Last night I sat at the monthly Atlanta Technology Angels I sat on a panel with Mike Dowdle of Generation Station, Merrick Furst of Profounder, Wayt King of Shotput Ventures, Glenn McGonnigle of TechOperators. Fine group of men. Our topic for the evening was “where are the fundable deals in Atlanta?” I had two points that I wanted to share last night and today.
One was that there are a lot of angel type deals getting done. ATDC recently surveyed its member base. The results were astonishing to me. While the numbers are raw and need some massaging, over the course of the past year approximately 60 startups took in a seed or angel round raising over $18 million in the process. That is not counting those companies, and there are quite a few, that took in venture capital. ATDC's great social experiment of 2009 was a success.
Two was that mentoring by angels is very important. Not sure how this went over with the group but I believe it to be true. Atlanta needs more angels out tinkering with startups. The example that I gave was the one of SkyBlox pivoting to ScoutMob. From my understanding an angel played a big role in that move. I also find it interesting that at the same time the Atlanta event was transpiring that there was an old and new school angel investing clash in Chicago that mentioned the importance of mentorship at least twice.
Those other guys had good points too. Mike on how long it takes to raise money, Merrick on how we need to be more honest with entrepreneurs so that they can create a fundable deal, Wayt on the lack of entrepreneur scrappiness (which by the way was generally agreed to by those in the room), and Glenn on how this is a separation between the types of deals angels in Atlanta want to fund and the types of startups being created.
This week I did a presentation to ATDC's CapVenture class of 2010 on "honing your elevator pitch." You can take a look at the deck on Slideshare. The presentation covers three things.
The first is that you need to explain what you are doing to someone in three words. The typical reaction to this statement is that doing so is impossible because of the technical complexity of the offering. I don't buy that story. Find your three words.
The second was the creation of a simple one liner and adding a second line to create a positioning statement. The process that I follow is a combination of what Geoffery Moore's "Crossing the Chasm" and Chris Coleman's "The Green Banana Papers" (which I highly recommend for technical founders with little knowledge of marketing).
Finally I went through the elevator pitch. We all need to change the name. People don't talk in elevators. The construction of your elevator pitch needs to be between 75 and 120 words in seven or eight sentences. When you give the pitch as a speech it should last between 30 - 60 seconds. I would lean toward the low end on all these parameters. The most important thing that no one tells anyone is that an elevator pitch is not really a pitch. It is typically a conversation that takes place in a sit down meeting over coffee or lunch.
So one of the interesting things about having a startup on the side is that you can use it as a living case study. I used Socialytics as an example for all of the above.
Three words
Social media analytics.
One liner
Socialytics provides social media analytics to marketers so they can measure and improve social media marketing effectiveness.
The pitch
Social networking has become the number one activity on the Internet – ahead of email. As a result, social media is a fast growing marketing channel forecasted to reach $27 billion in five years. Very similar to online marketing in 1998, social media marketing is on the verge of a huge shift. Fans and followers are equivalent to the eyeballs of yesteryear. The vast majority of web marketing spend has moved to advertising vehicles that enable companies to measure return on investment. I believe the same thing is going to happen with social media. Socialytics is building the ability to measure and improve social media marketing effectiveness. Every marketer will require a product like ours.
I actually pitched Socialytics as part of the presentation. I have to tell you something. I give a lot of presentations and have no stage fear, but it was terrifying to get up in bunch of a bunch of people and pitch your idea. And this was after pitching to family, friends, and advisors over the course of the past four months.
But it went well. While the pitch is far from perfect it seems to resonate.
At about the 23 minute mark of the video PG starts talking about team size. Four is bad. One is a bit better. Two and three teams seem to do best. This started quite the discussion across the Internet about startup teams. A part of that discussion is listed web log style below.
As I said before this whole meme started, I like three. You need a developer, most important person in the bunch. If you don't have a person that can build a functional product you are doomed. Number two is a a front end developer that can also design. Design is very important in this day and age. You need these folks to work together as a product team. A business person is nice but not necessary number three (tough thing for a business guy to say). This biz person needs a combination of what some of the links point out. The business person needs to bring money, the access to money, customer development skills, the ability to do deals, marketing skills, and a strong grasp of technology.
I also agree with lots of folks that it is easier to teach technical people business skills than business people technical skills. Lots of advisors and mentors that are willing to take talented technical folks under their wings and teach them the ropes.
How about you? What are you looking for in a co-founder?
Well the folks over at TechDrawl are sure stirring things up these days. An article about the golden age of consumer focused startups morphing into a conversation about a constitutional amendment on the ballot in the fall concerning non-competes. Oh my!
But somewhere buried in those comments is this little gem by Wayt King:
"I wrote checks totaling almost $1M to fund ATL startups. But the
quality of startup deals that I ran across was disappointing. So I
basically "gave up" at the end of 2009. Where are (were) the fundable
ATL-based web services startups, and why couldn't they figure out that I
was writing checks? IMHO, there is angel money available in Atlanta for
consumer web deals (though not via ATA); it's the scrappy entrepreneurs
who are in short supply. Stop complaining, quit your day job, burn the
ships, and "make something people want." Fail quickly, and do it again.
And again. Just Do It."
Wayt is making two points here that deserve more than just a passing comment.
The first, which I have been advocating, is that there are not many fundable seed stage deals in Atlanta at the moment. This is also supported by the recent change, and the stated reason for the change, in Shotput Ventures model.
