TLP Investor Showcase: Josh Tolkoff answer fundamental Founder/CEO questions in small sessions

I sat in on the Lifesciences session, where Josh Tolkoff of Ironwood Equity explored big picture problems that our Founders were facing. Should they sell to big pharma or CROs, when the products they were creating may put CRO reputations on the line ? How to price products ? Should they be sold per seat, or on a success basis ? Was that trackable ? Was one company creating a software product, or was it really a service. The latter had implications for raising money, because no one would back a services company without traction. The conclusion there: get some customers and show you can get the traction. One biotech that has angel backing to test compounds was asked whether this proposition was too risky. Were grants a better path to go down and how so ? A very interesting garage startup in the robotics world came up with an action plan to figure out what it should end up selling – a low-cost but extremely versatile new controller that would go into a large installed base, or a new product that would compete against that installed base.

Information and learnings from other rooms to follow.

SLP: Investor Event and Startup Showcase/Advice Session

April 7 was a very interesting event with a chance for our panel to provide useful advice to 20 TLP startups and a few selected guests in a mentoring environment, and then follow-up with a broader panel session. A remarkable room full of energy and excitement thanks to a panel of Boston's most prolific early-stage investors, and people extremely well connected to the startup scene here.

Speakers/Panelists/Advisors
Shawn Broderick, Managing Director, Techstars Boston (Moderator)
Todd Hixon, Managing Director, New Atlantic Ventures
Jonathan Lim, Principal, Polaris Ventures & In-charge, Dogpatch Boston
Elon Boms, Director, Launch Capital
Eric Paley, Managing Director, Founders Collective
Chris Sheehan, Managing Director, CommonAngels
Josh Tolkoff, Ironwood Equity

Shawn Broderick, Techstars
A successful entrepreneur, Shawn has spent over a dozen years building Internet companies focused on community, security, and privacy. In 2005 he recognized the need for a company to create a reputation layer for the Internet and founded TrustPlus . Shawn has over 20 years experience in technology firms and cut his teeth hacking on TRS-80s in the early 1980s. In 1996, he founded Genetic Anomalies, the first company to commercialize virtual property on the Internet which went on to sell tens of millions of pieces of virtual property. He has also held positions at THQ Inc., international strategy consultancy Monitor Company, and Feld Technologies. Shawn is an early-stage angel investor in various tech startups, and currently serves as an advisor or director to Speranza Systems, Arcadios, xLr8d Brands, RideOnTime, and TradeVine. He has previously served as advisor or director to Red 5 Studios, CoreStreet, iFactory, DigitalShares, Voxx, Govedo, and Troba. He received his BA in Computer Science from Brandeis University.

Elon S. Boms, Managing Director of LaunchCapital LLC, has led LaunchCapital in making 25 investments across a broad range of industries.  Since co-founding the company in 2008, Elon has developed LaunchCapital’s presence across the US, opening 3 offices located in Boston, New Haven, and San Francisco.Elon joins the Venture Capital community with significant experience in structuring biotech, consumer products and technology deals.  Prior to establishing LaunchCapital, Elon was a Management Consultant at Fidelity Investments where his work focused on strategy initiatives for investments in emerging markets. Elon also worked in Corporate Finance for Citigroup.  He began his career as a brand manager at Georgia Pacific Company’s Dixie Foodservice division.  In this role, Elon assumed responsibility for a $125M business, orchestrated $25M in capital investments and engineered a complete profit turnaround for the paper cup business. Elon earned his M.B.A from the Yale School of Management where he graduated with distinction in Venture Capital and a concentration in Finance and Strategy. Elon completed his B.A. in Economics from George Washington University. Elon is an avid golfer, skier, and gourmet chef. He lives in Boston with his wife Stephanie and dog Bogey.

Todd Hixon, New Atlantic Ventures
Todd invests broadly in information technology businesses, with emphasis on companies that use “deep” technology to create commercial value.  Currently Todd serves on the Board of Directors of GateRocket, MPowerPlayer, Ember, Velox Semiconductor, and EveryScape. Before co-founding New Atlantic Ventures in 2006, Todd was a managing partner of DFJ New England Fund from 2000 to 2006, and previously a Senior Vice President with The Boston Consulting Group, where he managed two venture portfolios, built the Technology and Communications Practice to $100 million of revenue, and managed the firm’s information technology and knowledge management functions. He earned his BA in Physics from Princeton University (summa cum laude and Phi Beta Kappa) and he holds his MBA from HBS, where he was a Baker Scholar. Todd is married to Pam and has two children and two grand-children.  Favorite non-work activities include summers in Maine, boating, skiing, travel, photography, cooking, and playing with digital toys.

