Brad Feld

I got the following question via email today:

All things being equal and all things being perfect, is it better to have more or less ‘angels’ in the mix? I can come up with reasons for both more and less. Also, it seems to me that more and less are very relative – but, in this case, Ohio has a limit of 25 investors before exemptions no longer apply (we’re still investigating that one), so that is the absolute upper limit. I’m thinking “more” is in the range of 4 – 10 and “less” is in the range of 3 or fewer — allowing more growth later, if needed.

My quick answer is three or nine, since three is my favorite number (and multiples of three are good, especially 3 * 3.) Before I started doing venture capital, I participated in about 21 angel financings (and led about 9 of them.) As a VC, I’ve had angel investors either prior to our investment or as part of our investment (when we invest in the Series A or first round) in about 51% of the investments I’ve done. It turns out that either a small number (three) or a moderate number (nine) is best (or – to be simple, 3 <= angels <= 9.) Angel rounds need a lead investor, just like venture rounds. Most lead angels drag along a couple of their friends. I like to look for this lead group to take between 40% and 100% of the deal. So - if you can get a small angel group to take the entire deal, you can probably get away with three-ish angels. If you are at the 40% level, you are probably at nine-ish angels. Remember that angels can (and should) bring a lot more than money to a deal, so the actual number is less important than the value you are getting. You won't get 100% participation (at best - you'll get 50% - more likely less than 33%) - most angels talk a good game but few deliver because they've got other priorities and interests. This is another argument for a larger number (nine-ish.) So - while there is no right answer, a multiple of three feels pretty good to me.

Ryan McIntyre – who works with me at Mobius – has started blogging. Ryan’s a great friend and collegue and – even though he went to Stanford – I still put up with him.

Ryan co-founded Excite and saw the Internet first hand through inception to boom and then to bust. In addition to having a real clue about search and other Internet infrastructure (as evidenced by his investments in Postini and Technorati), he spends a lot of time digging into advanced semiconductor applications – which are things I’m mostly clueless about (such as Akustica, Glimmerglass, and Microdisplay) – but I am always entertained by the pictures of really tiny things Ryan shows me.

The words of my partner Greg Galanos – who someday will have a blog even though he claims he doesn’t want one – “Hey Ryan, welcome to the Blogosphere.”

I was with my uncle Charlie at EDS yesterday catching up on a variety of things. I always pick up a handful of pithy thoughts from him – it’s one of his “special magic leadership” traits – boil the thought down to a simple, clear idea.

We spent a lot of time talking about cost leverage, as it’s one of the ways that EDS gets healthy over the long term. Charlie’s pithy thought of the day is that there are healty cost reductions and unhealthy cost reductions. You can always cut of an arm and a leg and lose 50 pounds. Or – you can start jogging and doing pushups.

Too many companies and executives – big and small – only know how to cut off body parts.

After posting Sales Tools – Keep Them Simple (e.g. A Heat Map) I got a couple of comments saying “show an example.” (Now that’s a great example of NOT keeping it simple – I’ll verbally describe things instead of graphically showing you the example – duh… sorry about that. I bet you wouldn’t believe me if I told you that I’ve read Tufte’s The Visual Display of Quantitative Information.)

The heat map above shows you that we have Company_1 and Company_3 as customers, we’ve pentrated Company_1 really well but have some work to do on Company_3, we should be making good progress on Company_2, and we’ve got a long way to go on Company_4 and Company_5. I also think MikeL should spend some time with JimR figuring out how to pentrate a Division_2 type customer and MaryB should probably spend some time with JimR also talking about Division_3 type customers, especially in Europe.

Now – envision this as 20 companies instead of 5 and 10 sales people instead of 3 and you can see how you could quickly see patterns that would be hard to otherwise see in a traditional sales pipeline report.

I was sitting in a meeting yesterday with one of our companies and saw a very compelling sales presentation. The company has developed good sales momentum in a specific vertical market (life sciences) and the CEO has focused the sales organization (6 direct sales people) on this market.

Rather than show leads by sales person with contrived forecast numbers and ratios, the CEO showed a heat map of the top 40 target customers (in two separate charts – top 20, second 20). For each company, he sorted by number of potential seats, listed the sales person that owns the account, and the geographic location of the company.

The interesting data was the heat map. All existing customers were colored blue. There were three columns for each company for each division that we sell into (there are three distinct ways that we can get to a customer.) Each cell was then colored either green for active, yellow for not active, and red for “the company told us to go away.” Fortunately, there we no reds yet.

In 30 seconds, I got a better view of the current sales activity for this company than I do for most of my companies. I saw which of the top 20 prospects were actually customers and how much we had penetrated the additional prospects. In addition, this heat map provided a clear framework for a detailed pipeline review. It also gave me real confidence that the CEO was following through on his assertion that they wanted to own this vertical market.

