Angel Investing, Entrepreneurship & Learning

While reading through my daily google alerts, I came across an article that grabbed my attention.  The article is about the Northwest-based venture capital firm Monster Venture Partners and Rob Monster’s thoughts on the early-stage venture capital market.  The quote that stood out to me was:

“To keep up the current pace of investment and incubation, and capitalize on current low valuations and low operating costs for funding startups, now is a good time to raise an early stage fund,” says Monster. “In 24 months, many of the companies we back today will be ripe for harvest.”

I agree that now is a great time to raise an early-stage venture capital fund.  However, when I say “early-stage,” I’m not saying investments of $3-$5M, I’m saying investments of $750k-$3M.  Here are a few reasons why:

1. It is widely known that there is a funding gap above the traditional angel investment ($300-$750k) and below the traditional VC investment ($3M+).
2. Most of the current VCs can’t play in that space because their investment fund is just too large.  For example, if they have a $100M fund, it wouldn’t make sense to do 100 investments at $1M each because it would just be too hard for them to manage all of those portfolio companies.
3. Most of the current VCs move up the food chain (into the larger investments) bc their management fee (salary amount) is usually getting a management fee of a certain percentage of the fund size.  So, if their fund size is $100M and their mgt. fee is 2%, then they have $2M for salaries, office space, etc.  But, if their fund size is $200M, then they have $4M for salaries, office space, etc!  Make sense?
4. As Rob has mentioned, with the advancements of technology, it doesn’t require as much capital to start and grow a company as it used it.
5. And finally, there are A LOT of very good opportunities in that investment stage.

I realize that there are a few aspects that detract from investing early-stage — one of them being the fact that the deals are, well, early-stage.  That often means that the deals are higher-risk because the company has yet to attract significant traction and/or revenue.  That being said, I think that the market is under-served and the opportunity is large.

Who’s ready to raise an early-stage fund with me? 

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I’m up in Seattle today getting ready for tomorrow’s Northwest LivePitch event.  Carolynn has been working her tail off up here to host the event and things are coming together quite nicely.  As of earlier today, we had around 100 people that had RSVP’d for the event.  We also have 15 companies that have been selected to pitch with a Rockstar panel of judges that include:

• Nathan Kaiser, nPost.com
• Todd Dean, NorthWest Keiretsu Forum
• Tom Ryan, Atlas Recruiting
• Jim Roberts, UW Technology Transfer
• Rebecca Lovell, Alliance of Angels
• Buzz Bruggeman, ActiveWords
• John Kauffman, Stoel Rives

In addition to the event, we are excited to announce that Chris Pirillo, the well-known technologist, will be broadcasting the event live!  For those that want to check things out, go to http://live.pirillo.com at 2 pm PST (3 pm MST) and check things out!

FYI… spent the evening with Chris & his wife, Ponzi.  They are amazing individuals and have built an incredible business together.  I’ll have to write the details of the trip when I get back.  See you tomorrow!

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Any of you know the Hundred Dollar entrepreneur?  Those of you on twitter know her as @hundreddollar, and others know her by her real name (Carolynn Duncan).  No matter what you know her by, I’ll have to say that she has been a great addition to the FundingUniverse team.

About 6 months ago, we recruited Carolynn to do some of our Venture Consulting (helping entrepreneurs through the fund raising process).  Immediately, she began going above and beyond her role and led efforts to make a complete overhaul of systems, processes, and operations of the Venture Consulting Arm.  Since then, we’ve kept her very busy on several other areas of our company (sales, marketing, geographic expansion, curriculum development, etc.).

Currently, she is leading our geographic expansion and has opened up our Northwest region.  In a short 9 weeks, she’s developed relationships with angel groups, entrepreneurs, universities, networking organizations, business magazines, and VCs in the region.  Let’s just say that the region is on fire right now.

Not only is Carolynn talented, she understands the world of a startup.  She completely understands the fundraising process and has a bootstrapper’s mentality. She’s done a great job adding value to FundingUniverse and the clients that she serves.  We’re stoked to have her on board! 

