Month: August 2012
It was the second week of TechStars and I was doing office hours with each of the 11 teams going through the Boulder 2010 program. I was sitting across the table from Adam Wilson and Ian Bernstein who each looked tired and dejected. In front of them were three slides.
I asked them what was wrong. They said they were having trouble deciding which of three different products to pursue. They’d had a dozen meetings with different mentors and were getting wildly conflicting data, which we refer to in TechStars as “mentor whiplash” and is a normal part of the first 30 days of TechStars for every team.
A few weeks earlier, Adam and Ian had their company Gearbox accepted into TechStars. They were hardware / software / robotics nerds and loved to tinker around. Their TechStars application and video had something to do with robots and their crazy desire to stay up all night hacking on them. When I’d last seen them a few weeks earlier, they were full of energy and life. Now they just looked defeated.
“Tell me about each of the ideas.” I asked. Adam started with the first one. “It’s a door lock controlled by your smartphone. The door lock market is really big.” said Adam in the most deadpan monotone voice I’ve ever heard.
“Ok – what’s the next one?” I asked. Ian mumbled something about the second slide on the table. I don’t even remember what he said.
“What about the third one?” Adam chimed in again, a little more animated this time. “It’s a robotic ball controlled by your smartphone.”
“Why are you having trouble deciding?” I asked. Adam kept going. “Some of the mentors like the door lock market but it seems like a really easy product to create and there are lots of door lock companies. And some don’t like it because it’s not defensible. No one really understands the second idea. And then there’s the ball – some mentors love it and others hate it.”
“Well,” I asked, “Is there one you love a lot more than the other two?” Adam and Ian looked at me quizzically, the same way my golden retrievers do when I ask them if they want to go for a walk. “Really, you just want to know which one we love the best?” asked Ian.
Adam jumped in, “Are you kidding. The ball. It’s a robotic ball you control with your smartphone.” Adam stood up with a gleam in his eye. “Brad, IT’S A ROBOTIC BALL YOU CONTROL WITH YOUR SMARTPHONE! HOW COOL IS THAT.”
At that moment, Sphero was born. And I knew that if Adam and Ian could make any progress over the next 10 weeks creating a robotic ball controlled by a smartphone, I wanted to invest in these two amazing guys. Their passion and obsession around the idea of a robotic ball you control with a smartphone was awesome.
Over the ensuing weeks they were regularly asked “what’s the market”, “who is the customer”, “how big is the market”, “isn’t it just a toy?”, and a bunch of other skeptical questions. As the weeks went by, they kept answering these sames questions with some variant of “we don’t really know but here are some ideas.” They kept working on the prototype and once they could drive something in a sort of a straight line, more eyes started lighting up and the “how big is the market questions” started to diminish.
Fundamentally, they didn’t know the answer, nor was it important at this stage. There are a zillion balls in the world and an endless set of applications for them; at this point Adam and Ian were pursuing the vision of a product that they were obsessed about. While some mentors and investors wanted to understand all the market and customer dynamics, others were able to see, or dream about, the enormous potential opportunities if the product could ever be created.
Three months later Foundry Group led the seed investment in Orbotix. And we are just as passionate about it today as Adam and Ian were way back when.
Disclaimer: I’m not an investor in OnLive and I know nothing about the specifics of what happened. I’m just speculating, but it’s informed speculation based on my experience.
I read a few articles over the weekend about OnLive potentially going out of business, potentially screwing its employees, and a few other things. The first articles were weirdly hostile with a focus on how OnLive just laid all their employees off in preparation for a sale in order to enrich the founders/investors at the expense of the employees. By the end of the weekend the reporting was more thorough and balanced.
Companies fail – all the time. It’s part of entrepreneurship. It’s painful and sucks when you are part of a company that fails (I know from experience – I’ve been there many times) – whether you are a founder, employee, or investor. But failure is part of it and at the moment of acceptance of failure, a good founder and board look for the most graceful path forward, however messy and yucky that might be.
One of those approaches is something called assignment for the benefit of creditors (ABC). If you were around during the collapse of the Internet bubble, you’ll remember this. It’s a lot easier and quicker than a formal bankruptcy (via a Chapter 11 filing) and allows the assets of a company to quickly be sold to a new owner. In some cases this is just for cash to pay off creditors; in other cases it’s a way to sell the company to a new owner and keep the business operating.
