RMIUG Meeting Minutes - Sizzling Net Startups
Dan Murray called the meeting to order
at 7:00 sharp and introduced the other members
of the RMIUG Executive Committee in attendance:
Alek Komarnitsky, who was the minuteman
(and also turned 35 that night! ;-). Spike
Ilacqua from Indra's Net was our "Comm member
for the night" as we were short-handed;
thanx for helping us out. About 60 people
were in attendance. Note: This was a joint
RMIUG/CIK (Colorado Internet Keiretsu) meeting
- pls see details about the CIK below.
Some misc. announcements:
- Dan mentioned that we have about 1,800
folks on rmiug-announce, 1200 on rmiug-jobs,
and 900 on rmiug-discuss Email lists.
He also mentioned the RMIUG is planning
another BBQ ... similar to what we did
3 years ago (see http://www.rmiug.org/special.html)
and this is planned for Saturday, August
22nd at Alek's place in Lafayette (near
95th and Arapahoe). More details will
be sent out to rmiug-announce in a few
- Dan thanked the RMIUG sponsors - XOR
for web and email hosting and NDA for
refreshments. Also, Dan showed a Rocky
Mountain News story on a local Internet
company Email Publishing that is being
acquired by First Virtual; see details
about this at: http://InsideDenver.com/yourmoney/0714sale1.shtml
Also, one of our panelists, Vstream, has
since been written up in the Denver Post;
- An audience member asked if anyone
was actually using ADSL, and no one was.
Spike from Indra's Net says he knows of
4 people who got ADSL, but US West ran
out of capacity ... and nothing will be
available until September at the earliest.
Dan then polled the audience on several
questions that related to this evening's
topic. 1/3 of the audience has started a
company, only a few have done VC, but a
number have used credit cards for financing.
A couple are at the Boulder Tech Incubator,
1/4 attended Rockies Venture Club Meeting,
no one (yet! ;-) has gone to Blackhawk/CC
for financing! A bunch have had stock options,
but a smaller number have had valuable stock
options. About half of the audience has
heard of the CIK, and several members were
Maxine Most (firstname.lastname@example.org)
talked about the Colorado Internet Keiretsu
(CIK). It was founded in early 1997 by Brad
Feld (email@example.com) to provide networking
opportunities for founders/CEO's of Internet
Companies and to also generate publicity/interest
for Colorado that it is a great place for
Internet companies, talent, employees, and
employers. I.e. everyone has heard of Silicon
Valley, Silicon Alley - Colorado is the
Wired West. The CIK provides a community
where folks can help each other out. No
membership fees (yet), very loose organization,
getting people connected, create synergy,
etc. Web Site is at http://www.wiredwest.org/
Brad's brother, Daniel Feld, defined Keiretsu
as "a loose affiliation of individual/organizations
that band together to leverage their strengths
for the group as a whole."
Dan introduced Deborah Arhelger (firstname.lastname@example.org),
who is the co-founder and CEO of LogTrax,
which is a startup in the Boulder Technology
Incubator. They are developing WebNovation,
which is a suite of visualization and analysis
tools to improve web site usability.
She started by describing how she went
shopping for a laptop using the Web for
research, and spent 20 minutes drilling
down Compaq's web sites trying to determine
which laptop supported NT - basically, their
vertical orientation created a lot of unnecessary
work for her - she had to check each individual
The goal of LogTrax is to be able to tell
companies where their web site is failing,
where it can be improved, and report on
the ROI, Return on Investment, for Web site
initiatives. She started the company with
co-founder Wayne Citrin because they want
to build useable products that are used
to solve real-world problems, they have
a start-up itch, want to create/grow their
own environment, and $$$ is always a motivation!
They have a business plan, are self-funded
(although looking for first round of financing),
product is in development with first customer
ship scheduled this fall, and are located
at the Boulder Technology Incubator. The
is home to a dozen start-ups, provides misc.
resources for startups including mentoring,
support and professional services, and other
She commented that most visitors to large
web sites bail within two clicks - mostly
due to poor site navigation configuration.
Industry estimate is ~$5 per web contact
for customer service, versus $12-$250 over
the phone, so not only is it cheaper to
grab 'em with the Web, but if you don't,
the competition may snarf 'em up.
Current approaches to analyzing web sites
are heuristic evaluation; rules of thumb
- are images too big, lack of ALT tags,
etc. Traditional usability analysis where
you have trained observers and testers but
this is a lot of work and is an artificial
environment. You can also analyze the log
files, but these generate a LOT of data
and patterns are often not that clear.
LogTrax's WebNovation uses site structure
and log files, pinpoints what the problem
visitors are seeing, proposes some remedies,
and reports on ROI. She showed how their
product graphically lays out the site in
a color-coded approach with lines for links.
