RMIUG Meeting Minutes - Internet Startups
- the Next Generation
Dan Murray called the meeting to order
at 7:00. About 110 people were in attendance.
He introduced Alek Komarnitsky from the
RMIUG executive committee who was also the
minuteman for this meeting. BTW, you can
see another set of meeting notes taken by
Suzanne Lainson (firstname.lastname@example.org)
Dan thanked XOR and Microstaff for their
sponsorship (audience especially appreciated
the pizza provided by MicroStaff! ;-) and
then took announcements from the floor:
- Scott Price from CIK thanked RMIUG for
co-hosting the meeting. CIK is the Colorado
Internet Keiretsu (www.cik.org) for founders/management
team members of Internet companies.
- Eric Payne from MicroStaff Corporation
) based in Boulder & Denver says they are
still hiring, although things are tighter.
- Fluent Solutions LLC, a staffing company
that recruits, evaluates, and places Senior
to Executive Level High Tech individuals,
is seeking 4 Sr. Java Developers (J2EE Technologies)
for a 2-4 month contract. Feel free to send
resumes to Jason Grubb at email@example.com
- Forum for Women Entrepreneurs is an
organization for women running high-tech
companies - Surf to http://www.fwe.org
and click on Front Range Forums.
Dan asked the audience some questions
to set the stage for our panelists: About
half of the attendees were from Boulder
and about a third from Denver. About 1/4
work at startup, about 1/4 USED to work
at startup, a handful are thinking about
startups and also looking for funding. About
1/4 looking for job. Couple folks have been
associated with Softbank and/or at Hotbank.
About a third were members of CIK.
Dan then introduced Daniel Feld (firstname.lastname@example.org),
who is the executive director of Softbank's
Hotbank Incubator in Superior (right above
Old Chicago's! ;-) The outline of his talk
was: Who is SVBC, what is Hotbank, types
of companies, Good/Bad News, and What's
SBVC: Silicon Valley based, $2.5B under
management, currently investing from $1.5B
- includes 160 different companies.
Hotbank is "classic" incubator/accelerator
with facilities, infrastructure, and service
provider relationships. It's really a concept/title
idea ... there are other of these in other
Types of companies: Typically early stage
& strategic partners, MUST BE funded by
SVBC ("community), and Internet Technology
Companies (Infrastructure, Messaging/Communication,
Services). Complimentary companies rather
Bad News for Entrepreneurs: Lousy time
to be raising funds, nearly impossible to
get VC's attention, valuations have dropped
tremendously, no idea where the bottom is
and/or when it will be reached.
Mixed news for VC's - they feel pain,
raising money is not easy/fun, changing
business models, growth plans are time-consuming.
Time is the constraining factor - first
responsibility is to existing companies,
then to new investments. New investments
require more work/scrutiny.
Good news: shaky firms are weeded out,
"build to flip entrepreneurs" are fleeing,
while "right entrepreneurs" are sticking
around. Startup valuations are moving in
our favor, returning to sanity.
What's changed: Gone from 6-12 months
to more normal 5-7 years. Shift from momentum
(create buzz) to value based metrics (revenue/profitability).
VC's no longer just hatching ideas and throwing
them into the market - spending time with
startups to do things right. BUT, some startups
In the "old" days, 1 out of 200 start-up
companies might "make it" past the 2-year
point. Things were wacky for a while, but
are now returning back to that normalcy.
Question: What do you mean by angels?
Angle investors are typically high wealth
individuals who are willing to help out
Question: What BtoB's, BtoC's, etc. are
the "right" ones these days? Daniel said
this is still shaking out, so hard to say.
Stuff that was "fluff" to the consumer is
shaking out - have to provide real value
and solve real problems.
Question: How long does SBVC stay with
companies it invests in? Typically through
the life of the company and as required.
I.e. SBVC can continue to fund through later
Question: How much is invested in Colorado?
Of $1.5B, about half is invested, of which
$130M has been invested in Colorado by SBVC.
We currently have 15 active portfolio companies
in Colorado which account for part of this
total investment to date. Amount of investments
range from $1-5M to higher for later round
Dan then introduced Eric Kirby (email@example.com),
CEO of Veripost. Eric co-founded the E-mail
change of address company in May 2000 after
being heavily involved in a previous startup
(Worldprints.com) during the "heyday" of
Chautauqua Publishing - started in January,
1998 - sell posters and funded via angels.
Worldprints.com launched in late/1998 to
becoming leading print and poster e-tailor
... funded by VC's. Image Catcher launched
in Sep, 1999 to become leading Internet
marketing company for image content - example
application was really cool screen savers
and got additional VC funding. Eric was
not actually a founder, but brought on around
then as part of the senior management team.
