How the Networked Economy is Changing the Deal Origination ROI Paradigm

 

Peter Lehrman of AxialMarket posted on his blog this must-read Powerpoint on the evolution of private equity deal sourcing.  I definitely agree with the points he makes here.  Most interesting are his estimates of the cost for different methods of deal sourcing.  We discuss in more depth a lot of these ideas in The Virtual Handshake.

Panel on Super-Seed Funds at Harvard Business School Club of NY

 

I took some notes on last week’s Harvard Business School Club of New York panel on "Super-Seed Funds — Back to the Future." Eugene Radin of Concept Clinic edited the notes and merged in his own.  Incidentally, congratulations to Doug Atkin, Tony Berkman, Steve Miller and the rest of the Majestic Research team on their sale (announced today) to ITG!

 

Moderator:

Steve Brotman – Managing Director, SAVP

 

Panelists:

Chris Dixon – HBS, Founder Collective/Hunch.com

Doug AtkinGuggenheim Partners, former CEO Instinet

Jeff Stewart – founder, UrgentCareer; Mimeo; Monitor110

John Frankelff Asset Management

Select Biographies

 

Doug Atkin

After graduating Tufts, became first employee of Instinet in 1984, spent 20 years there.

Did a lot of investing in financial firms through his work at Instinet.

Ran a few companies, most recently Majestic Research.

 

Steve Brotman

Raised $1m, mostly his own money, in late 90s. His first investment was in LivePerson, which went public in 18 months. Money started pouring in ’99. Collected a return of 3.5x investment, which put him in the top 1%.

In ’04-’05, partnered with Greenhill Ventures and raised $100m. Greenhill raised $2b. Currently spinning off from Greenhill, due to recent regulatory changes. We’re very pleased about the spinoff, because the move will provide more freedom.

 

Chris Dixon

Co-founder of Hunch.

Personal investor in early-stage technology companies, including Skype, Foursquare, Stack Overflow, TrialPay, DocVerse (acquired by GOOG), Invite Media (acquired by GOOG), Gerson Lehrman Group, ScanScout, OMGPOP, BillShrink, Panjiva, Knewton, and a handful of other startups that are still in stealth mode.

Co-founder of Founder Collective.

 

John Frankel

Back in 2007, VC’s invested in 3,500 companies, with $26-30b. Angels put in $26b in more companies (excluding friends and family). Roll to 2008: amount of money invested by VC’s dropped to about $16b, but angels are at about the same level.

Recently spoke with one of the largest VC funds: they did an analysis of all the super-angels, which determined that over 1,000 companies had received capital from this population. They said that’s terrible for their business. He countered: I don’t know if those 1,000 investments came from the pool that gets money from VC’s or the pool that gets money from angels.

Panel Discussion

 

Steve Brotman

What are your thoughts on the recent popularity of early stage investing?

 

The panel unanimously agreed that this method of raising money has gained much more attention lately, and is growing as a viable source of seed investment for entrepreneurs.

 

Chris Dixon

Two contradictory forces: funds are getting bigger, but the amount of money needed to start a tech company has dropped.

Funds like his earn money only if they get returns for their investors, just like the entrepreneurs. Average top-tier VC investor at Greylock makes a few million/year just for showing up (referring to management fees).

Seed funds offer more flexibility than VC’s.

 

John Frankel

Angels invest in far more companies and spend approximately the same amount of money as VCs.

Angels may be threatening to traditional VC’s.

More people are interested in starting companies, especially young people, who view entrepreneurship as a viable direction for their lives.

Very low burn rate for many companies which they invest in.

Economic recession has created more companies, and larger, established companies are more interested in unique/new ideas, which offer more opportunities for exits.

It has become more difficult to pick winners in the large field of opportunities.

 

Steve Brotman

Have prices gone up? That’s the measure of a bubble.

 

Jeff Stewart

Study of six angels: returns were in the range of 18-30% across all the different pools of angels (average returns 30%; lowest 18%.), but 60% of the investments went to zero, So you’re getting all the returns from ~5% of the funded companies.

This is not a bubble, but a non-correlated asset class, with great returns!

Need to invest in many companies given the expectation of most investments returning 0%.