Jonathan Lim, Polaris Ventures & Dogpatch Boston
Jon Lim is a Principal based in our Boston office.  He joined Polaris in 2007 and focuses on early and expansion stage investment opportunities in technology and healthcare. Prior to business school, Jon was an associate with Summit Partners where he was responsible for sourcing and executing various growth equity investments across industries.  Jon worked previously at Medtronic in their cardiac rhythm and disease management business.  Jon also has prior experience conducting research and co-authoring several published materials at Harvard Business School. Jon was part of the investment teams responsible for Polaris’ investments in Egnyte, KISSmetrics, Ocular Therapeutix, Phytel, SustainX, and 1366 Technologies.  Jon is also an active member of the Dogpatch Labs community. Jon is an observer on the boards of Egnyte, Phytel and Ocular Therapeutix. Jon received his MBA from Harvard Business School and his AB, magna cum laude, in East Asian Studies from Harvard College.

Eric Paley, Founders Collective
Eric Paley is a Partner at Founder Collective, an early stage fund started by a team of entrepreneurs that launched companies and led them through successful exits. These founders are focused on helping the next generation of great entrepreneurs build important and lasting businesses.Previously, Eric was the CEO and a co-founder of Brontes, which was acquired in 2006 by 3M Company. Investors in Brontes included David Frankel (Founder Collective), Bain Capital Ventures, Charles River Ventures and Flybridge. Eric is an angel investor in a number of companies including Magazine Radar, Positive Energy, TrialPay and Link Medicine and also served as a senior advisor to Flybridge.Eric was also co-founder and CEO of Abstract Edge, a web application and marketing company in New York. Eric holds degrees from Dartmouth College and Harvard Business School.

Chris Sheehan, CommonAngels
Chris is a managing director of CommonAngels, joining the group in 2005, and is currently either a board member or observer at Carbonite, Outside the Classroom, Most Effective Media, Xconomy and GateRocket. Within CommonAngels, Chris manages deal flow, due diligence and the investment process. He also guides the group's strategic direction and works closely with portfolio companies. He is also a managing director of the group’s two $10M venture funds.Previously, Chris founded Newburyport Partners, a consulting firm that works with investors and their portfolio companies. Chris also served as a venture partner at Industry Ventures where he was actively involved in the acquisition and management of secondary venture investment portfolios. Prior to starting Newburyport Partners, Chris was a Director of Corporate Development for BEA Systems, a leading enterprise software company with over $1B in sales. At BEA, he was a key member of the corporate team responsible for all venture capital investing and M&A activity. He was also part of the executive team for one of the company's product divisions. Prior to BEA, Chris led the private equity practice for the Cambridge based research firm, Stax Inc. Chris also spent six years with the top ranked investment bank in Australia. He started his career as an equity analyst focusing on the oil and gas sector. He holds a Bachelor of Commerce degree from the University of Queensland, Australia.

Josh Tolkoff, Ironwood Equity
Josh has thirty-five years of in-depth management experience in research, development, manufacturing, regulatory affairs and general management of medical device companies.  He is a member of the equity fund investment committee. Josh started his career as the Vice President of Research and Development for Medi-Tech, which became Boston Scientific, and helped grow that company from 20 to 500 employees. Josh then went on to start two of his own companies. From 2000 to 2003, he served as a partner of Seedling Enterprises, a medical device incubator that developed early stage device concepts to the point of commercialization. Josh is a graduate of Harvard College and holds an M.S. in Biomechanics from The Massachusetts Institute of Technology.

Creating a compelling investor pitch (Boston's 1st day-long workshop)

Raising money is always a daunting task for most entrepreneurs. Further, the entrepreneurial view that investors, primarily the venture capitalists (VCs), are people sitting in ivory towers compounds this anxiety during an investor meeting. The first step towards making that initial meeting with an investor a success is to create a compelling value proposition via an effective pitch.

