Tuesday, July 29, 2008

3Signals' advice for entrepreneurs: Throw out that five-year plan, build something now, and don't take any money

from here 

A couple of Getting Realish ideas spotted in Best Life magazine:

Greg Gianforte is the author of "Bootstrapping Your Business: Start and Grow a Successful Company With Almost No Money." In Follow Your Dream, he advises throwing out your five-year plan and focusing on building something now instead.

Gianforte describes how to build a company from sales rather than enlisting professional financiers. The secret is to stop sweating your five-year plan and start moving the product from day one. If your business idea requires more money than you have at hand, then shrink the idea.

"An entrepreneur getting started doesn't need a $100 million idea," says Gianforte. "A $1 million idea is enough. The beauty of a $1 million idea is that big companies don't care about it. Find a niche within a niche."

The same issue of the magazine also includes Mark Cuban's Three Rules for Building a Company. He writes, "Do everything you can to avoid taking money."

Sweat equity is the best equity. "Taking money from someone else kills more start-ups than anything else does. Do everything you can to avoid taking money. If you must, your best prospects are potential customers. You have something they want, so if they invest in you, it can be a win-win situation."

Monday, July 28, 2008

Associated Press Invests in Mobile News Startup Verve Wireless

imageA rare strategic investment from Associated Press: it has invested in mobile news services start up Verve Wireless. The first round of $3 million included Associated Press, Iron Capital, and other investors in the Encinitas, CA-based company. Verve is headed by Art Howe, who received a Pulitzer prize while at the Philadelphia Inquirer and was also the former president of Village Voice Media...the firm's president is Tom Kenney, a former VC with BlueRun Ventures (former Nokia venture arm).

Its niche is helping newspapers become mobile, and developing local services around it. AP has been working with Verve: it is the publishing technology behind AP's recently announced Mobile News Network that will be the first product released by AP's Digital Cooperative, an initiative designed to find new digital outlets for the news and information produced by its members. Since May, 728 AP member newspapers have joined the network. Besides the AP, Verve is helping build about 4,000 mobile sites and working with more than 60 media companies, it says, including San Diego Tribune and the San Francisco Bay Guardian. Verve had previously raised $2.5 million in a first round from angel investors, which closed in July of 2007.  Among its main competitor is NYC-based Crisp Wireless which has also been working with publishers, notably magazine and newspapers companies, in helping them develop mobile services.

More details on the company in this NYT story.

Thursday, July 24, 2008

Monday, July 07, 2008

In-Call Ad network of VoodooVox

Term Sheets vs. Intent

I've said this many times before but it's worth repeating: Nothing is worse than having a term sheet pulled during the process. It is awful for you and it is actually awful for the VC who pulls it from many perspectives not the least of which is reputation.

My view has always been that you should get a term sheet as late in the process as you can stomach which should be inversely proportionate to the likelihood of the deal closing.  The farther down the road, the more likely it goes the distance.  These term sheets that get flung out to companies so there can be a lock up while the VC does the sniff test is just not a cool business practice.

From the entrepreneur's perspective, they want to know what the VC is thinking in terms of value, structure, etc, etc.  It's fair and, in my view, reasonable to want this data so you can make a decision on spending time with a particular VC, Angel, etc.

I've found over the last few deals and interactions on potential deals that a letter/document which spells out what is being contemplated goes a long way toward setting expectations and getting people on the same page with respect to process.

If I am working on an opportunity and I believe it has a shot at making it through the due diligence process, I will almost always give the entrepreneur the following information in an email and/or a letter:

  • An intro paragraph that says deals like yours will typically fall into the following zone for a structure. This is not a term sheet rather a document designed to give you an idea of where my head is at with respect to what I'd be willing to do assuming all the stars line up.  Yeah, I say it that clearly with that language; the lawyers have a serious Maalox moment.
  • The share structure (i.e. Preferred, 1x liquidation, etc)
  • The best case pre-money value.  I don't do a range rather I say, assuming this opportunity is a 10 out of 10 (or better), this is the value I will subscribe to it.  I do it this way because I want the entrepreneur to know, up front, her best case.  It seems fair and we all know what we are shooting for.  Naturally, this has high risk of people getting seriously annoyed if the value is lower. It can look like a bait -n- switch but I honestly believe people should know that if this is better than sliced bread, this is where I would end up.  I've had entrepreneurs say thanks but no thanks.  The value, in the best case, isn't what they want, so we part friends right there.
  • The timing with respect to when a term sheet comes in our process.

By structure, mentioned above, I am referring to things like board seat(s), protective provisions, matters requiring special approval, etc.  Any decent VC can spend 90 minutes with an entrepreneur and get a good feel for what they are likely to want from a structure perspective assuming they are interested. We, for example, always have board representation. Always, no exception. So telling you this immediately seems to be a smart thing to do because if you are not giving up any board seats, your call but not with my coin. 

The upside of this process is we both save time, part friends, and don't go down an expensive path (time and/or money) only to find ourselves at an impasse that could have been avoided with a simple 'here's what I'm generally thinking' memo to the company. 

I wish more VCs would do this.

via the Post Money Value

3 VC Questions You Should Not Answer

Here's a dirty little secret: Most 'confidential' or 'close to the vest' information we get comes from people talking and answering questions they probably shouldn't answer.  I'm not sure why this happens over and over but they do.
So, make a little card for yourself and carry this around with you when you are on the money hunt. Since nobody wants to take my advice to simply not answer these questions, I've provided handy answers so you can feel good about sayingsomething.

1. Who else are you speaking to? [Answer: The usual suspects.]

2. What pre-money value did you have in mind? [We are looking for a deal that provides great returns for all of us.]

3. Can we speak to a few of your customers so we can better understand the value proposition? [No. Customer calls are post term sheet due diligence]

Really. Don't answer these and if you must, see above.

via the Post Money Value