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I’m here (written yesterday) at the rock-star-packed University Venture Fund conference in Salt Lake City. I didn’t even know about the conference until late last night when a fellow entrepreneur forwarded to me the conference agenda. As soon as I found out about the list of panelists & speakers, I quickly rearranged my schedule to make sure that I could attend. Here is a list of (my favorite) people that are here speaking:

• Brad Feld
• Will Price
• Eliot Jacobsen
• Josh Coates
• Rick Alden

While I missed the first panel on “What VC’s look for and Industry Trends,” I was able to make it to the entrepreneurship panel “Starting Your Company – Going from an Idea to Your Business.”

Here are a few highlights:

• Almost every entrepreneur on the panel saw a simple need in the market and, after noticing the market potential, pressed on the gas to build the company and penetrate the market.
• Common theme:each entrepreneur is “unemployable.” They are truly afraid of getting a “real job.”
• Almost every panelist had started and sold smaller companies before starting the companies that they are currently running.
• Advice from panelists: build a company that you are completely passionate about, because your passion for the space will drive the success of the business.

Highlights from Brad Feld’s Keynote:

• The most important decision he makes as a VC: do I support the CEO or not? If I do, then I do whatever he asks to build the company. If not, I will find another CEO that I completely support and trust.
• The Foundry Group is very open and transparent. They will take emails from anyone… and he will respond to anyone (within reason). I can personally attest that this is true — Brad is one of the most responsive people that I know.
• 2 Rules for investing: 1) invest in his area of strength (software, internet, etc.) and NOT outside of it. 2) Must believe in/trust the founder.

Overall, it was a fantastic conference and was stoked to attend.

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In keeping up with my latest tradition, I’d like to share a few companies that I have met with (through my role at FundingUniverse obviously) recently that, to me, are the latest and greatest Utah up-and-coming companies. In no particular order, we have:

1. Global Tech: GT was the highest rated pitch at our last SpeedPitching event and was immediately asked to present at a couple of Utah’s angel group meetings. It may be a little difficult to explain Global Tech, but I’ll do my best. The technology that they have developed can measure (very, very accurately) the volume of liquid in any container at any time. For example… right now, if you’d like to measure the volume of gas in those huge tanks, someone has to travel to the tank, climb on top of the tank, measure the level of gas, (etc. etc. etc. — you get the idea — it’s a pain in the butt). GT’s technology can measure the change in volume (by the mL) by simply dropping their technology into the tank and monitoring it from the computer on the desk. The founders of GT have been working out of their garage (for the past 3 years) doing their best to build their prototype — and it appears that the R&D is complete and ready to go to market. GT is in a good situation bc gas & oil companies from across the US have been knocking on their door trying to get the product.
2. Jive Communications: Jive is an up-and-coming full-service VoiP provider for businesses here in Utah. It was started by a fellow Junto partner and they have been steadily growing over the past 1.5 years. We have used their service at FundingUniverse and have been very happy from the beginning. The VoiP market is so fragmented that there will certainly be some consolidation/roll-up a few years down the road — and I’d bet that Jive will be an attractive target. If you are looking for a great phone service for an affordable price — you’ll want to check out Jive.
3. ISYS Technologies: This company is the brain child of a brilliant techy named Jason Sullivan. 7 years and 3 patents later, Jason has made a significant advancement with the modern computer. Instead of trying to explain, I’ll recommend watching this video/demo.

A few others that I like too:  Mountain West Energy, Green List, and Innovative Showing Solutions.

Keep your eye out for great things by these companies. If there are any others that we should know about, let me know.

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We had another SpeedPitching luncheon a few weeks ago at the Davis eStation in Kaysville. It was a fantastic event with a huge turnout. As always, we have a few of the deals that stand out as the “HOT deals” — and last week was no exception.

