On Tuesday November 11 at 8:00 am ATDC is hosting the third rev of "Meet the VC." This time around the highly popular program will feature Lon Chow of Apex Venture Partners out of Chicago. Some of Lon's investments include Bellamax, KnowledgeStorm, LifeSnapz, Placeware. Shoebuy, and Tradex. With that mix and recent economic developments it promises to be an interesting session.
We are expecting another sellout crowd. So after you down your free coffee and doughnuts for voting today wander on over and register for this free event. And if you have any questions that you would like Lon to answer let me know in the comments.
Networking starts at 7:30 am.
The downturn sure is making for interesting times. Here at FoG it started with the gloom of the Sequoia meeting notes and presentation of doom. Followed by the more upbeat link to Paul Graham's essay on "Why to Start a Startup in a Bad Economy."
Interesting times. And I have a pretty interesting job. A job that allows me to interact with lots of investor types. Individual angels, angel groups, angel funds, venture capitalists, venture bankers. And they don't mind telling me whats on their mind because at the moment I am somewhat like Switzerland (Entrepreneurs do the same thing BTW). Last week at Venture Atlanta and Meet the VC I had a chance to talk with a lot of investors over a brief period of time. And while I hesitate to quote anyone directly I can summarize what I learned over the past week.
Angels A Mixed Bunch
Some are frozen into inaction. Some, but not many, continue business as usual. The latter are being more selective. Asset allocations are being closely watched. Which is closely tied to the broader stock market. Many angles have to allocate more money for follow on. Overall not good for early stage.
VCs Intend To Keep Investing
This message is loud and clear. VCs have lots of money. Sitting in cash. They intend to invest it. They also will be more selective. Either gravitating towards later stage deals to shorten their exit horizon or doing less deals as the need to keep funds available for follow on increases. Also not good for early stage.
Business models will drive interest. Advertising is out. Platforms, analytics, and cost savings are in.
With that said some deals that would have been consummated fours weeks ago are not getting done today. I personally know of several. VCs are pulling back to conserve their funds for what they believe to be higher probability deals that can make it through the startup winter.
VC Advice
VCs are looking to help extend the cash runways of their deals by cutting costs. They want their companies to get more conservative. They are advising their companies to draw down their credit lines.
Startup Reaction
Startups are heeding this advice. TechCrunch offered up a layoff tracker. To date it is showing 3,689 laid off employees at 22 companies. Back out the more established eBay and Yahoo and you get 689 employees at 20 companies. Startup CEOs are acting, and acting fast.
Surveys
In an interesting side note DLA Piper released its "Technology Leaders Forecast Survey" this week. Conducted in late September and early October, the survey shows 47% of VCs believing that the financial crisis will adversely impact the tech industry while 33% of technology company executives (not just early stage) believe this is the case. Based what I have seen and heard in the past four weeks both parties are acting a bit counter to how they responded a month ago.
Some Key Quotes
"I'm getting a deal done."
"You will see a flight to quality."
"It's grim."
"I am looking for a real entrepreneurial spirit. Someone who can efficiently get to revenues and profits."
Wrap Up
Like the broader economic climate, times are not good in the technology startup world. But deals are going to get done. Good deals. With smart entrepreneurs. Helping each other to achieve a dream.
It will take longer. It will make a hard task even harder. But deals will get done. If you are an entrepreneur you need to adjust to the new realities of our times and go find yours.
About 500 entrepreneurs, executives, and venture capitalists gathered last week for the first Venture Atlanta conference. This event came about when the Atlanta Metro Chamber of Commerce, the Atlanta CEO Council, and the Technology Association of
Georgia collaborated to develop something bigger and better than the ION Venture Forum. And bigger and better it was.
I don't go to many venture conferences. After all they are targeted toward venture capitalists. So it is difficult for me to compare Venture Atlanta to other such events. I do know that compared to when I presented at ION back in 2003, this event was huge. Over 100 VCs attended Venture Atlanta. Thirty four companies presented (Including 14 at the ATDC/VentureLab "Let's Make a Deal" early stage company showcase). More important than the quantity was the quality of the companies. Many that presented were strong and established companies poised for growth. Many of them will close rounds within the next nine months.
A few examples. Multicast with revenues of $16 milllion. GMT with revenues of $11 million. O4 with revenues of $9.9 million. Vocalocity with revenues of $7 million. TerraGo with revenues of $4.5 million. ControlScan that requested their revenues not be disclosed in this forum. WorthPoint with revenues of $1.3 million. Earlier stage companies Moneta, Purewire, SnapFinger, and SoloHealth. All actively seeking expansion capital.
One investor summed up the event as "spectacular". And outside of the snarkiness that took place on twitter about the presentation decks and some folks wishing Bernie Marcus did not introduce some politics to the event, every single VC that I spoke to said the event was outstanding.
