The Post Money Value

Quote of the Week

"Are you placing enough interesting, freakish, long shot, weirdo bets?" - Tom Peters

My Hero. Right along side Ron Popeil.

Tom has Blog here. Ron just sells stuff.

Venture Fair is this week

Technically called the Canadian Venture Forum; this is a great showcase of Canadian companies looking for funding.  A press release on this can be found here.  Disclosure: I was on the selection committee.

Over the years, this gathering has grown in both attendees and presenting companies.  Cynics will point out that it's not DEMO and doesn't have all the glitz associated with said conference, but I will tell you that you can meet some great companies, smart people, and the best of the Canadian investment world.

If you are in the neighborhood, drop by, and insist on the Rick Segal insider discount; free and worth every penny.

Angry Customers - Great Example

I'm not sure what is it about the music industry that manages to create more angry customers then most industries. 

Maybe it's in the DNA of people who entertain us, I'm not sure, but I can only marvel as an entire service based industry which is totally dependant on wants vs. needs, spend sizable amounts of energy pissing off customers. 

Fred Wilson is a fellow VC in NYC and has a nice rant about his inability to pay for some Lead Zeppelin downloads. 

I've never met the man, but I like the way he thinks.

Dealing with Customers - Great Thoughts

It's always a pleasure to read things that are simply musts for somebody to hit one out of the park.  The guys at Alreraxion have done an excellent job talking about changing the way you think about your customers.  Worth a read.

Paradigm Shift: From Pushing Products to Delivering Solutions.

RENT-A-CODER

There's a million stories in the Naked City and probably about a billion coding projects just waiting to get done.

If you're like me, you have a tough time cranking out the latest .net or java masterpiece in between negociating pref shares and drag along rights. It's tough to find a quiet place to crank out a couple of hundred lines of code when you have all those term sheets to finish.

Well, fear not, Rent A Coder is here.

Seriously.

RentACoder is a really good site that has about 90,000 active coders looking for projects to do. I've used this site for a number of projects. In one case, it was to create a specific form for use with my exchange server and in another case, I had a guy on a houseboat in Powell River, British Columbia create a full VOIP/Open Source softswitch PBX for about $300. It was delivered on a CD, with a manual, ready to install in about 10 days. This was for some research into all the VOIP things going on. It was fast, simple, cheap, and the work/coder was excellent. It saved me hours of work getting it ready to test/play with my own PBX.

If you are looking to get some extra help, have some project work, or just want some fairly inexpensive technical prototypes cranked out, I recommend you take a peek at Rent A Coder as a good place to find solutions.

One day soon, you will be able to drive thru and order up a Big Mac, Fries, Chocolate Shake, and a .net web service.

Don't laugh, it's coming....

Technologies that will change Canada forever

Actually this rant/warning will apply to any country that thinks it can legislate consumer access to things they want.

Here in Canada, they're a friendly lot. The country is an excellent place to do business. You can get a great education, good food, and contrary to popular belief, good medical care.

But the Canadian government, like the governments of most countries not having the initials U.S.A., try very hard to protect the country's culture and home grown content. In Canada, you get TSN (The Sports Network) which is ESPN with a Canadian slip cover on it. TV stations in Canada who buy the rights to a U.S. show, prevent other stations from showing it at all. So, on my cable system I have a buffalo ABC station. But when Boston Legal is on, the cable company is required to switch the feed to the guy who bought it so I can see the Canadian commercials. It can mean The Movie Network (TMN) doesn't have the Six Feet Under or Sex and the City when the U.S. gets it. And the big fun is not getting the Super Bowl commercials.

Well, them thar days are coming to an end and you gubmit folk can't do nuttin about it.

Here are some reasons why:

VOIP
There are a ton of toll free numbers that don't work in Canada back to the U.S. The most annoying one is the toll-free customer service line to Direct-TV. You can't get Direct-TV in Canada. In order to get it, you have to hack it, buy it on the grey market, or go to the U.S. buy and bring it back. Once you bring it back, however, toll-free line doesn't work so you can't call to set the thing up. Pesky detail solved with VOIP. My new 212 phone number works just fine, especially the caller ID that tells the Direct-TV people, heck no, I'm not in Toronto, what gave you that idea.

A Slingbox
Lots of Canadians have nice places in Florida, Arizona, and other warm spots. It can get a bit chilly up here. The Slingbox is simple. Hook this puppy up to your cable input, run it to a PC with a broadband connection and, presto, instant TV to anywhere you are over the internet. Keep in mind people are doing this already, hackers actually. It's not really hard to do. But this is going to make it a mass market product. Of course it is really designed for the guy who wants to watch cable upstairs on his wireless laptop. Uh huh.. Yep, this little device is going to be keeping the lights on at the CRTC.

Internet/Satellite Radio
I bought an XM radio(Delphi MyFi xM2Go) and she works just fine in Toronto. At CES, where I bought it, I asked if it worked in Canada. They answered "we don't sell it in Canada." Bummer, I said. How far north does it work, I said. About 150 miles north of the U.S. border, they said. Visa or American Express was fine.

Pre-paid credit cards
Of course Direct TV and Satellite Radio require a US credit card. Right. There's a problem solved in about, oh 90 seconds by that zillion year old company Western Union. Head on over, cough up some cash and you've got American credit. At least in the eyes of the merchant because when that card is run, no problem it works fine. Western Union is one of about 50 companies that provide this service.

This little lesson in avoiding Canadian rules, is not so much to pick on Canada but to point out the futility in attempting to write laws with which to address this stuff. Instead, two critical things should happen.

In Canada, we should be promoting the heck out of technologies that enable all of this stuff, sell tons of it, and collect tax revenue from people who buy it. Secondly, instead of just sticking our collective heads in the sand, let's use this stuff to send Canadian content, products, and services out to the world. Given the world as a set of consumers, it's not hard to spend the money on great shows, movies, music, etc.