 

John Frankel

There are natural barriers to more money going into this asset class.

You need to start putting together a larger portfolio, which is hard for angels.

It is also difficult for VC’s to reach "down."

Only a small group of people will be able to dedicate next 10 years to managing this type of fund. They have to be financially self-sufficient.

People who’ve launched companies, and are investing in their own domains have higher returns.

More due diligence correlates with higher returns. They don’t simply write checks: active involvement also raises returns. Only a small (but noisy) group are doing this type of investing.

Smaller funds outperform larger funds.

Smaller teams launch/run successful companies.

Entrepreneurs get the difference between "smart" and "dumb" money.

 

Jeff Stewart

Entrepreneurs do better running these funds.

 

Chris Dixon

New hot thing: convertible notes which change in valuation over time.

Most seed valuations are at the $5m level.

 

Steve Brotman

Do most investors care about valuation and dilution or the quality of investments coming in? Study says yes.

 

John Frankel

Most of these companies have binary outcomes, so arguing over valuation with a value-added investor is irrelevant.

 

Doug Atkin

15 years ago, getting money from a name-brand VC would add a lot of credibility to your business. It was like getting backing from a top investment bank. This is changing now.

 

Chris Dixon

Disagrees: our core argument is that an entrepreneur will take less dilution over time by getting the initial investment from angels.

We’ve sold two companies to Google in last three months.

Suggestion: find funds which will help you build your business, not give you the most money.

Seed funds may value companies higher than VC’s, since VC’s spend most money in later rounds and it benefits them to value companies lower in the beginning.

 

Jeff Stewart

It’s important to remember that many seed funds are largely based on owners’ own money, not outside investors.

 

Chris Dixon:

Disagrees: investors’ money just as motivating as personal.

They get rich off of returns, not management fees, so goals are aligned, because they only make money if their companies do.

This works as long as fund managers make most of their money from success of the companies they invest in.

Should take attitude of hedge funds, and invest more, not less. Do so because they don’t believe in most companies, expect failures.

 

John Frankel

Goal alignment is key – better for entrepreneurs to work with peopl
e who are committed to managing their seed fund for the usual ten-year lifespan.

 

Steve Brotman

What are the differences between these classes of investors?

VC’s are so big that they are more like asset managers. Why hasn’t there been a market correction?

 

Chris Dixon:

This is being corrected, but it takes time.

 

Jeff Stewart

Ask if the VC is getting paid to put money to work or just to manage it.

We don’t believe in putting in too much money, e.g., in a capital-intensive industry like nano tech.

Also, entrepreneurs don’t really need VC’s to start companies, since less money is needed, and scaling technology is much easier now.

 

John Frankel

You should also ask: is the VC going to be there? An angel can move around, take new roles. A VC is institutional; the individuals move around.

 

Chris Dixon

We have a $50m fund with a 2 and 20 structure.

A lot of this discussion comes down to fund size.

1/3 of our fund is the principals’ money.

 

John Frankel

The collapse of asset prices elsewhere is making VC overweight.

 

Jeff Stewart

I’m not sure there’s too much money; I think there’s too much money pursuing information technology deals.

 

John Frankel

Google only ever raised $25m.

Google’s of the next generation may only need to raise $3m and won’t need to do it through VC’s.

 

Chris Dixon

Facebook has raised $700m, but $650m of that are secondary sales by friends and family.

 

Steve Brotman

How do you feel about collaborating with other angels, seed funds, and VC firms?

 

Doug Atkin

Won’t invest into companies without other investors with industry specific expertise.

You have a much higher chance of succeeding with more smart people around the table.

Expertise grows revenue rapidly.

Average revenues $1-5m in the companies he invests in.

 

Jeff Stewart

My investments are usually in the $25k-$100k range. I don’t have time to support a company at that level.

Needs other investors to feel comfortable, help with due diligence. Angel investing is a team activity.

 

John Frankel

No collusion when negotiating terms, however someone has to take a leadership role in an investment.

I’ve had two deals in the last two months with documents that didn’t make sense, because everyone relied on everyone else.

You can find a great group of investors who can help you.