And it was.
Amidst all the economic gloom and doom four accomplished Atlanta entrepreneurs are showing optimism for technology startups in the South by starting a new venture fund. David Gould, Said Mohammadioun, and Glenn McGonnigle and Tom Noonan will formally announce the formation of TechOperators at Venture Atlanta later this week.
The general partners in TechOperators have extensive experience in managing technology companies with over 46 years of experience as CEOs of priviate and public technology companies. And while this is their first formal foray into the world of venture capital, the individuals involved have invested in more than 45 startups over the years.
TechOperators will be focusing on SaaS companies that have reached $1 million in revenue. These types of startups, with a steady recurring revenue stream, are those best positioned to withstand a economic downturn. TechOperators will typically be the first institutional investor in a company and become active
board members that will roll up their sleeves to help entrepreneurs achieve their objectives.
TechOperators intends to raise $30 million and invest in up to ten deals. TechOperators is placing their interest squarely in what startups typically see as a funding gap of a $2 - 3 million raise. A good hole to fill.
TechOperators has had its first close and has plenty of money to put to work. And that is welcome good news for startups that fit thier profile.
From The Funded. Not sure of the source.
Update: Seems like the source was fairly accurate. TechCrunch and VentureBeat now have the actual presentation online. It is also on SlideShare. I have embeded the presentation at the end of the notes.
Today, Sequoia Capital hosted a mandatory CEO All-Hands Meeting on Sand Hill Road. There were about 100 CEO’s in attendance and let me tell you, the mood was somber. I’m not one to perpetuate doom and gloom or bad news, but let me underscore this for you: We are in a serious economic downturn and this is just the beginning. Immediate, decisive and swift action is required, along with frugal, day-to-day management of expenses and our business is required.
***Here are my notes from the meeting. Keep this note in your in-box and read it every day. I’m serious folks, this is for our survival.***
Speakers:
· Mike Moritz, General Partner, Sequoia Capital (he moderated the speakers).
· Eric Upin, Partner, Sequoia Capital (Eric ran the $26-Billion Stanford Endowment Fund and knows a few things about Economics and investing.)
· Michael Partner, Sequoia Capital (Michael was recruited to start Sequoia’s very first hedge fund, coming from Maverick Capital and Robertson Stephens. I know him from my BEA days.)
· Doug Leone, , General Partner, Sequoia Capital
Slide projected on the huge conference room screen as people assembled inside the conference center to take their seats: a gravestone with the inscription: RIP, Good Times.
Mike Moritz:
· The only time Sequoia’s assembled all CEO’s like this was during the dot.com crash.
· We are in drastic times. Drastic times mean drastic measures must be taken to survive. Forget about getting ahead, we’re talking survive. Get this point into your heads.
· For those of you that are not cash-flow positive, get there now. Raising capital is nearly impossible if you’re too far off of cash flow positive.
· There will be consequences for those who hesitate. Act now.
Eric Upin:
· It’s always darkest before it’s pitch black.
· Survival of this storm means drastic measures must be taken now, so you will have the opportunity to capitalize on this down turn in the future.
· We are in the beginning of a long cycle, what we call a “Secular Bear Market.” This could be a 15 year problem. [many slides on historical charts of previous recessions, averaging 17 year cycles.]
· The credit market [versus the Equity markets] are the issue and will take time to recover.
· Inflection point: Make changes, slash expenses, cut deep and keep marching. You can’t be a general if you turn back.
· This is a global issue and not a ‘normal’ time.
· There is significant risk to growth and your personal wealth.
· Advice:
- Manage what you can control. You can’t control the economy, but you can control everything else.
- Cut spending. Cut fat. Preserve Capital.
- Don’t trust your models and spreadsheets. All assumptions prior to today are wrong.
- Focus on quality.
- Reduce risk.
Michael Beckwith:
· Note: Michael had a lot of slides that were charts, data points and comparisons.
· A “V” shaped recovery is unlikely
· Cuts in spending will accelerate in Q4/Q1. Look at eBay—this is just the beginning.
Doug Leone:
· This is a different animal and will take years to recover.
· Getting another round if you’re not profitable will be rough.
· Do everything possible to get to cash flow positive. Now.
· Nail your Sales and Marketing message.
· Pound your competitors shortcomings. They’re hurting and they will be quiet. Take the offensive.
· In a downturn, aggressive PR and Communications strategy is key.
· M&A will decrease dramatically and only lean companies, with proven sales models will be acquired.
· Spectrum discussion:
- Capital Preservation ß----------------------------------à Grab Market
- Everyone should be far to the left (capital preservation)
Requirements of our companies.
- You must cut expenses. Now and deep.
- Your product should reduce expenses and drive revenue
- Honestly assess your solution vs. your competitors.
