Archive for the ‘Company Creation’ Category

Getting our Angel List On

Screen Shot 2013-10-01 at 7.05.31 AMIn the news/hype cycle of venture and start-ups it’s rare when a single news item captures the attention of the entire community, even for a few days, let alone 3 or 4. But AngelList‘s announcement of “Syndicates” has done just that. And it was pretty fun to watch the reactions which ranged from: “this is stupid” to “this will kill venture investing as we know it” to “this will change angel investing forever” to everything in between (see for example, AngelList Syndicates Will Also Pit Angel Against Angel, The Great Venture Capital Rotation, Leading vs. Following, Some Thoughts on the Big AngelList Deal, and Is @AngelList Syndicates Really Such a Big Deal?)

Of course none of these writers know exactly how Syndicates (which in short creates the ability for angels on AngelList to build funding groups around a specific company and take a portion of the upside associated with the success of the company/investment) will really work and neither do I.

But I do know that Syndicates is an interesting idea – and perhaps more importantly, yet another example of how Naval and AngelList continue to innovate around funding models for early stage companies. But I think what everyone is forgetting in this debate is that the radical innovation here isn’t AngelList Syndicates. It’s AngelList itself.  The idea to democratize capital formation is the important idea here and a continuation of a key trend around start-ups and venture capital of the past 20 years. And despite it’s name, AngelList is really about the entrepreneurs who start businesses more than it is about the people who back them (although for those outside of the valley loop, AngelList is also democratizes the funding side of equation – both key parts of the overall Democratization of Entrepreneurship trend that we’re witnessing).

In many ways, Syndicates simply codifies (and specifies a value for) what’s already going on around fundings on AngelList where people get excited about an idea, commit to funding it, and then try to get others to jump in as well. In that sense it’s not really innovative so much as it’s encouraging activity that’s already taking place, making the rules around it more clear, and trying to get as many people as possible to join the effort (which is what Angel List itself is about).

Rather than debate the hypothetical, today Foundry Group decided that it would be more interesting to jump into the middle of the topic we’re all talking about. We’ve been thinking for quite some time about how to better leverage some of the angel activity that’s going on in our community (and through our investment in TechStars and through our own personal investments in companies and venture funds the four of us are already involved with over 1,000 early stage companies).  The creation of Syndicates presents a great way to do this. So today Foundry is announcing the creation of FG Angels, through which we’ll invest in approximately 50 AngelList companies through the FG Angels Syndicate. We’ll put up the first $50k into the syndicate and will cap total participation in each of our syndicate groups at $500k (at least for now). There’s more detail on what we’re up to on our post about it from this morning.

More than anything, Foundry Group believes that we exist to serve entrepreneurs and to make them successful (and that doing so is the best way generate a great return on our investors’ money). AngelList Syndicates supports this idea and the formation of FG Angels is our effort both to be supportive to the AngelList community and to take advantage of a trend that – good or bad for VCs or angel investors – is part of a tidal wave of change sweeping over our industry.

 

October 1st, 2013     Categories: Company Creation, Company Formation    

The ten year entrepreneur

It’s easy to get lost in the celebration of high flying companies that quickly take an idea to market, scale and sell. It’s exciting, financially lucrative and makes for great reading. We’ve been fortunate enough to have a few companies like that in the Foundry portfolio (Zynga, AdMeld and Gist all went from idea to sale/IPO in a relatively short period of time). But the reality is that most companies take years (and years and years) to develop – the average time from company founding to exit event is now approaching 10 years. And in many respects, being a great entrepreneur isn’t about coming up with company ideas and executing against an initial product spec. Its really about the perseverance, dedication and stubbornness that is required to see a company from that point just after the initial exuberance of getting a product into market and having a few people use it, through the realization that building a scalable business is going to be really freaking hard (I called this period the “trough of disillusionment in a post years back), to the point where you (hopefully) have proved the skeptics wrong and despite the obstacles, mistakes and miscalculations find yourself with a real scale business.

Years 3-10 in a business are the real heart of entrepreneurship. Figuring out how to scale an organization, realizing that you need to bring in a set of managers above many of your initial key executives, playing with product market fit that you thought you’d already figured out 10 times, going through a downsizing of the business after you ran a bit too hot, having a co-founder leave, trying um-teen different sales and marketing ideas as you struggle to create a scalable sales model, all the while trying to make sure you don’t run out of money in the process. This is the meat of company building. And it’s hard. And messy. And rarely pretty.

