When I joined Half Off Depot back in May I started looking around for a competitive target. Not the 800 pound gorilla Groupon LivingSocial type of competitive target. A smaller yet significant company that we could set our sights on. That company was BuyWithMe.
As best as I could tell BuyWithMe was the number three player at the time. Founded in Boston, based out of NYC, BuyWithMe was actviely operating in a dozen or so major markets. They had raised $21.5 million from Matrix Capital and Bain Capital. The kind of number that makes our $7 million seem small.
And BuyWithMe was on a tear. The online deal market is going to consolidate and BuyWithMe was playing the role of consolidator, something that I would like to do. In 2011 they acquired six competitors, the most recent being in September. Then the wheels fell off.
Just six weeks after its last acquistion BuyWithMe choked on them. BuyWithMe laid off half its workforce after reportedly failing to close a new round at a $500 million valuation. It was reported to be looking for a buyer.
That buyer was Gilt Groupe, who purchased the assets of BuyWithMe. Asset purchases are rarely good for the selling entity. Gilt did not hire many of the BuyWithMe staff. The purchase price was about $5 million in cash and stock. Somebody pulled the plug.
Working both sides of the Half Off Depot deal was a lot of fun. Part of that included participating in the due diligence work on behalf of Noro-Moseley Partners. During the course of this process I provided a list of potential due diligence items to the firm. The information request itself ran just over four pages. You can find a copy of the due diligence request on Scribd. The actual information itself could fill up a few binders.
Entrepreneurs and founders are often time surprised by the amount of information requested by potential investors. If you are going down a path to raise funding knowing what types of information potential investors are going to ask for and putting it together over a period of time can prove to be very helpful after you get a term sheet and are working through diligence and close.
So I was doing some work on the atdc Startup Showcase that resulted in a quick brainstorming session on Atlanta area organizations that fund technology startups. It looked something like this.
The venture capital firms are Arcapita, BLH Ventures, Buckhead Investment Group, Fulcrum, H.I.G., Kinetic, Noro Moseley, Total Technology Ventures, TechOperators, and Value Plus Ventures. The more angel oriented investor groups include Atlanta Technology Angels, CEO Ventures, the Communications Group, Hamilton Ventures, Profounder, Seraph Group, and Shotput Ventures.
Though they are no longer actively investing in new deals there is of course Imlay Investments. You can add the ATDC Seed Fund and the Georgia Tech Edison Fund to the list as well. There is a total of 20 investment entities . Of the 20 at least 13 are active, having done at least one deal in the past year.
While we can use more this is Atlanta in 2011. It would behoove any entrepreneur that thinks external funding is in their future to do their homework and get to know these firms better.
Update: I was reminded that I omitted Paparelli Ventures.
Not 100% of it holds true for every startup but it's a great piece of writing.
Anyone who tells you that you need to relocate to the valley for your startups is giving you bad advice and is not to be trusted.
The only upside of the valley is that VCs are often not interested in investments they have to travel for, but if you're doing a modern startup, you should not be going after VC money anyway. You no longer need it for infrastructure, and the cost of VC money (both in equity and the terrible advice they will force on you) is not worth it.
In the valley everything costs twice what it should, the regulatory and tax burdens are unreasonable, the employees are going to jump to the next hot thing, and are generally of lower quality than the employees elsewhere.
Seriously. Give me a state school educated programmer (or one who never went to college-- even better) over a stanford grad any day.
But if you want to build a feature that pretends to be a product that pretends to be a "startup" and you want to raise a bunch of cash from douchebags in order to flip it to Google or whomever in 18 months--- then the valley is the only place to do that.
If you want to start a business, one that will grow and has a chance of being run well, then you cannot do it in the valley, or at least trying in the valley is handicapping your business from the beginning.
Of course, all the people in the valley think the former is the latter and so that's why they advocate people relocate to the valley.
And I'm not even getting into the fact that if your idea is good you'll have dozens of competitors quickly because there is no integrity in the valley-- no VC keeps his mouth shut.
Sublime.
Further down in the comments Chris Stuckey suggested that atdc line up Reggie for an Entrepreneurs' Night. Great idea, I'll try to make it happen. Or perhaps we should get Jessica to fly in.
Shortly after posting I recevieved an email from Merrick Furst. Merrick is a co-founder of Damballa, teachs an undergrad entrepreneurial class out of Georgia Tech's College of Computing, and is managing director of Profounder, a seed-stage investment company in which I am a partner. With a simple FYI at the beginning this is the content of his note.
Ohio Launches Tech Incubator With Fund Led By Sequoia's Kvamme
The state of Ohio is adopting a tech incubator model that has been successful for others, such as Y-Combinator and TechStars, in an initiative to inspire new business ideas and grow the state's economy.
Ohio State University's Fisher College Center for Entrepreneurship has launched 10x, an accelerator focused on the professional development of young, technology entrepreneurs. The program is made possible through capital provided by Ohio's New Entrepreneurs Fund.