The country needs open digital borders because they are coming anyway. Face this reality now and let's get spending on stuff we can sell to the rest of the world.

They have this show Corner Gas up here that's pretty funny. I'll "sling it to you." Just kidding, put the search warrant down.

High Tech Dumpster Diving

When I was a kid, I used to hang out with a guy named Nic. Nic's parents came from 'the old country' which, at the time, meant Europe. They were not WWII refugees, rather next generation types who moved to the U.S. (Texas) and started a life.  Nic's dad was an engineer who could build anything while Nic's mom was also a brilliant person in her own right.  The family introduced me to that tried and true: One man's junk is another man's treasure.

Where I lived alleys were the norm and people would put the trash cans in the back.  Nic would think nothing of grabbing some old whatever with Mom and/or Dad basically making it new again while marveling at the waste in their adopted country.

In reading one of ResearchBuzz's posts regarding IBM's Open Source patents, it struck me that there aren't enough people digging through all these patents and looking for problems to solve, things to build, companies to fund, etc.  When you add the Microsoft Research goodies on top of IBM's stuff, then factor in all the research going on at university labs, you can comes up with a serious pile of things to review.

It's worth thinking about. That orphaned project inside of the big company might be too small for them, but just right for your next gig.

Wal-Mart = Goodness

Seth Godin has a short post about Wal-Mart making a mess of the toy industry.  He figures lots of people are going to slam him and make the point that Wal-Mart is the market, etc, etc.

In my view Wal-Mart is a good thing. Wal-Mart deals with mass market, me too, low price, etc.  But what gets often overlooked is that Wal-Mart also made the internet shopping experience 'ok' for the mass market in pretty much the same way that Amazon did it for all of those bleeding edge types who didn't care about pesky things like putting credit cards into the big internet cloud.

As more and more people decide that internet shopping is ok and as personalization engines, peer to peer recommendations, trust circles, etc, all get bigger, your ability to sell product at a good price to customer who will pay, goes up.

So, let's hope Wal-Mart keeps up the good work.  Let's make sure they sell computers bundled with high speed internet access to everybody. Let's get that price of a PC  with internet access driven to free and let's all make it up in high margin products people will gladly buy directly from great companies.

Well, maybe not free, these guys have to make a living, right?

Commercial "free"

Ya gotta love consumers. (Sorry, Mom, that is terrible english, sorry).

Ask people why they like HBO, TMN, Internet Radio, Satellite Radio, and one of the reasons that gets mentioned (and advertised) is commercial free entertainment! Whoo Hoo! No silly commercials. 

Bad News:  It's not commerical free!

Good News: Nobody cares.

Think about it for a second.  At the end of every movie on your favorite movie channel, what comes up? Commericals, of course, for stuff on that movie channel.   I'm listening to my XM2GO Satellite radio as I type this and, just now, there is a commerical for something on another channel.  On live365.com, after every call it 6 songs, there is a commerical for, surprise, live365.com.  Even after I've paid for it, I still get the live365.com.  Hee, hee, "watercolors on XM" just rolled out of the speakers but that's not a commercial.

The preceeding is not a rant rather an observation for start ups that consumers are an interesting bunch worth studying because these types of little wink wink, exceptions to the rules, can mean millions of dollars.  We pay HBO for commerical free movies with ads between the movies which is okay, that doesn't count, and we all still say it's commercial free.

Seth Godin would be so proud.

It's back! C:\

I was reading an interesting note from ResearchBuzz which talked about the addition of special syntax for movie searching.  This is where you can type movie:buffalo or movie:98052 to get listings, etc. The article then goes on to talk about the special and addition ways you can mess with this to get the results you want.

Hmmm.. A brave new world: The Command Line.

Many of you old timers (like me!) will remember that thing called Compuserve (or The Source or Delphi or Prodigy).  In a number of those online systems, American Airlines has introduced the world to Easy Sabre.

For those of you who don't remember black and white TV, dial up, and the Apple ][+,  Easy Sabre was a hook into the airline reservations system for geeks. You got pretty much the same interface that the travel agents got.  It was 'simple' in that if you want to go from Dallas to Seattle on the first of April, in coach, you essentially, from the 'google box' (or command line as we old farts like to call it), typed in a line something like: DFW/SEA/010404/Y/AM  or some such.

You got back flights and you could make reservations, etc.  Of course, Prodigy, AOL, and others slapped a friendly GUI on this and then something called the internet came along.

You know that Aunt Freida (why is it always Millie?) is not going to sit in Google's window and type trip:DFW/SEA, just not gonna happen any more then she is going to type movie:whatever.

Of course people already know that and have already built solutions.

For example, SOOPLE deals with the Google C:\ issue by slapping a front end onto all the syntax and command features of Google.

Made for somebody's mom, it fills the bill and while maybe not a VC investment, does show that by watching carefully, you can pick up on trends and all the 'new' things that will be required.

Now if you'll excuse me, I have to go dust off my Hayes Modem.

The Smarter People Theory

I believe there's always somebody smarter then me thinking about or doing whatever is rattling around in my brain.  This working theory keeps me humble, mostly out of trouble, and as a matter of habit lets me avoid drinking too much of my own kool-aid.

After posting my "only here to help" entry, sure enough, a smarter person then me has a deeper blog on the same topic. 

I had the honor of working with Tom Evslin while at Microsoft. It was my good fortune to pay attention to what he said during the brief time our paths crossed and I've watched with admiration his successes over the years.

Tom has written an excellent set of posts with his views on the VC community.  Everyone who even thinks about raising money should read them both. They are here with part two being here.

Tom's one of the best and is, for sure, validation of the smarter people theory.