OnLive looks to me like the second case. The news is coming out that it has a new owner, that many of the employees have already been offered jobs post ABC, and that the service will continue to operate and customers won’t be negatively impacted.
The key thing to understand in an ABC is that 100% of the equity is wiped out and deemed worthless. The founders equity, the investors equity, and the employees equity. When a company goes into ABC, it’s almost always because the value of the liabilities far outweighs the perceived value of the assets. No buyer was found that was willing to take on the liabilities while giving the equity holders any economic value. So – an ABC effectively “cleans this up” for the new owner – compartmentalizing the liabilities in the ABC process and using the proceeds from whatever asset sales come out of ABC to pay off some portion of the liabilities.
Occasionally investors will get something in an ABC because they are creditors. If the last round (or rounds) have been in convertible debt, or just straight debt, the investors (whoever holds the debt) will be creditors. They can often be pretty high up in the creditor stack and sometimes recover some or all of their debt. But their equity will almost always be worthless.
In a situation where the company is immediately purchased out of ABC (which is what it looks like happened in OnLive’s case) many of the employees will be rehired by the new owner. While their stock options will be worthless (as is all equity) they are often immediately offered new stock option packages. Usually the vesting clock resets completely; sometimes a new owner will be extra generous and offer a shorter vesting term.
In OnLive’s case, it feels like the company simply ran out of options and couldn’t find a new investor or a buyer who would take on the company outside of ABC. Rather than shut down, they found a buyer / investor (which could be a subset of the existing investors) who would recapitalize the company and keep it going as long as he didn’t inherit the liabilities. Hence, the ABC process.
Rather than screwing the employees to enrich management, this feels to me like a pretty employee friendly approach. Hopefully the stories this week will clear this up, rather than end on “it looks like the investors and the founders screwed the employees.”
Don’t ever forget that failure is part of the process.
We’ve been investing in our Glue theme and Protocol theme for a long time – well before we started Foundry Group. Many of our Glue investments and our Protocol investments are growing quickly and becoming integral parts of the Internet and web software infrastructure.
It made me smile to see a recent post from Promoboxx titled We’re Powered by TechStars Companies. It’s a great post about focusing on what matters for your product while leveraging great technology infrastructure from other companies. Several of the companies we are investors in are mentioned, including SendGrid and FullContact, each which are TechStars companies that we invested in after they finished the program.
For as long as I’ve been involved in writing and creating software there has always been a deep philosophy of creating building blocks that you can leverage. Something magical happened around this with the web and in the past five or so years there have been a number of amazing companies created that are easy to quickly integrate, either through a little bit of code or an API. It’s part of thing that has changed the dynamics of creating and launching a web software company, dramatically lowering the price of just getting something out there so you can start getting real feedback from users and customers.
When I reflect on this year’s Glue Conference, it feels like we’ve finally reached a tipping point where this concept is ubiquitous. I expect we’ll talk about it at Defrag and Eric Norlin’s post from yesterday titled The 20 Year Cycle hints to some of the deeper ideas about how this affects enterprise software and corporate IT, in addition to all the obvious consumer implications.
It’s a great time to be building software – the innovation curve is speeding up, not slowing down, and I expect when we look back 20 years from now we won’t recognize what we were doing in 2012.
When I saw this graph I was hooked. If you are a Twitter user and you don’t use Followerwonk, go try it now – I’ll be here when you return.
Yesterday, SEOmoz announced that it had acquired Followerwonk. The acquisition closed about six weeks ago and the Followerwonk product has been fully integrated into SEOmoz. And the Followerwonk team is now fully part of the SEOmoz team. And it’s awesome.
Rand Fishkin (SEOmoz’s CEO) blogs openly about how the deal happened. It’s instructive for anyone in a startup – either one that is acquiring someone else or being acquired.
If you know me, or have worked with me, you’ll recognize this as a common part of my startup playbook. I think it’s incredibly powerful to accelerate the growth of a company via targeted acquisitions. Fred Wilson once referred to this as a “venture rollup” which, while many are allergic to the word “rollup”, is probably as good a label as any for this. Another recent example from my world just to see what I mean is Rally Software’s acquisition of Agile Advantage.
Doing this well is hard. I’ve been fortunate to work with several amazing CEOs who I’ve learned a lot about how to do this with, including Matt Blumberg (Return Path), Tim Miller (Rally), Mark Pincus (Zynga), and JB Holston (NewsGator). And I learned the basis of everything I know about acquisitions from Len Fassler and Jerry Poch, who acquired my first company. Each has used the strategy skillfully and effectively.
