would be awesome. Every entrepreneurial community needs this sort of knowledge and experience sharing.

I wish the team at the Founders Collective good luck and hope that they are able to get some great companies going!

There was some great news this past week for the New England startup scene - TechStars recommitted to another season in Cambridge and The Founder Collective officially announced that they’ve got a $40 million fund to make early stage/seed stage investments in New York and New England. I’ll talk about the Founders Collective tomorrow, today I’m going to focus on TechStars.

TechStars is coming back to Boston!

I was lucky enough to participate in TechStars Boston this past summer. It is a great way to launch an internet company, with solid mentors, great media exposure and a super-crappy office filled to the brim with passionate + smart technology entrepreneurs.

I can’t emphasize enough how great the mentors were for the TechStars program. The companies that had the best experiences at TechStars were the ones that took advantage of the one-on-one time that different mentors offered. These mentors were people who have successfully built real technology businesses. They opened doors for the entrepreneurs by introducing them to distribution partners, technology experts, journalists, etc. They provided strategic and operational advice. They beta alpha tested the heck out of the companies’ products. You can’t get this level of mentorship anywhere else that I’ve seen - not from a venture fund, not from a school - no where.

My advice is to apply to the program if you are a young, first time entrepreneur who has a grea idea and the ability to get it going fast, for not a lot of cash. TechStars is accepting applications now, so get on it. Remember that they are looking for you to show traction with your business during the application process, so set developmental (and if possible customer acquisition) deadlines over the next few months, mention this in your application and hit them.

One of the greatest things about TechStars being in Boston is that it brings talent in from other parts of the country. TechStars recruits from everywhere, and some of the great entrepreneurs from this past summer’s program has stuck around.

The change from the summer to the spring doesn’t really surprise me, but I do wonder if this will cut out some potential student founded companies from the program. Boston does have great entrepreneurial-driven cultures at places like MIT, Babson and other schools. It will be hard for some of these students to commit to full time company-founding during the spring if they are supposed to be in school. I guess they could potentially take a leave but this is cutting it pretty close to the spring for some registrars’ offices I bet.

There is a really cool piece by Ryan McBride on Xconomy listing New England startup competitions. It is a very useful resource for entrepreneurs thinking of getting their startup going in the area. It’s not just about the MIT 100k competition - there are a lot of cool events that hand out real cash to startups.

Wow, the Techstars Boston Investor Day last Thursday was great! I can’t believe the progress made in the past month by the teams. I’ve been a very absent Techstars advisor for the past month, so I didn’t know what to expect. Everyone in the crowd seemed impressed by the startups, and I felt a great vibe and high level of interest from some of the well-known Boston angel investors I spoke with during the event. Andrew Hyde mentioned to me that it felt a lot like Investor Day at the 1st Techstars Boulder in 2007 - and that 3 of those companies have had successful exits. Let’s hope that the good Techstars mojo continues here on the East Coast. To that end, here is my advice to the Techstars entrepreneurs on keeping the positive momentum going post-Investor Day. I guess the gist of my advice is that the hard work hasn’t ended - it’s actually just begun. But you are in such a great spot that you should be excited to keep moving forward and you should continue to take advantage of everything that Techstars has created with/for you - especially the network.

Techstars Boston, photo by Andrew Hyde

1. Don’t take a breather. You have a narrow window to exploit the momentum that you’ve created. Investors and the press are interested in what you are doing, but they have notoriously short attention spans.
2. Follow up with EVERYONE you spoke to. Send emails to each and every investor that you met - ask Shawn for their contact info if you didn’t capture it. These emails should be out by Monday afternoon at the latest - again, people have short attention spans. Did you speak to any of the tech reporters at the event? Heck, even if you didn’t get a list of the reporters (and bloggers) at the event from Shawn and send them a “thank you for attending email.” Include a three or four sentence business description so they remember who you were. Finally, offer yourself up to talk to them about Techstars or ASK for something.
3. Hit up your local tech press if you’re not from Boston - with a “the local tech startup doing something big time” angle and see if they bite.
4. Have an opinion on the terms of your investment round. This will help move the angels along more quickly.
5. Look for an investor “anchor” for your angel round (if you haven’t already raised your capital/got your fund raise going.) You need an angel to set the terms for seed round, so that the other angels will fall into line and step into the mix. I know a few of you have investors approach you and express high interest in the business. Those are the ones to hit up first. Once you have an anchor things become much, much easier.
6. Consider doing a tranched close on your round so you can get money into the company sooner rather than later (this means taking less than 100% of your hoped for fund round and continuing to work toward getting the other % at the same terms in the not too distant future). Angel rounds seem to take even longer than VC investments, so if you can get some of the investment dollars to come in right away that will help you do important things like pay for developers and ramen.
7. Take the free stuff. If Techstars offers to let you stay in the space for a while, take it. You probably had a good routine going pre-Investor Day in the space, so why mess things up? Keep the same schedule going. Cheap or free rent is VERY hard to find. And if Shawn wants you to pay for the space, well, talk him down as much as you can or ask for the first month free or something.
8. Stay in touch with all the other companies! How awesome were these other entrepreneurs? You have one of the best advantages of any startups - a real, legit peer group. Do you know how lonely doing a traditional startup is? You don’t have that problem! Those other CEOs and founders want you to succeed just as badly as you do. They will experience the same issues that you will face, sometimes before you do. Hit each other up for advice, networking and friendship.
9. Keep the weekly email updates going. It will help you stay focused - and you don’t want to lose the connections that you developed during the program.
10. Don’t get distracted. $, PR and continued growth of the business are your near-term goals. Don’t forget about the business while you take advantage of the external momentum. Set aggressive near-term business goals and hit them.

Finally, a bonus tip:

1. HAVE FUN! You are better off than 95% of all startups in the world. Your network is so much stronger than anyone else I know. Your peer group is strong, smart and passionate. You guys and gals are awesome - kick some butt! (And don’t forget about little old me once you hit it big time…)

Link to Andrew’s photos of Investor Day: http://www.flickr.com/photos/bouldair/sets/72157622218729239/