There’s an idea of social proof: if A and B invest, I should too. That can lead to very lazy thinking. I believe that I shouldn’t do a deal that’s hot; I like the road less traveled.

Strategically find a group of investors who can help you. A fund is an expertise network.

 

Steve Brotman

What is your investment style? Which sectors are you most interested in?

 

Jeff Stewart

I like really early investments, especially in B2B and ad tech.

 

John Frankel

I will consider anything that will provide good returns. Really intrigued by how people leave footprints online though social media. Klout is people-ranking the web in the way that Google does page-ranking.

 

Chris Dixon

I am primarily interested in information and advertising technology. However, I just did two deals in the robotics space.

Often invests pre-product.

Stays away from theme investing.

Companies are expected to change direction; he ultimately invests in people.

 

Doug Atkin

I invest almost exclusively in financial technology. Anything with an exchange.

He won’t invest in businesses outside of his sphere of influence (experience).

Financial services industry has been slow, difficult to change in the past. The last couple of years have changed things.

 

Question from the audience

When should an entrepreneur approach them?

 

John Frankel

I prefer to give a NO early.

Core of this country is the entrepreneurial spirit.

Everything begins with a conversation.

 

David Teten

Why should entrepreneurs choose you?

 

Chris Dixon

You have to prove you’re helpful. I don’t bother with a speech, I just give a list of references.

He invests in people. Looks for people who have created something (ex: products).

Suggestion to entrepreneurs: call companies in which I invested, ask them about the experience.

When I hire people, I do the same thing: I say call people who worked for me in the past.

The only way to be successful is to be consistently helpful.

 

Jeff Stewart

Only you can make it happen, angels (investors) won’t. Use a group of angels. Don’t depend on them too much.

He has said "no" to deals he liked due to lack of time.

 

Doug Atkin

Set expectations, tell people what you’re good at.

He’s best at dealing with banks/finance: it’s his expertise.

 

Chris Dixon

In our fund, we focus on team-building and follow-on financing.

60 investments give us a lot of insight into who’s doing the next round and at what price.

At about a third of the companies we’re invested in, we’ve introduced founders to one another.

We rarely take board seats.

Generally uninvolved in product building. Won’t micromanage the product.

 

John Frankel

This is a relationship business. You’re going to be working together for longer than the average marriage lasts in this country.

Work with people you like.

Larger VC’s have a reputation for being arrogant — and it’s probably justified.

Suggestion: don’t lose control of your company.

 

Steve Brotman

It’s incumbent on entrepreneurs to find the right fitting VC.

 

Question from the audience

Comment on recent phenomenon of funds established to invest in late-stage tech deals, ex: Facebook/Felix Investments.

 

Chris Dixon

Known as "DST" deals. DST is about to go public on the NYSE.

 

John Frankel

There’s a big movement in New York to build up entrepreneurial culture — a sense of coming from behind Silicon Valley. Unlike Silicon Valley, we have finance, fashion, media, etc., which are all being disrupted.

Our model is that we put in more capital into our winners. Maybe 50% of the companies fail, but they don’t burn up 50% of our capital.

 

Chris Dixon

Rounds which we participate in are typically $300k-$1m. We typically put in $100-$500k.

We usually don’t invest in the second round, but will get involved in helping the company raise money.

 

Question from the audience

What are the characteristics of a team that gets a yes?

 

John Frankel

We want people who are honest with themselves, even if they are somewhat delusional. Have been successful in the past, can form a team.

We invested in ClearPath Immigration, which wants to be TurboTax for immigration. The founder ran immigration for Department of Homeland Security. He has big domain expertise.

Will the person grow up as the company grows?

When you give money to a money manager, you want that person to navigate the financial markets. That’s what I want in the entrepreneur.

 

Graphic: http://www.flickr.com/photos/aunto/110997305/sizes/s/

Founder Institute New York: Early Admissions deadline Aug. 15/Final deadline Aug. 29

image

 

We have another Founder Institute semester spooling up in NYC, and the early admissions deadline is August 15th, with final admissions on August 29th.  Our host will be local entrepreneur Gabe Zichermann, and the applicant pool so far looks very strong. 