So here’s to those entrepreneurs who are toiling away because they truly believe passionately in what they are doing and are going to make their idea a success whatever it takes. Building a business is crazy hard. You’d have to be half insane to even think about trying. So kudos to those who are out there toiling away at it. You are the real stars of the entrepreneurial world!

May 8th, 2013     Categories: Company Creation, Founders     Tags: , ,

How much should a start-up CEO make?

I was asked this question at a talk I gave to the recently graduated TechStars Boulder class and thought it deserved wider dissemination than to just the group in the room at the time. This is a loaded question and while there are many variations I do actually think there are some general norms that are followed in most cases. So here goes with some guiding principals and then below that some numbers. Keep in mind that I’m talking about Seed and Series A stage businesses.

- Pay yourself as little as you can. Cliché, of course, but true. At the seed stage the modest amount of money you have raised is best spent on product and attracting initial customers than it is on paying yourself. This advice is generally true across the organization. It’s also true that generally founders and early employees own a large portion of the business at this stage and as a result, business progress at this stage disproportionately benefits founders. So the trade-off is most beneficial to the founders and employees – including the CEO.
- Don’t starve. There’s no sense in paying yourself so little that you can’t live or will be overly stressed about paying your bills. Seed stage investors are sympathetic to varying life conditions and you don’t need to tighten the belt so much that it ends up distracting you from your focus on building a great business. Some founders are happy to live in their parent’s basement and take almost no money; others have families or student loans, etc. and can’t work for minimum wage.
- Have an open conversation with your investors about what you need. As is typically the case, you should be as transparent as you can with your investors on this topic and have a open dialogue about compensation.
- Map out a plan. As part of this open conversation be clear about what your expectations are going forward and what milestones might trigger incremental compensation (raising a larger round, getting product into the market, hitting a certain revenue target, etc.).

So what does this all translate to? I think market (and this seems to be true whether you’re in San Francisco, New York, Boulder or somewhere else) is that companies that have raised $1M or less tend to pay their CEO between $75k and $125k (skewed very much to the low end of that scale – companies that have raised less than $500k tend to top out at $75k for CEO comp). Companies that have raised between $1M and about $2.5M tend to pay their CEOs around $125k. Companies who have raised above that amount skew up from there. Not science, but these observations are based on a sample size in the many hundreds.

August 22nd, 2012     Categories: Company Creation, Fundraising, Uncategorized     Tags: , ,

Let’s agree to disagree

Is there much disagreement in your company? I’m not talking about where to head for lunch – I mean real, passionate, fundamental disagreement on product, marketing, operations, etc.

I hope so.

Even more so the earlier you are in your business. Running it is a messy business. There are tons of decisions to be made and each decision is amplified by factors such as your short runway of cash, new competitors entering the market and new team members joining your company. So a healthy amount of disagreement and discourse is not just a good thing, it’s inevitable. In fact I’d venture to say that if there’s not disagreement at your business, you’re not encouraging enough debate and people don’t feel free to speak their minds. Of course after listening to this robust debate you’ll ultimately have to make a decision and move forward (end of debate – don’t let it stretch on after the decision has been made), but I’d encourage you to create an environment at your company where differing opinions are both valued and encouraged. You’re hiring great people after all. Make sure you give them the space to speak their minds.

February 28th, 2012     Categories: Company Creation, General Business, Uncategorized    

Are you the master of your domain?

The title of this post is meant to be taken literally, not metaphorically. Do you control your domain?

Last Friday one of our portfolio companies briefly lost control of its domain. It wasn’t the fist time we’ve seen this happen and, as you can imagine, the result could have been disastrous (in this case we were able to lock down the domain before anything nefarious happened, but people don’t steal control of your domain for anything other than doing bad things, so it was lucky that we were able to avoid a serious issue). Different registrars have different rules for transferring domains around. In this case all it apparently took was someone writing the registrar and claiming the domain was in fact theirs. We believe (but aren’t positive) that the registrar did send an email to the contact listed in our account stating that the domain was to be transferred unless action was taken by us (that the process is that simple is a matter for another post altogether). But this email either didn’t get to us or was not acted upon promptly enough to prevent the transfer. The company then jumped through hoops for several hours to get the domain first locked down (so the party who stole it from us couldn’t redirect it) and ultimately transferred back.

