TLP Boston Potluck @ Arsenal

David Mclure: An interesting look @ Internet Startup Metrics (AARRR)

An interesting presentation with a lot of useful advice. I disagree on one bit of advice about not worrying about revenues, and focussing instead on traffic. The "noise" with regard to internet startups is increasing, and those who will succeed in getting funded and building sustainable businesses are those entrepreneurs who are thinking hard already about monetization.

Getting Funded Competition

Here are some photos from last night's competition.

TLP Get Funding competition

Hard Skills Session: IP, Incorporation, Financial Models & Survival Strategies !

Thanks to Foley Hoag for hosting us.

Learning How to Incorporate, IP Law, Financial Modeling and Startup Survival in One Day

Believe it or not, a group of 20 or so young aspiring/current CEOs came as close as you can to learning about different types of corporate entities, IP law, financial modeling and general "startup survival" in just a days time last Saturday at the Foley Hoag's office on Winter Street in Waltham. Each member of The Leadership Program is placed in a small group with other members and in charge of organizing an all day workshop before the program is complete, and this past Saturday I was fortunate enough to be part of the team running the "Hard Skills" workshop with Kwa Liou, Will Adams, Ariel Assaf, and Julianne Gauron. The day was packed with helpful sessions all regarding critical aspects of starting a business with many great presenters and speakers. The agenda included:

Legal Documents - Mark Haddad of Foley Hoag was kind enough to come in and speak about all the in's and out's of setting up your company, what type of entity to consider, and the details of different corporate structure. While there was a lot of good information in Mark's presentation, the most interesting point I took away was the fact that when issuing stock, often times vesting is based on a person's time spent with a company, but it can also be based on reaching specific milestones.

Intellectual Property - Melissa Hunter-Ensor and Rajesh Vallabh also of Foley Hoag came in to discuss Intellectual Property and ended up covering almost every nuance of patent do's and don'ts, types of patents and strategies. It was interesting to hear about their unique experience working with people at the cutting edge of many technology industries. An interesting fact I took away was that you cannot patent an algorithm. For example, while Google's patented PageRank is based on an algorithm, the patent is actually for the complete process of how Google applies rankings to individual HTML pages.

Financial Basics - Dave and Eric Collard of Principal Collard Advisory Group, a firm that helps startup companies handled their accounting came to discuss some financial basics all CEOs should have a handle on. The main take away here was that if you are an early stage company and have raised money, let the Collards handle your accounting so you can work on the fun/important stuff like building your product, marketing and acquiring customers. Some other good tips the Collards provided: 1) After you have raised a Series A round you should consider using SVB or Comerica as your bank and 2) As you grow, you should consider engaging with ADP or Paychex to process your payroll.

Financial Modeling - Anupendra Sharma, the fearless founder of The Leadership Program, came in and gave a great presentation about financial modeling. We spent a good hour with our sleeves rolled up and working with a financial model excel spreadsheet. The take away from this one: the slightest slip in sales conversions, meaning fractions of a percentage point, can man make your company unattractive to investors. While no investors expects your model and predictions to be spot on, it is important to try to be as realistic as possible and make sure that the the big picture is big enough and obtainable.

Startup Survival - We concluded the day with a panel on "Startup Survival" which I moderated with Mike Webb of Managing Director of Exponential Pharma Ventures and Pano Anthos CEO of Hangout Industries. The discussion ranged from bootstrapping to networking and relationship building, early stage product development focus to raising capital. The most interesting point I came away with was that early stage founders should hedge their risk by helping a couple startups, like investors do by investing in several companies. While often times most of your attention will be devoted to one project, it is much more common now to see people working on a handful of early stage companies.

All in all, the workshop was a great experience with some great discourse throughout the day. A big thanks goes out to all of the speakers, Kwa for leading the organization of the workshop, Julianne for putting together the brochure and everyone else who helped out.

Lessons I learned from Eric Ries

For those of you who are remotely interested in entrepreneurship and do not yet subscribe to Eric's blog, do so right now. Here is the address (http://www.startuplessonslearned.com/2008/09/lean-startup.html) I'll wait.

