David Cummings on Startups

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  • Venture Atlanta 2011 Startups – Day 1

    Venture Atlanta had a great event today showcasing a number of promising startups in the area. Here are my notes on the companies:

    OrcaTec

    • Avg F500 spends $500M/yr on legal expenses
    • Document decisioning suite
    • Categorize, search, and cluster data
    • Predictive coding of documents using machine learning
    • Predictive analytics of unstructured data
    • Raising $5M for sales, marketing, and additional development

    Abundant Closet

    • Changing the landscape of retail
    • Drive revenue for retailers by allowing consumers to bring their closets into every purchase decision
    • 150,000 US retailers with $200B in revenue
    • $60B to be purchased online in the next few years
    • Less than 3% of visitors to an ecommerce site results in a sale
    • FashionAde.com – live lab launched 9/2010
    • Three customers are embedding the product this quarter
    • Raising $1M to build out sales team

    Jigsaw Meeting

    • Platform for change and learning in education and corporate training environments
    • 44M students will move to online classes by 2015
    • Education is $853.6B market
    • Corporate training is $72.7B market
    • Virtual classroom solution
    • Raising $900k

    Social Fortress

    • Safeguards data regardless of where it resides
    • Features: At-rest encryption and behavioral monitoring
    • Enterprises are more reliant on cloud services and mobile devices
    • Raising money to scale sales, operations, and engineering
    • Raised money from ISS founder

    Proximus Mobility

    • Mobile proximity-based advertising
    • Example walking into a casino and getting a text message offering a coupon
    • Raised $2.25M in mid-2011
    • Small device that plugs in and then talks to SaaS app via 3g for campaign rules
    • Future integration with third parties like FourSquare and Facebook
    • No app to download — based on phone WiFi or Bluetooth connection plus text messaging
    • Raising $3M

    ShapeStart

    • Laser Fit Hearing
    • In-ear scanning for hearing aids
    • 60,000 clinicians with 15M impressions/year
    • Capture a digital 3d representation of ear
    • Much better patient experience
    • Raised $1.25M
    • Raising $1M for productization

    Soneter

    • Build meters that give real-time feedback on water usage
    • Measure water footprint like carbon footprint
    • 22 million unmetered apartments
    • Device that clamps around existing pipes
    • Full solution including consumer and enterprise monitoring solution
    • Focus on multi-family residential real estate market
    • Product enabled service company
    • Raising $650k

    Soket

    • Social media marketing for local business
    • 70% of revenue for restaurants come from returning customers
    • 86% of SMB have a website
    • Single place for local businesses to manage content and push it to places like Yelp, OpenTable, FourSquare, Facebook, etc
    • Raised $460k
    • Raising $500k

    IdeaString

    • Harness the thinking power of groups and help companies manage, socialize, and evaluate that information
    • Average F1000 company spends over $100M/yr capturing ideas
    • SaaS product for idea generation with enterprise tools to facilitate break-through thinking
    • Raising money for sales and marketing as well as product development

    Dinova

    • Aggregate corporate purchases to get cash back for customers and deliver more business to restaurants, airlines, and hotels
    • Negotiates discount with restaurants and get’s a piece of the discount as business model
    • Goal is to get as many of corporate customers to use the partner restaurants
    • Opportunities: data mining, proprietary market analytics, mobile apps, social media integration
    • Raised $2.9M
    • Raising $3M

    NextInput

    • Better, cheaper, faster, and less power
    • Force sensitive instead of capacitive sensitive
    • Provisional patent
    • Raised $250k
    • Launched 1st product using the technology
    • Raising $1M

    rappidApp

    • Web-based app that generates iPhone app
    • Live apps on the AppStore from the app
    • $4500/year per customer
    • Connects many of the smart phone functions
    • Raising $500k

    PinDrop

    • Breakthrough caller ID solution that gives each call a fingerprint
    • Core product is anti-fraud call analyzer deployed via cloud or appliance
    • Stop phone fraud
    • Focused on big banks
    • Raising seed round

    Verdeeco

    • Data explosion from electrical meters – checked 12 times/year to 35,000/year
    • Data visualization, analytics, and applications platform for utilities
    • Huge explosion of data that needs to be analyzed
    • Raised $800k from ATA
    • Raising $2M

    TripLingo

    • Foreign language learning is a $1B market
    • Trends in cultural travel and smartphone penetration
    • Increase in laziness in travelers
    • Customized phrase list for travelers
    • Slang slider shows different ways to say something
    • Currently offer 12 languages
    • $10 per language per country
    • 36,000 downloads already

    LIFT

    • Vision of a personalized retail experience
    • Live on 120 check-out counters
    • Has recommended 800k items with 40k upsells
    • 3% increase in same store sales
    • Loyalty programs on check-out
    • Approx $300/mo per store
    • Raising $1M

    Merlin Mobility

    • 82% struggle to make mental jump from instructions to physical object in front of them
    • Augmented reality to help with learning and instructions (think yellow overlays during football games)
    • Targeting chief learning and information officers as well as elearning companies
    • Raising $1M

    CodeGuard

    • Website backup service for small businesses
    • Time machine for the site
    • Alerts whenever your site changes
    • Shared hosting market growing from $4.2B to $5.8B

    The startups today set the bar high and I’m looking forward to the event tomorrow.

