SXSW Interactive – Tuesday, March 11, 2008
Mar 12 2008

Yesterday was the last day of SXSW Interactive and I have practically a desk full of business cards.  Our son came yesterday (yes, it’s Spring Break here) for part of it as well but went with husband this time to a panel he attended.  I was only able to make one panel yesterday and spent the rest of the time networking.  Check out my posts on events I attended on Sunday (including my take on the Zuckerberg/facebook interview) and Monday.

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Robert Scoble even did an interview of me that was posted to Qik but for some strange reason (due to the 3G connection) it got broken down to 16 different few second clips.  Here’s the first one, here’s a middle one, and here’s the last clip.  They are going to try to see if they can string it together, but it’s looking doubtful.  Guess that means we’ll have to do a more official one next time!

UPDATE: Qik was able to string pieces of the video together and you can see it HERE.  Once they get Robert’s phone, they will see if they can fill in some of the missing gaps using the files on his phone.  Once they do that, I’ll embed the video in a future blog post.

The Insiders Guide to Angel Investing
angel_button_frame.jpgThis panel was not really a panel because the only speaker was David Rose.  David is the founder of New York Angels and Angelsoft, a software application that helps angel investing groups manage plans received by entrepreneurs.  He had some great info on angels and angel investing.  He mentioned that he would make his slide-show presentation available and I will update this post if and when he sends the link, but here are some highlights:

  • There are 600K new companies started each year.  Of those 350K are self-funded, 200K are funded by friends and family, 50K by Angel investors, and a mere 1200 by venture capitalists.
  • Angels are generally about 57 years old, they have a master’s degree, 15 years of entrepreneurial experience, have been involved with and/or started on average 2.7 ventures.
  • To be an accredited investor you must have $1 million in assets and have to have made $200K of annual revenue for the past 2 years.
  • The average angel investor has spent 9 years investing, had done 10 investments, had 2 exits (profitable or lost their money), and 10% of their wealth is tied up in angel investments.
  • Angels look for companies with Scalable Business Models, an “Unfair Advantage,” a Great Entrepreneur, External Validation, Low Investment Requirement, Reasonable Valuation ($1 to $3 million pre-money range),  and a 20 to 30 times return on their investment within 5 to 7 years.
  • The single most important characteristic an Angel investor looks for in an entrepreneur is Integrity.  Then they look for Passion, Experience, Knowledge, Skill, Leadership, Commitment, Vision, Realism, and Coachability.

David said most angel investors don’t end up making a ton of money from angel investing.  In fact most lose money.  Many invest because they want to give back and help other entrepreneurs.  He even offered us a joke that goes like this:  How do you make a small fortune angel investing? You have to make a large fortune first! :-)

He then went on to talk about the process of applying to an Angel network and described what the entrepreneur as well as the Angel investor sees if they are using the Angelsoft software application tool.  If you are an entrepreneur, he suggested you submit your plan at www.angelsoft.net/entrepreneurs.   They will soon be launching a site called Open Deals where entrepreneurs who don’t have access to a local angel group can submit their plan.  For a full list of angel groups, check out the Angel Capital Association site and their directory of angel groups.

All in all, I had a great time at SXSWi.  I look forward to attending next year and maybe even being a panelist!

Author: | Filed under: angels, conferences, entrepreneur, entrepreneurship, fundraising, new york city, venture capital | Tags: , , , , , , , , , , , , | 7 Comments »

Cost of Customer Acquisition – What Is It?
Feb 18 2008

dock.jpgOne of the interesting things about fundraising is the different perspectives you get from potential investors.  If they spend enough time to really understand what you are trying to do, they offer great feedback, suggestions, and advice.  They also sometimes ask a tough question or two.

I officially started the fundraising process a couple of weeks ago and have had a couple of meetings and a few more set up in the coming weeks.  Since many of these angel investors are really busy, getting on their calendar can take weeks!

One question I was asked had to do with the cost of customer acquisition.  It’s so hard to tell what that might be given the uncertainty and newness of many business concepts out there (including mine) today.  I searched and searched and oddly only found very dated ancient info (i.e., 1999 – 2001) figures for sites like Amazon.com.   At a high-level, the cost of customer acquisition is how much it costs to get a customer/visitor to your site.  My guess is for sites with successful viral uptake like facebook the cost is in the cents (i.e. [total marketing and some R&D costs]/number of unique visitors).  On the other hand I’ve heard that customer acquisition costs for companies like Vonage are in the hundreds of dollars.  Anyone who has seen their mailers and expensive TV commercials can see why that number is so high.  Last I heard I think it takes them at least 2 years to break-even on each customer they get.