I may be very biased here, but I think Eric has managed to elucidate the crux of the opportunity and challenge that startups face today. Using his own experience as a backdrop Eric walked us through the story that brought him to these realizations. The 2 life stories involve a company that made very long term plan, executed flawlessly only to realize the market wanted something else. With that experience Eric’s next company tested their market very early on, only to realize that they should have started even earlier. This brings us to the extreme view that the lean start-up advocates.

There are many take-aways from the talk and all can be found on his blog. I'll try and summarize what i found most insightful.

The lesson in one sentence is Be Agile!!!! In the common and the technical sense of the word. For those of us who are not coders, being agile means moving forward in short bursts and re-evaluating at every such step. The alternative (status quo) being making long range plans and executing in them. The genius of this methodology for a business is in the ability to test your assumptions and to react to new information. So beware what you plan for. Traditionally, and instinctively, we all make long term plans and defend our assumptions fiercely. These inclinations (according to Eric, and I bought in) are the main reasons businesses fail. Founders assume they know what the market wants and design a long road map to get there. The beauty of the tech environment today is that we don't have to adopt this strategy; we can test often and evolve when necessary. Looking at successful tech companies a pattern begins to emerge, almost all end up in a different business than the one they started in. PayPal started in encryption, Flickr in gaming, the list goes on. The key to their success, Eric argues, is the willingness to evolve as they learned about their customers. But note that evolution happens in small steps, and these companies do not re-invent themselves all of a sudden but rather PIVOT from one plan to another, always leaving one foot firmly planted in what they know.

In conclusion:

1) Know your customer (read this book! bit.ly/48Rb97)

2) Test your assumptions early and often (see Eric’s posts on A/B testing)

3) Repeat

Here are slides from a similar presentation Eric did.

2008 09 06 Eric Ries Haas Columbia Customer Development Engineering

View more presentations from guest472f47.

Michael Mullins is December CEO (Boston)

Michael is the part-time CEO and co-founder of rentbuywhatever.com, a next generation ecommerce marketplace and asset portfolio tool. Modeled on electronic stock exchanges, the site transacts commodity goods and performs data analysis using regression to value asset in users' portfolios. As CEO, he is responsible for overseeing a software development team in Chennai, India, along with other business development matters. Michael presently works full-time as a real estate developer and asset manager focused on the development of smart-growth town centers. During his tenure as a developer, Michael worked on several technology projects. He was the CEO of Paradise Cable, a broadband internet startup as well as Cadservice, an offshore architectural rendering company. He also led several CAD conversion and electronic document management efforts. Michael has a bachelor's degree in Finance from the University of Miami and a master's degree from the MIT Center for Real Estate. Michael is a Trustee of the Dublin School, a director of Caritas Communities, and previously served for four years as a director of the Greater Boston Real Estate Board's Rental Housing Association.

Social Entrepreneurship

Finance II: Raj Melville

View more presentations from lpnoonan.

Cloud Computing: Vishy Venugopalan

Cloud Computing and Startups

View more documents from midtownninja.

Ashish Garg is TLP-Silicon Valley CEO for December...

Ashish Garg is a Strategic Marketing Manager at Cypress Semiconductor working on emerging LED Lighting and Power supply technologies.

Ashish is also the CEO of BITSAA International—the alumni association for BITS Pilani. Ashish has worked with BITSAA for four years at different positions including Chief Editor, BITSAA Sandpaper 2.0 (Alumni Magazine), Secretary of the BITSAA Silicon Valley Chapter as well as a volunteer for Project BITSConnect.

Ashish created on-campus BITSAA teams at the Pilani and Goa campuses as well as the first Cypress PSoC lab in India at the BITS Pilani Goa campus. At BITS, Ashish was member Election Commission, member Department of Controls, Instru APOGEE co-ord and President, Sangam.

Incidentally, he also holds an MS degree in Electrical Engineering from University of California, Santa Barbara.