    Read about Day 2 of the event.

  • The Previously Strong Startup Employee That Is No Longer Effective

    Which Way...
    Image by Jonathan Herbert via Flickr

    Last week I was talking to a successful entrepreneur who was lamenting that she had this previously strong employee that had been with her for over two years. Unfortunately, this quality startup employee, who got along great with others and was a corporate culture fit, was no longer effective as the organization tripled in size. These are the toughest situations.

    Here’s my advice when a previously strong employee is no longer effective:

    This situation needs to be handled thoughtfully and directly. Everyone knows when a team member is no longer effective but they also want to see the person treated fairly and professionally.

    What else? What other items should be considered when a previously strong startup employee is no longer effective?

  • Venture Atlanta 2011 This Week

     

    Georgia Aquarium
    Image via Wikipedia

    Venture Atlanta has its annual event October 25th and 26th this week at the world’s largest aquarium. The great event has been expanded from one day to two days so as to showcase more startups, especially early stage and seed stage ones (boat analogies for startups). This year, 40 startups based in the state of Georgia will present with several of them having already raised venture capital and looking for another round.

    Here are a few questions to ask when hearing the companies pitch or from reading their website:

    • Do I understand what they do?
    • Do I understand how they make money?
    • Do I believe there’s a large or growing market for what they do?
    • Do I believe they’ll be successful?
    • Would I invest in the business?

    The goal for startups presenting at a conference like this isn’t to raise money on the spot but rather to gather enough interest to get a meeting with investors. Startups need to create a hook in the mind of the investor and desire for the investor to want to learn more.

    What else? What other questions do you ask yourself when you listen to a startup pitch?

  • Notes from the Georgetown Baker Scholars Panel

    Georgetown Visitation Preparatory School, Wash...
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    Yesterday I had the opportunity to be a panelist for the Georgetown Baker Scholars event on entrepreneurship in Atlanta. Baker Scholars is a prestigious program  for undergraduates interested in business. The event was attended by 25 junior and senior undergraduates that traveled down from Washington D.C. for two days of programs in the Capital of the South.

    Four entrepreneurs including myself shared their career paths and stories of entrepreneurship. Here are a few notes from the event:

    • Of the four entrepreneurs, two started companies during college and have never worked for anyone
    • One entrepreneur knew they wanted to start a company but waited until they had eight years of real world experience
    • One entrepreneur started making a product just to learn how to do it, enjoyed it, and built a great business from it
    • Three of the entrepreneurs didn’t have co-founders
    • Three of the entrepreneurs had immediate success within a year of starting while one required four years
    • The common theme among the entrepreneurs was a desire to be their own boss

    The event was a great way to expose some bright students in their early twenties to the entrepreneurship path and I was happy to be a part of it.

  • Consider Blue Sky Opportunities When Pivoting in a Startup

    sky
    Image via Wikipedia

    Recently I met with a startup that has decided to pivot their business model. After six weeks of talking to prospects and potential business partners they realized it wasn’t going to work. Yes, a prototype was built, something even less than a minimum viable product, and the appetite for it was negligible.

    With a decision made to pivot, the initial thought was to do something around the original idea but in a different manner — something between a pivot (hard change) and an iteration (soft change). Once I heard this from them I pushed back. They have a clean slate, there’s no reason to stick with the original area, and they should spend some time doing unfettered brainstorming.

    My recomendation: come up with 100 blue sky opportunities on a white board, whittle them down to 10, and marinate on those for a few days. After that, compare the 10 with the initial idea, pick one, and move forward with customer development.

    What else? What other things should be done when pivoting in a startup?

  • What Percentage of Revenue Should be Spent on Marketing?

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    Today I had lunch with a successful marketing executive. Mid-way through the meal he asked how much we spent as a percentage of revenue on marketing. Not sales and marketing, just plain marketing. Not knowing the answer off the top of my head I did some mental calculations and came up with 15%. We spend 15% of our revenue on things marketing related (salaries, campaigns, trade shows, content, PR, etc). Being a marketing guy, he was impressed as 15% was much higher than what his company spends on marketing.

    The most successful SaaS companies spend significantly more on sales and marketing as a percentage of revenue than you would expect.

    It isn’t that SaaS companies aren’t investing in other aspects of the business. Rather, SaaS markets are growing so fast that there’s a disproportionate amount of money spent on customer acquisition to capture market share.