"We're only here to help"

I've just given a talk to another group of MBA students. Fun group, lots of questions. I've clipped some of the comments/thoughts that come up on a regular basis.

Often times, investment capital is referred to as either 'dumb' or 'smart' money. Personally, all investment capital that doesn't produce a good return is dumb and coin lost isn't dumb is moronic money.

Lots of start ups, successful and otherwise, will often brag about how they didn't get VC money and boot strapped themselves with credit cards in order to get profitable. VCs sometimes get slammed for being more interested in returns then the entrepreneur they've invested in. On top of those complaints, entrepreneurs hear those scary words "We're only here to help."

In reading all of the pro/anti VC writings, I've come up with a few points that I think entrepreneurs should think about when deciding if VC is right for them. No doubt many people, especially my brethren in the biz, will disagree but that's okay my advice is free and worth every penny you paid for it.

Point One: Greed I don't understand the argument that VCs are only in it for the money. Aren't you? A "make a difference" marketing slogan is nice, being environmentally friendly is good, and paying for employee daycare is laudable, but in the end if you aren't creating a giant non-profit, making money is the point for everybody. Making good coin and sharing with your employees is a good thing. They appreciate the bucks. Trust me, everybody complains about paying taxes and everybody dreams of writing a $100,000 check to the revenue folks. So let's at least agree we all want to make money when a for profit business is started up.

Point Two: Involvement Lots and lots of entrepreneurs are experienced business people who are looking for capital to make something successful without 'active' people from an operational perspective. Others are really looking for help in opening doors, operational jobs, recruitment, etc. What's problematic is when there is a disconnect between the entrepreneur and the VC on involvement. Virtually every colleague in the VC world I talk to tells me there is nothing greater then a kick butt management team who just rocks with little or no involvement from them. So, like the first point, believing that VCs live to fire management and 'run' the company just isn't true. I tell every entrepreneur we invest in or potentially invest in that we are here to protect the dollars that are put into the company and to do the work required to produce the return. That 'work' should always be agreed to in advance. It's been my experience that the discussions about the 'work' and 'we're only here to help' reveal more about the potential relationship then all the due diligence, customer calls, reference checks, etc. One of my partners ask a potential CEO for his cell phone number. That resulted in a twenty minute lecture on how investors don't need to have that level of contact with management. Easy investment call to make.

Point Three: Exit Another one of those items I don't get. There is nothing wrong with creating a company and selling it or taking it public. While some people argue against taking VC funds because we are driving to an exit on a time schedule that may not match yours, I'm not sure I agree. Typically, the life of a fund is 10 years, the average company stays in a portfolio for 5.6 years, and assuming at least two possible exits, this pressure is usually not all that serious. In my opinion, there is a certain level of discipline that comes with building a company with an eye on some type of event. There are always going to be gut items, Google types, where you really don't know but the typical, most common, deals that come in the door should have this type of a plan in place. This is also a point of term sheet negotiation and isn't cast in stone.

Here's an abbreviated question list that I'd suggest entrepreneurs start with as they interview firms. Even in the first meetings, when you here the famous "any questions for us", jump on it and pound away, fairs fairs. I respect those who want the process to be balanced.

1. How many active companies are in your current fund? 2. What's the average hold time? 3. How many boards does a partner sit on? 4. What is the maximum amount you will put into any one deal? 5. What is your preferred term sheet structure typically look like, over the current/past investments? 6. Could I get a list of CEOs that I can call for references?

Lots of ideas don't get funded. Lots of great ideas don't get funded. Great people rarely come up empty.

Those were/are my opinions and thoughts. Lots of fun interacting with people who hadn't interacted with a VC. And the best part was I came away with some great people and ideas for my portfolio companies. Time well spent.

Your 'best' customer

So I'm here in Monrovia Calif standing in line with a bag of chips (healthy ones) and a diet grape crush. I drink weird ones because nobody EVER takes my drinks, thanks for asking.

So the five item or less line has four people in it, three of whom can't count.

The other lines have way more people with baskets packed full of stuff.

Who is the store's best customer?

Right. So how come that best customer with the cart packed is in a line wrapped around the store while chip boy is zipping through the store.

A problem worth solving?

Trust - A Common Theme

What do old style banks, fancy hotels and the music industry have in common?

They, for the most part, don't trust their customers. I was just in a branch bank, a dying thing anyway, and pens are still chained down. The fancy hotels have the we don't trust you hangers. The ones that are are two parts with the no hook hanger in the holes. And the music industry? They sue their customers.

Common theme of not trusting your customers = common theme of internet banking, "business hotels", and peer to peer music.

While a bit of an exaggeration, okay, but how hard can it be for every business on the planet to get the simple basics like trusting your customer. Amazing.. Now, if I can just figure out how to take this rod out of the closet, it will go perfectly with all the hangers and I can use the bank pen chains to hold the whole thing up!

Live as in NOW

I'm not sure how many people truly grasp the power of being on a mobile device, tapping out some thoughts, pressing the send button and within seconds (or less) have "the world" be reading, thinking about, and reacting to those blurbs. It's way more powerful then I think we can imagine.

There will be a day when everybody has a device that puts them 'always on' should they so choose. When you combine this with lots of bandwidth and social networking, things are going to come together fast.

Consider this:

I know the two founders of a dead internet company called Mobshop. Simple premise, group buying lowers prices for everybody. Use the power of the internet, leverage some bulk pricing, Bob's yer uncle. Unfortunately for all the reasons you'd expect, the company failed. Fast forward to now and let's try this power to the people gig again.

You have your shopping list on your 'device' and you enter the store. Instantly, your list is broadcast to the others in the store or whatever you give permission to is broadcast. Say you are looking to buy a washing machine. If three of you are in the Sears store all wanting to get that machine, you start to get a bit of leverage as the sales person starts drooling over a three set sale. You, as the consumer, get some leverage, new friends sharing notes on machines, etc, and the store gets to make some group sales which allows them some savings.