- Cash is king [have you gotten this message yet?]
- You must get to profitability as soon as possible to weather this storm and be self-sustaining.
Operations review:
- Engineering: Since you already have a product, strongly consider reducing the number of engineers that you have.
- Product: What features are absolutely essential? Choose carefully and focus.
- Marketing: Measure everything and cut what is not working. You don’t need large Product Marketing, Product Management teams.
- Sales & Business Development: What is your return on this investment? The Valley has gotten fat with Sales people: Big bases, big variables. Cut base salaries on sales people, highly leverage them with upside (increase variable) and make people pay for themselves via increased sales productivity. Don’t add sales people until you’ve achieved your goals with sales productivity. Be disciplined.
- Pipeline: Scrub the shit out of it and be honest with yourself.
- Finance: Defer payments, what is essential? Kill cash burn.
Death Spiral (Nobody moves fast enough in times like these, so get going and research later.)
- The death spiral sucks you in, you’re in it before you know it and then you die.
- Survival of the quickest.
- Cutting deeper is the formula for survival.
- You should have at least one year’s worth of cash on hand.
Tactics:
- Assess your situation. Drop your assumptions, start with a blank page and start zero-based budgeting.
- Adapt quickly
- Make your cuts
- Review all salaries
- Change sales comp
- Bolster your balance sheet—if you can add $5M to your coffers, take it and save it.
- Spend like it’s your last dollar.
Get Real or Go Home.
Next week is going to be a big one in the Atlanta startup technology world. And I mean big. From Wednesday morning to Saturday afternoon it is one glorious gathering after another.
GTISC Security Summit
Wednesday morning kicks things off with the GTISC Security Summit. This year the focus is on emerging cyber security threats. Lt. General Robert J. Elder, Jr., who you most likely have never heard of, is giving a keynote entitled "Global Opeations and Mission Assurance in a Contested Cyber Envrionment". Tom Noonan, whom you most likely have heard of, is then moderating a panel on the subject.
Venture Atlanta
The biggest venture capital event in Atlanta history is taking place on Wednesday and Thursday at the Omni Hotel. The Omni is sold out and Venture Atlanta is almost as well. Over 100 VCs packing the halls talking deals. On Wednesday afternoon ATDC and VentureLab are putting on "Let's Make a Deal". I am partially playing the role of Monty Hall.
Executing Social Media
I am not going to be able to make it to the Executing Social Media conference but if Grayson Daughters says it is going to be good I believe her. For social media types with big expense accounts. The $1295 registration fee makes the cost of entry to Venture Atlanta seem like a bargain.
Meet The VC
I will be sitting down next Friday morning bright and early with Vimal Patel of Sierra Ventures out of Menlo Park for the second interation of ATDC's Meet the VC. Despite the early time slot the first session with Alan Tatele was full of energy. I expect more of the same and a sell out crowd. It is free but you have to register. And if you have any questions that you would like me to ask Vimal you can do so in the comments.
BarCamp Atlanta 2
This unconference is filling up fast with 169 folks registered to attend. The kick off on Friday night will be huge. Like Meet the VC, BarCamp is free and you can register here until it fills up. But it requires active participation. You have to come prepared to give a presentation or demo. I am pretty sure the title of my presentation is going to be "That's What You Twittered", a crowd sourced presentation. If you want to play along with that, follow me on Twitter.
It's gonna be a fun week.
Back in July Jason Calacanis said he was retiring from blogging and starting a private mailing list. Well the retirement turns out to be a bit Bret Favre style. Over the weekend he sent out an email entitled "(The) Startup Depression" which drew a great deal of attention and led to him posting the content on his blog.
It's both a rambling and greathearted article. A worthy read. And one that I can best supplement by book ending the beginning and end.
Jason started out by stating:
"It’s my believe that the economic downturn will be much worse than it
is today, and that 50-80% of the venture-backed startups currently
operating will shut down or go on life-support (i.e. 3-4 folks working
on them) within the next 18 months.
Make a list of every Web 2.0 startup to raise an A or B round and
cross 80% of them off the list, because they will not make it to their
next round of funding or profitability."
HE ended with a must read top ten list of specific things that an entrepreneur should do in trying times closing with:
"Raise money: I know I said above most folks won’t be able to raise
money in the down market, but that’s not because the money isn’t out
there–clearly it is. The issue is that the big money out there
doesn’t want to fund small ideas that are in the death spiral. Build a
plan based on revenue and taking market share and folks will consider
funding you."
I completely disagree with Jason's first assertion and agree totally with the last.
My take on the startup funding marketplace is that you are going to see the same things in this asset class that you see in all asset classes during cyclical downturns. A flight to quality.