The ONE Fund initiative is being spearheaded by Mark Kvamme, director of job creation for Ohio. Kvamme is also a partner at Sequoia Capital who was recruited to head JobsOhio, Gov. John Kasich's new private, economic-development corporation.
Young entrepreneurial teams will compete for 10 spots that will each receive $20,000 for business and living expenses during the 11-week development program.
NCT Ventures, a Columbus, Ohio-based venture capital firm, has already guaranteed that one team to graduate the inaugural 10x program will receive $200,000 in follow-on funding to further pursue its venture.
The participants must agree to live in Ohio for the duration of the program, and any company formed through the program must be set up in Ohio. The teams will have access to all the resources provided by the Center for Entrepreneurship, ONE Fund, NCT Ventures and the start-up community in central Ohio.
"It's a robust environment, more than you would expect from your typical Midwestern town," said Michael Camp, executive director of Center for Entrepreneurship, in Columbus, and the architect of the 10x program. "The notion that place defines how big or good a business can be is out the window."
During my time at atdc I have had two high-level strategic insights of note.
The first occurred back in 2007. I came to believe that atdc needed be more open and reach out to better serve concept and seed stage startups. This, in part, led to the strategic shift atdc began in the summer of 2009.
The second occured this week. Some entity with staying power needs to step up and systematically tackle the lack of seed and early stage funding in Georgia. To architect a program like Michael Camp put together in Ohio. A state fund, big venture capital leadership, a robust program to vet startups, and local angel/venture capital involvement.
That in, 500 words or less, is what I mean by ownership.
I suspect that if some professor where to invite Mr. Blank to Georgia Tech he would have many of the same observations and the challenges would be the same and as equally apparent. Those challenges being the lack of venture capital (this includes angel funding) and the lack of a startup culture. I have never been to Ann Arbor but I suspect that Atlanta's startup culture is a bit stronger than that of Ann Arbor. Regardless Steve states that an influx of venture capital will solve the startup culture problem. Perhaps he is right. But the interesting thing (Steve says so himself) is this.
The interesting thing is that no one seems to own the problem. The University of Michigan tech transfer office has an incubator but 1) mixes software, hardware, med devices and life sciences deals in the same program, and 2) takes no ownership of figuring out how to get a risk capital ecosystem in place. Surprisingly, the same with the entrepreneuship center in the Business School. I would have thought they’d be leading the charge.
Cut University of Michigan and paste Georgia Tech and the paragraph holds true. The closest I have seen to anyone taking ownership is Venture Atlanta, with a hat tip to Morris Manning & Martin and DLA Piper for making an effort to get outside venture capital to invest in Atlanta startups.
But the really truly most interesting thing is that I believe the paragraph above is a prescription on what Georgia Tech and ATDC need to do to drive technology enterpreneurship in Atlanta and Georgia. Stop mixing software, hardware, medical devices, life sciences, and cleantech in the same program. Start taking ownership of figuring out how to get a strong risk capital ecosystem in place. Expand beyond helping entrepreneurs launch and build successful companies. Be on a mission to create a strong innovation cluster.
We are so close. It is so obvious. It would be a shame if we did not make it happen.
So I was having a chat with a VC the other day and he said something quite simple and obvious. To parapharse:
"Sales is everything in the early stage. I really wish that we saw more aggressive CEOs that had what it takes to close deals."
Yep.
All too often entrepreneurs take a build it and they will come mentality. Much more often than not it does not work that way. It is a big reason that founding CEOs get replaced. It is a big reason that the Series B or C is not an up round.
In the early stage sales is everything. Have someone on your team that can close deals.
Silicon Valley Bank is my bank of choice when it comes to startup banking. The SVB Accelerator program is pretty sweet choice for startups. No need to go to branches and wait forever to deal with some issue. Great online customer service. No monthly fees. And most importantly great value add in terms of advice, education, and connections.
Recently SVB Analytics held an online seminar "Into the Cloud - Trends in Software Investments and Exits." Interesting topic these days and the presentation was chock full of good information. If you want you can download the presention or listen to the seminar playback via the link above.
They spent a lot of time talking about how the current time is much different than 1999. Concentration of high valuations in a few large companies as opposed to more widespread increase in valuations. The New York Timed DealBook had a nice write up on the same subject, "Investing Like It's 1999." A worthy read.
As often happens with webinars I was duel tasking and my attention started to drift until someone put up and started talking about this slide.
I get all the stats. I get all the analysis. But that complete flip flop in operating philosophies from a focus on revenue and profit margins to a focus on user engagement and growth sure make all those backward looking stats a bit less meaningful. And it sure seems familar to me. 1999.
Force of Good is licensed under a Creative Commons License. You are free to share, remix, and share alike with attribution.
DISCLAIMER
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 or entity. All postings adhere to my personal values.