 

If you are an early-stage entrepreneur, this is a very powerful way to upgrade the sophistication of your company and significantly increase your odds of success.  Among the noteable companies from the inaugural New York Founder Institute are Profitably, Simple.PR, and Plan.fm, and VIMOTA.  Complete list here.

 

Apply: http://www.founderinstitute.com/apply/24
Applications Due: 08/29/2010
Sessions: 09/07/2010 to 12/15/2010

 

I hope to see you there!

Our new Harvard Business Review article: Time for Investors to Get Social

I’m excited to report that we’ve started to release the results from our first-ever study on best practices in private equity and venture capital deal origination.  My coauthor Chris Farmer (formerly Vice President, Bessemer Venture Partners) and I published a summary in the current issue of Harvard Business Review. 

 

Evalueserve, a global research firm and the acquirer of my former company (Circle of Experts), provided supporting research and analytics in the initial phases of this study. We also thank Yujin Chung and Neha Kumar (Wharton 2010), research associates who provided invaluable support, and interns Corentin Roux dit Buisson, Dan Clark, Nitin Gupta, and Nikhil Iyer .

 

A highlight from the HBR article:

We’ve found that late-stage tech investors with geographically diverse portfolios are consistently among the best performers and have continued to attract large limited partner commitments, even during the challenging period since 2007. Almost all such players have been able to raise at least as much cash as they could previously. By contrast, the funds with traditional origination programs, focused on local networks, have had difficulty; most haven’t raised new capital since late 2005.

Read the whole thing.

 

For more data from the study, see the slides below:

Download this presentation.

Download this presentation.

How Private Equity and Venture Capital Funds Grow the Value of Portfolio Companies

One of the major themes of the evolution of the private equity industry for the past decade has been the growth of internal groups focused on enhancing the value of portfolio companies. Twenty years ago, the great majority of the people working in private equity came out of investment banking, i.e., a deal background. Today, it is far more common for a private equity fund to employ people with an operational/consulting skill set, e.g., Bob Nardelli at Cerberus. I predict we’ll see the same phenomenon among venture capital funds. The latest example: Union Square Ventures announced that they are hiring for a newly created position as General Manager of the Union Square Ventures Network.

 

Within private equity, these groups are often called "portfolio operations", sometimes "portfolio resources groups", or what Riverside Company calls its Toolkit. At larger funds, "operations" may be distinguished from governance, talent selection, pre-investment involvement, or even strategy, partly because "operations" is a term that management may infer to mean backseat driving.

 

By definition, these groups focus on improving the operations of the existing portfolio, not on diligencing potential deals or on deal structuring. Just a few of the many major private equity funds that have well-developed private equity operations groups: 3i (Business Leaders Network); Cerberus; Irving Place Capital; Bain Capital; TPG; General Atlantic; and Welsh, Carson, Anderson & Stowe.

 

A Bain study found that "as much as 80% of private equity returns [going forward] will come from real performance improvement, rather than [ ] financial structuring." According to a 2006 KPMG study of 100 private equity exits (below), 48% of the value-add during private equity ownership came through organic revenue growth, as opposed to capital structure changes and multiple arbitrage.

 

Source of Gains in Private Equity-Backed Companies

 

image

 

I see six major reasons why limited partners now expect that private equity funds will have a formal operating strategy, minimally an operating partner and/or a formal portfolio resources group. I should mention my thinking throughout this blog post and especially in the list of factors below is shaped by a number of presentations I’ve seen by Jon Weber, who has run portfolio resources groups at three major private equity funds.

 

1) Global economic crisis. Particularly in 2008-09, most portfolio companies required operating changes to survive. In most cases, the existing management teams were hired for their ability to grow revenues, not their ability to restructure. The funds had to supplement and/or replace the existing teams.

 

2) Commoditization of financial engineering. The classic question Michael Jensen asked is: if leveraging is so wonderful, why don’t companies do it themselves instead of waiting for an LBO fund to buy them out? Since Jensen first began researching this area, larger companies increasingly chose to lever themselves, and there has been a massive boom in the private equity industry—thousands of funds all of whom can offer leverage. It has become much harder for a private equity fund to make high returns simply by borrowing some money and taking advantage of the interest tax shield.