Got 2 million registrations in 6 months
and got 1 million page views/day. Consistently
one of Internet's "top 300 sites" Bought
in April/2000 for $75M in stock and assumption
Veripost founded in May/2000 by three
former Worldprints employees. Develop tools/services
to make Email communications more effective
for businesses and consumers. First service
was Email change of address services. 30%
of Email address change annually - problem
for both businesses and consumers.
Financed in August/2000 by Softbank and
leading angel investors, launched service
in Feb/2001, and currently scaling the solution.
Eric than compared what it was like THEN
THEN - Go Big!!. Early mover is everything,
spend whatever it takes. WorldPrints had
million dollar marketing deals, rapid growth
to 60 employees, large office space/leave.
NOW - Make the Money Last. Grow cautiously
and in line with demand. Make every dollar
count, target marketing dollars, controlled
employee growth to <20 employees, flexible
office space at Hotbank.
THEN - Eyeballs have value - just build
traffic, then figure out how to make money.
Valuations based on visitors/users rather
NOW - Solving Problems/Pains that have
value. Focus on stuff where there is a demonstrated
demand for solutions. For Veripost, focus
on the pain which is Email change of addresses
and provide solution.
THEN - Speed is all-important, Internet
companies are fast, "old economy" companies
are slow. 20 other companies standing in
line with VC capital. Worldprints approach
was get something to market NOW, then fix/evolve
NOW - Speed still important, but execution
is critical. Do fast, but do it right. Won't
get a second chance to execute. Veripost
focuses on processes and testing, automating
where possible, build foundation for growth/scalability.
THEN - "new" economy. George wore casual,
goatees, birks, etc.
NOW - Back to old rules. George back to
THEN - Everyone would ask when are you
going to have an IPO? Typical answer was
as soon as we get the paperwork filed!
NOW - Focus on generating sustainable
revenue and positive cash flow.
SUMMARY: Each approach was arguably the
"right" one at the time given the prevailing
wisdom and business strategies.
Money raised by Worldprint was in the
teen millions. Shopping around last summer
was easier for funding than would be now.
BTW, Veripost is a permission based system
and YOU decide if your address is forwardable
Question: When/what was the genesis of
the idea for Veripost? This happened shortly
after the Excite@Home
buyout - the founders felt then that they
would be interested in starting something.
Question: How many pieces of the puzzle
did they have put together before they approached
the VC's? They had the concept down, but
just three guys and a business plan, no
technologies yet, but lots of chatting with
partner companies, so ready to go. Angel
funding was after the SBVC funding. Veripost
wanted more than just SBVC involved, and
so recruited folks who could help them out.
Veripost choose SBVC because they have
a lot of experience with investments around
Email - they understand it. They also wanted
Softbank as a backer - GREAT name. Got $3.5M
in funding. Current approach is to "sip"
the cash - temptation to "gulp" it ... but
gotta be careful doing that.
Dan introduced our final speaker which
was David J. Jilk (firstname.lastname@example.org),
CEO of Wideforce, which is remote workforce
and workflow Management company. David was
previously a Development Officer for SOFTBANK
Venture Capital, so he been on both the
venture capital and also the entrepreneurial
Commented that there is B2B and B2C...
but also B2B2C ... where business provides
that interaction with consumers. Provided
example of where company (Global Sports)
where the CEO closed a big deal by camping
out on major customer's CEO home lawn.
Has worked in both VC and startups ...
commented that VC is fun, but a heck of
a lot of parallel processing required because
so much going on. When he was in VC, the
first company in the "pitch day" was (coincidentally)
Veripost. They did a GREAT job ... but the
rest of the pitches during the day were
dismal ... so point is that it's pretty
obvious which companies have a chance. SBVC
focuses on investing in right people more
so than right market.
Veripost was looked at positively because
it was an Email company, and SBVC has invested
in ~dozen Email companies, so good match
between company and VC - they understood
each other and the market.
Venture Capitalists are investors - some
similarities to day trading. They end up
buying some stock, then try to get other
people to buy in, and then you, of course,
want to sell at a (big!) profit.
Hotbank creates a good environment for
companies, but you have to ultimately sell
your stuff by yourself.
VC's can be lemmings - following current
trends. They currently have a "stinking
mountain of s*it" to cleanup ... times are
tough so they are focused on that effort.
Depression Era entrepreneurship. In some
respects, this is good, since much easier
to hire technical people. LOT more office
space available. Companies going bankrupt,
so lots of equipment (office furniture,
computers, etc.) available for cheap price.