Although I have completed my MBA from Cornell, co-founded a healthcare startup and am currently the CEO of Dragonfly, I still remember the unnerving experience of doing my first pitch to a general partner of a renowned VC firm in the Boston area. However, having gone through various VC meetings myself, I have learned a lot about the right ways of pitching to investors. Thanks to Mark Haddad, Partner, Foley Hoag, I had the opportunity to attend TLP’s “pitch deck workshop” on October 24 at the spectacular Foley Hoag's Emerging Enterprise Center in Waltham, MA. From my previous experiences, I believe that the workshop was a great introduction for budding entrepreneurs to understand the basics of how to create a perfect pitch using simple yet efficient tools. The stellar speakers who were invited to share their experiences were very generous to talk to the current TLP fellows about how to create a successful investor pitch in order to convert their ideas into real businesses.

The morning session of the workshop began with an exhaustive VC pitch by Authors Globe CEO and a 2008 TLP Fellow, Antonio Faillace. The pitch gave the current TLP fellows great insights into how to do a comprehensive pitch. This was followed by a panel discussion consisting of Nilanjana Bhowmik, Partner, Longworth Venture Partners and Jim Matheson, General Partner, Flagship Ventures, and led by the very deft and capable Vishy Venugopalan, TLP Fellow 2010. Both Nilanjana and Jim shared their experiences of good and bad pitch practices with the fellows. Serial entrepreneur, and ex-CEO of Netezza Jit Saxena kicked off the afternoon session with his sensational and motivating story of his journey from being an employee of Data General to founding two companies and taking them both to successful IPOs. After the great tips provided by leading VCs and entrepreneurs, the fellows were ready to do some hands-on training in order to convert their ideas into real businesses. Anupendra Sharma led the working session of creating a great investor pitch during which time fellows worked on their respective slide decks. All in all it was a very informative and exhaustive workshop that provided the wherewithal to the budding entrepreneurial fellows for taking the first step towards creating successful companies.

Here are my five key takeaways from the workshop:

Three key aspects of a memorable pitch: Content, Theatrics, and Interaction during dialogue

Always have a complete pitch ready even if you don’t know answers to all aspects of the business. Start off the pitch by introducing the team and what each team member brings to the company. Further, it is imperative to state the problem you are trying to solve along with some quantitative data and your solution with the benefits it offers up front. This will allow the investor to wrap his/her mind around your idea right away without second-guessing. Next, show the investor that you understand the market and what is the selling opportunity for your offering. Most technologists get too wrapped up with the product and the expenses for the company. Try to understand the market opportunity and hence the potential revenues that it can afford.

Although you don’t need to know the ins and outs of all the possible business models, a fair understanding of them demonstrates to the investors that you truly understand your industry. One of the biggest mistakes most entrepreneurs make is not being aware of and acknowledging their competition. There are three primary competitors that an entrepreneur needs to be aware of: other startups, big companies and status quo of customers. To wrap up, show some basic P&L and cash flow projections, but don’t forget to speak about the underlying assumptions for them.

During the pitch it is important to portray good team dynamics. It not only affects the pitch performance, but also shows the investors that the team works well together. When the investors ask questions, the CEO should do one of the following three things: answer it correctly, point to the right person if he/she doesn’t know the answer or if no one knows the right answer acknowledge it and respond that they will either get that answer or hire a person with appropriate expertise. This might seem common sense, but never argue in front of the investor about who should have known the answer to a question. Finally, practice, practice, and practice with the entire team that will attend the investor meeting. Make sure there are no glitches before going in for the real thing.

Remember, the pitch is a company interview with the management team having a lot of control over the aspects of what the company wants to present.

Recipe for a successful startup: people, product, customers

It’s extremely important for an entrepreneur to know oneself. A successful entrepreneur falls in one of these two categories – they either have a great track record or a lot of passion for what they want to do. Secondly, they know and fully understand why they are doing what they want to accomplish. Know your strengths and acknowledge your weaknesses. Once you are aware of this you need to form a world-class team. If you can get a luminary in the industry on board, that tells a lot about the power of your offering. If you realize that you cannot lead a team as a CEO, attract a great CEO. Surround yourself with extremely smart people so that they will make the company successful. Finally, talk to your customers and understand their pain points. This will allow you to offer what your customers need rather than what you think they need.

Why raise money from institutional investors?

Although bootstrapping is a great way to get a startup off the ground, it is usually more time consuming than raising money from institutional investors. Additionally, the expertise and network that an institutional investor will bring to the table can be an invaluable asset for the company. Therefore, it is important that the entrepreneur is aware of the time vs. opportunity cost for getting a startup, especially a product company, operational. The probability of an institutional investor backed company beating a bootstrapping company to market is pretty high.

Be passionate not religious.