It was a simple tool – reminding me that all the Salesforce.com reports in the world aren’t a good substitute for a CEO who knows his target market and thinks about it constantly.

NewsGator just released a production version of their Movable Type posting plug-in.  It joins a bunch of other posting plug-ins including TypePad and Blogger.  With this, you can post directly to your blog from within Outlook using all the normal Outlook editing features such as bold, italics, and colors.  

Lists are easy also:

• Just like sending emails.
• Formatting is automatic.
• Bullets are pretty.

Using the plug-in, posting is as simple as sending an email, which is especially convenient if you live in Outlook like I do.

I’ve been enjoying watching my Feedburner stats increase steadily. However, recently I put a web stats package on my web server to see what was going on. I was completely surprised to see my “old” RSS feeds (the defaults from my Movable Type installation – index.xml, atom.xml, and index.rdf) showing up as frequently visited pages.

Dick Costolo at Feedburner called me a knucklehead (in a kind and generous way) and pointed me to the solution on their site. Since I’m a Linux-lameo it never occurred to me that I needed to either delete or redirect my old files since (a) I didn’t realize they were there and (b) it didn’t occur to me that all the random feed readers in the world would pick up different RSS feeds (rather than the one that I wanted folks to get – my Feedburner one.)

So – now whenever subscribes to my blog – 100% of the feeds should run through Feedburner. I’ve already seen a nice jump in the last hour so it looks like this is working.

If you have are having trouble with my feed, simply subscribe here.

NewsGator announced that they closed their second round of financing today. They also added two executives to their management team – Sandy Hamilton (EVP Sales and Business Development) and Mark Nass (VP Finance and Adminstration.)

When we made our seed investment in NewsGator in June, we didn’t expect to start raising another round until January and didn’t expect to close it until late Q105 / early Q205. However, I’ve been completely blown away by the progress NewsGator has made since we invested. There are occassions as a VC where you do an early stage deal hoping you’ve got something huge (every deal) and then wake up one day and realize you’ve really got something huge (very few deals.)

I had one of these days in October. After wandering around enthralled with NewsGator for a couple of days, I talked to my partners about simply doing a significant round on our own so the company could focus on building the business rather than spending a few months on the road fundraising. Based on the progress NewsGator had made, this was an easy decision for us. We ran our internal process over the span of a couple of weeks and made an offer to the company.

JB and Greg – to their credit – wanted to test the market to make sure the deal we were offering them was fair, so they talked to a handful of high quality firms that had expressed unsolicited interest in the company. Their goal was to quickly ascertain if someone would invest at a higher valuation than we were offering and be able to move quickly. These were both key conditions for them – an incrementally better deal wasn’t worth it if it took six months of work, due diligence, and partner meetings. Given our willingness to invest on our own, it was easy to create a quick feedback cycle. After a handful of meetings, JB and Greg concluded that the deal we were offering was fair and it wasn’t worth going through a multi-month process to get a second investor into the company at this point.

While I like doing early stage deals with other investors, I’m not afraid to do an early stage investment on my own. One of the investments I made in 2000 – Gold Systems – was done without any co-investors. I’m extremely happy with the business today, although it went through some rocky times during the 2001 and 2002 tech implosion. Ironically, it was probably easier to deal with things on our own as I could be patient, work closely with the executive team, and ride out the storm until the world got better. We did and the company is once again doing great.

A key attribute of going it alone is the quality of the CEO / enterpreneurs – in both NewsGator and Gold Systems cases I’m dealing with A+ folks that are in a position to create a self-sustaining (e.g. profitable) company on a well-quantified amount of investment which is within my capacity to do on my own. As a result, the pressure to syndicate the deal (e.g. bring in other co-investors) doesn’t exist from a financing perspective since I feel comfortable that we can fund the company on our own if we want to. While I’d still welcome co-investors into any of my deals, it’s nice to be able to move quickly and go after an emerging market without the requirement of a syndicate.

I attended the NACD Colorado monthly event today in Denver. It was moderated by Mike Platt of Cooley Godward (one of my primary attorneys) and was a good moderated panel discussion on “Board issues dealing with VC directors.” The board had an entrepreneur (Jim Lejeal – CEO of Oxlo), a VC (Don Parsons – Appian Ventures), and a VC general counsel (Jason Mendelson – Mobius Venture Capital) on it. Jim, Don, and Jason put on a good show.

Jim and Mike originally founded an organization called the Colorado Directors Guild several years ago. Their insight and impetus for starting this was to try to build a peer-community of directors for entrepreneurial companies – especially as stuff like Sarbanes Oxley started to put a lot more focus on the care, duties, and responsibilities of directors of companies – both public and private. A year ago, they merged it into NACD which is a well-established national organization with a similar mission.

I’ve been a member / advisor of both the Colorado Directors Guild and the NACD and strongly endorse what the NACD is up to. If you are a director of a company or are interested in becoming a director, I recommend you take a look at NACD’s programs and consider becoming a member.