I even had the MBA student who helped me create the financial model search his resources and no such luck.  I would be happy to get information on even what the amount that a magazine like O Magazine or Pregnancy Magazine spends getting one customer to sign up.  You’d think that as much has been written about facebook, that their cost per visitor would be somewhere on the Internet, but for some strange reason that information is not readily available.  Go figure!

In my quest, I happened upon the following links that might be useful for any other entrepreneurs looking for the same information. 

Calculating Customer Acquisition Costs  (an online calculator)

Customer Retention and Acquisition (definition and 1999 info on Amazon.com)

On Measuring The Cost of Customer Acquisition (a 1999 Entrepreneur.com article)

There may not be a satisfactory answer (or more likely I don’t have access to the money or resources to help me find it) but at least being aware that there could be an answer is probably not a bad thing.  I ended up backing into some numbers using the information in our financial model which to me, the ever optimistic entrepreneur, seemed reasonable enough. :-)

UPDATE: This post was re-published on Found|Read here. Check it out to see additional comments by their readers.

Author: | Filed under: angels, entrepreneurship, fundraising | Tags: , , , , , , , , , , | 2 Comments »

A Story About Angels And Venture Capitalists
Feb 5 2008

angel_button_frame.jpgSeveral readers who saw my Fundraising Toolkit post have asked me about my experience raising funds from angels and VCs for my first entrepreneurial endeavor.  We raised about $15 million of which $3.5 million was from angels or what I would call boutique VC firms (i.e. a group of angels under one investment roof).   Keep in mind that was all before the bubble burst back in 2001.  Here are some of my observations based on my experience and from stories I’ve heard from other entrepreneurs.


Angels

They tend to invest their own money and reputation in earlier stage companies that can benefit not only from dollars but also their advice and contacts.

The really good ones (yes, there are fallen bad ones) have built their own businesses from the ground up.  They have a great appreciation of what it takes to build a business and are creative with solutions to the inevitable unexpected issues that arise.

They tend to get their ‘hands dirty.’  Our lead angel investor for my first company was Marc Seriff, founding CTO of America Online.  You may recall that in 1999/2000 talent was scarce and the Internet bubble was close to its biggest.  Marc actually manned a career fair booth that we had at The University of Texas at Austin.  He also participated in the interview process of finding great developers!  Needless to say we found some good people.  Since Marc was our lead for our first round, he even assured our vendors that he would make sure (i.e. personally guarantee) they got paid if for some reason we couldn’t close the round! 

They tend to bring their friends along for the ride.  Marc and another of our angel investors, Jack Baum, brought in their friends and contacts making the fundraising process a little bit easier.  Jack also introduced us to the owners of our very first big paying customer who ended up doing a nationwide rollout with us.  I remember framing the check! He and his partner Steve Winter brought in two of our three venture investors.  The two good ones!  Steve even served as our interim-CEO between the time we parted ways with the first CEO we hired to replace me until we found the next one.

They don’t necessarily have to invest money to be an angel.  Richard Benkendorf was one of our advisors who introduced us to our first key customer in the Coca-Cola bottling system that helped us achieve our first $1 million in revenue!  We framed that check too!

When the dollars needed get big for future financing rounds, angel investors usually voluntarily step back or can’t provide the needed growth capital.

Some of them may not have sat on a Board or been involved in building their own businesses making some board meetings interesting to say the least.  In other words, an angel who made his/her money from their own business versus someone who came in later at Google, Microsoft, or Dell have different perspectives and experiences.

Venture Capitalists

They tend to invest in later stage companies with some revenue, product completed, and market traction.  They seem to like to come in after an initial angel round of investment (if the deal structure is not too messed up).

The really good ones (yes there are bad VCs – in case you haven’t heard) have had repeated success with other portfolio companies, have built their own businesses, and come with a big rolodex of contacts and partners to help you cross some of the early hurdles.  One of our venture investors, SAP Ventures, led by Jeff Nolan who blogs at Venture Chronicles (the only former investor I found who blogs publicly) introduced us to departments within SAP who were targeting the same customers that we were.  He also gave me a copy of The Monk and The Riddle by Randy Komisar (see below for book link) that was a great read at a time when I think he sensed I was no longer enjoying the journey.