    Salesforce.com spends 54 cents on sales and marketing for every dollar of revenue (source). Growing fast and acquiring customers is expensive. Marketing for SaaS companies should be a meaningful percentage of revenue.

    What else? What are your thoughts on marketing as a percentage of revenue for a SaaS business?

  • The Power of Peer Groups and Startups

    Le centre de Peer
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    Peer groups are one of the many aspects of entrepreneurship and the startup world that took me years to appreciate. When I say peer groups I don’t mean networking groups. Rather, peer groups are small sets of people that often meet once a month, if not more, in an environment of trust and confidentiality. Peer-to-peer experience sharing and learning is incredibly powerful for entrepreneurs in all types of businesses.

    Here are some benefits of peer groups for entrepreneurs:

    • Most issues have already been tackled by someone else, so the same mistakes don’t need to be repeated
    • No more being lonely at the top as there are many people out there in similar positions
    • The emotional roller coaster of entrepreneurship has high highs and low lows that are best when shared with others
    • Life’s a journey and these peer groups provide a special setting to develop deep relationships

    The most common and popular non-profit for these peer groups is the Entrepreneurs’ Organization (EO) for companies greater than $1 million in revenue and EO Accelerator for companies between $250k and $1 million in revenue. I highly recommend these organizations as well as peer groups in general.

    What else? What are some other benefits of peer groups?

  • Rental Car Companies, Shady Consumer Tactics, and Company Values

    Rental Car Center - George Bush Intercontinent...
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    Recently I rented a car from one of the major rental car companies, and just like every other time, they had their shady consumer tactics. Here are two of the most common shady tactics used:

    • They ask if you would like basic or premium insurance without letting you that ‘none’ is an option and most major credit cards provide rental car insurance at no charge (I know about this credit card coverage first hand as my wife got into an accident with our rental car a couple years ago and the credit card company took care of everything).
    • They offer for you to pre-pay for gas at a reduced rate and casually say to bring back the tank empty if you do. They mention this because they’ll charge you for an entire tank even if you have gas in it. Unfortunately, they aren’t straightforward that you’re pre-paying for an entire tank regardless of usage if you go with this option.

    As a startup, it’s important to articulate your values and outline it for everyone to see. If you want trust and respect, tactics found at this rental car company wouldn’t be part of your organization.

    What else? Have you seen other shady tactics used at rental car companies?

  • Factoring Liquidity Preferences in Startup Valuation

    An assortment of United States coins, includin...
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    Great, so you’ve received a term sheet from an awesome VC, but it asks for 3x participating preferred equity. 3x participating preferred means that the investors get 3x their money back first, and then split the remaining monies based on their ownership percentage. So, as an example the investors might put in $3M at a $7M pre-m0ney valuation, for a post-money valuation of $10M and a 30% stake in the business. With a 3x participating preferred position, example exit outcomes are as follows:

    • Startup sells for $10M, investors get $9.3M (3x their investment (3 times $3M) and then 30% of the remaining value (.3 time $1M)), and other shareholders get $700k
    • Startup sells for $20M, investors get $12.3M (3 times $3M plus 30% of $11M), and other shareholders get $7.3M
    • Startup sells for $50M, investors get $21.3M (3 times $3M plus 30% of $41M), and other shareholders get $28.7M

    How do you factor that type of liquidity preference into the startup’s pre-money valuation? As you can see by the three scenarios participating preferred equity (sometimes called double dipping) makes for dramatically different outcomes. On the surface it appears the investors own 30% of the business and invested at a $7M pre-money valuation but the numbers above show that with an exit at $50M or less, the actually percentage investors get is really in the 40 – 60% range assuming a decent exit.

    One extremely simplistic way to think about participating preferred equity is that for outcomes less than 10x the pre-money valuation, every 1x of participating preferred takes the investors ownership position up 10-20% above their current position (e.g. from 30% ownership to 36% ownership for 1x participating preferred).

    What else? What are some other ways you factor liquidity preferences in the startup valuation?

  • Is the fifth employee of a startup an entrepreneur?

    Camera Roll-106
    Image by hy.leung via Flickr

    Recently I met a gentleman that said he was an entrepreneur. After talking for a bit he said he joined a startup as the fifth employee and hadn’t started a company. Does that make him an entrepreneur or an entrepreneurially-minded employee?

    Here are some ways I think of the difference between an entrepreneur and entrepreneurially-minded team member:

    • Low or no salary vs a salary slightly below market rate
    • Personal guarantees on the business loan and office space vs no personal guarantees
    • Sweated a payroll period vs not having the stress
    • Co-founder of the business vs an early employee

    Of course, entrepreneurs can be early employees in a startup they didn’t co-found. Differentiating between the two doesn’t matter nearly as much as being a valuable team member and helping make the startup a success.

    What else? Is the fifth employee of a startup an entrepreneur?