In response to an audience question, there
are some challenges with large web sites
in terms of snarfing in all the data and
also a visualization issue. They gather
data using a "spider" approach, which means
they can look at your site remotely (rather
than having to run internally on your Web
Server). She showed various tricks of looking
at things differently and trying to assess
where problem areas might be.
Examples of types of problems are: Pogo-sticking,
Lost in the maze, Hide-and-seek, Spinning,
Giving up, and/or Desperation searching
where you just try using the internal search
engine after getting lost trying to find
stuff via navigation.
The product can suggest shortcut links
to hard-to-find pages, inter-connections
that visitors have found, propose cross-links
to eliminate vertical hierarchy, provide
expert advice on how to fix the problem,
and look at where abandonment occurred.
One really cool thing is that every visitor
becomes a tester! And usability evaluation
is ongoing, so you can quantify improvements
in ROI and continually improve the web experience
for site visitors.
First Customer Ship is planned this fall;
they are actively seeking customers, and
looking for investors and staff. Current
plans are to be a product company, but open
for partnerships where other folks can provide
the services side of it for you. Runs under
NT, is shrink-wrapped, they do much more
than simply checking links/HTML/hit counts,
and their target audience is the web designer
to help them figure out how to better do
their web site.
The next speaker was Srikant Srinivasan
(email@example.com) who is the
founder and CEO of Brainplay.com in Denver
(formally thunderbeam.com). It is an e-commerce
company providing families the most reliable
and convenient way to gather information
on and purchase a range of child development
products. It recently received a few million
dollars in its first round of VC financing.
Srikant likes the word "E-Tailing" (Electronic
retailing) and says it is one of the fastest
growing industries in the world. It is expected
to grow 300% in the next 2 years, 57% grown
in 1997 (Media Metrix survey), and 59% of
Fortune 500 CEOs say E-commerce will dramatically
change things (Waterhouse survey).
This is all due to increasing number of
folks on the Internet - according to 1998
Jupiter Communications Report in the US,
there will be 57M households by 2002, on-line
shoppers go from 16M to 61M by 2002, and
online users go from 63M in 1998 to 116M
Advantages to shopping/retailing over
the Internet are better assortment/selection,
more information, better targeting, and
1:1 connection/interaction/marketing. There
are category killers now - examples are
Amazon and CDnow. Some emerging formats
Auctions: eBay, ONSALE
Consumer Driver Pricing: Priceline
Membership Model: NetMarket, Brainplay.com
Customer Demographics Centric: BabyCenter.com,
Brainplay's approach to exploit all of
this is to grab market share as fast as
possible! I.e. go full on for the "top-line"
(revenues/sales) and don't worry much about
profits - grabbing the largest possible
audience is the key. They plan to do this
via Portal Site placements, cooperative
ventures, off-line brand building, etc.
Note that the Internet allows 'em to do
this (ex: programs with schools/parents)
which would not have been possible 5 years
Brainplay has grown from 3 to 20 people
and closed several million dollars in venture
financing last fall. They changed name from
Thunderbeam to Brainplay because the former
name didn't really mean anything and is
not memorable, whereas the later name does
convey what they do/want to do and sticks!
While it was hard/expensive to transfer
the brand name equity/knowledge of Thunderbeam
to Brainplay, waiting longer would have
only made the job harder.
Srikant commented that historically, the
book market that has grown 2%, so he is
not sure that this market will undergo explosive
growth, and what we are seeing with Amazon
is not necessarily growth in the overall
market, but a new channel. Interesting data
point was that largest $$$ volume of sales
on AOL.com last year was clothes and he
suggested that people aren't all of a sudden
buying more clothes, but instead the Internet
is becoming another channel.
Jim LeJeal (firstname.lastname@example.org) from
VStream was our final speaker. He is their
co-founder and Chief Financial Officer.
VStream takes videos and incorporates it
into a data format accessible via the Web.
They layer proprietary management software
on top of it called the DEMAND architecture,
which (among other things) tracks usage.
I.e. did you watch the sexual harassment
seminar? Big Brother and/or Nielson Ratings;
depending on your point of view!
In terms of financing/history, they started
with Founders Capital of $500K in April/97,
did their first VC financing of $1M in Sep/97,
and just completed a second round of $10M
They draw their Competitive Landscape
as a box with one dimension as uncontrolled
vs. controlled and the other one being business
communication vs. entertainment. VStream
is in the controlled (pay-per view) and
business communcations quadrant. In contrast,
providers of "adult" Internet fare are in
the entertainment/controlled area.
He showed predictions that Internet Technology
Services market goes to $116B in 2002. VStream
feels they can get part of this in Corporate
Training, Video/Audio teleconferencing,
Distance Learning, and Computer Based Training.
They do aggressive cataloguing of the
videos, so it's easy to cross-reference
and build a "virtual" library where you
can request all info on a particular topic.