Another scenario is the power of the social network to actually help each other. Suspend your privacy concerns for a second, I know, I know. Say you are in a store looking at a stereo. Wouldn't it be nice to have other people input prices they've seen and/or paid for what you are looking for? Gives you some instant knowledge and knowledge is hopefully power showing itself as a smarter consumer.

"Live" web logs are just the start of live, peer to peer, average Joe generated information. Lots of opportunities for the VC community.

Little changes equals big opportunities

It is said that Ebay would have been impossible without the internet. You could not have scaled or been wildly successful on dial-up AOL, Compuserve or Prodigy. It got me to thinking about some little changes that would allow for opportunities.

I'm giving this some thought as I wait for Budget's bus here at LAX. One bus and of course it left minutes before I walked to the purple section. So begins the wait. Wouldn't it be nice to have my car waiting for me. A version of Enterprise rental car, aka "we'll pick you up." Now that you can crank up the cell phone and RIM when the airplane's wheels touch down, there simply has to be a way with my RIM, RFID, GPS, GSM, SMS, ABC, whatever, to get off a plane, walk to the curb, get in my rental car, drop chuck the agent off and be outta there. Premium service, like Valet Parking that people would pay for. Avis, years ago, tested some variation of this upon return. You picked up chuck the agent, drove to the curb, hopped out and he left with the car. That service didn't last long.

We are always on, always connected. It seems to me we should be able to use this 'presence' and connectivity to get us moving around faster.

The bus is here.

Live it before you design it

I'm sitting here with my trusty RIM in the Air Canada lounge waiting for a morning flight. The entertainment portion of the pre-flight is watching this very well dressed women crawling under a desk trying to plug in a laptop.

This, of course, is in the brand new Maple Leaf Lounge. The one where IBM and host of others spent a good deal of coin to make it modern, state of the art, etc.

No power at the desk. You have crawl under the desk to find, if you are lucky, a plug. Amazing.. The person who designed and approved this setup probably doesn't even own a laptop.

Many of you may remember the good ol days where the big thing was broken RJ11 phone lines and glued/stapled cords. All those people ripping phones off the wall to get to a dial up connection.

We're making real progress. We now have wireless (free in the lounge) and people crawling on the floor looking for a power connection.

Don't build it if you don't live it. Not a bad mantra. If you'll excuse me, I'm going to help the nice women.

(Live from the Maple Leaf Lounge)

30 Minute - no harm/no foul

I think every VC should do pro-bono work just like lawyers. And the more money we make, the more time we should offer up.  Every young (or old) start up person should get 30 minutes with a VC where it doesn't count, i.e. no harm/no foul. You bring in your worst PPT, your weirdest ideas of valuation and get 30 minutes of absolute truth that doesn't count.  You can then go back, regroup, etc, and take the shot for real.

We'd be giving back to where the money comes from and, at the same time, start growing our next success way way early.

[Live from my cell phone while waiting in the 'express' line]

Just like dial tone

The internet’s reliably and rock solid computers of today are eclipsed only by the amazing applications that are solving problems of both a personal and business nature. Sorry, I was told not to guzzle the cooking sherry before typing. Those fantasy worlds, amazing….

When you walk over and grab the phone, you most often just start dialing your number. You don’t give it a second thought or ask yourself, “I wonder if the phone will work”; the phone just works and dial tone is just there. 

You don’t re-boot our toaster to switch between white and brown bread.

The reality today is that after billions of investment dollars and thousands of software and hardware revisions, we still aren’t at ‘dial tone’ thinking when it comes to the technology we work with everyday.

We have search engines that can figure out you misspelled Algonquin Park but there are lots of obvious things still not fixed or working like your telephone’s best friend; dial tone. 

As a venture capitalist, I’m certain there are opportunities (i.e. money) in fixing this stuff while nudging the computer world toward dial tone.

Consider this scenario happening a million times a day, everyday, around the world: meetings.  In meetings three things happen with precision regularity; the handing out of business cards, the cranking up of AV equipment for the PowerPoint slides, and cell phones being turned off.  I ask the insightful questions: Why?  What can technology do that’s actually useful for these meetings?

If you assume, for example, that something north of 80% of the business world uses Outlook for email and scheduling and those same 80% are connected to the internet, you’d think somebody would have come up with a simple application that looks at your schedule and mutes your phone when a meeting starts. 

Might this be a feature of something else? Perhaps, but the key is to think about what happens when all of this technology talks to each and entrepreneurs starting thinking about the ways to just fix the obvious.

Once the process of muting the phone is accomplished, lots of things get improved. Consider the following. When you are typing on your keyboard, what does you computer know about you? It knows where you are. Mix in Voice over IP (VoIP) as the communications infrastructure and things get interesting.

Since my computer knows where I am, when a phone call comes into my cell phone, the “system” can route it to my desk phone or, better still, the soft phone on my laptop because I happen to be on the beach with a wireless connection typing my next BLOG entry

From my VC perspective, this goes beyond just rushing out, lemming like and investing in yet another company offering cheap long distance or free phone calls. The possibilities for making technology really useful exist when smart entrepreneurs take things like VoIP and are able to do what wasn’t possible before.

Let’s head back to our meetings. When was the last time you saw a presentation device that had a USB slot and a run time of PowerPoint built in.  Or a presentation device that had a wireless connection to the outside world where it could receive that slide deck and, with a push of a button, email it to all the people in the meeting.

You show up to the meeting room, cell phones go to mute, the slides are ready to roll and anybody that wants a copy gets them. We end wasting time getting this laptop to sync to that projector and “Can you email me the slides, please.” Stuff just works and does the obvious.

