David Cummings on Startups

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  • Quick Tips for Public Speaking

    Major-General Ridgway and Major-General Gavin
    Image via Wikipedia

    Recently I had the opportunity to attend a leadership communications class where the first day focused on public speaking. I usually speak once per quarter at an event, so it isn’t too frequent but it is frequent enough that I want to get better. The all-day course was really well done and involved video-taping each student multiple times with feedback.

    Here are some quick tips for public speaking:

    • Plant your feet without locking your knees and don’t sway
    • Make eye contact with a different person in the audience for each point you want to make
    • Take time to breathe through your mouth
    • Pause, pause, and pause some more. Most people talk too fast with too few breaks when in front of an audience.
    • Put your hands by your side when you pause. Use your hands when you talk.

    Public speaking is tough to do, but with practice and following these simple tips it becomes much easier.

    What else? What are some other public speaking tips?

  • Startups and Competitive Differentiation

    The Department of Justice building in Washingt...
    Image via Wikipedia

    Earlier today I was talking with a successful entrepreneur about competitive differentiation. As with many markets, there’s 500-pound gorilla that’s slowly moving into his space and he’s working hard on a long-term competitive differentiation plan. His business continues to grow nicely but there’s the persistent threat of this significant competitor seriously affecting his startup.

    Here are some ideas when thinking through competitive differentiation with startups:

    • Build a competitive matrix listing everything possible comparing the different companies, even if it isn’t a software product
    • Consider softer items like quality of customer service, contract terms, and variety of options
    • Look to adjacent parts of the value chain that are less likely to be entered
    • Analyze marketing and lead generation options that are too difficult or too niche for large competitors

    Competitive differentiation is hard, especially in commoditized markets. Startups should focus on staying close to the customer and making decisions quickly without overly focusing on the competition. It’s prudent to regularly think through competitive differentiation and make sure all team members are aligned.

    What else? What are some other ideas when thinking through competitive differentiation with startups?

  • Startup Valuations Involving Preferred Equity are Best Viewed as Bonds with Warrants

    Image representing Twitter as depicted in Crun...
    Image via CrunchBase

    People love to talk about startup valuations. The most recent extravagant valuation to make the rounds was Twitter Closing Its $400M Secondary Offering at an $8 billion valuation. On the surface it looks like $400M represents 5% of the equity (assuming the $8 billion is the post-money valuation and not the pre-money valuation). To me, I’m not sure if Twitter is worth $8 billion but that isn’t the right way to think about it.

    With preferred equity it is best viewed as a bond with warrants. Here’s why:

    • Preferred equity is often 1x participating preferred (double dip) or 1x non-participating preferred (investor gets all their money back before anyone else). Assuming it is a more entrepreneur-aligned investor with 1x non-participating preferred, there still will be ~10% cumulative annual dividends. What this means is that if Twitter sells for $500 million in 2.5 years, the investors that put in $400 million will get all $500 million and the other shareholders won’t get anything. Do I think Twitter is worth $500 million? Absolutely. This is a low risk investment in my opinion (assuming you’re comfortable making follow-on investments to maintain your position).
    • A bond is senior to equity just like preferred equity is senior to common equity or previous rounds’ preferred equity. That is, in the event of a sale or liquidation, the senior debt and equity get their money back first. Add in the cumulative dividend and the preferred equity looks even more like a bond.
    • Warrants are similar to stock options in that it is the right to buy stock at a certain price. Continuing with the preferred equity acting like bonds with warrants, if the preferred equity was 1x participating preferred and Twitter sold for $8 billion in 2.5 years, the investors who put in $400 million would get $500 million (the original equity plus dividends) plus 5% of the remaining $7.5 billion (double dip) for a total of $725 million. Put another way, the $400 million investment could have been bonds for $400 million with a 10% dividend combined with warrants to purchase 5% of the stock for a penny and they would have ended up at the same point. Would I make that investment? Absolutely.

    Arguing if Twitter is worth $8 billion is fun conjecture. In reality, the investment and subsequent valuation aren’t the same as thinking about buying common stock of a publicly traded company, which is how most people think about it. A better way to think about preferred equity is as a senior bond (debt) with warrants to buy stock and participate in the upside.

    What else? What do you think of this way to view preferred equity?