They tend to be more bankers/financiers than operating (i.e., built their own business) people.  They tend to look at a business with a black/white eye on numbers and how fast they can get their money plus a nice return on their money out.

The good ones will often bring along investment partners in what is called a syndicate.  A few VC firms who have worked together before will join forces to fund a deal which makes life easier for the founders because they can go back to building the business versus fundraising sooner.

They seem to use and apply a formula that they have achieved financial success with before which often means replacing the founding CEO or other key founders with people they have worked with many times before.  If more often than not something has worked for them with a portfolio company in the past, they’ll apply the same logic to future deals companies.

They are investing other people’s money (i.e. their limited partner’s money – insurance companies, wealthy individuals, other corporations) and if they perform well those people will give them more money to invest.  In other words they are risking more than just their finances and reputations, they are risking other people’s finances and reputations as well.

Who To Choose?

Personally, I think it all comes down to the investor fit and the stage of the start-up game you are in.  It’s definitely better to have people who have built businesses on your side.  It’s also good to have people who have backed high-growth businesses if you plan to IPO or sell to an established business in the near future. 

Most technology start-ups don’t make it big.  It’s a unique combination of talent, dedication, luck, timing, and great people that make the difference between the companies who become household names and those who shut down on the wayside or find another comfortable existence.   We often forget that it is more than OK to start a good profitable business that provides value to your local community.  If you want to play with venture capitalists, then you need to aim for the ‘household name’ category like Google or Yahoo! even if chances are high you won’t make it to an IPO.

My biggest learning was how important it was to be able to communicate with your investors openly and honestly.  Trust your gut and if they respect and trust you as a person and you respect and trust them, it will be much easier to weather the inevitable storms.  It’s easy to take money for money’s sake but in the end it can end up being more costly than what it was worth.

As Ben Yoskovitz says in his Startup CEO School of Hard Knocks post, you must have fun!  When you are no longer enjoying the journey, take a break and look around to make sure you are doing what you should be doing.  Make sure you are in the right place at the right time for yourself and don’t be afraid to make changes.

Author: | Filed under: angels, entrepreneur, entrepreneurship, fundraising, marc seriff | Tags: , , , , , , , , , , , , , , , | 15 Comments »

My Fundraising Toolkit
Jan 10 2008

sears-toolkit.jpgFollowing on my Other People’s Money – The Hunt Begins post, I thought it might be interesting to share what I will be putting in my Fundraising Toolkit.  Check out The Entrepreneurial 7 Year Itch to get some additional background.

I plan to raise seed financing from angel investors for Babble Soft, and here’s what I will have in my toolkit.

An Executive Summary.  Thankfully people have moved away from the 35 to 40 page business plans that used to be required when I raised money for my first company.  Now it’s easier to get your foot in the door with a 5 to 7 page summary.   If they are interested, they will ask for additional information.  In a typical Executive Summary you will see sections on: 

  • The Company
  • The Problem
  • The Solution (i.e., Your Products)
  • The Market (including Competitors)
  • The People
  • The Numbers (i.e., the Financial Projections).

Financial Projections.  In my opinion, creating Financial Projections for an Internet startup is often an exercise in futility that shows you have an idea of how you will make money.  Most experienced technology investors know that predicting the future is a crazy process at best especially when you are starting from ground zero and success primarily depends on many viral factors.  Financial projections for IBM are much different than financial projections for an Internet start-up.  The assumptions you make are the most important part of the model as they give the investor an idea of the homework you have done on the market. 

Some venture capitalists like high profile Fred Wilson (a.k.a. A VC in NYC) of Union Square Ventures go as far to say that sometimes you can wait to scale before figuring out and executing your business model when describing his stance on Twitter’s lack of a current business model

Since Babble Soft is not Twitter, I’m not already a gazillionaire, and I have a million things to do, I have a sharp MBA student, Anand Balasubramanian, helping me create an Advertising and Subscription based model.  I love energetic, rock star, cheap, student help!  He has done a great job so far building a simple, easy to understand financial model for me.

Visuals.  Since I’ll be raising funds for products that do not exist yet, I have engaged a great local design, user experience, and information architecture firm, Projekt202, to create a few mock-up pages illustrating both the web and mobile components of our new applications.  They seem as excited about the vision as I am and are taking on some of the financial risk with me.  It makes me so happy when I find people who get what I’m trying to do!  I’ll also have a demo account of Baby Insights and Baby Say Cheese ready to log in to demonstrate our existing applications.

