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!!!

Inc has a solid piece on terms to be careful of when raising venture capital. I spent some time on the phone with Darren Dahl, the journalist who wrote the piece, and he did a very good job getting his arms around some of the most important issues I’ve seen entrepreneurs trip over. Raising a venture round is very difficult and confusing terms are one area where VCs have a distinct edge over entrepreneurs. This Inc article is a good resource for founders trying to understand the terms presented to you by a VC.

A good venture capitalist will walk you through the terms after he/she has presented you with a term sheet. You should ask for this if it is not offered to you after you get a term sheet. You should prep with your lawyer prior to this and ask a lot of questions of the VC as they go through the terms with you.

And, while they are really expensive, get a good lawyer for your fund raise!

And this is before the Nexus One!

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?

Great interview with Don Dodge, tech luminary who recently joined Google from Microsoft. Don was technology ambassador for Microsoft and is now in a similar position at Google. Don has a very unique view into both companies strategies, technologies and cultures. Some of the best quotes:

One of Google’s biggest challenges: “Another challenge is to earn a reputation for communicating clearly with developers and partners, providing them the support they need, and being as clear as possible about our product road map. ”

On how Google is prioritizing its efforts vs Microsoft: “All the exciting new applications are running in the browser, with application code in the cloud and the cell phone as the platform… Microsoft has product offerings in each of these areas, but they weren’t the high-priority programs… At Google, Chrome (browser), Google App Engine and Google Apps (cloud), and Android (mobile) are top priorities…”

On the state of MSFT: “I think Microsoft today is a lot like IBM was in 1985.”

On the cloud: “It all comes down to your application needs, workloads and design architecture. Amazon, Google and Microsoft are all solid choices.”

It’s a great interview; check it out.

It’s great news that Laura Fitton’s oneForty has received venture funding, in Boston, by Flybridge Capital. I’ve blogged about oneForty being one of the most exciting companies coming out of TechStars Boston this past summer, and it is great news for the local New England internet scene that oneForty has been funded by a local firm.

I had a bad feeling that oneForty would move West, as Laura had good angel funding backers from the SF area. She also was working closely with a web design firm base in SF. Of course, the major thing that had me scared she’s leave Boston was the recent ZenDesk move - cool company leaves Boston after it gets funding from a West Coast VC. But Boston was in luck! Jeff Bussgang of Flybridge had the cojones to step up and keep this cool company in New England. Good luck with the investment Jeff and good luck to Laura as you grow the business! (Also, congrats on recruiting Sachin Agarwal to the team and bringing a talented internet entrepreneur to the area from Chicago.)

I’m going to do something out of character (and off topic for this blog) and complain about Wall Street. I started off my career as a baby banker before moving into venture/growth investing, and think I know a bit about the people on Wall Street. My thoughts here stemmed from a recent post I saw about several important bankers missing a “chat” with the President. I’m not really faulting the bankers for missing this meeting; there was bad weather and their commercial flights were canceled. Although, I will point out that, when I was a banker intern in NYC I once had to take an overnight town car from New York to DC to deliver pitch books because the senior bankers were afraid that bad weather would keep the associate on the deal from making the meeting. And they were right. And the senior bankers also had the courtesy to fly in the night before to avoid potentially missing the meeting with the important client. But I understand not needing to fly down the night before to make the meeting with the President. After all, he’s not really a client or anything.

But that is not the point of my piece. Rather, I’d like the point out the problem with Wall Street.

The problem with Wall Street

Wall Street is full of people who really, really want to make money.

In some ways this is a good thing. It provides a place for people who want to make money to do so in a legal fashion. It’s kind of like the way the Marines provide a legally valid profession for people who really like to kick a** and take names and blow things up.

But it also leads to some issues.