  • Three Startup Examples of Wasting $10,000 Dollars

    No Backup
    Image via Wikipedia

    One of the startup traits I value highly is being scrappy, especially is regards to making every dollar go far. Now, don’t be a penny wise and a pound foolish, and invest in what has the best return even if it isn’t the cheapest. It’s one thing to waste a few hundred dollars, or even a thousand, but it is really bad when $10,000 is wasted. In fact, we’ve had the unfortunate experience of wasting more than $10,000 on three different occasions.

    Here are three of our startup examples of wasting $10,000+:

    • We tried out a new advertising mechanism, raised the bid per click high to try and spend a few hundred dollars to determine the ROI, and got no clicks for a week so we moved on without turning it off on accident. Only the next month we got a bill for north of $10,000, and no good leads from it.
    • We had scripts running to backup our 100+ servers daily, including several extremely large databases, on an Amazon S3 account. Well, that S3 account and corresponding bill wasn’t monitored, and backup purging wasn’t turned on (e.g. purge backups older than X weeks). Once the S3 charge was brought up for budgeting, we realized we’d wasted much more than $10,000 due to storing unnecessary files.
    • We signed up for a conference/trade show looking to generate leads and build our brand in an adjacent market. Well, it proved to be a horrible investment and we didn’t generate any leads. That was a $10,000 lesson learned.

    My recommendation is to pay attention to expenses, especially ones that hit a credit credit, and know that as you get bigger more items fall through the cracks.

    What else? What are some ways you’ve wasted money in a startup?

  • Notes from Bob Metcalfe’s Capital Factory Talk

    One of my favorite talks at the Capital Factory Demo Day 2011 was from Bob Metcalfe. Bob is famous in the technology world for inventing ethernet and founding 3Com, a billion dollar company.

    Here are notes from Bob Metcalfe’s talk:

    • Personal goal is to help with startup networking and networking startups
    • Four careers that were 10 years each: Scientist, entrepreneur, journalist, VC, and professor as his newest
    • Old and new knowledge, new info and old applications
    • Personal focus: entrepreneurial technology at scale
    • Art is at the center of stARTup
    • Success story
      On the board of the company that made PowerPoint and sold it to Microsoft for $14M
      PPT was from a pivot because the VP of Engineering spent so much time raising money and needed a way to tell their story
    • Dorio ecology of startups – 6 major species
      Research professors
      Graduating students
      Scaling entrep
      VCs and angels
      Strategic partners – willing to buy from unproven
      Early adopters
    • Introduction to startups and raising money:
      Deboz Montgomery – MIT class of 1969 and tennis team manager invited Bob, who was Captain of MIT tennis team, to lunch in Silicon Valley and taught him the industry
    • Steve Jobs:
      Jobs called to recruit him to Apple but Bob told him he’d just started a networking hardware company
      Jobs helped by introducing him to his networks
      Jobs introduced him to Venrock and Page Mill Partners angel fund
    • 3Com
      Sold 1/3 of 3Com for $1.2M in his first funding round to angel investors
      Raised $11M in IPO
    • Startup culture
      Rumors involve pulling all nighters and eating ramen noodles
      Need to be healthy to be successful
      Should sleep 8 hours a day
      Write all the time
      Speak all the time
      Sell all the time
      Engineers need sales people
    • Need to have a plan
      Had a plan to take Ethernet from $5k a chipset to $5 a chipset

    Bob did a great job and UT Austin is lucky to have him leading the entrepreneurial charge for undergrads. The course he teaches at UT Austin is called 1 Semester Startup and it’s for undergrads who are actually starting companies (22 startups and 100 students).

  • Capital Factory 2011 Startups

    Yesterday I had the opportunity to hear pitches from the Capital Factory Demo Day 2011 startups. Capital Factory has 20 mentors that each put in $5k and then invest $20k in five startups. Demo Day then has 300 attendees with 100+ being investors. Here are my notes:

    Storymix Media – create stories from videos

    • Few people share edited video
    • Photo books solved problems for photos but nothing for videos
    • 78 million photo books sold last year
    • Video is harder even with iMovie
    • Goal to make it easy, fast, and affordable
    • Web-based video editing
    • Starts at $99
    • Focused on wedding videos
    • $5k for good wedding video
    • 98% of brides recommend a video after a wedding
    • iPhone app to capture video on phone, upload to Facebook, then use Storymix
    • Investing in customer acquisition
    • Looking to raise $500k

    HelpJuice – auto-updating FAQs

    • Auto-updating help page for businesses
    • Costs $1-$6 per email handled
    • Get answers as typing question
    • CC juicers@helpjuice.com to have the outsourced team update the FAQ
    • Differentiation: search, juicers that manually update, kb
    • Raising $150k