Business cards and the trading of said item is as much as a cultural issue as it is a technical one. The IR ports on every laptop and PDA failed to get any meaningful use. People don’t turn their laptops toward each other and “beam” slides, spreadsheets, or business cards.

Making the business card useful has huge business benefits not the least of which is eliminating the typing (or scanning) of this data into our respective computers. That same meeting device mentioned about could easily receive our “V-Cards” and pass them to each other’s respective contact managers with the added bonus of supplying context such as when we met, the meeting topic, a link to the slides, etc.

On the business card phenomenon, I’m convinced the first person who solves this issue is going to be seriously rich. 

The point of my fantasy examples above is two fold. For you up and coming entrepreneurs, come up with solving ‘the obvious’ as a business. For my fellow investors, let’s encourage this type of thinking as we can make some good returns while being responsible for funding some great products that really do make a difference.

A VC Root Canal

There are three processes that seemed to get lumped into the same category of pain; root canals, leg waxing, and venture capital due diligence.  While I can’t vouch for the leg waxing and unfortunately know the root canal process, my offer in this column is due diligence and some insight into the process.

Due diligence is a standard process for obtaining active investment in your business. While firms all have some differences, there is enough similarity that if you’re prepared for one, you can pretty much be ready for most.

Financials, in the case of a start up, are not actually the most important item. Doing ten years of projections is likely to get, at best, a raised eyebrow.  For a start up with no history, 24 months is about it from a realistic perspective.  The most important piece is “year zero.”  Year zero is defined, by me, as that start up year where this is no revenue coming into the company.  What are the expenses required to get the product off ready to launch and what are the preparatory funds required to get ready for launch? Those are the keys. You can avoid all the nifty buzz words like burn rate by simply saying my year zero costs are whatever with the detailed explanation.

Besides financial, you can expect due diligence in the business, market, and technical aspects of you opportunity. Each has its own particular set of hot buttons and requirements.

The market due diligence starts with the question; is there a large market of potential customers that need the product? Need is important versus want.  It’s a tough slog to educate consumers on what they need before they need it.  This can be done, but it’s a tough slog to make it happen.  So, I study the need vs. want issue.  Providing me with materials and information regarding needs will speed up the process.

The business due diligence is a review and understanding of the business metrics which should show me how you will take a dollar and turn it into two. This will include the go to market strategy. Will you have direct sales or require a distribution network? How much are your customer acquisition costs?  What’s the total value of a customer over what period of time? Did you factor customer churn into the business?  Do you factor in price erosion? This due diligence is critical for me as it tells me what will actually be involved in operating the business and, more importantly, how we can measure success.

The technical due diligence focuses on four things: Performance, Stability, Flexibility, and Scalability.  While this seems obvious, it gets confused often.  It really is important, even in a three man shop, to have a technical document that shows much of these four items.  Even if you don’t have the large scale system in place today, you need to have the plan in place as we will want to know and understand it.  I don’t care if it’s JAVA, .NET, or Visual Cobol.  I don’t care if it’s on a SUN box, a Compaq machine, or IBM Mainframe.  Well, check that, I don’t do mainframes.  The point is what I do care about is a detailed understanding of what you need to successfully and reliably service the customers.

Start ups don’t typically have 30 person QA departments but really good start up folks do understand the needs and growth requirements of the business. That’s what matters most.

Keep in mind that if you are already running with some revenue, you are going to have some different items. For example, audited financials, customer lists, sales pipeline, leases, contracts, etc, are all going to be asked for.

This might be a good place to make the case for the sometimes unsung hero in the money raising business; the agent. 

Personally, I find agents to be very valuable and helpful to companies raising money. They are almost always, in my opinion, worth the fee.  The key value add is getting you up to speed and in order when it comes to due diligence.  Typically, good agents will do some level of their own due diligence and have a general feel for what can be accomplished in a financial raise. They then will help you put the right package together and will know who will want what when.

Each VC firm will provide you with a checklist of materials, requirements, etc. As a service to the you, kind readers, I’m happy to send along a generic checklist for both business and technical aspects of the process. You can use those to get a good feel for what’s involved and hopefully be more prepared.  It’s not Novocain but might make the process a bit less painful.

We don't need Privacy

The problem with Privacy

Privacy is really not all it’s cracked up to be. For the most part it gets in the way of doing lots of useful things with technology. With apologies to the Society for Staying Out of My Life, it’s an interesting venture capitalist’s exercise to go through some possibilities when you suspend for a moment the fears of big brother.

Consider this scenario. It’s 6pm on Friday night. After a long week, you and your partner are looking forward to the concert. Two tickets, front row center, baby. Took standing in line for 7 hours in the rain but you have them.  As you coming rolling into the house, you get hit with the fact that the babysitter is eloping with chuck the bagger at the corner market, hence, she can’t stay.  This and little Gertrude’s sniffles are now being accompanied by that cough, that nagging cough.  Bye bye concert. Stuck with two $150 dollar tickets, what are your options? Ebay is out, not enough time. Phone calls to friends come up empty and the neighbors are already out for the evening.

Now, as all of this is going on, there are a number of people hanging out at the concert hall looking to buy tickets.  Fully 90% of those people have cell phones and you don’t know any of them. So enter, IMSTUCK.COM. You load up the two tickets and the site blasts the availability, real time, to all the cell phones that have pre-registered interest in those tickets.

First SMS back to your phone and, presto, the tickets are electronically transferred to the lucky person’s cell phone with billing appearing on their next phone bill or credit card which has been pre-registered. You get an access code so the venue can let you in.

Nothing in the above idea is hard. In fact, the domain name is available along with the technology to do this.

Or consider this. You are heading to Fargo,North Dakota for a business meeting in January.  Yeah, I know, but I said this is hypothetical and it’s warmer then Calgary in January, stay with me.