Rebecca Breitenkamp chosen as inaugral member of W.O.M.E.N Mentoring Program!

TLP Silicon Valley Fellow-Rebecca Breitenkamp was recently selected as an inaugural member of the W.O.M.E.N. Mentoring Program. This NYC-based organization was conceived by a group of female leaders who met at the 2008 FORTUNE Most Powerful Women Summit and wanted to help other professional women advance their careers through unique mentorship and learning opportunities.

Nov 16-22 is Global Entrepreneurship Week

Reading and 'Rithmetic...Demystifying Term Sheets and Cap Charts

Entrepreneurs have a lot to deal with in creating their business - from coming up with a product to creating a compelling marketing message to finding the right buyers for their product, and unless they're lucky, have wealthy family members, or are independently wealthy in order for them to do all these things they need to raise money from Venture Capitalists or Angel investors. That in turn means at some point in the evolution of their business they'll need to deal with term sheets and cap tables. And that was the focus of our last TLP Boston session - understanding the ABC's of a term sheet, what is negotiable and what is not, and how to understand a cap table.

For our session we had two partners from the law firm Edwards Angell Palmer & Dodge (EAPD), Richard Kimball and Gregg Ploussios lead us through the basics of interpreting a term sheet, and one of our own fellows Steve Meyer along with an associate of his, Jameel Khalfan from Globspan Capital, lead us through an exercise in filling out a cap table.

As Richard and Gregg pointed out, term sheets can be daunting to entrepreneurs containing many different bullets that outline the terms of a deal. However, there are a few key items in a term sheet that an entrepreneur should pay attention to -

PreMoney Valuation:
Most entrepreneurs focus on this when looking over a term sheet as it is the most easily understood part of a term sheet, and the one that determines the ownership percentage that an investor will take with their investment. The basic idea works like this - an investor puts a value on the company in dollars before the investment is made, and the terms indicate how much money the investor will put in at that valuation. Dividing the investment by the pre-money valuation plus the investment yields the percentage ownership an investor gets. So as an example if an investor says your company is worth $1M pre-money and will put in $1M in investment, then after the investment the total value of the company is $2M. Therefore the investor with his investment has taken 50% of the company. Depending on the stage of a company the pre-money valuation of a company and the amount invested will vary greatly. The key to remember for an entrepreneur, as opposed to focusing solely on the valuation, is to make sure the investment will get the company to a point where when more money is raised the valuation will be much higher or even better the company won't require more investment. Of course that doesn't mean an entrepreneur should do their best to negotiate as high a pre-money valuation as possible.

Liquidation Preferences:
Liquidation preferences are often quite confusing when they are read through on a term sheet, but in actuality they are quite simple. A liquidation preference simply indicates how an investor will be paid out in the event of a liquidation event. There are two typical types of liquidation preferences - participating preferred and non-participating preferred.

In a participating preferred scenario, an investor gets to "double dip". They get a fixed multiple of their original investment and then the remainder of the proceeds are divided on a pro-rata basis amongst the stockholders AND investors. So as an example suppose an investor invests $5M and takes 50% of the company with their investment. If the company sells for $20M, then an investor with a 1X participating preferred preference will receive $12.5M total before anyone else receives any money (their $5M original investment and since they own 50% of the company an additional $7.5M of the remaining $15M).

In a non-participating preferred arrangement an investor only receives their percentage ownership of the company (or in the case of a sale that results in less than double their original investment they get their original investment back). So in the same scenario above the investor would only receive $10M for a $20M sale.

And the rest...
There were quite a few other items covered as well -

• anti-dilution protections - These protections are put in place in the event that the company has to issue securities at a purchase price less than the purchase price of the current class of securities.
• protective clauses - These clauses prevent the company from issuing new security classes without obtaining written consent of the majority of the current class of security.

VC Mathematics (does 1+1 still equal 2??)
After our session on term sheets Steve and Jameel took us through some concrete examples on filling in a cap table. I'll spare everyone the math lesson, but there are a few key things that we learned in the exercise that is important to creating a cap table -

1. The first step involves listing the shares and various percentage ownership stakes each stakeholder has in the company currently (stakeholders could be option holders, founders, and investors).
   