One, Wall Street will gladly take money from your grandmother. If grandma is silly enough to make a bad trade in a complex security, then she deserves to lose her money. Or, if grandma’s pension fund trusted some of its money to a money manager who is just not as smart as someone else, then grandma also deserves to lose her money. It’s too bad, but that is how it works. Although I’m not really sure how grandma is supposed to retire if there isn’t really a safe way for her to invest her money without sharks taking an unfair percentage of it.

Two, somehow incentives on Wall Street lost touch with the duration of the risks and assets bankers were creating. An annual cash bonus system doesn’t work if you are creating a security that might not show any problems for the next five to ten years. There is no claw back. Unlike PE shops, where partners can actually their pay taken back if their fund loses money, a banker (I’m not really sure why they are called bankers when they are actually traders/hedge fund guys working within a bank) - anyways, a banker gets paid at the end of the year for the actual and/or fictional appreciation of her trades. Imagine there is a trade (syndication, loan, whatever) that a particular banker could make that might result in her getting paid millions of dollars this year. Even if this trade has a small percentage chance of sinking the bank (or maybe even the entire financial system) why wouldn’t she make that trade? Her downside is limited to losing her job; her upside is unlimited. The NPV of that trade is very, very positive to her. Like the good little capitalist that I am, I always assumed that public stockholders, through the board, would ensure smart risk management and proper compensation of traders. But I guess I was overly optimistic, since shareholders lost billions and happy bankers still are getting nice bonuses this year.

I, for one, am glad that Wall Street exists. Money needs to move from industries of low returns and flow into places where it can create jobs and finance growth. I also like making money for myself and I don’t find anything morally wrong about wanting to make money.

I guess I sometimes feel bad about grandma’s retirement, but I’m not really sure how to protect her. And I don’t know how a bank is supposed to retain talent when that talent can easily leave the bank and go to another shop where it will get paid a ton in the form of annual bonuses based on short term gains. But something just does feel strange when grandma can lose her retirement, via no fault of her own, and very smart people on Wall Street can once again get awesome bonuses based on very short term incentive plans. It just feels strange.

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.

While I was a VC I put together a list of “pitch tips” for entrepreneurs pitching their businesses to venture capital funds. Of course, I probably should have glanced at them when I was helping Prasad pitch Pixily! To help me be a bit more organized the next time around I’ve compiled all of these tips here, with links to my original posts.

VC Pitch Tip #1 - Turn off your screen saver
VC Pitch Tip #2 - You won’t be eating much lunch during that “lunch” meeting
VC Pitch Tip #3 - Get to the venture capitalist’s office early
VC Pitch Tip #4 - You don’t need to wear a tie to meet with an early stage venture capitalist
VC Pitch Tip #5 - The Venture Capitalist will want to hear a lot about your team
VC Pitch Tip #6 - Bring a USB drive with your pitch saved on it
VC Pitch Tip #7 - Format your financial model for printing
VC Pitch Tip #8 - If you are going to use WebEx to during your venture presentation, send the slide deck over email ahead of time and have a direct phone line available
VC Pitch Tip #9 - Don’t show the VC the IRR they will get
VC Pitch Tip #10 - Technology venture capitalists love demos
VC Pitch Tip #11 - Keep the actual slide deck short but sweet
VC Pitch Tip 12 - Be able to complete your entire fund raising presentation in 10 minutes

Even me, who has seen a bazillion pitches from the other side of the table, totally forgot to get to the VCs office early enough for one pitch to comfortably set up the projector. And the first time, I almost sent off our financial model without formatting it to print - a huge NO NO.

Ah, well. Maybe for our next round I’ll be smarter.

The awesome folks over at Betahouse have just launched Boston Founder Dating. It’s a way for people looking to found companies to connect. The idea is still in its infancy, but I find the idea awesome. Who knows, this could be the way the next great undergrad company founder hooks up with their savvy sales exec co-founder! And if eHarmony can claim to have hooked up 2% of current marriages, why can’t Betahouse introduce a few cool entrepreneurs to each other?