An Investor Leads List.  However you choose to keep track of your calls, meetings, and referrals it’s important to do so.  I have met entrepreneurs who want to raise funds who aren’t organized about the process and end up looking a bit flighty.   Unfortunately the investors are allowed to be flighty but they usually don’t tolerate too much flightiness in entrepreneurs.  Remember:  “She who has the gold makes the rules.”  After a while it’s easy to forget what you promised to get to whom and who referred you to whom.  It’s important to remember at what stage of the investing dance you are in with each potential investor.  On this spreadsheet I plan to keep track of:

  • Name
  • Contact Information
  • Professional Background
  • Who Referred Them to Me
  • Investment History
  • Typical Investment Size
  • What Items They Need From Me, and
  • Personal Assessment on the likelihood they will invest. 

Passion Tempered With Wits.  I think that often the big thing that can swing an investor, especially an angel investor who has been in your shoes before when building his/her company is your passion.   Why are you doing this when there are much easier ways to make a buck?  What will keep you going?  What excites you about the business?  I am passionate about helping new parents and caregivers connect and find answers.  I am passionate about building a business.   I am passionate about finding great people to work with.   If that passion is tempered with some logical thinking, that’s a big huge ‘ole plus!  All of us entrepreneurs are a bit crazy at times so I just hope I don’t lose my wits in the middle of an investor pitch!

Since I am still working on everything above except for my passion which has recently been reignited, I’ve got a lot to do before the meetings I already have set up with potential investors in the next couple of months.  If you have suggestions on other things I should have in my fundraising toolkit, let me know by leaving a comment below.  It’s been a while since I have raised money and I’m always open to learning new things.

Join me for the journey.  Subscribe to the blog and hold on to your stomachs, it’s bound to be a scary roller coaster ride at times!

UPDATE Jan 12, 2007:  Found|Read republished this very post  on their blog and called it My Funding Toolkit.  Check out that post for some great comments!  They have many more readers than my blog currently does so I’m delighted that they chose to share it with their readers!

Author: | Filed under: angels, babble soft, entrepreneurship, fundraising, technology, venture capital | Tags: , , , , , , , , , , , , | 4 Comments »

Other People’s Money (OPM) – The Hunt Begins
Jan 4 2008

If you are a regular reader of my blog you have no doubt caught on to the fact that I have begun the fundraising effort for Babble Soft.  If you are new you might want to check out The Entrepreneurial 7 Year Itch to get some background.

I’m currently working on creating a business plan comprehensive executive summary (who has time to write read a 30-50 page business plan?!?), the financial assumptions and projections (with assistance from an MBA student), creating screen mock-ups of our new applications (with Projekt202, a fabulous local design company), and setting up meetings with potential angel investors.  This process is an ongoing, reiterative process that can sometimes make you want to pull your hair out.  As soon as you type the last character on your plan, it is outdated because something has changed somewhere that you may or may not know about.  Strange but true.

While doing all that, I also need to finish software testing of our new Baby Insights mobile application, learn more social media, make SEO changes, make sales, establish partnerships, and make progress toward meeting my 2008 New Year’s Goals!  Hmmm something might have to give here…

Stay tuned for more about my journey to persuade people to part with their money in exchange for hopefully a lot more money at some time in the future…

Author: | Filed under: angels, babble soft, entrepreneurship, fundraising | Tags: , , , , , , | 4 Comments »

Speaking of Venture Capital…
Nov 13 2007

First off, if you haven’t heard Al Gore is now a partner at Silicon Valley venture firm, Kleiner, Perkins.  Kleiner is the most prestigious venture firm in Silicon Valley.  He joined to help guide their investments in companies that are combating global warming.  I have to really hand it to Al Gore for totally reinventing himself from VP of the United States to candidate for President of the US to champion for the planet!  His parents must be mighty proud!

After writing my post on Fred Wilson on Venture Capital Fund Performance, I have happened upon a few more interesting posts on the subject of fundraising.

Wendy Piersall made me aware of 7 Things No One Tells You About Raising Venture Capital Financing by Ben Yoskovitz.

From Ben’s blog I found 7 Steps to Land and Leverage an Angel Investor by Carleen Hawn.