If you are an entrepreneur running a venture backed startup you are going to have to prepare your team to weather the storm. Cut costs. Find customers. Tightly execute. Do this and do it well and your VCs will have funds in reserve to see you through the rough seas. VCs are going to batten down the hatches and start playing things more conservatively when it comes to new deals so that they have the dry powder they need to keep their current good deals going (assuming that their limited partners are willing to make their
capital calls and that may or may not be a safe assumption at this
point).
If you have yet to make it to the venture stage of life things might be a bit tougher. Individual angels are hurting.
To explain via an example let's say that angel Jill Rich had investable assets of $10 million entering 2008. Of that Jill had set aside 5% of her portfolio or $500k. Over the past four years she had invested $200k with $200k reserved for follow on and was looking to put another $50k to work this year. But Jill has a problem. That $10 million is now only worth $8 million. So Jill has gone from being under allocated in her angel investing asset class by 20% to being fully allocated in the asset class. She has no room for new investments. Repeat this over and over again with angels and all of a sudden you have them not making any new investments.
Angel funds are a bit of a different situation. They behave like VC funds. The ones that I have talked to are merely looking at a exit time horizon in the 7 - 9 year range versus the 5 - 7 year range they were thinking about in early September. Like VCs they are going to get a little more conservative too. But they will keep investing.
So things are going to get tough. New technology startups will be able to get seed. But only the those with truly superior concepts and management. Big ideas will continue to garner venture funding, there is too much money out there for that not to happen.
The next two years are going to require focus, something that I preach in both good times and bad. They are going to require the courage and honesty that Jason reflected in his post. And the resiliency that he and countless other entrepreneurs have demonstrated over the years.
Perhaps the biggest issue that I have with Jason's musings is this; there's nothing to be depressed about. I can't predict or control what is going to happen in the broader economy. To win in a down market all I can do is get up, go to work, and move things forward in a way that attracts interest. Interest from employees. Interest from customers. Interest from investors. Big interest.
For entrepreneurs there is never time to be depressed. There is always time for realistic optimism, good business thought, and execution. And that is now you win in any market be it up or down.
ATDC is gearing up for its first Meet the VC session this week. Alan Taetle of Noro-Moseley Partners is going to be the featured venture capitalist.
I’ve known Alan for quite some time and have plenty of questions for him, but since this program was launched based on the chatter that was taking place on FoG, I would also like to know
what you would ask him.
Submit your questions in comments, and I will
select some of the best ones to ask Alan. If you happen to like a
question that’s already been mentioned, you can second it or refine it
by commenting as well.
Following up on my Moving Forward post, ATDC today announced the launch of a new program called "Meet the VC". You can read all about it over on PeachSeedz.
Or you can trust me and go sign up for the first session with Alan Taetle of Noro-Moseley Partners right now.
I was talking with an aspiring young tech startup entrepreneur last week about getting his one pager together for distribution when somehow or the other the topic of what to do at entrepreneur/investor semi-social mixer came up.
My advice. Don't pitch, qualify.
Rationale. Raising money is a bit like job hunting. In either instance the most effective way to get somebody to cut you a check is to get to the hidden market. Networking is one of the most effective methods to get to a hidden market. In this instance the hidden market is of angel investors not jobs. Like job hunting, if an entrepreneur is pitching people on giving them money they are going to end up with a bunch of "no's" and dead ends. An entrepreneur's objective at a networking event should be to identify potential investors that may help them get to their fundraising goal and arrange follow up meetings with them.
How do you do such a thing as an entrepreneur? Introduce yourself. Don't pitch. Ask questions. Example:
Budding entrepreneur (BE): Hi, my name is Joe Smoe. What does DoReMi Ventures do? (Never ever ask this question of a venture firm at a formal meeting, it wastes the valuable time that you have in the moment and demosntrates a lack of thoroughness.)
DoReMi: We do seed stage in the online music space.
BE: How did you get involved with that? (Or some other prepared opening line to get them to talk about themselves. Who, what, when, where, why questions all work well.)
DoReMi: {Important background info on the firm/individual, with interesting tidbit or two to help you understand the early stage market.}
BE: Well my firm does (insert one liner here) and; {option 1, if there is a potential fit} I would love to get together with you and get your advice on what we are doing over coffee, or {option 2, and much more likely} would you happen to know anyone who might have an interest in what we are doing?
End of conversation, move on. There is a roomful of people to have this conversation with. Hit them all. Monopolize no one's time. If there are 40 investors in the room and you spend two minutes with each of them doing this process you have made good use of an hour and a half.
Your objective at industry events should be to qualify. Find two or three angels/VCs to have follow on conversations with about your startup. That's it. Nothing more.
Don't pitch, qualify.
You will find yourself getting more out of entrepreneur/investor networking events.
*"Don't Pitch Me, Bro" copyrighted by Venture Capital Wear.
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