    SpeakerMix – marketplace for speakers

    • $10 billion market
    • 70% is private events
    • Marketplace of speakers for meeting planners
    • 6,500 speakers and over $1MM booked

    SwimTopia – swim team management

    • Swim team management software
    • Huge number of swimmers on a team – over 100 on avg
    • 50 volunteers positions per meet
    • MS Access product in 90s is most common app
    • Launched this year
    • $500 per team per season
    • 2.6M swimmers
    • 25,000 teams
    • General sports market eventually

    GroupCharger – fundraising platform

    • AlumniCharger
    • State budgets cut by 10%
    • Only 5% of university alumni donate
    • Oklahoma has 300k alumni and 8% give
    • Finds alumni on social media, coordinates events, make intros
    • 1.5 million clubs and chapters
    • 55k alumni associations
    • $125k annual marketing budgets
    • Eight person startup
    • Raising $200k with $75k committed

    The startups did a great job and presented well. I hope to see them be successful.

    What else? What are your thoughts on the five Capital Factory 2011 startups?

  • Notes from Brian Sharples of HomeAway at Capital Factory

    Homeaway reception
    Image by Wyscan via Flickr

    After Bob Metcalfe talked at Capital Factory 2011, Brian Sharples of HomeWay gave the next talk and did an amazing job. Brian is the consumate serial entrepreneur that took time off to see the world after selling his company. His family preferred to stay in homes instead of hotels so he spent a good bit of time looking through different vacation rental sites, especially area and country-specific ones. It didn’t take long for his next big idea: roll up the leading vacation rental sites.

    Here are some notes from Brian’s talk at Capital Factory:

    • HomeAway timeline:
      Started it in 2005
      IPO in early 2011
    • Three core areas:
      The idea
      The funding
      Making it work (execution)
    • Big idea:
      Consolidate worldwide market of vacation rental homes
      Why isn’t there an Expedia for vacation rentals
    • Execution:
      Team, tools, plan, capital
      Manage risk
      Intense curiosity
      Understand competition
    • Market research:
      Spent five months talking to people before starting
    • Previous attempts by others:
      Expedia bought vacation rental co in 1999 and changed from subscription to percent of transaction and it died in a year
      Owners and renters wanted to talk to each other so percentage wouldn’t work since they’d go around the system
    • Insights:
      Most important thing in marketplace business is scale
      Think ahead
      Like game theory
      Bought VacationRentals.com for $35M so that a competitor wouldn’t get it
    • Capitalization:
      Acquired five companies on day the business started including one in Europe
      Raised $405 million before going public including the largest venture round ($250 million) in nine years

    Brian did a great job and his ability to execute is evidenced by the $3.2 billion market cap of HomeAway (source: Google Finance). If you have a chance to hear Brian Sharples speak I’d highly recommend it.

  • Capital Factory 2011 Fast Pitches

    Two weeks ago I spent an enjoyable day at the Capital Factory Demo Day. After the five startups that participated in the program presented for eight minutes several startups from the community gave three minute pitches. Here are some brief notes from the fast pitches:

    Apptive
    Create a mobile app with no programming
    Takes less than an hour
    Push content and notifications
    Raising $500k

    CopperEgg
    Super real-time cloud monitoring
    Monitoring in seconds instead of minutes
    Server installed monitoring agent

    TheDailyDot
    Hometown newspaper for the web powered by social media

    Forecast
    Checked in 53 times at taco shack and friend never spontaneously joined
    Free mobile app to tell friends where you’ll be later
    Catch users at unique moment in buying cycle
    27k users already
    Raising $250k with half committed

    Greenling
    5000 customers
    Subscription service for local organic food
    In Austin and San Antonio
    Technology enabled business service

    Hoot.me
    Switch Facebook into study mode
    Browse live study sessions
    Handles math text as well
    Paid tutoring side and free peer-to-peer side
    All college students at UT
    Did DreamIt Ventures in NYC
    Raising seed round

    Ihiji
    More and more devices require network functionality to work
    Software platform for service oriented networks to self heal and remote issues
    Actively selling for a year
    Raising Series A

    Infochimps
    Selling data downloads and API access
    Venture backed
    Building context into the data

    Loku
    Big data plus Flipboard for local
    Raised $1M
    Raising series A

    OwnLocal
    The AppStore for Local
    Small biz needs website, social media, SEO, and everything else (cloud based marketplace for apps)
    Customers paying $100k year