The second, which is a little more disturbing, is that it is not just the overall quality of the startups but the scrappiness of the entrepreneurs. Here is a guy that dropped a $1 million over the course of two years on seed stage startups, many of them in a very public manner, and he is not seeing deal flow. I am sure there will be some thoughts that he should be more public or easier to find or have a web page. I ain't buying it. An entrepreneur has to be smart enough and aggressive enough to find the person with the check. Some points that back Wayt's assertion.
I have written many times about Profounder, a seed-stage investment company where I am a special partner. You know how many entrepreneurs have asked me about the firm this year? Zero.
There are two conclusions I draw from this. The first, which I hope is true, is that entrepreneurs are becoming better educated about what a fundable company needs to look and feel like. The second, is that entrepreneurs need to get more creative and aggressive in uncovering the funding they need to grow their business.
One of my favorite blogs to read these days is 10,000 Startup Hours. Quick and easy reads with tidbits of wisdom.
There was a recent story on 10,000 that told about a conversation that David had eavesdropped on between a potential client and a web developer. David concluded his post with "If you outsource the work without understanding it, you’ll get someone who is accustomed to saying “yes” over and over."
I am going to take this one further. If you do not understand a critical function that you are outsourcing and possess the knowledge and skill to manage it closely you will fail. If you don't know how to code, don't outsource development. If you don't know how to work with the press, don't outsource public relations. Never ever have I seen this pulled off successfully. And the one or two times I have seen it work out marginally OK, it has been a very painful learning process from a timing and money point of view.
Main Entry: non·start·er noun
Date: 1902
1: one that does not start
2: someone or something that is not productive or effective
I have been thinking of this word for sometime. I see two different types of startups that are nonstarters on an almost daily basis.
The first is a team of technical co-founders that do not know how to sell or market. They are not comfortable with it. They have built something. No one is using it. They just need $250,000 to hire a sales guy or a marketing girl or they want to outsource to an agency. But they don't understand or want to understand customer acquisition. They just need the $250k for SaM.
The second is the business guy or girl with an idea. A vision. Might be a good one but they have no skills to create a product out of their vision. Not only do they not have technical skills, they have never been involved in building a product. They don't have any technical types in their networks and they are looking for some stranger to join their company as a co-founder and work for sweat equity. Or they need $250,000 - $1.2 million to build the product.
These are both scenarios that do not start. How to be more effective.
The tech team needs to invest the time to understand their potential customer buying motivations and putting together a prototype customer acquisition machine so they can gain some traction, revenue, and proof that they have a product that solves a real problem.
The business types either need to belly up to the bar with some personal credit card debt or use their personal network to make their way to a person that is willing and able to build a product prototype. They will have proof they can actually make what they have been talking about and be able to get some customer feedback on the product direction.
If you can't build both a product and and a method to acquire customers there is no chance, no hope, for success.
ReadWriteStart had a nice article the other on the downside to bootstrapping. But better than the article was a comment by Micah Wedemeyer, the founder of DoLeaf and a part of the dev team over at BLiNQ Media.
The money quote:
So...the downside to bootstrapping is that it makes it hard to get VC money? Next you're going to tell us that the downside to being gay is that it's hard to pick up chicks.
So this little meme about how different things are in Atlanta than other parts of the startup world has cropped up again. I don't think so much. And instead of pontificating a point of view I will tell you a real story that a few people are familiar with, the company conceived at Atlanta Startup Weekend 2007, Skribit.
So Skribit got rolling. Launched a nice product. Got a lot of attention. Decent traction. It's the summer of 2008. I am having a little chat with an investor. Question. What are you guys going to do with Skribit? Answer. Seems a little small.
Fast forward. 2010. Skibit founder Paul Stamatiou meets the Startup Boy himself, Naval Ravikant. Naval founded VentureHacks and AngelList. Navel invested in Twitter and Disqus. Guess what Naval told Paul. Yep. Market seems small.
From there to here, from here to there, fundable companies are everywhere. And if they are not it is usually for the same reason. If you are not getting traction with investors don't blame them. Figure out the reason why. Fix it.
Well I have more than one advisor and recently caught up with another one. Their message, "it's not time to focus just yet, you can keep those plates in the air for a little while until one of them gets so big it requires two hands to hold it."
Not exactly the same advice. It is rare when a host of individual advisors will agree on the same course of action. As an entrepreneur it is your job to take these conflicting nuggets of info and decide on the proper course of action. Or you can do what a serial entrepreneur once told me, "only listen to people with money." Then again, people with money offer conflicting advice as well.
So TechDrawl is saying let's somehow build a new investor orientation that does not exist in Atlanta. It is my point of view that doing this is going to take a bit of time to correct and entrepreneurs should focus on building their businesses. At some point this is essentially the local investors don't get it or the startups are not fundable.
They have a nice little application form. The things it asks for are interesting. A product demo, team, social proof, traction, and differentiation. That is what angels investors in San Francisco are asking. Sounds familiar to me and I have not been to the valley in a while.
Anyhow, you think you got what it takes? Reach out to me and let's work your deal. It's what I do for a living. And on Saturday morning for fun.
The opinions expressed here are mine and mine alone (with the exception of comments by others of course). They do not represent the opinion or position of any other person on entity. All postings adhere to my personal values.
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