Bad news is that funding is difficult.
One contrast is a year ago, angel investors
wanted to see "how much they could make
from each investment" ... now they "just
want to get their money back from one"
Customers are also reluctant to spend
money - you gotta clearly show something
that is of value to them. Talking about
just eyeballs is bogus these days.
Some advice on how to start business now.
Don't recommend being "3 guys and a business
plan" right now. Right now, do it on the
side and/or self-funded. Yak it up with
folks and find out what problems/pains people/companies
are having. Then build some simple tools/software
and see if it works - maybe give away for
free to see if it really solves the problem
and interests people.
Future is so bright I need to wear shades.
Internet stocks down 98%, so LOTS of paper
wealth has been destroyed. Must be close
to the bottom - pretty close to zero right
now. David believe that upturn is coming.
He said VC's need to start investing - some
funds are sitting on lots of money, and
limited partners who have provided money
would like to see some action. Suggests
that VC's will "wake up" in September and
start investing again - greed will overtake
Good new is that silliness is gone. People
understand that their company needs to make
money, engineers have to write code, more
than a "SuperBowl" ad is needed, and work
ethic is back.
Question: If you were a company with funding
already in place, but getting to the time
when you need more money, what would you
do? Watch headcount VERY closely, go with
minimal staff to stretch $$$$. Sit on a
customer's lawn to get the sale. Partnership
approach is falling out of favor, since
these don't help you in terms of cash flow
- go sell stuff!!!
Latency affects. Stock market crashed
in March/2000, VC's took 4-6 months to figure
that out and start to tighten stuff up.
Entrepreneurs didn't realize until a few
months after that ... and Limited Partners
are just starting to realize that DOOPPPP!!!!!
Dan then had all three panelists come
up to the front for some group Q&A.
Q: Compare SBVC vs. Fastideas/I-Belay.
Daniel says most incubator/accelerator concepts/place
were started 12-18 months ago with the idea
of building companies FAST so they could
go public quickly. Hotbank's goal is to
help companies/team succeed more effectively
by stuff like reducing cash flow on leases,
basic infrastructure, additional services,
introducing outside service operators. I.e.
they have done this a number of times and
the startup process is repeatable, so they
have is "down." Hotbank has been open since
October/2000, keeps a lean staff; no accounting,
finance, legal department. They provide
connectivity, but not hosting - 'cause they
want to encourage companies to be able to
operate standalone. David commented that
the CGMI/Fastideas model is more hands-on
by the folks that run the incubators, whereas
Hotbank feels it is more of a facilitator.
Eric commented that the Fastideas model
is built around the "go-big" concept/idea
- not as applicable in today's market.
Q: Is "3 guys with a business plan" better
than "1 guy with a business plan?" David
said 3 guys are better if 3 smart guys that
all mix well, but can be a problem if it
does not. Typical VC advice to the "1 guy"
is go get another guy, although nothing
wrong with just one guy. Eric felt three
guys are better than one because you have
other people to bounce ideas off of.
Q: Eric said you only get one chance to
do things right. But isn't it a balancing
act with getting something out there and
getting some $$$? Eric said yes, but you
want to lean toward doing it right rather
than doing it fast. David said what you
can do is present a "clean" interface so
that things work fine for the customer,
but "creaky" underneath ... but patch up
as you get feedback from the customer.
Q: Do you use Beta customers to "test"
the product for free. David said YES to
start banging away on things and get market
Q: How important is Sales/Marketing when
you are getting ready for that 2nd round
of investing. Eric said about half the company
is focused on this part, because YES, it's
important to have revenue. Daniel agreed
with all that, but also said all parts (Product
development, getting management team, etc.)
are all important. The audiance laughed
at his discription of good sales people:
"Go Dog, Hunt!"
Q: Wideforce is a "horizontal" company
selling into several industries. Is it more
difficult getting funding this way rather
than if it was vertically focused? David
agreed a little tougher, but possible to
segment horizontally and doable.
Q: Isn't the goal of VC's to take some
money, invest it, and return more of it?
Daniel replied: "Yep!"
Our host, Dan Murray, gave a reminder
of the next RMIUG meeting. The date is Tuesday,
Sept 25, 2001, which is a date change (fourth
Tuesday instead of second). Cluetrain author
Chris Locke will be unveiling his new book,
"Gonzo Marketing: Winning Through Worst
Dan then called it a wrap at 9:00, although
folks stuck around for a while afterwards
for personal Q&A with the speakers and networking.
Alek Komarnitsky The Minuteman! ;-)