2. The second step is to figure out the post-money valuation of the company after investment and what percentage of the company that investment will get the new investor who's coming in.
   
3. Third it is necessary to calculate the total number of shares that will exist after investment. This is based on the existing number of shares, the post-money valuation, the size of any option pool, and the percentage of the company the investor will own after investment.
4. Finally after the number of shares is calculated then a share price is reached.

In Conclusion
While term sheets and cap tables are not the most exciting part of a business, they certainly are necessary components to building a successful startup from the ground up. This session armed us with the tools needed to understand how the value of a startup changes over its lifetime and how to quantitatively evaluate different options when it comes to investment.

Guess who's been invited to Paris !!! (One of our Fellows - coming soon)

TLP Fellow Achievements (last 6 months)

Oct 2009
Emily Rothschild (2010 Fellow) wins Spark Design Award for her Medical Glassware designs
Soren Harrison (2009 Fellow) reaches finals of the Ignite Cleantech Competition with his company Arriba Solar

Sept 2009
Jay Meattle (2010 Fellow) raises financing from Boston Angels for his company Shareaholic; appears in a “For Dummies” book
Chase Garbarino (2010 Fellow) selected as one of seven DemoGod in San Diego at the annual Demo Event for his startup Pinyadda
Hooman Hodjat (2010 Fellow) of PickupZone expands from Boston to New York

August 2009
Three Fellows head off to business school: Ed Chan (2007 Fellow, Wharton), Shobhit Chugh (2008 Fellow, Kellogg), Pat Noonan (Stanford)

One Fellow off to residency at UCSF: Anna Chodos (2009 Fellow)

July 2009
Michael Sheeley (2009 Fellow) of Runkeeper named one of top 10 iphone downloads by O’Reilly Media
Sanjay Rakhade (2007 Fellow) published in Nature magazine for his research on brain cancer

May 2009
Ajay Kulkarni (2009 Fellow) chosen for Techstars for his startup Sensobi
Jose Gomez (2008 Fellow) chosen as Humanitarian of the Year and named 35 under 35 by MIT Technology Review
Antonio Faillace (2008 Fellow) is named runner up at MIT $100K for his company AuthorsGlobe

Interesting article about Jason Fried's (37Signals) work style.

Here is an article in Inc. magazine that TLP Fellows might find interesting. It is about the work style of Jason Fried. 37Signals is the developer of popular online project management software Basecamp, which incidentally had its beginnings as application their internal use.

The Way I Work: Jason Fried of 37Signals

Jason Fried hates lame meetings, tech companies that don't generate revenue, and companies that treat their employees like children. A peek inside his typical workday

As told to Liz Welch |  Nov 1, 2009

Chris Strong

BOOK BREAK Jason Fried, who sometimes works from his house in Chicago, likes to read in the afternoon. But only nonfiction.

TLP Silicon Valley Session on “Generating and Vetting New Ideas”

Any successful entrepreneurial pursuit involves creating and critically evaluating new ideas. The premise of the most recent TLP Silicon Valley session (held in the law office of Wilson Sonsoni Goodrich and Rosati) was to do some thinking about our own entrepreneurial pursuits, practice pitching them to others and to learn from outside speakers Carol Realini and Sean O'Malley about the processes they use to generate and vet new ideas.

Here are some thoughts about entrepreneurship, teambuilding and fundraising given to us by Carol Realini, CEO and Founder of Obopay, a comprehensive mobile payment service.

Generating the idea:

The key is to come up with a strong vision and stick with it. Some entrepreneurs listen to everything people are saying and then zigzag according to the latest piece of advice they've gotten – that's taking too much advice. Be clear about what kind of advice you are getting by finding out who the domain experts are.

Try to see the potential in an idea before other people see it – or at least be among the first 50 people in the world to see it. Being early in a massive market and having a really big value proposition will give you some cushion when mistakes happen (and they inevitably will).