Here’s a chart listing their lucky number 7 items:

7 Things No One Tells You About Raising Venture Capital Financing 7 Steps to Land and Leverage an Angel Investor
Signing a term sheet is only step one. Step 1: Identify yourself.
It might not be worth negotiating the finer points of the deal at the term sheet stage. Step 2: Identify the right angel
Due diligence is an “interesting” process. Step 3: Your company’s fundamentals.
The paperwork is extremely detailed and extensive. Step 4: Valuation.
Most of the deal focuses on negative details. Step 5: Structuring the deal.
You pay all the legal bills. Step 6: Negotiation. (Psst!: You don’t need to do it!)
Don’t just focus on how much you’re raising and what chunk of the company you’re giving up. Step 7. Leveraging the relationship.

Ben and Carleen make great points and from my experience back in the late 90′s I agree with all of them.  I’d like to add, ‘trust your gut!’  Your gut feelings are based on years of experience that you may not be able to articulate quickly in words but you know…you know you do.

Author: | Filed under: angels, entrepreneur, entrepreneurship, fundraising, silicon valley, venture capital | Tags: , , , , , | Comments Off

Lady Bird Johnson – 94 years of a wonderful life
Jul 14 2007

ladybirdjohnson.jpg

Since we live in Austin, Texas we have probably experienced the great touch of Lady Bird more so than any other city.  She brought the Wildflower Center to life and helped manage the construction of the LBJ Presidential Library among other things.  Many well known political figures including the Clintons, the Carters, Laura & Barbara Bush, and Nancy Reagan are here today at Riverbend Church to pay their respects.  She was the first First Lady to have a press secretary and used her role as First Lady to actively help others.  I never had the honor of meeting Lady Bird, but I did have the honor of meeting her former well-known press secretary, Liz Carpenter.

I hope I’m able to make as significant a difference in the world as she has.

ladybird.gif

Aruni

Author: | Filed under: angels, lady bird johnson, mother, success | Tags: | 1 Comment »

A Song for Memorial Day Weekend – The Anchor
May 27 2007

Mathis1A friend recently introduced me to the sounds of Lisa Lynne Mathis.  What a voice!  Her music and lyrics are obviously inspired from deep within her.  My favorite song on her new CD Hancock Place is called The Anchor.  I didn’t realize until I read her reason for writing the song that it was inspired by a friend of hers who survived the tsunami in Sri Lanka.  Since I was born in Sri Lanka, I now understand why that song resonates so much with me.  Another song on that CD is Comfort Zone, her muscial interpretation of what having children (two daughters) has meant to her…the raw, pure feelings that are a part of being a parent…and how our kids often pull us out of our comfort zone.

So on this Memorial Weekend in between parties, BBQs, and get togethers with friends & family, let’s remember our soldiers in Iraq and all over the world.  We wish them a safe return to their families, children, and friends.  Whether you agree with the war or not our soldiers are there fighting for what they have been told to fight for…fighting for what they believe is right to fight for.  Let’s make sure we do not ignore them “when the cameras are off” and that we are available to serve as their Anchor when and if they return.

Aruni

Author: | Filed under: angels, mom, mother, music, parenting | Comments Off

Project Cuddle on Oprah
May 14 2007

Project Cuddle

I’ve decided that I need to start watching more Oprah.   I usually don’t have the opportunity to watch her show often, but on many occasions I hear about a show that I wished I had seen.  So now I’m recording them.  On Friday night I was able to watch two shows from last week.  One was called A Mother’s Day Special where Maria Shriver interviewed Demi Moore and Vanessa Williams on their motherhood experiences.  The other was a show Oprah called Cheers to You where she visited people at their place of work and then brought them on the show to experience the applause that she experiences almost every day.  On that show, she brought in a woman, Debbe Magnusen, who founded a program called Project Cuddle.  What an amazing program!!  Debbe helps pregnant women either become better equipped to mother their own kids or helps them find an adoptive family for her baby.  So far she has helped 570 babies and their families.  Pregnant women call her and she helps arrange prenatal care for them immediately.  She then helps identify the ‘perfect’ adoptive family.

Debbe happens to be friends with John Stamos’ mother and John has used his celebrity status to help promote Project Cuddle.  What a great thing to do!  I definitely agree with Oprah:  Cheers to YOU Debbe!

 Aruni

Author: | Filed under: adoption, angels, baby, mother | Comments Off