Here are the latest deals that you should be aware of here in Utah:

1. Argon Technology: Argon Technology was probably the hit of the show. Nate Alder and Ben Maughn boasted the development of an innovative insulation material that can be installed in winter wear. From what I understand, the turn of a simple knob (yes… built into your jacket) will release a gas into the lining of your jacket and heat up your jacket! When you are hot, simply turn the knob the other way and the gas will be released into the air. Ski and outer gear companies have taken notice and it should be huge success. They have already garnered a lot of interest.
2. LinkingUniverse:  LinkingUniverse is the brain-child of David Bradford (one of the Co-founders of FundingUniverse).  If you know David at all, you’ll agree that this deal fits him perfectly.  He’s as well connected as anyone I know and using his “relationship skills” to build a useful social network — think LinkedIn + SalesForce.
3. Acceptx: (Disclaimer:  this is my brother’s deal).  Acceptx also garnered quite a bit of interest at the last event.  They have created a technology that is 2-fold:  1)  helps professional services (doctors, dentists, orthodontists, etc.) increase their “closing ratio,” and 2) they are working with very large banks to finance the note and the services.
4. TabSling:  TabSling didn’t pitch at the SpeedPitching event, but has turned a few heads in the state.  Led by Jeff Brimhall, TabSling is a new social media tool that allows its users to share the content of their browser at any time.  This is really a “show and tell” type technology, but (being an early friends & family user)… I’ve been very impressed.

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Over the past couple of weeks, I’ve been thinking a lot about how we (at FundingUniverse) have a unique perspective in the Utah entrepreneurial community because we often get to see the upcoming deals before they are really known to the public.  For instance, Zinch is one those companies that is now getting a lot of attention (both here in Utah and elsewhere) and we started to work with them back in January of this year.

As I have thought about that, I have decided that I’m probably doing a disservice to the upcoming companies and the Utah entrepreneurial community by not blogging about those deals that are exciting.  So, here goes the first post (of many) highlighting some of the exciting companies that we’ve seen at FundingUniverse.  Here are a couple that are on the top of my mind:

1. Zinch:  Led by 4 young entrepreneurs — Mick Hagen, Sid Krommenhoek, Brad Hagen, and Ryan Caldwell — this company is growing quickly by allowing high school students build their own college admissions recruiting profile.  They say it best… “I am more than a test score.”  Zinch pitched at one of our SpeedPitching events and has successfully raised a seed round of capital.
2. InfoSquire:  InfoSquire is a data “mashup” company that provides a fantastic service for any company that wants to gather information (RSS feeds, website info, internal info, spreadsheets, etc.) and serve it to the consumer in a very useful manner.  We started working with Chris Crabtree and Brett Haskins a few months ago and they are well on their way to success.  They pitched at our SpeedPitching event and we’ve introduced them to Highway 12 Ventures, Brad Feld, Utah Angels, Olympus Angels, and Wasatch Ventures.  They have also garnered interest from vSpring & Flywheel Ventures.  Anxious to see what happens over the next few months.
3. GivePlay:  GivePlay also came to one of our SpeedPitching events.  I believe that they are trying to be somewhat “stealth” with their operations… so I won’t go into much detail about what they do.  Let’s just say that they are entering a huge market (independent gamers) and are building an amazing technology.  They have received strong investor interest also and I believe that they are close to a term sheet (if they haven’t got one yet).
4. There is another company that has already received a term sheet lately too, but I know that they want to stay completely stealth.  I’ll keep you posted as they come out of stealth mode.

These 4 companies are those that are on the top of my mind… there are a lot of other exciting companies too, so I’ll try to write about them more regularly.

Small Disclaimer:  I don’t want people to think that we (FundingUniverse or me) are taking credit for the success of these companies… we’re just happy to play a small part in their fundraising efforts and I thought that I would give them some deserved “props”. 

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By recommendation of Brad Feld, I installed the Lijit search tool onto my blog.  I enjoy the tool because it give me an idea of what my readers are interested in learning about.  Over the past few weeks, the #1 phrase that people are looking for has been Term Sheets.

Before I dedicate any time towards the topic, I wanted to know if there was anything in particular that you would like to know?

Here are a few resources to get your started:

• Brad & friends (AskTheVC) post a great series on term sheets here
• There is more here
• We have some great podcasts & webinars on the topic on FundingUniverse.com

(Wow… I just realized that I gave Brad a lot of link love.  What can I say… the guy’s a stud.)