 

3) Investors seek differentiation. Building a formal portfolio resources group has been a way that private equity investors can differentiate themselves and ease the capital-raising process.


4) Maturing private equity industry.
According to the Parthenon Group, the larger size and greater complexity of funds has led to greater role specialization. As one investor said to me, "We’ve moved from the ‘great man’ to the ‘great team’ model."

 

5) Risk mitigation. The deal team tends to have a strong incentive to do a deal, and then move on to the next deal. An operational perspective adds a counter-balance to the deal team.


6) Strategy driven.
Certain strategies — deep value investing, turnarounds, mid-market focus, and industry-specialized funds — require a hands-on approach.

 

I remember speaking at a Capital Roundtable Private Equity Portfolio Operations conference back in June 2008, and I was struck at the number of attendees who commented publicly on how they felt like "second-class citizens" at their funds, both in status and in compensation. However, when I spoke at the IIR PE Ops conference in October 2009, in the midst of cleanup from the economic crisis, the mood of the operating professionals was much more buoyant (despite the challenges they faced in their portfolio.) On a relative basis, they knew that their professional contribution had become much more apparent at their firms.

 

We have not yet seen a similar boom in portfolio resources teams in the venture capital industry, but it’s coming. I recently had a conversation with Chris Farmer about this, which sharpened my thinking considerably (he is the coauthor of my forthcoming study on "Best Practices in PE/VC Deal Origination"). According to the NVCA and PWC Moneytree, the average VC round has doubled in the last 12 years with the growth of the industry (from $4m to $8m). At the same time, the cost of starting a company and proving concept with a new product has declined dramatically in many sectors.

 

Some such as Marc Andreessen argue that costs have dropped as much as 100x over the last couple of decades since the current venture capital model was created. As a result, many innovative venture capitalists and entrepreneurs are creating new fund models from Andreessen-Horowitz to Betaworks to Founders Collective and Floodgate. Fred Wilson wrote, "The venture capital asset class does not scale . . . . I think ‘back to the future’ is the answer to most of the venture capital asset class problems. Less capital in the asset class, smaller fund sizes, smaller partnerships, smaller deals, and smaller exits. The math works as long as you don’t put too many zeros on the end of the numbers you are working with."

 

A corollary of Fred’s point is that the small number of portfolio companies which do hit hypergrowth need more support. Chris and I think that one logical new model is: seed a large number of companies with quite modest amounts of capital. Then, double down with follow-on rounds on those concepts that do take off. For those companies that experience rapid growth, it makes sense for a fund to bring extra support, since those companies can’t hire good people fast enough to do everything they need to do. In addition, a portfolio resources group can share learnings across the portfolio. This is much easier in venture than in private equity, because VC funds are much more likely to specialize in tightly defined industries. In addition, the portfolio companies are smaller and so it’s easier for a VC to shape their growth according to the fund’s beliefs in best practices.

 

In the case of companies that do not reach hyper growth, the companies will have raised modest amounts of capital and can be sold for much smaller amounts while still resulting in a win for entrepreneur and VC alike. Of course, failing to provide a follow-on investment is a signal that can hurt the company, but that has always been a part of the business and we are confident that models will evolve to minimize the negative effects.

 

Here are some models of VCs Chris and I identified which are building out portfolio resources groups:

 

Andreesen Horowitz has said very explicitly that their model is to be able to invest at a wide range of capital levels in the 10-20 companies per year which have true potential to scale. They have built out a small value augmentation group: Ronny Conway (point person on business development for the portfolio) and several recruiters (1 for college-level talent, and 1 for experienced talent).

 

– Insight has the "Insight Onsite team" which is particularly focused on sales, SEO, and SEM.

 

– Accel has a Venture Development group and firms like Oak Investment Partners and Bessemer have Operating Partners to lend added support to companies. Charles River Ventures had a similar approach during the bubble.

 

– Bessemer also has a Designer in residence (showing the increasing importance of design for internet companies, e.g., Mint.com).

 

– Highland Capital Partners, Union Square, and numerous others have "Thought Summits" with noteable guest speakers. These events usually are organized by portfolio functional role, e.g., a portfolio CTO summit, portfolio CEO summit, etc.