Along those lines, if you are going to be early in the market, spend some time figuring out what the market is. What are people going to use this for? You have to figure out what the market is before it is obvious.

At right: Carol Realini, CEO, Obopay, explaining the Foolproof "10-5-3-1" Fundraising Formula.

Realize that the rules can change and you want to be early in a big market. And then go to work on execution because if you've done all the right preparation and then fail to execute, you'll get nowhere!

Building a team:

It's crucial to build a team of people who can work together. Not everyone has to like each other, but you do have to be able to work together in a professional way.

There are challenges in finding people willing to join a startup. But realize that it is important not to recruit too hard. You want to sell your vision enough that people want to opt in – otherwise, they may abandon ship right about the time the work gets hard!

On Fundraising:

The main difference between people who can raise money and those who can’t is that those who raise money don’t give up. I once came close to losing my house (and I had three kids!) – “I wouldn't recommend putting your house on the line if you can help it”.

Raising money is not magic, but it is hard work. You need to get a lot of help from mentors and advisors to do it well. The good news is that there is a lot of help out there because “This Valley is a generous Valley.”

Fundraising nitty gritty:

Never cold call VCs – It is a total waste of time. But, it is important to have 3-5 'practice' sessions with VCs who are not your top choices so you can do well when you finally get the meetings you really want to have.

At Series A, whatever you raise is going to be your pre-money valuation!

I like convertible debt. I like angels, but fewer is better.

Finally, Carol's Foolproof “10-5-3-1” Formula For Fundraising:

You need to have 10 great meetings. Till you have 10 great meetings, keep meeting with VCs. You need to have 5 VCs doing serious due diligence. Don’t stop till you get 5. Get 3 term sheets. Keep working till you get them.

Sean O’Malley runs The Quarry, a business incubator at Venrock, a leading venture capital firm. In the last 18 months he has started 6 companies that have gone from blank slate, through “ideation”, execution and validation to receive Series A funding. He spent more than an hour talking with TLP Fellows about the “Idea Development Model” he uses.

The first question to ask yourself is whether you are looking to build a “Lifestyle Business” or the kind of business that could grow to an enormous size (i.e. one that could be venture funde).

Then, you have to find the “Idea Sweet Spot” to put yourself in the right position to unleash ideas, vet the best ideas and find 'the one'. To do this you have to:

1. Go Broad by aligning your interests with demographic, behavioral or technological megatrends.

2. Go Deep by uncovering meaningful problems – large, Blue Ocean opportunities that can inspire investment.

3. Do Customer Discovery – validate the idea with influential customers, get in front of them to learn their problems, wants and needs

It is important to take the time to do ideation right. The first thing I do when an entrepreneur comes in to The Quarry is put them through “detox”. 9 times out of 10 this is the best thing they have ever done. It is great to be able to take that step back. It should take a least three months, which may seem too long, but the idea forming stage is really the only time you'll have time!

You have to be a little bit crazy to be an entrepreneur at an early stage. The deck is stacked against you. A lot can be learned but of course, the fire and passion cannot be trained.

Entrepreneurs are risk reducers. They take a risk when they decide what they will do and then spend most of the time taking risk out of the venture.

The business model is critical. You need to ask 1) where is the money flowing today? And 2) how can I get into that stream? Of course, Twitter would not have started if they had to have a clear business model upfront!

Above all, remember that “Most successful ideas make people's lives better”.

TLP Fellows/Mentors with Sean O'Malley, Venrock (second from left)
and Asaf Kharal, Wilson Sonsini Goodrich and Rosati (third from left).

TLP-SV goes bull riding in Palo Alto!

TLP-SV goes bull riding in Palo Alto!

Sales is not a dark art

For many entrepreneurs building an effective sales organization is often the hardest part of building a company. Many, especially technologists, consider sales to be a dark art that can only be practiced by a select few, and too often the prevailing view is that sales is nothing more than a lot of golf outings, handshakes, and expensive dinners. Be smooth and you're good at sales.