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I’m still waiting for a few responses to my last blog entry, but I’ve had some interesting thoughts about the question (I know… it’s kind of sad that I’m answering my own question :)).  A few months ago, I went to breakfast with Phil Reed (partner at Highway 12 Ventures) and he made a comment that has stuck with me since then.

“I like to think that our success has come because we are an ‘Entrepreneur’s Investor.”

What Phil was explaining was that he and his partners didn’t start out their careers as investors.  In fact, most of them were successful entrepreneurs that decided to turn to the “dark side” to do some investing.  He explained that he believed that to be a real advantage because he knew what the entrepreneur was going through and he had a pretty good grasp of the latest technology.

This type of investor has just recently changed teams.  He/she has just had a nice exit and is looking to put some of that money into the latest upcoming deals.  Here in Utah, there are quite a few of  those investors because of recent exits in the state.

Let me make a quick clarification:  by saying that the recent-entrepreneur-investor is appealing, I am not saying that the never-been-entrepreneur is a bad investor.  It just seems that they look at deals differently –the former will look at deals for their potential, while the latter seems to only look for their faults.

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A friend of mine showed me The Funded website about 6 months ago and I always thought that it was a cool idea.  I liked how it flipped the tables and allowed entrepreneurs the opportunity to rate and speak out (for good or bad) against VC firms across the country.  Since then, I have thought about (here’s a free idea for someone — if you are interested, let’s talk) putting together a similar site dedicated towards rating angels and angel groups, but thought that it could possibly jeopardize my role at FundingUniverse.

To me, anytime you can put more information in the entrepreneur’s hands, the better.  Why?  Well, we all know that there are some angels out there that put together ridiculous deals (usually because the entrepreneur doesn’t know any better).  In the end, the company and the entrepreneur suffer.  The problem is that the word never gets out and so the angel keeps doing bad deals and more entrepreneurs suffer.

Luckily (and I mean this sincerely), the majority of the investors that we work with at FundingUniverse don’t fall into this category.  Most understand how to structure a good deal that will help the company to grow and motivate the entrepreneur (because he/she maintains controlling interest in the company).

Since this train of thought has been on my mind today, I wanted to get your opinion and ask you (all 4 of my regular readers) the question “what makes a good angel investor?”

• Is it the terms that the investor negotiates?
• Is it the strategic experience/expertise that he/she brings to the company?
• Is it his/her connections?
• Is it strictly the cash?

Those are just a handful of questions to get your mind going.  Those of you that have had angels invest in your company — what has been your experience?  I’d love to hear good or bad.

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We’ve been quietly spending the summer working on a private, invite-only social network for angel investors and VCs — think Linkedin with a focus around deals. One of the things that we pride ourselves on (at FundingUniverse) is the quality of our investor network. Every single investor on our site has gone through both an internet and phone interview to prove her legitimacy as an angel. We’ve now taken that one step further by closing off open registration to angels and making it an invite-only private network.

Now, investors that join our network will be able to connect to other like-minded angels from across the country. They’ll be able to see each other’s investment preferences and boast their personal investment portfolio. Collaboration and syndication on deals has never been easier.

One of the hidden gems of the service is the tool we’ve developed for investment groups. Any investor can create his/her own private investment group online — it doesn’t matter if the group consists of 2 friends casually looking at deals or 80 active members of a large angel group — the tools will work for both.Let me give you a quick example: let’s say that 2 friends and I want to do some casual investing on the side. By the click of the mouse, I can create and name my own group, invite my 2 friends, and start adding interesting deals to our group watch list. Now, anytime 1 of the 3 of us logs in, the 3 of us will all see the deals that are on our group watch list. We can make private comments to each other regarding the deals and even send out a quick email to the group inviting each other to come & “vote” on the deals.

The service adds deal flow, organization, and easy communication to any investment group.

After a few demos, we already have small and large groups of angels adopting the tools. As the quality and quantity of our investor network grows, so will the quality and quantity of quality deals (and vice versa).

I don’t know a group of individuals that are more “relationship-based” than angels and VCs. Their world is all about who you know and they place a lot of emphasis on their network. At every event, many angels are coming to me asking… “who’s that gentleman that….” or “tell me about what investor x has done…” With our new service — that will all come very easy.