I think Rand, who is using this strategy as part of continuing to build out SEOmoz, is going to be a master at it. If you read his post carefully, you’ll see that he has immense respect for the people behind Followerwork. His behavior pre-deal is consistent with his values and signals his behavior post deal. The entire company embraced Followerwonk and made them part of the SEOmoz gang immediately. He, and the entire team extended trust up front, unambiguously, and without hesitation or reservation.
Peter, Marc, and Galen – welcome to the team!
In another example of entrepreneurs just doing it and not waiting for anyone to give them permission, a couple of Denver entrepreneurs created the Denver Startup Map. My friends at FullContact blogged about it this morning and explained how it works. It’s simple – if you are a startup – just go to the map and put your information on the shared Google map. 60 seconds – done.
While you are at it, I encourage you to go enter your startups information into CrunchBase. I’ve been working on a mapping project with Ross Carlson (our IT guy) and Ian Kuliasha (Silicon Flatirons) that we plan to roll out shortly. It’s based on CrunchBase data and the open source Represent-map project that was the basis for Represent.LA map of the LA startup ecosystem that Alex Benzer of SocialEngine created.
We’ve got a nice twist on this that leverages CrunchBase data, will be applicable to any geography, and will be open sourced so get ahead of us and get your data in. We’ll be rolling it out as part of Startup Revolution.
And – while you are at it, if you are a Denver startup, get on the map.
How To Respond To A Cold Call Email From An Associate At A Big VC Firm
We have investments in a lot of companies that are growing very quickly. They end up on the calling (now emailing) lists for a bunch of VC firms who have an outbound deal flow program. These emails ofter appear immediately after a large financing is announced.
Recently, I’ve been forwarded a few of these emails from CEOs of companies I’m an investor in with the question “how do I deal with this?” I realized I was giving the same advice each time so I figured it was time for a blog post on the issue.
The first email that you get looks something like this.
Hope all is well. I want to reach out to introduce myself and reintroduce my firm as you may remember trading emails with one of my colleagues a few years back. I also wanted to pass along congratulations on the round you and the team raised. It is obviously a testament to the continued progress and success you and the team have made since our last check-in.
Given you raised capital recently, I don’t imagine there are any funding needs in the immediate future, but I wanted to reach out to put our firm back on your radar screen. We seek to invest $somebignumberM+ with a huge focus on internet and therefore wanted to reintroduce us as a relevant party for the future.
If you’re up for it I would love the opportunity to briefly introduce our firm, our strategy and portfolio, and discuss ways we might be helpful in the future. I look forward to catching up.
As a CEO, the real value to you right now is what someone like this can do for you. In addition, they are offering to introduce themselves to you in order to earn your trust and interest when you do a next financing. So taking a meeting where you (a) get a deep overview of them, (b) learn about their portfolio, and (c) ask them for specific help with specific companies in their portfolio is how you make this worthwhile while building the relationship.
My advice is to do the following
- Go through their portfolio – make sure there are companies you want intros to.
- Have a meeting – don’t go out of your way for it, but do it when convenient. Don’t do it on the phone – do it when you are with them or they are in your town.
- Do NOT have this meeting about your company. It’s an intro of the VC firm to you.
- Do NOT feel compelled to go through your business other than at a very high level.
- Ask specifically what the VC firm could do to be helpful as you grow.
- Ask specifically for introductions that you identified within their portfolio.
- Give them assignments – see if they follow through.
It’s always hard as an entrepreneur not to pitch your company. But resist in this particular case – use this kind of a meeting to learn as much as you can – about the VC firm, and what they know about the market you are playing in, and how they can help you right now. If you give them assignments and they don’t follow through you learn a lot. But if they do follow through, it tells you even more and can be helpful to your business.
I’ve invested in hundreds of companies that have started from scratch and I’ve been though some crazy number of product launches, especially if you include all of the TechStars companies I’ve been involved with. These alphas, or betas, or v1.0 or v0.1 launches are exciting moments as they signify the transition from an idea to a product. And, it’s at that point that the real work begins.
Early in the life of your company you want feedback. From anyone. Of any kind.
It’s often hard to get this feedback. You spend all of your time trying to get some people to use your product. When they have problems, you try to fix them. But you are maxed out – with all the various responsibilities you’ve got and all the things you are trying to do to keep things moving forward.