 

– As I mentioned above, Union Square Ventures announced that they are hiring a General Manager of their portfolio.

 

– There has been a boom in accelerators: Boostphase (Atlanta, GA); Bootup Labs (Vancouver, BC); Capitalfactory.com (Austin, TX); Charles River Ventures QuickStart (Boston, MA); DreamIT Ventures (Philadelphia, PA); Iaccelerator.org (Bangalore, India); Launchboxdigital.com (Washington, DC); Nextstart.org (Greenville, SC); seedcamp (London, UK); Shotputventures.com (Atlanta, GA); SeedStart (New York); Summer @ Highland (Lexington, MA and Menlo Park, CA); Techstars.org (Boston (MA), Boulder, CO, and Seattle, WA; The Difference Engine(Sunderland, UK); Y Combinator (Mountain View, CA); and Y Europe (Vienna, Austria). For more information on how to build a replica of Y Combinator, read Jed Christiansen. For a comparative listing and more background, see Readwriteweb and Dan Veltri. TechStars recently released very positive data on the success of their incubated companies.

 

This approach differs from the incubator and acceletor trend (e.g., cmgi, antFactory) of a decade ago. That model was often criticized for selection bias: the less-competent entrepreneurs found the incubators more attractive. In addition, too much of the core competency of the company was driven by the incubator instead of in the company itself, creating ambiguity in attribution of value between the two entities. The new model looks more like the VC as consigliere instead of a bacteria splitting off new progeny.

 

I’ve had a front-row seat to this phenomenon, since I’ve done a lot of work in the past with portfolio resources groups at some of the major private equity funds. I’ve presented in the past on "Finding New Deals and Improving Portfolio Company Valuations by Working with Operating Executives," which covers some of the structural options private equity funds have in working with their portfolio.

Internet Business Models

I’ll be presenting on April 26 to the Founder Institute Singapore on "Earning Revenue and Internet Business Models".  I give a lot of credit to Munjal Shah, some of whose slides I incorporated directly into this deck. 

My draft slide deck is below; I would welcome feedback.

Hiring and Firing for Entrepreneurs

I’ll be presenting on April 27 to the Founder Institute Singapore on "Hiring and Firing for Entrepreneurs".  My draft slide deck is below; I would welcome feedback.

Invitation for angel investors: New York Founder Institute graduation ceremony, Thursday 3/25, 6pm

Image representing Founder Institute as depict...

 

The New York Founder Institute graduation ceremony and investor preview is this Thursday, March 25, at 55 Broad Street, 6:00. Up to fourteen businesses are poised to graduate, ranging from a fantasy sports company with a family focus to a business designed to cure cancer. The best business to present, according to a vote by the guests, will win a $5,000 prize on the spot.

Accredited angel investors are welcome to attend. In addition to a free dinner and some fun pitches, Adeo Ressi (founder of the program) will give a 30 minute talk about the lessons learned after aptitude and personality testing nearly 1,000 people interested in becoming an entrepreneur. You’ll be one of the first to hear some of the surprising results about age, intelligence and personality.

Recent success stories from Founder Institute: Skimble, a Founder Institute Graduate, is a finalists for the "Innovative Web Technology" category at the SXSW conference in Austin.  TechCrunch has recently profiled a number of graduates: Molo Rewards; RewardChart; Monstrous.

If you’d like to attend: RSVP.

The Finalists are:

Aaron Price of makeMania

– makeMania.com enables a community of Do-It-Yourselfers (DIYers) to connect, compete with, and learn from one another, while accessing relevant exclusive discounts.

Adam Neary of Profitably

– Profitably is a web-based business intelligence solution for small businesses with a simple proposition: Give us 10 minutes, and we will help you run your business more profitably.

Alexander Ressi of Immortalize.it

– Immortalize.it is a tracking tool that blends user-contributed milestones with social media and 3rd party data-sources to create timelines for personal intelligence.

Bryan Housel of Ditto Health

– Ditto Health allows patients to enter their medical data in one place on the web, rather than on paper at every doctor’s office that they visit.

Edward Kim of Simple.PR

– Newswire enabling businesses to reach targeted local audiences.