You can get data on the latest events, happenings, restaurants, etc, all from the hundreds of websites devoted to this sort of thing. Expedia will even suggest tickets to events happening as an add-on to the ticket purchase but it’s limited.

So, enter, boredomnot.com (I’m on a roll, the domain is also available). You fill out a personal questionnaire which gets all the data about you such as your favorite foods, your sports teams, hobbies, etc. You point it to all the amazon.com books you’ve bought as well as some electronic versions of your credit card receipts.  Now, when you get your itinerary for Fargo into outlook automatically, you point your outlook client at boredomnot.com and press the avoid boredom button.

Your schedule gets suggestions for everything based upon the data you’ve feed it. You get things that are useful, relevant, priced for you, and you don’t get a random list of things that clutter up your inbox/schedule.  Overtime, you feed in your ‘life’ and you begin to get highly targeted items that are likely to match you, your interests, time, and budget.

Had a privacy heart attack yet?  I’m a pragmatist and know my history of wants, purchases, etc, is already in 100+ corporate databases. And this doesn’t even begin to include all the government databases, mailing lists, etc.

So, if I’m going to be bombarded anyway and I’m going to be in town anyway, let’s make it useful.  I love sushi and don’t like Thai food so guess which coupon makes sense to send me. My American Express card shows at least 10 trips to Ruth Cris Steakhouses and I’m a member of the points program from the Hard Rock Café. So, if I’m going to be in Dallas, Texas, having the addresses of both the Hard Rock and the various Ruth’s is handy.

And since they know I’m coming, offering me a special increases the odds that I will show up for lunch/dinner with my Amex card assuming the card collaborates with the two places I’ve shopped before.

Of course, I have a larger point which centers on information and the limitless opportunities to make it useful.  Privacy? Pesky details. Okay, maybe not, be therein lies the challenge and with it, opportunities.

PowerPoint Hell

The “Deck” and how to get it right

If you want to ‘date check’ somebody who claims to have been in the tech industry forever, here’s a simple test. Ask them to show you some old foils. If they regale you with colorful stories about their fencing adventures; be worried. 

Foils, as all of us old timers will not so fondly recall,  was the slang word for the transparencies people used to put on the overhead projector and write all over with a grease pencil. There was nothing quite like running late to a meeting, dropping a fresh stack of foils on the floor, and trying to put them back in order all while fighting the static electricity of the entire pile.

Fortunately, those stressful days have been replaced by information at your fingertips through the courtesy of your laptop and PowerPoint.  No meeting is ever official or complete without the exchange of business cards, the PowerPoint presentation, and 20 people asking for copies of the slides.  Progress, you have to love it.

So, given that you are going to be doing a PowerPoint deck for your pitch, I thought I’d offer up some suggestions on how to make the pitch as effective as possible.  Keep in mind that while no two VCs will have the same requirements, most of what I suggest should apply in a generic sense.

The first and most important point you should remember is that a PowerPoint deck becomes a stand alone entity when you leave it or email it.  That deck has to stand on its own.  So as you construct it, review it carefully. Ask yourself this: Would somebody ‘get it’ if they didn’t have the benefit of your smiling face and glowing words along side the presentation.  Often times, I receive decks that are designed completely the opposite. They deliberately set up a situation where I have to ask a bunch of questions in order to get what the heck the deck is all about. Guess what level of priority that presentation gets?

We’ve all heard of the elevator pitch. You have 30 seconds, or less, for the person to get it.  Try to get your pitch into 4 slides with minimal piles of small font words crammed into the pages.  Sounds crazy, right?  Maybe not so crazy if you think about the core messages that I need to hear.

Slide One: What we do.  Not warmed over corporate-speak rather a plan English statement of what you do such as “Our product reduces wait times in checkout lines.”  It is simply not necessary to impress me with mission statements like “Our mission is to optimize the retail operator’s transactional revenue by maximizing customer flow through the purchase process.”  Scary, eh? It’s a true clip from an actual presentation that really was about reducing wait times for checking out in grocery stores. It was a great idea that took 15 (I just checked) slides to actually get to what they did.

Slide Two: What is the problem you are trying to solve. A simple problem statement such as the wait time is too long. 

Slide Three: How your company solves the problem.  Again, simple-speak such as our digital checkout system automatically creates a new checkout stand when the line exceeds 3 people.

Slide Four: How you turn 1 dollar into 2. In other words a simple, very high level summary of what the product costs to make, sell, and support as well as how many you can sell and at what price over what period of time.  From these simple numbers, we can all see if there is a basic business opportunity available for you to run and me to finance.

When I’ve spoken to entrepreneurs about the 4 slide rule, they invariably scream any or all of the following:

-          My product is way too complicated for this simplistic approach.

-          I need to set the stage, provide background and color so you’ll get it.

-          I have to explain it, a presentation won’t explain it.

-          Four slides can’t possibly due justice to the work we’ve accomplished to date.

Naturally, it’s probably not limited to 4 slides but I urge you to try it. Everything beyond the 4 slides becomes back up to the basic four.  Back up to prove the problem exists, the problem is costing people money, and people will pay to solve the problem. Back up to prove your solution is real, safe, solves the problem and has an ROI.  Back up to show your costs, gross margins, pricing strategy, market size of the problem, and all the numbers to make bean counters happy. 

As you can see, it starts with the basic four. 

My continuing offer to all start up companies is that you can get a free practice pitch with me if you can do it in 4 slides with all your back up where it should be, in the back. 

The key is getting the pitch refined to the magic four and then delivering that pitch with passion and enthusiasm. If it’s good, trust me, you will get to show me the other 200 hundred slides. 