Being an entrepreneur is not easy. Not only do you need to believe in yourself and your idea, but keep plugging along in spite of all the rejections you might face on your journey to create a successful company. However, while doing so, be wary of not becoming too attached to your ideas. Therefore, keep doing what you want to do, but constantly question yourself if it is still the right thing to do. In other words, looking external to the company, sell yourself and your idea but looking internally, constantly challenge and question yourself while believing in your offering so as to not waiver from your vision.

Benefits of Entrepreneurship

Entrepreneurship affords you the chance to impact not only the marketplace but also people’s lives through technological innovations. Founding companies gives you the ability to make an immediate positive impact on the economy by creating new jobs in the local community and hence benefiting the society.

This workshop barely scratched the surface of what's a difficult process, so Anupendra has agreed to work one-on-one with those Fellows raising money to refine their pitches. Thanks a lot Anupendra! Now that the TLP Boston fellows are armed with the investor pitch creation toolkit, I look forward to seeing some superior pitches in the coming months.

Choosing and vetting winning ideas

For the Startup Leadership Program’s October session, titled Choosing and Vetting Ideas, we had invited two speakers, Amar Sawhney and Jeff Carbeck to share their insights and advice on ideation and the earliest stages of building a startup. Amar and Jeff drew on their significant entrepreneurial experience in the life sciences to speak of this crucial stage in a startup’s life, when just about every decision can significantly sway its eventual fate.

Amar’s bio and presentation appear in a previous post on this blog. Jeff is a co-founder and CTO of Arsenal Medical (formerly WMR BioMedical), the Chief Scientist of Nano-Terra and comes from a strong academic background in chemistry and material science. Jeff had much to say about the importance of finding a solid, trusted cohort of people with whom to embark upon entrepreneurial ventures.

In this post, I’d like to cover some of my key takeaways from both talks.

• Unmet vs underserved need. Make sure you understand whether your idea serves an unmet or an underserved need, because they lead to fundamentally different kinds of products or services. The first is a change-the-world venture that may have a bigger payoff in the end if successful, but customers may not even realize they have an unmet need for which your product is appropriate. An idea aimed at an underserved need doesn’t carry the risk of shaping customer behavior, but faces the challenge of differentiating itself from a potentially noisy market.
• Product vs platform. Entrepreneurs may start with a product idea to alleviate a pain point for their target audience but may start to face pressure, especially from outside investors, to extend their idea into a platform. Although platforms may be powerful generalizations of a product idea, not every product is suited to grow into a platform. Platforms may blur an entrepreneur’s product development focus by pulling them in several different directions and increase the execution risk associated with the success of a new venture. Entrepreneurs must tread carefully when considering this question.
• Is your product or service VERY easy to use? Amar noted that ease of use is all too often sacrificed at the altar of efficacy and functionality. A new product or service that is VERY easy to use reduces friction and barriers to adoption and is one of the earliest tests of a product, especially one that meets an underserved need. Rather than attempt to ‘share a mountain’ with their competition, entrepreneurs must ‘dominate a hill’ by finding a niche where everyone in the value chain wins.
• Know your market. Even a revolutionary, high-impact idea with low barriers to entry can fail if it fails to navigate market conditions appropriately. It’s important to distinguish between the maximum potential market and the total addressable market. How fragmented the target audience is will undoubtedly influence the go-to-market strategy for the idea. An entrepreneur should also consider if product development (and manufacturing, as appropriate) needs to be vertically integrated in house or whether it can be outsourced at least initially to keep operating expenses low. Entrepreneurs must aim to orchestrate the value chain of their product rather than control it if they can (or as John D Rockefeller put it, “I want to own nothing, but control everything.”)
• Find the right people. Don’t hire everyone in your own image—assemble a diverse team with mutually complementary skills and experience in large and small companies. All employees should be preferably full-time so that everybody’s interests are aligned. First-time entrepreneurs should try and find a mentor to help them through the process of starting up. An entrepreneur should assemble a board of directors evenly stacked with insiders, independents and investors, taking care that investors alone don’t dominate the board.
• Funding. Entrepreneurs should invest some of their own money but not all of their savings. Consider asking customers to invest some money as additional proof of their belief in a product. Raising enough money to reach a significant milestone means that entrepreneurs don’t have to go keep embarking upon a financially and emotionally taxing fundraising process. Even if an entrepreneur plans to raise primarily friends and family money, having at least one deep-pocketed investor on board means that other investors don’t have to endanger their own net worth and can continue being friends and family.
• Funding from customers is better than funding from investors. Jeff related his experience of finding customers and getting them to fund initial product development and rather than undergo significant dilution from taking VC money just to develop a product. Jeff’s experience with relatively capital intensive materials and pharmaceutical startups particularly brought out this point. Entrepreneurs may occasionally have to do some work to uncover the real pain point that a customer has, because they may sometimes be reluctant to reveal them.