You can also look at usage statistics; this
is quite useful in determining what people
are actually watching (and what they aren't!
;-), so you can then adjust things accordingly.
VStream feels they are primarily a Services
(rather than a Product) company, since they
like to provide a turnkey operation to their
customers. He feels that companies will
continue to outsource, since this stuff
is not that trivial to do. The DEMAND architectures
also supports different underlying technologies,
so they should be able to support new stuff
that comes along.
Jim had a few slides that talked about
founding/running a startup. Some misc. keys
to getting financing from VC folks: Proven
Management Team, Selling transaction, large
market, competitive advantage, and early
market entry. These are the issues you need
to address when talking with the financial
Some thoughts on investors: pre-qualify
for fund-fit - want to be sized for what
you are looking for. Diligence is a two-way
street - call other portfolio companies
to see what they think of the VC. Opinions
are better than nothing (i.e. you want an
investor that gets involved, not one that
Good/fun things about startups: an awesome
instructor, an "E" ticket ride, a reason
to put out. Some things that are tough/not-so-fun
about startups are: it's a "tough road"
to hoe, has a tempering effect, and forces
you to take a hard look at yourself in the
Editorial comment from Alek:
Somewhat interesting that the expression
"E-ticket ride" is in the vernacular, yet
Disney has probably not offered this for
Some thoughts on Mechanics: learn to build
a capitalization table, understand the vernacular,
and spend time on the "plan" (operating
Some thoughts on the Beginning: Get a
partner, have a good backup team and hiring
strategy, get the best professionals available
in legal, accounting, and banking when you
start, and decide what your end-game will
We brought all three speakers up for some
questions & answers ... in the text below,
Q is the question, and responses are B-Brainplay,
Q: What is your exit strategy:
L: Probably eventually be acquired by a
V: Planned on getting VC from the start
- and generate return via acquisition or
IPO (more probable)
B: Same as VStream
B asked if they have been accused of exploiting
kids/parents for their own benefit. Srikant
said that has not occurred (at least not
yet) because this offers a win-win for all
parties. For instance, schools benefit because
a portion of parents' purchases is shared
with the schools, who receive credit toward
purchases from Brainplay.com
V asked if at the end of their video's
if they have a Q&A to the reader where they
have to pass the quiz and report the results.
V said YES, and this type of feedback loop
is an important part of the services they
offer. V also asked if they have any way
of assessing if a particular speaker is
truly doing well. They can determine which
sections of the video are more frequently
actually watched and/or skipped over, so
that can help in making that assessment
and then providing feedback.
Q: How many employees/contractors and
employee ownership beliefs.
B: about 20 and 20, every person has stock
in the company.
V: 25 full-time people, employee stock option
plan should always have 10-20% of outstanding
stock available (see next question for more
L: 4 people currently, plan to provide stock
ownership, just about to work on it.
Note: all answered they use a "typical"
4-year vesting period at 25% a year.
Q: How much control did you have to give
up to the VC's?
V: Gave up about 20% in the first institutional
round, and currently, the founders have
less than 35%, with the Employee Stock Ownership
Plan at 15%
Q: How difficult to hire people?
Everyone agreed that it has been tough to
hire, but advised you to be patient.
Q: Colorado salaries tend to be lower
than California ... does this make it harder
to hire those really good people?
B: Don't think that is a big issue ... key
is getting critical mass and word out that
you are a good place to work.
V: Philosophy is to hire the best folks
and pay them at the medium-high end. Told
story how they are interviewing someone
from Texas and they said the local offer
was laughable compared to Texas, but Jim
says he feels they are competitive and they
check with their Board members to ensure
they are being "fair"
Q: Is majority of recruiting locally in
Colorado or out of state?
B: Looking everywhere.
L: Just starting, but willing to look anywhere.
Q: Is money the main/only issue for prospective
B: Money has to add up ... but if that is
all they want, then it may not work. They
need to feel passionate about what we're
doing and fit well within the company culture.
V: Try very hard to create progressive/good
culture that ensures people are excited
about driving to work. They also work hard
to convince the spouse it is a good idea
to work there.
L: Not all about cash, want to insure corporate
culture is where they want to work.
The Meeting ended just after 9:00. A reminder
about upcoming RMIUG events:
Aug 22nd: RMIUG BBQ - details
to follow on the rmiug-announce Email list
and also on our Web Page at http://www.rmiug.org/
Sep 8th: (pending) IP telephony RMIUG
meeting - voice over the Internet.
Nov 10th: Secrets of the Pros on maintaining
HUGE Web Sites. A behind-the-scenes peek
at large, well-known web sites by the
webmasters who maintain 'em - see how
Sun Microsystems, The University of Colorado,
and the Sporting News do it!
(To suggest a topic, pls send your idea