Ecosystem Investing

This is another article written last year for a paper published here in Canada. The article is still timely. Skype is everywhere, Google has launched even more stuff and these rules, I think, still apply.

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Ecosystem Investing 101

On the late night real estate infomercials, you will hear lots of talk about OPM or other people’s money when it comes to making those millions of dollars by investing in real estate.  Apart from curing the occasional insomnia, precious little comes out of these shows.

One aspect, however, is valid and that’s proper use of leverage.  Translated to my day job as a venture capitalist, I’ve been looking at companies that are attempting to leverage a growing ecosystem of particular service or product. 

There are several advantages to this type of investment.

First, I can get a good idea of the market potential and growth opportunities along with feedback on existing products and services.  This helps me in the due diligence process as well as ensuring that the portfolio company has a steady track to target features and growth.

There are a number of obvious ecosystems that one can target, each with varying degrees of opportunity.  As your thinking of new investment ideas and new businesses, think about these ecosystems and the opportunities they offer up. Besides the obvious, the Windows Platform and Java, there are a number of others that are worth thinking about.

eBay

The granddaddy of Smurfs, Beanie Babies, and just about everything else, eBay represents a multi-million dollar opportunity for businesses that support the eBay ecosystem. Software companies are creating successful businesses by offering users of eBay auction tools in the area of logistics, pricing analytics, shipping calculators, and other important tools for businesses of all sizes wishing to use eBay as a store front.  As eBay’s worldwide revenue numbers continue to grow along with the user base, the tools/add-on market continues to be an excellent opportunity.

Google

Make no mistake, Google is driving to become your desktop with the hope of keeping you in a Google influenced world.  Virtually, ever ‘beta’ product as well as the shipping Google offerings, have developer opportunities to build products around them. A good example is: p-zoom (www.zoomstation.com). This handy add-on is designed to scrub the thousand results of a Google search into useful categories and sub-categories, making the results easier to digest and easier to find what you are looking for. If you look at the new Picasa digital photography tool, you will see the new opportunities for adding value and services surrounding this new offering.  Google and the resulting ecosystem being created offers tremendous opportunities for the entrepreneur and investment community alike.

Skype

If you haven’t cranked up skype (www.skype.com) yet, stop reading this and go do it.  The best way to truly see the power of this product is download it, get to a wireless hotspot with your laptop and connect to someone in Perth,Australia. Then conference in somebody in an internet café located in Rome. That’s Rome, Italy not Rome, New York.

The sound quality is amazingly good and, with a good microphone/headset combination, it is approaching local phone call quality.  The phenomenon called Voice over IP (VoIP) will, no doubt cause a great many investment dollars to be pour into various aspects of the technology and potential services.  Probably, the most successful investments are likely to be services that ride on top of various installed bases of users. In the case of Skype, as I type this, there are over 600,000 active users signed in with approximately 24 million downloads of the software. Skype has a developer program so I suspect it’s only a matter of time before applications, special services, and the like start to be released.   

There are many other platform plays, large scale applications (i.e. SAP) that all have, to varying degrees, ecosystems around them. The key to a successful business and potential investment, is to study that ecosystem’s growth potential, customer base, and willingness to share data that allows their success and yours to be a mutually beneficial relationship.

CeBIT 2004

CeBIT 2005 is coming up in March. I did a story last year which covered what I thought was some interesting stuff. I'll be doing more from CeBIT 2005 with my handy dandy RIM and moble blog activity but this article is still timely from the perspective of getting people to think about the next great things out there.

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As a venture capitalist, a good portion of my time is spent looking for that next thing. I attended the annual CeBIT trade show which is held in Hanover , Germany.

CeBIT is billed as the largest IT trade fair in the world with thousands of exhibitors and hundreds of thousands of attendees. At CeBIT you can get the latest information on pretty much everything technical. From the next generation banking systems to the finer points of multi-density circuit board production, CeBIT is the place to be.

My trip to CeBIT has a number of filters on it.  First, I try to ignore ‘cool’ as it relates to success factors for a business. I probably saw at least 50 ‘cool’ clear computer cases, 25 laptops designed to be ‘cool’ like an iMac.  Secondly, I’m looking for opportunities that fall out of technology trends.

I’ve picked some technology trends from CeBIT and share my VC thinking in terms of interesting new investments opportunities.

Compact Storage. 2 gigabytes of solid state memory is the norm.

Hitachi electronics was showing 4 and 6 gigabyte devices they hoped to ship in 2004. Digital Camera owners can now point and shoot by the hundreds, hoping to get at least one good shot of grandma.  The real message, beyond grandma, is there continues to be major improvements in the amount of storage that can be put onto a solid state device with costs continuing to drop.

Opportunities? Absolutely.

With everybody running around blasting away with digital cameras and creating desktop digital movies, how does all this data get, stored, shared, and backed up?  And once it’s backed up, how do I find the picture of grandma; the one I want amongst the 500 pictures of grandma.

Adjustors, who arrive on the scene of an accident, routinely take digital photos for documentation.  For use as evidence, have we figured out how to lock down a digital asset to the extent that a court will accept the fender bender digital photo as “authentic.” 

As a VC, I get intrigued about companies that are building solutions to deal with hacking digital photos and being able to ‘prove’ what you see in the photo is actually real. 

All those possibilities from noticing flash memory cards are getting larger, faster, and cheaper.

The Digital Home. Every major (and minor) player in the electronics market either was directly showing product or doing serious hand waving on the digital home.  Unlike years prior, people were not laughing at the internet connected ovens and refrigerators. The ability to have the oven look up a UPC code for that pasta dish and cook it correctly, was not a laughable demo. It was real and could be implemented today.

Vendors were showing wireless digital cameras that would watch your home, detect problems, and alert the authorities, all while letting you have a live view on your cell phone or PDA.