We rarely (really never) talk about domain security when we’re talking about other security measures that companies take to lock down their data, transact securely, etc. But clearly it’s extremely important to make sure that you have (and always maintain) control over your domain. This starts with making sure your domain is a corporate asset – meaning that it’s not in the account of a founder but in an account that is owned and controlled by the company itself. It’s also extremely important to make sure the contact information in this account is up to date. And that you pay attention to any notices that your registrar might send you (in a timely mannor).

So seriously. Make sure you are the master of your domain.

November 7th, 2011     Categories: Company Creation    

Introducing Codespace – shared (free!) office space in Boulder for geeking out

One of the many things that makes Boulder a great city for start-ups is its incredibly collaborative environment (see posts on my love of Boulder here and here). From the willingness of mentors to help out TechStars companies, to collaborative efforts around recruiting great talent to our city, I’m constantly amazed at how many people are working to make Boulder an amazing place for businesses to thrive.

Today there’s another new initiative launching to help young tech companies in our community – Trada is opening CodeSpace, a free co-working space dedicated to startup developers and software engineers. CodeSpace will be located in Trada’s downtown Boulder offices and will have over 2000 sq ft of space dedicated to the effort.

While there are many places where non-technical entrepreneurs can meet up in Boulder to discuss their startups, there are few places where software developers can camp out for the day, week or month and work together on a project. We wanted to add this environment to the mix of coffee shops, traditional co-working spaces, and rented offices in Boulder. And in CodeSpace you don’t even have to buy coffee to camp out there (in fact the coffee is on Trada!).

But you do need to apply. There are spots for three dev teams (1-4 people each) for semi-permanent space as well as come-as-you-are dev and co-working space (with whiteboards, internet, access to caffeinated beverages, etc).

To start, CodeSpace will be open 8am to 5pm Monday through Friday. The program will run through the summer with the expectation that it will extend/expand in the fall as we learn what works best.

To apply for one of the 3 dedicated co-working spaces please visit trada.com/codespace

July 5th, 2011     Categories: Boulder, Company Creation     Tags: ,

Exit Numbers – $100M is rarer than you think

Fred Wilson put up a post today that grabbed a slide from a recent presentation Mark Suster gave at a Founder Showcase event. The chart (and Fred’s post) back up with numbers the qualitative argument I was making in my recent post on Pattern Recognition (I wish I had these data when I wrote my original post!).

In my post I argued that while there is plenty of talk about a handful of high flying companies (Zynga, Twitter, Facebook, etc.) that vast majority of venture back companies can expect significantly more modest outcomes. In fact history suggests that a majority won’t even return invested capital to investors. All this talk about the stratospheric valuations of this small group of companies however has investors fundamentally misjudging the chance that their latest investment will do the same. As the chart from Mark’s presentation clearly shows, not only is it the extreme exception for a company to hit the kind of valuations that are getting all of the press attention but even hitting the $100M mark is rare. On some level I think we all know this, but seeing the numbers in black and white really puts a exclamation point on exactly how rare it is. And as Fred points out (as did I in my prior post), investing in early stage companies at the kind of valuations that are prevailing today is a losing bet…

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June 22nd, 2011     Categories: Company Creation, Fundraising, General Business     Tags: ,

The real bubble

Great business plan tweet

While there’s been plenty of discussion and debate about whether we’re in some kind of valuation/venture bubble right now for early stage tech, there is one bubble that I’m pretty sure of. I’m seeing more great business ideas right now than I can remember seeing at any time in my 10 year venture career.

We typically see around 1,500 business plans a year at Foundry (we actually see more than that, but this is the approximate number that are relevant to our investment focus). On average we’ll take a meeting with somewhere around 10-15% of these and hear a bit more than what was in the introductory email or initial business plan. And we typically invest in 8 (our Foundry blog does a pretty good job of tracing our investment history and pace if you flip through our old posts). These numbers work for us and for our strategy and part of our operating philosopy is not to deviate significantly from our investment pace (depending on the mix of seed investments this number could go up or down in any given year but overall we’re comfortable at roughly the 6-10 new investments per year pace).