(If you are an investor and are interested in an invitation, feel free to contact me personally at bblake at fundinguniverse.com.)

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Summers are pretty dang slow in the investment world.  It’s weird that almost everything (including new deal introductions) almost come to a stand still during the summer.  Most angel investment groups don’t meet during the summer and personal meetings are few and far between.  As a result, I was anxious for the fall to come around to see some of the deal flow pick back up.

I think that we are off to a great start for the Fall of 2007 because there are already a handful of exciting companies that we have seen here in Utah.  Tomorrow’s our first SpeedPitching luncheon since June 6th and I’m excited to see how things turn out with the companies that are presenting.  We have a nice mix of companies and industries — including technology, telecom, wholesale retail, energy, and food.

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Some might call it luck, persistence, timing, confidence, talent, etc…. but whatever it is, you’ve got to have it. I’ve seen a lot of deals and a lot of flops. Sometimes you are just down right lucky. Other times, you’ve got the best deal in the world, but still can’t find anyone to invest.

As I’ve gone through these 10 signs, I know that I’ve missed a ton. There are probably 100 signs of a fundable company, but hopefully this provides a good start. Good Luck!

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This post can be summarized by the following questions:

If you don’t believe in your business enough to put your own “skin in the game”, how can you expect investors to put their financial resources into your deal?

Appropriate questions that you might ask yourself:

• Have you put your own money into the deal?
• If not, have you worked for free?
• Have you put a 2nd mortgage on your house?
• What have you given up to make this deal successful?  (another job, nights, weekends, etc.)

Don’t be haste or stupid, but if you want to attract capital from investors, you better believe enough to put skin in the game!

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Yesterday, we hosted another SpeedPitching Luncheon in Utah.  It was an incredibly successful event with nearly 40 early-stage investors in attendance.  I’ll write more about the event in a bit, but for now, I’d like to continue the discussion posed by Devin Thorpe about “Do You Dodge the Valuation Question?”

Devin:  I think that you pose a great question.  There were a few investors that came up to me and requested that we coach them on how to respond to the valuation question.  The reality is that we DO coach them on the valuation question… we just coach them to push off the discussion until the next meeting!

I agree with you that it’s not fair for the entrepreneur to nail down a valuation after a 7 minute discussion.  Too often the investors make large assumptions about the company, the market, and the management team without knowing all of the facts.  I know that the investors can’t stand the fact that the entrepreneurs dodge the question — they want to know the valuation up front.

The reason that they would like to know the question up front is because they want to know if the investment is in their ball park.  If it’s not in their ballpark, they won’t want the follow-up meeting no matter how strong the deal is.

So the REAL question is… is there a way to accurately respond to the valuation question (to please the investor) without pinning yourself on a certain valuation?  Maybe you could give a ball park answer so that they know that your deal is affordable, but then include a caveat that you would like to discuss in detail at a future meeting?

After yesterday’s luncheon, it has become apparent that we should suggest a different approach to our entrepreneurs so that our investors don’t get so frustrated.  I’d love to hear your suggestions.

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As mentioned in Jeff’s blog, we just released a pretty sweet video showing the excitement and value of our SpeedPitching luncheons. A lot of people have requested to attend as a spectator to see how it works, so here’s your chance.

Props to Joe Grover and his company Digital Mind Studios for putting together such a sexy video. Joe has been a great Junto Partner for the past 2 years and (as you can see) does amazing work.

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Next on the list of “10 Signs of a Fundable Company” is 2-part:  1) Identify a target market, and 2) have a strong plan to penetrate that market.

Too often, entrepreneurs make a mistake by saying, “We are entering a $8 Billion market and all we have to do is get 0.1% of the market to make $8 Million in revenue!”  There are 2 problems with this statement:  1)  They are not referring to the Total Addressable Market and 2) they are taking a top-down approach to market penetration (which is very unrealistic).

Total Addressable Market: the precise market and customers that will purchase the product (not the entire market).

Once you have identified a market, the more important piece of the puzzle is to have a plan to penetrate that market.  If you don’t have a solid market penetration strategy, you’ll have a hard time raising capital.