Several of us have multiple ideas that we’d like to pursue, but Amar and Jeff had many key insights to offer entrepreneurs to help with the all important question of which ideas deserve the assumption of personal and professional risk for huge rewards.

Building a Startup in a Down Economy - FitnessKeeper Inc.

My FitnessKeeper Inc. business partner, Jason Jacobs, wrote a great post on our company's website (RunKeeper.com) called Building a Startup in a Down Economy and I thought it would be appropriate to re-post it here. Enjoy!

Building a Startup in a Down Economy
I wanted to take a few minutes and write a post sharing some insight into how we have chosen to build the team here at FitnessKeeper. The more startups I talk to, the more I am finding that we have taken a somewhat non-traditional approach.

When I left my job in 5/08 to start FitnessKeeper, it was just me and an idea. Today, FitnessKeeper looks very different than that, and we are proud of what we have accomplished in a short time:

- 235K+ downloads of our initial iPhone application

- featured in TechCrunch (twice), Lifehacker (twice), Mashable, NY Times, TUAW, AppleInsider, and many others

- featured by Apple (at no charge, they picked us) in full page iPhone ads in WSJ, USA Today, NY Times, and on the walls of Apple Stores

- team of 9 of us involved, great team, complementary skillsets

- revenues that are fully covering our burn

- several big initiatives underway, and lots of exciting updates to come

One interesting stat in all of this is the total amount of outside capital we have raised: zero. How have we done that? The secret (shhhhh) is in our non-traditional team structure. 10 months in, and I am still the only one in it full-time. Everyone else is either moonlighting (nights/weekends with a day job) or freelancing (we are one of several clients). Because people have kept their day jobs or other paying clients, it has enabled a large portion of their compensation to be paid in equity, rather than cash.

But make no mistake, these are not “contractors”. We meet at least once, and usually several times a week as a team. We push aggressive goals and release cycles. Every team member is personally vested in and passionate about what we are building. This feels and acts like a founding startup team, it just happens to take a different shape than how most startup teams choose to go after it.

As a first-time entrepreneur, I have spent a good deal of time meeting with more seasoned entrepreneurs/executives/investors for mentorship and advice. As our traction has been increasing, I have heard two consistent rallying cries beginning to emerge: Time to raise funding, and time to really invest in marketing.

As much as I appreciate the advice and can understand this position, I can’t see it making sense for us at this stage of our growth. For better or for worse, the economy is in the dumps. The capital markets have dried up, and even if we were able to raise money, the valuation would suffer. Not to mention the time suck that goes into the fundraising process. And most importantly, I am just not convinced that we need outside capital to get over the hump and really scale this thing.

Now, if times were rosy, we would have tons of competitors out there. And some competitor that shared our ambition would go raise a boatload of capital and blow right past us if we kept this approach. In this economy, I believe that scenario is much less likely to occur. The startups that raised money before us and are out trying to raise their follow-on round—I hate to say it, but they are going to go away. And our potential competitors that are trying for the boatload of capital—they are going to stay on the sidelines because they aren’t going to be able to raise that round. Without funding, which is not the way they have launched companies in the past, they aren’t going to know how to build the business with non-traditional approaches like what I am describing (until reading this post, of course).

So, to all those who say, “time to raise funding”, I counter with, “focus on operating the business and don’t waste your time.” And to all those who say “invest in marketing”, I counter with “leverage free tools like SEO and social media, and give yourselves maximum flexibility and optionality by keeping your burn as low as possible.”

For entrepreneurs, it’s a new world out there. But in my experience, new is not bad, and in it’s own weird way, this new climate makes for a powerful barrier to entry that puts FitnessKeeper in a great position to ride this one through. When the capital markets do open up, we’ll have been plowing forward slowly and steadily all along, and we will be much further along than the companies who stayed on the sidelines and the ones who ran out of cash along the way.

We’ll see where this goes, but that’s my story, and I’m sticking to it! If you are an entrepreneur who is thinking about starting a company and unsure whether you could get the funding, the question is, do you need it?

-Jason Jacobs FitnessKeeper Inc.