But something isn’t right with the early stage world right now. I’ve said a few times in the last 24 months what a great time it is to start a company and clearly more and more people are believing that because we’re seeing a significant uptick in the number of investment opportunities we see here at Foundry (I’m sure we’ll be well above 2,000 for the year). More importantly, we’re seeing many many really good, interesting ideas. I’m blown away by it. And it’s frustrating, because I can only spend time on so many things and we’re still only going to make 6-10 new investments in any given year. But never before have I had to say “no” to so many businesses that 1) I thought were super interesting; 2) were clearly going to get funded by someone; and 3) in another time/market I’d love to spend more time with.

To be clear, I don’t see anything to suggest that traditional venture math won’t continue to hold true (a good performing venture fund will still see about 1/3 of their investments fail, another 1/3 do only “ok” and 1/3 do better than that – with maybe 5-10% becoming real stars). And, of course, I recognize that part of our job on this side of the table (at least in venture funds with our investment strategy and not one of making 20 or 30 investments a year to spread around) is to make the hard choice of which of a number of great companies really has the chance to be outstanding.

But wow – is it a fun time to be in venture! And perhaps even more so, a fun time to be an entrepreneur…

March 4th, 2011     Categories: Company Creation, Venture Capital     Tags: , ,

HR as a core competency

In the world of start-ups, HR is at the bottom of the bottom of the heap of priorities most companies are working on. The vast majority of companies think about HR as a process and compliance function, outsource it to 3rd party providers (payroll, benefits, etc.) and doing their best to forget about it. If there’s any focus on HR as a function it is around recruiting (also typically outsourced and generally treated as very episodic). Sure – there’s plenty of talk about "culture" – of success, of working hard, of some other superlative that’s not particularly interesting or differentiating ("we want to hire great people and expect them to be hard working and successful!" duh) – but little real work done to actually execute against that and almost never someone made responsible for achieving success in people management.

I have to admit that I hadn’t spent much (any?) time thinking about this for most of my career. Companies figured out how to make sure that everyone got paid and for the most part HR was completely forgotten about. But more recently Ive been realizing that HR is an important competency for start-up businesses. The proper sourcing, onboarding, continued training, assessment and in particular the management and retention of employees can set your company apart from your competitors and put you on a course for success vs. failure.

We’ve had a number of companies in our portfolio take the HR function extremely seriously with great results. They key is the elevating HR to an executive function, hiring someone outstanding to take on the roll, and empowering that person to make real changes in your organization. This shouldn’t be a process person. They need to be the go-to person for people facing organizational challenges, having issues working with other managers or problems getting resources for the projects that the company has prioritized. They should report to the CEO (not the CFO) and be included in all senior management meetings, etc. Finding this person isn’t easy, since many HR people have been trained to be nothing more than mere paper shufflers (sorry to the competent HR professionals out there, but you all know what I’m talking about). Empowering this person won’t be easy either – most of us have been trained to marginalize HR and not view HR professionals as peers (this relates to the last problem of finding great HR pros – most of us have never worked with one and don’t know how impactfull they can be).

Most companies pay lip service to how important their people are and how their team sets them apart. It’s worth thinking about how you prioritize this part of your business and who you have managing it.

November 18th, 2010     Categories: Company Creation, Management    

Boulder featured on Fox Business News

For a long time my hometown of Boulder, Colorado has been known as a great place to live but more recently Boulder is taking on a reputation as a great place to start a company as well. And the rest of the country is starting to take notice (see BusinessWeek, HuffPo and the NY Times). Today Fox Business News did a few live segments from Boulder highlighting some of the people and institutions that are helping create great entrepreneurs and great companies here. I was fortunate enough to be interviewed live along with Lijit CEO Todd Vernon (Foundry is an investor in Lijit). I have to say it was a little nerve wracking to be doing a live feed (this occurred to me about 30 seconds before going on air, before which time I was perfectly calm, after which time I thought my heartbeat might be visible through my shirt). In the end it was super fun and great visibility for Boulder.


October 12th, 2010     Categories: Company Creation, General Business