TIP:  instead of selling customers one at a time, think about various channels or partners that already have relationships with many of your customers and sell through them.  Investors love to see such a plan because you can penetrate the market much faster.

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A few weeks ago, I blogged about the launch of TechStars and mentioned that David Cohen and I were trying to figure out a way to work together.  Over a few conversations, we decided to throw together a LivePitch and Networking event for EntrepreneurshipWeek USA in Boulder, Colorado.

In 2 days, we planned the event, got a few sponsors, and we are now expecting to have around 100-200 entrepreneurs in attendance.  Here’s the idea:

• We’re accepting applications from entrepreneurs in the community to be able to pitch at the event.  We’ll probably select around 10 deals to make LivePitches to a panel of investors and the live audience.

• We’ve attracted a panel of angels to attend to judge the event and provide feedback.  The angels that have committed to attend are:

• David Cohen, Tech Stars
• David Brown, Tech Stars
• Jared Wandry, Norseman Capital
• Bob Smart
• Bill Treadwell
• And others…

• To get the audience involved, every member of the audience will receive $100 in “play money” that they can “invest” into their favorite company pitch. (by the way…this idea was the brainchild of Carolynn Duncan and Phil Burns — want to make sure that I give credit where credit is due.)

• At the end of the event, we’ll announce 2 winners — an audience favorite and an angel favorite.  The CTEK Angel Group and Holmes Roberts & Owen have joined the sponsorship club to provide prizes to the 2 winners.

Most of all, we just want to provide a fun event for the entrepreneurial community.  If you’re in CO, come check it out — it’s free.

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If you are a company in Utah, you should take advantage of this…

FundingUniverse has partnered with Grow Utah Ventures and Governor’s Office of Economic Develop to host a state-wide funding competition. An investment of $100,000 will be made in the winner of the competition. I’m seriously stoked about this.

Here are the details:

1. Any Utah-based company can apply. Applications are being accepted until March 6th.
2. 5 semi-finalists will be selected to present LIVE to the audience and a panel of angel investors at the Governor’s first-ever Economic Summit. We’ll be soliciting audience participation through Q&A and an audience vote.
3. The angels will analyze the pitches in front of the audience to provide a learning experience of the angel process.
4. Governor Huntsman will announce the winner during his keynote speech over lunch.
5. After lunch, we’ll announce the audience favorite and compare the differences with the angel’s favorite. We’ll also have a panel of angels that will be available for Q&A.

While we are still in the process of solidifying the panel of angels, here is a preliminary list of those that will participate:

- Tony Howells- Olympus Angels

- Bill Payne- Vegas Valley Angels

- Alan Hall- Olympus Angels/ Grow Utah Ventures

- Paul Campbell- Cache Valley Angels

- Ron White- Olympus Angels

- Damon Kirchmeier- UTFC

- Kent Thomas- Olympus Angels

- John Richards- Utah Angels

If interested, go to www.fundinguniverse.com/goedsummit to apply.

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I’ve had quite a bit of interaction with Jeremy Neilson at the Utah Fund of Funds and I thought that it would be good to give him and the Fund a “Shout-out.”

From what I understand, the UFoF has already made 9+ investments in various venture funds that are connected to Utah.  Here’s a list of the early-stage firms that they have displayed on their website:

• vSpring Capital – an early-stage venture capital fund focusing on information technology and life sciences.
• 5AM Ventures – a seed and early-stage venture capital fund focusing on life sciences.
• Highway 12 Ventures – an early-stage venture capital fund focusing on technology and healthcare companies.
• University Opportunity Fund – an early-stage venture capital fund that co-invests alongside local and national venture capital funds.
• RWI Ventures – an early-stage capital fund focusing on technology and life science companies.

I met Phil Reed, the general partner at Highway 12 Ventures a few weeks back and he is stoked about the Utah investment market.  While their headquarters are in Boise, ID; they are anxious to get tapped into the entrepreneur and investment market here in the state.  In fact, I believe that they have already made 3-5 investments in Utah companies.

What does all of this mean?  More Money in Utah!

Props to Jeremy & the Utah Fund of Funds.  Now if we could only get them to make investments into angel funds…

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