So when I recently attended a Sales 101 BootCamp held by the MIT Venture Mentoring Service (VMS) it was great to learn that sales is not a dark art. In fact, sales is more science than art when practiced properly. For those who are not familiar with VMS, it is MIT's program that allows those in the MIT community who have ideas they want to turn into businesses to connect with mentors who've successfully built and run businesses - my company Assured Labor has participated in this program since our founding. As its title implies, the Bootcamp was an intense short session focused on giving entrepreneurs the basic vocabulary necessary to be conversant in sales speak, the tools to start selling to customers, and a basic framework for building a successful sales organization. Seeing as sales are the lifeblood of any successful business the learnings from this session are relevant to all startups regardless of industry.

The session featured three speakers, Kent Summers, Marc Corbacho, and Al Stefan - bringing their perspectives on sales as CEO, sales VP, and sales rep respectively. Kent covered the basics of sales from terminology to providing an understanding of how to approach it. Marc provided his perspective as a manager and how to build a successful sales organization, and finally Al provided his perspective as a sales rep and how they work with the other parts of an organization to maximize their effectiveness.

So what did I learn exactly? Quite a bit in fact, but here are my key takeaways -

Your first customer is extremely important:

Aside from the obvious fact that a first customer means a company's first revenues, a first customer also is important for future sales, and thus should be chosen with care. Specifically that customer should be recognizable within your target market (more on this in a second), and can be referenced when needed. Why are these aspects important? Having a recognizable name as your first customer gives you and your young startup credibility with other customers, and having a customer whom you can reference gives other potential customers someone to talk to when they have questions.

Understand your target market, and buyer profile:

All too often startups pursue a "boil the ocean" strategy that involves talking to every potential customer regardless of their profile. The problem with this approach is that it often dilutes the value proposition of your product or service because you are trying to be everything to everyone - or as the old saying goes "the jack of all trades, the master of none". Being focused however provides your customers with a clear understanding of who you are, and how your product can help them because all of your messaging will most likely pertain to them.

Build a repeatable sales methodology:

This goes back to my comment earlier about sales being a dark art. Too often the assumption is that there is no specific formula to sales, when in fact nothing could be further from the truth. Yes sales is about building trusted relationships, but to get to that point your sales organization needs to follow a methodology that gets them in front of the right people who are most likely buy whatever product or service you are offering. This involves building what is often known as the sales funnel - a step by step process by which a sales organization can quickly identify and engage the best customer prospects.

Talk about the customer problem, not your product:

Customers like to be catered to, and don't want to hear about what your product does. They want to talk about the problems they are facing and when you frame your product as a solution to their problem you are more likely to be successful in your sales efforts.

Establish a sales culture in your organization:

All too often sales and product development do not collaborate or communicate. The problem with this is that it leads to what I like to call organizational split personality disorder. You have product development working on features they think are cool regardless of whether they are relevant to an end user, and you have sales selling features that will get a customer to actually open their wallet even if those features have no relevance to the product that actually exists. However, when an organization promotes a sales culture it changes the whole dynamic of the organization to one that focuses on building a real product that solves a real world need.

I learned much much more at this bootcamp, but even if I hadn't having these takeaways that I've shared with all of you gave me a great sense of what it really takes to start building an organization that not only builds great products but sells them too!

The Valley of My Dreams: Why Silicon Valley Left Boston’s Route 128 In The Dust

TechCrunch contributor Vivek Wadhwa chimes in on the differences between Boston's Route 128 and Silicon Valley that lead to SV's emergence as the Global Capital of Tech... and identifies TiE as one of the leading networking groups that were responsible for the area's success! One thing's for sure... with TLP's in Boston and San Francisco, we should add Regional Advantage, a 1994 novel about the 128 vs SV debate, to the TLP reading list.

Excerpt:

"No one disputes that Silicon Valley is the global capital of the tech world. But this wasn’t always so. It is the Valley’s dynamism and networks which have given it an unassailable advantage. Silicon Valley has simply left rivals like Boston’s Route 128 in the dust." Read More...

Michael Mullins, TLP BOS 2010