    NightRaft
    Locate, authenticate, curate, serve
    Problem: who’s in the live music audience
    App for consumers connected to Facebook
    Business value from data collected
    Raising seed round

    Ravel
    Enterprise software to analyze big data
    Examples are predictions, energy data, government

    Ricochet Labs
    Qrank
    Make it easy to make mobile games with content
    Platform to create a game layer across all knowledge
    Self-serve web-based toolkit to make games
    Branded Qrank game has 400k users

    Rockify
    Delivering content to mobile devices
    Technology makes it easy to make cross platform apps and ability to push content

    Spanning
    Help companies manage critical data in the cloud
    Google offers no backup and restore system
    Spanning Backup for Google Apps
    $30/user/year
    Raising Series B

    StormPulse
    Bad weather reporting
    Weather risk management tool
    Weather is a long term trend

    VolunteerSpot
    Mom-center viral platform
    850k volunteers
    Adding 25k users per week
    Raised seed round
    7000 Facebook fans
    Raising round

    WPEngine.com
    Managed WordPress Hosting
    Speed, scale, security, support
    Heroku for WordPress

    The startups did a great job and I enjoyed the fast pitches.

  • Notes from Capital Factory Demo Day 2011 and Austin, TX

    Pennybacker Bridge takes Loop 360 over Lake Au...
    Image via Wikipedia

    Over the last 30 hours I’ve had the opportunity to get a glimpse of the Austin, TX startup community and partake in the Capital Factory Demo Day 2011. Jason Cohen of WP Engine (great WordPress hosting) treated me to an early dinner last night followed by a Capital Factory event in the evening. Today was packed with great speakers and pitches by over 20 startups.

    Here are a few observations:

    • Startups congregate downtown taking advantage of great nightlife and proximity to UT Austin
    • UT Austin hasn’t had much influence on the startup community but that’s starting to change as of late
    • SXSW is the most amazing gem of the city with respect to startups by bringing in people from all over and exposing them to what Austin has to offer
    • There are many comparisons between Austin, TX and Boulder, CO
    • Austin startups lament the lack of capital available locally
    • Mobile apps are especially hot with many consultancy success stories
    • Dell, based in the suburb of Round Rock, is completely absent from the startup scene (it isn’t the anchor tenant people think a startup community needs, in fact I heard it referred to as a logistics company and not a technology company)
    • Capital Factory’s speakers were world class and told great anecdotes about building their billion dollar startups
    • Engineers are in demand and startups are trying to recruit more to move to Austin from the West Coast
    • HomeAway and BazaarVoice are two big recent success stories

    Overall, I’m very impressed with Austin and Capital Factory and have several items to take back to Atlanta.

    What else? What do you think of Austin’s startup community as well as Capital Factory?

  • Why VCs Won’t Like Fred Wilson’s Valuation Posts

    Fred Wilson
    Image by Lachlan Hardy via Flickr

    Fred Wilson has a rich history of bringing more transparency and understanding to the venture capital world, including the dynamic with entrepreneurs, via is popular blog avc.com. Recently, there have been two especially interesting posts:

    Valuations for startups, other than outliers published on TechCrunch (see Dropbox’s $4 billion valuation on $30 million in revenue), are often a closely guarded secret. One of the big advantages for traditional VCs is the opaque nature of information and the frequency of negotiating deals. Think about it: a VC might negotiate a couple deals per year while a successful entrepreneur might negotiate a few deals in a lifetime. The more information that becomes available results in a more efficient market for VCs and entrepreneurs. While VCs will always have an advantage the dynamic is much more less heavily favored for them than previously.

    VCs won’t like Fred Wilson’s valuation posts because they present examples of high valuations and low VC ownership positions. Entrepreneurs, when they read the posts, are naturally going to think those valuations are representative of their startups. Note that Fred uses terms like category leaders, of which most startups aren’t.

    Also, when he talks about investing $3 million at a $30 million post-money valuation, implying a 10% ownership stake, that’s not a high enough stake for most VCs to get out of bed, unless the startup is at a very late stage. Entrepreneurs expecting these valuations and VC ownership positions are going to be very disappointed. And, VCs aren’t going to like having to deal with the push-back and convincing that these aren’t normal.

    I like VCs and think they are an important part of the eco-system, but I’m sure these posts are going to cause headaches for VCs and entrepreneurs alike.

    What else? What do you think of Fred Wilson’s valuation posts?