I attended a presentation on May 25 hosted by the Colorado Internet Keiretsu (http://www.cik.org). "Pain and Process; Raising $200M" was the first in an expanded series of offerings to CIK members. The speaker was Jim Lejeal, a co-founder of Evoke Communications (now called Raindance Communications) ((http://www.evoke.com). Because the response for the event was so strong, the location was shifted from Jim’s office to Softbank’s (http://www.sbvc.com) Hotbank incubator in Superior.
The meeting was scheduled for 8 a.m. Since I got there early and the doors were locked, I sat in my car and watched prairie dogs running around in a nearby field. The day was spectacular: sunny, clear and a great view of the snow-topped mountains (Yes, life in Boulder is good.)
When the doors opened, we were escorted up to the conference room, a state-of-the-art multimedia center. We were provided with coffee, tea and donuts. The room was full, so I’m estimating that 35+ people attended, including Scott Price, CEO of CustomerCentrix (http://customercentrix.com), Mike Gellman, CEO of SpireMedia (http://www.spiremedia.com), Sueann Ambron, dean of the University of Colorado-Denver business school (http://www.cudenver.edu/business), Cate Lawrence, president/CEO of Warrior Solutions (http://www.WarriorSolutions.com/warrior/html/index.html), Carl Kalin of The Jedi Group (http://www.jedigroup.com), and Deborah Arhelger, managing partner of DuoVoce Group (http://www.duovoce.com).
The presentation was excellent: lots of real-life tips I haven’t heard in other VC presentations. Jim started by talking about going from the Air Force Academy to co-founding IMR/Vstream/Evoke/Raindance. Now that’s a switch.
He said that VCs want:
* A proven management team (which is determined by a history of success with demonstrable excellence -- although a past business failure can be okay -- and experience building teams).
* A large market (an easily validated market in which a 1% market share which represents an impact return that can be readily achieved).
* An unfair competitive advantage (think in terms of a legally protected idea that is sustainable long-term and offers a beachhead to more advantages).
* A demonstrated sales process (which means customers are already buying, low-hanging fruit is available and dropping, and revenue is recurring and offers high, sustainable gross margins).
* An early-to-market strategy (for those planning to dominate the market) or a niche market strategy (for those coming in late), with timing consistent with the exit plan.
VCs, in turn, are dealing with market risk, executive risk, technological risk and the expectations of limited partners.
The level of due diligence increases by levels of magnitude with each round of funding. And the executive summary and presentation, the business plan, and the expense-operating model must increase in equivalent detail.
For series D funding, he whittled a list of 45 to 50 funds down to eight or nine. When looking for a fund, consider which companies are already in the portfolio, and whether the fund will be able to assist in the next round of funding. It’s also wise to consider which general partner will be assigned to your company. Even if the fund passes on your deal, keep the relationship positive (and make sure you push in your chairs when you leave the office--it makes a good impression).
Getting Evoke ready for the IPO required the full-time work of four to six in-house people.
Get funding from VCs whenever you can. Look for ways to distribute risk and don’t take on too much yourself.
The challenge with angels is that they often have little or no sophistication. And their funding ability can change dramatically, depending on what’s happening in their personal lives.
When starting a company, you need think constantly about fundraising. But many entrepreneurs never acknowledge that. At board meetings the subject sits in the room like an elephant no one ever talks about. Brad Feld, a principal managing director of SBVC, took that analogy one step further. He said that in today's funding environment, the elephant has woken up. He’s grumpy, hungry, and shits all over everything.
Brad went on to say that timing is king. Right now the best time to raise money is during the early stages of your business. VCs are more willing to get in at this level because their losses will be limited. When approaching angel investors, keep in mind that sometimes they have more to contribute than just money. Experience and contacts can be worth a great deal.
After the presentation, Hollen Michel, Hotbank den mother and office manager, gave some of us a tour of the Hotbank facility. It’s quite impressive and well thought-out. Most of the desks are located in vast, open space areas without partitions. The effect is very similar to being in a library, with everyone quietly working on their tasks in full view of everyone else. (For those times when privacy is necessary, there are rooms available.)
Hotbank and Softbank execs and staffers do have their own offices, which feature glass garage-door style fronts (to remind everyone that entrepreneurs often start their businesses in garages).
There is also an office room (which serves as a mini Kinkos for tenant companies), a library, a cafe and a game room (which has turned into the de facto clubhouse for any techie in the region privileged enough to be invited over to play).
On May 31, I attended another CIK event, a happy-hour gathering at the Funky Buddha, a Denver club. The turnout was pretty good, considering the Avalanche were playing that night in the Stanley Cup finals and a Jimmy Buffet concert was going on (well, as far as I know, only one person missed the event because of Buffet, but quite a few stayed home to watch hockey). By my estimation, about 25 of us were there. Since it was Mike Gellman's idea to do this, there was a big contingent from Spire including Gellman, President Paul Schrank, Director of Marketing and Business Development Brandon Shevin, Chief Information Architect Jason Coble, and Brett Madden, who has been given the job of keeping track of RSVPs to Spire's upcoming Hot as Hell Party. Unfortunately, she has not been given a computer to do so and must chisel the responses in stone. (Budgets can be tight these days.) Also there to keep things lively was Jon Fetzer, co/founder and VP of operations and product development at the international trade site TamTam (http://www.tamtam.com).
Bernice German, president of Peak Achievement (http://www.peakachievementinc.com), Scott Price, CEO of CustomerCentrix, and Michael Lenzine, a professor of ecommerce at the University of Denver's Daniels College of Business (http://www.dcb.du.edu) talked about elearning. Patrick Scannell, CEO/co-founder of K Group (http://www.kgroup.com), talked about putting his Ph.D. studies on hold to start his web consulting business. Among the others in attendance were Frank Rider, CEO of SalesTool.com (http://www.salestool.com), James Dears, president of Ascent Technology, and Mendi Mullett of AACCESS Advanced.
There is one other CIK-related item to mention. Kari Nelson, who is on the CIK executive committee and serves as president of Recess Active Entertainment (http://www.YourRecess.com/index.html), has set up some Boulder business networking events to bring out the kid in all of us. Tuesday, June 12, from 5 p.m. to 7 p.m., and Wednesday, June 13 from 11:30 a.m. to 1:30 p.m. – and every Tuesday and Wednesday throughout the summer – she will host activities for fun-deprived business people to be held in Boulder's Central Park at Canyon and 13th Street. If you want more info, give her a call at 720 406-7800.