Occasionally you get feedback. Sometimes it’s precise – a feature request, a suggestion for how to do something differently, or a description of something that’s not working correctly.
Reward this feedback with features. Fix the bug and then tell the person who reported it that you did and thank them for pointing it out. Implement the requested feature and tell the person that suggested it that you did it. Write a blog post about it and name the feature after the person. Be public about thanking the person for the suggestion.
In addition to making your product better, this does two powerful things.
First, it creates a feedback loop with your early users so they know they are specifically appreciated and valued. This will encourage them to give you more feedback, use your product more, and be part of your extended early community of fans.
More importantly, it builds a feedback loop culture into your business. You and your team will realize the feedback matters. You’ll show this through action. Your users will realize this. And they’ll value it, and you, more.
What do you do to get feedback from your early users?
Last night Amy and I watched the movie Unbreakable: The Western States 100. Our friends Pam and Mark Solon gave it to us. It was awesome, powerful, riveting, and inspirational. If you are a long distance runner, or athlete of any kind, you will love it. More after the trailer below.
While my experience with marathons is now extensive (22 to date), my experience with ultras is limited to one – the American River 50. I learned an enormous amount from my ultra – mostly about myself – and wrote about it twice – two weeks after the race in a post titled The Physiological And Emotional Fallout Of My 50 Mile Race and then six weeks later in a post titled I’m Finally Recovered From My 50 Mile Run.
While I’d love to try another 50 and even do a 100 miler, I’ve decided that it’s just not realistic or healthy (emotionally) for me given my current work and travel dynamics. I’m comfortable with that decision and have doubled down on the marathon running while tossing in some road biking (today’s ride will be 35 miles, the longest to date) for variety and mostly to amuse my partner Seth.
It was extremely powerful and motivating to watch this movie. The Western States 100 is the original ultramarathon that was first run by Gordy Ainsleigh in 1974 (he’s in the movie – and he is awesome.) There are four main characters in the race that the movie follows.
- Hal Koerner, two time defending Western States champion, and running store entrepreneur from Ashland, Oregon.
- Geoff Roes, undefeated at the 100-mile distance, an organic chef from Juneau, Alaska.
- Anton Krupicka, undefeated in every ultramarathon he has ever started, a graduate student living in Boulder, Colorado.
- Kilian Jornet, the young mountain runner and two time Ultra-trail du Mont-Blanc champion, from Spain.
Four amazing ultra runners (two undefeated) going after the win and a world record from the very beginning of the race. The movie does a great job of mixing drama with personality with footage of the race. While I don’t know any of the runners, I’ve been passed by Krupicka running in the mountains in Boulder (he’s easy to recognize) and I related to different parts of each of their stories.
As I look out my window in Keystone this morning I see a beautiful blue sky with a layer of fog in the meadow behind my house. The mountains are in the background. While I’ll be on a bike today getting ready for a week long bike trip (my first) the love that these four guys have for running will echo in my mind. When people ask me why I run marathons, it’s easy – I love to run. So do they. Watch the movie and be inspired.
My friends at Slice of Lime are growing. If you don’t know them, they are a local Boulder company that we use for a bunch of UX / UI / web stuff for ourselves and a number of companies we invest in.
If you are a Senior UX person looking for a new gig, go apply now. Following is more info on Slice of Lime and the position.
We’re a 11+ year old business that specializes in creating marketing websites and user interface design for web apps and mobile apps. We work with a wide range of clients including technology startups and big brands. We’re consistantly recognized as one of the fastest growing companies and top ten in our industry in Boulder.
We’re looking for an individual that can:
- Interact directly with a client and be accountable for managing their own project schedule and deliverables
- Run meetings and present / defend your strategy and design work
- Create strategy documents such as personas, information architecture, user paths, and wireframes
- Create high-end design work suitable for both marketing websites as well as web and mobile applications
- Collaborate well with other Slice of Limers
We practice agile methodologies with our UX/UI work and have fine tuned our process to work seamlessly with our clients’ internal or external development teams.
Slice of Lime offers a great work environment with a focus on “creating amazing experiences” for our clients and ourselves. We offer wonderful health insurance, a generous vacation plan, $500 to spend on work-releated materials and gear every 6 months, and a competitive salary. We’re located in the heart of downtown Boulder and can’t wait to meet the new member of our team. We hope it’s you!