Jacob Howerton of Zipmark

– Zipmark enables people to make financial transactions with their smartphones.

Joshua Bernstein of Ancile Biomedical, Inc.

– Ancile Biomedical develops medical devices that accelerate wound healing, saving money for payers and providers while addressing the results of global obesity and diabetes epidemics.

Kyle Jasey and Thomas Pierce of Wepoli

– To bring citizens, elected officials and political candidates closer together, and to facilitate and enhance their interaction.

Olivier Couronne of Genomes United Inc.

– Genomes United sequences the genomes of cancer patients in order to identify novels biomarkers.

Shirley Chow of ProjectChow

– Food pictures exist in fragmented areas all over the web. ProjectChow will serve both as an organized repository for these photos by presenting these images alongside the restaurant menus allowing diners to more informed of a restaurant’s offerings.

Tobin Schwaiger-Hastanan of Plan.fm

– Plan.FM is a social utility for collecting the plans you make on other sites and organizing them into a single source that you can access from anywhere. "It’s tripit.com for your events."

Vincent DiBartolo of FanSprout.com

– FanSprout is a family-friendly fantasy sports site with educational components that allows dads and kids to connect in the context of sports.

Vincent Mota of vimota

– vimota creates the tools & intelligence which helps monetize the costs of rich media.

 

Again, RSVP at: http://nyfi-investor.eventbrite.com .  See you there!

(Image via CrunchBase)

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Entrepreneurial Education Programs in New York/Invitation to Founder Institute Investor Session

 

I’ve been very excited to see the boom in the New York startup community in the last 2 years, driven in large part by the shrinkage in the NY industries that traditionally lured some of the most entrepreneurial and aggressive personalities (finance, consulting, etc.) Michael Karnjanaprakorn posted a detailed list of resources and players in the local community.

One category of resources I wanted to add to Mike’s list are educational programs for entrepreneurs. I’m faculty in a number of these organizations, particularly the Founder Institute. I was a Mentor in the Winter 2009 New York semester, and will be faculty for the inaugural program in Singapore, in late April 2010.

Next Thursday night, March 25, the participants in the current Founder Institute program will be presenting to some angel/VC investors downtown. If you would like to join the audience, please contact me and I’ll forward your request to the lead organizer for New York’s Founder Institute, Craig Kanarick.

I’m excluding here some of the many organizations that run conferences/events geared to entrepreneurs in New York, such as Bootstrapper Summit; Bootup; DigitalMediaEvents; Entrepreneurs Roundtable; Feedback Forum; Fashion 2.0; The Founders Club; Founders Roundtable / Pluggedin NYC; Gaming 2.0; Girls in Tech; IxDA; Microsoft Startup Zone; MIT Enterprise Forum of NY; New York Entrepreneur Week; NextNY, New York Technology Council; New Work City; NYVideo; NY Tech Meetup; NY Video; Private Equity Forums; Semantic Web Meetup; Silicon Alley Insider; Startup at Work; Summit Series; Talk NYC; TechAviv NY; The Hatchery; Ultra Light Startups; youngStartup Ventures; NYC Economic Development Corp.; and Y+30. I think these programs are very worthwhile; I excluded them because they don’t offer a formal training and faculty.

 

We’ve drafted profiles below of the major selective educational programs in NY for entrepreneurs. Please advise if you know of any that I’m missing.

—————————–

 

 

Logo

FastTrac

Organizational Sponsor: Levin Institute

Location: New York

Faculty: academics and entrepreneurs

Duration: 7-day intensive boot camp (2 full days a week over 4 weeks)

Cost: These programs are currently offered at no charge to qualified applicants, through funding from the NYC Department of Small Business Services, and with support from the Kauffman Foundation.

Selectivity Ratio: NA

Info: The FastTrac program has trained over 700 individuals to launch new businesses (through its NewVenture program) or to grow existing businesses (through GrowthVenture).  SBS surveys indicate that over a third of the brand new businesses have recorded sales since completing New Venture, and half of the GrowthVenture firms have indeed grown their businesses.