Shipping today, are DVD players with WiFi capabilities.  This means you fire up the DVD player and wireless watch the movie on your PDA, wireless enabled TV upstairs, or your laptop.

More opportunities.

First, bandwidth to and in the home is at ‘unlimited’ stage from the perspective of being able to pretty much do anything you want from simple internet access to video streaming.   This ‘always on, always connected’ environment is real and is changing the dynamics of how people interact with technology as part of their daily lives.

If you’re watching a movie upstairs on a wireless device and decide you want to order a pizza, it’s no longer fantasy to just click on the pizza and send a  “my usual” message to your pizza delivery place. The always on connection makes this possible and will create lots of these opportunities for retailers and others.

Of course, there applications will be required to manage all these appliances and features.  In order for any of these things to get traction and large consumer acceptance, they have to be dead easy and just like dial tone.

WiFi everywhere. In hall 3, as an example, there were at least 65 open wireless access points. Many had password as the password.  Observation one was, of course, security in the WiFi world is still lacking.  The second observation was that wireless access points throughout the city of Hanover were plentiful, available, and mostly unsecured.   Leaving security and privacy aside, new applications and services which take advantage of these connections will begin roll out.

It might be interesting if, while in the grocery store, you could check the expiry date on of the milk in the fridge.  Technology to do this? Here today. Laugh, but its coming. Watch those kids hammering away on instant message or sending millions of SMS messages. They’re customers of the future and they will expect these kinds of features and applications.

RFID.  At CeBIT, RFID was in full swing with vendors coming out with readers, new tags, new antennas, and lots of announcements promising all sorts of interesting things.

Nokia announced and was showing cell phones with RFID tags and readers in them.  These were designed to be used in what is calle d a Near Field Communications (NFC) environment.  Basically, you touch the phone to a pad to pay for something or touch the phone to another phone to transfer information.  There is a consortium of vendors, such as Nokia and Siemens, which are going to promote NFC.

Opportunity City as I see it.  All the usual suspects come to mind, security, privacy, storage, back up, interoperability, etc.  But beyond the obvious, are the opportunities for new methods of payments, tracking products, ordering, etc.  If you had an RFID tag on your printer and you touched your cell phone on that tag, wouldn’t it be cool, for that action to order up some additional paper, read the number of prints, check the ink and order what’s needed? 

Okay, I used the “C” word, but that’s the fun part of being a VC and going to trade shows.

Take my money: Part Two

Take my money, please.

I received some great feedback on my previous “getting to a yes” column. Lots of folks asked for some other hot buttons so, being the customer focused guy I am, here are some addition things that will probably result in a much shorter meeting then you planned.

Blank stare Point 4: “We only need a million to make 100 million.”
This one ranks up there with plugged numbers in a spreadsheet. While it is true that one person, living at home or the public library can use notepad to generate a hosted-for-free website full of content that people will pay millions of dollars for, it’s not up there on the likely to succeed chart.  Businesses need capital for pesky details like payroll, phones, and free pop. When you build a business model, use the metrics the VC community uses. For example, it’s not unreasonable to budget (model) $100,000 per employee per year as the fully loaded cost. That translates into lights on, PC loaded with legal software, etc. It doesn’t mean everybody will get 100k in salary. What this offers is a starting point for a budget. Take the time to get the average salaries from any number of websites, as well as average costs for office space, phones, etc. You don’t have to be dead on. Rather, demonstrate that you are being realistic in your budget process.

Sorry, I’m late for my root canal Point 5: “We need to keep control.”
Some people believe VCs sit around thinking up ways to steal companies from founders as the ultimate goal. Having lived on both sides of the table, I can tell you nothing is further from the truth. The last thing an investor wants to do is go in and run a company. Leave all other reasons aside and remember the simple one:  the conspiracy theory doesn’t scale. You can’t invest in ten companies and steal/run all ten. It’s just not the way it works. When you bring me your idea, I’m listening to you. I’m looking to bet on you and your team to execute on the plan. Focus your attentions on presenting your idea, your execution plan, and your team. It is not a good plan to lead with “we need to keep control” as it sends up lots of red flags. As you go through the process, you will get a good sense of your financial partner without having to play the control card. 

My standard title recommendation is for you to use the “Founder” title wherever possible. As the Founder, you can basically move to any position in the company and never take an ego hit on title. You are never moved from CEO to Business Development. Instead,  you are the Founder helping the company grow.  This also tells me you care about what matters: the business.

Houston, we have a problem Point 6: “Microsoft will buy us, guaranteed.”
You’d think this one would be rare. Unfortunately, it’s not and when coming to see me, you will be talking to a Microsoft alumni who actually did buy a few companies for the Redmond machine. The larger issue, of course, is one of exit strategy. A venture investment is not open-ended. The objective is, over a 3 – 5 year period of time, to have a liquidity event that returns capital to the firm, in addition to doing well for the management team. The exit strategy of your company needs to be thought out and articulated as it applies to the market you are in.

You should understand the public markets for companies like yours, as well as knowing who your competitors are as it relates to mergers, being acquired, etc.

By telling me that it’s inevitable that “fill in the blank” mega-company will buy you, I will conclude you have not thought it through. Going into any meeting, I assume a buyout or IPO are the two exits. My job is to determine the likelihood of either. Your job is to provide market data that helps with that analysis. Obvious data, like comparable companies that are already public or who have been bought, certainly helps but, even better is trending data that shows what is to come. 

For example, there is a continuing expansion of high quality digital cameras being shoved into cell phones. Is it reasonable to assume the cell phone companies will offer photo printing services? Do you think they will buy a company, partner with a company, or even develop the technology in house?  That type of data is helpful in determining where the company is headed.

So, there you have it. Hopefully, these hints from our side of the table will help you in your find raising activities. I welcome your feedback and, of course, business plans.