—————————–

 

First Growth Venture Network

Organizational Sponsor: First Growth’s executive committee/founding growers includes venture capital firms – Bain Capital Ventures, Battery Ventures, Charles River Ventures, First Round Capital, Flybridge Capital Partners, Highland Capital Partners, North Bridge Venture Capital, OpenView Venture Partners, Valhalla Partners and Venrock; angel investors Grape ArborVC and AngelVineVC; the Tech Group at Lowenstein Sandler, and the tech investment banking firm GCA Savvian.

Location: New York

Faculty: entrepreneurs, tech executives, VCs, professional advisors

Duration: seven half day sessions over two "semesters"

Cost: $0

Selectivity Ratio: Most recently accepted about 15 out of 60+ applicants.

Summary: "First Growth is a program for high potential, seed and early stage start-up tech entrepreneurs in and around New York City. First Growth takes high potential entrepreneurs and accelerates their "first growth" by (1) connecting them with venture capitalists, angel investors, successful entrepreneurs and advisors, all of whom have spent years in and around technology start-ups; (2) connecting each start-up with a First Growth Advisor Team of 3 or 4 successful network members who will serve as mentors to the team; (3) providing regular opportunities for substantive information and networking with the broader First Growth community; and (4) providing a peer group of other high potential tech leadership teams in the First Growth program."

 

9 of the first 15 companies have already received seed funding, which is a very high ratio.  One company recently announced that it was acquired in a successful exit.  Two advisors (successful serial entrepreneurs) also received funding from First Growth connections.

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Image representing Founder Institute as depict...Founder Institute

Organizational Sponsor: TheFunded.

Locations: NY, Denver, San Diego/Orange County, Singapore/Asia Pacific, Paris, LA, Bay Area, Seattle Area, Greater DC, others to come later

Faculty: serial entrepreneurs

Duration: three months

Cost: In US, $600 per program + an application cost of $50. In addition, The Institute takes a small percentage (3.5%) of warrants in a company that is formed by a Founder during the program, priced at the value the company receives in its first outside round of financing. 

Selectivity Ratio: Accept under 40% of applicants. Approximately 45% of the enrolled Founders graduate. In New York, approximately 30% will graduate.

Summary: "The Founder Institute is a four month training program for both new and seasoned entrepreneurs. The Institute prepares founders to lead the next generation of world-class technology companies across a wide range of industries, from the biotech to the internet. Weekly company-building sessions are guided by experienced CEOs, and they are held in the evening to allow participants to keep their day job or develop their companies during business hours. All of the program stakeholders, from the participating founders to the experienced CEO Mentors, share in the upside generated by the companies formed during the program. Participants also enjoy free services from three dozen Institute Partners, fundraising opportunities at fair market value, and a teamwork-oriented environment to build a company."

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Mentor-Capital

Mentor Capital Foundation

Organizational Sponsor: Reitler Kailas & Rosenblatt

Location: New York

Faculty: Primarily service providers. Steven and Bill Harding of Financial Summit Ventures are the "guiding spirits".

Duration: ten three-hour sessions, over 10 weeks

Cost: $500

Selectivity Ratio: Accept all or almost all applicants. Currently 15 companies are participating.

Info: "Mentor Capital Foundation is a newly formed non-profit entity involved in various philanthropic activities and early stage technology investments." They lead a series of seminars structured for technology companies seeking the knowledge and leadership needed to secure venture capital.

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JumpStart NYC

JumpStart NYC

Organizational Sponsor: Levin Institute

Location: New York

Faculty: academics and entrepreneurs

Duration: 3 months

Cost: $0

Selectivity Ratio: NA

Info: "A proven, three-month educational program to help individuals leaving jobs in the financial services sector to apply their knowledge, skills, and abilities in opportunities beyond financial services.  One of Mayor Bloomberg’s initiatives to boost the New York City economy, JumpStart NYC was pilot tested in Spring 2009, delivering a program that helped participants develop new skills, explore project opportunities in New York’s entrepreneurial firms, and in many cases create new career paths and opportunities." The program targets primarily people interested in joining startups/technology companies, as opposed to founders themselves. Disclosure: I was faculty for the launch program of JumpStart NYC.

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NYC Seed logo

SeedStart

Organizational Sponsor: NYCSeed

Location: New York

Faculty: VCs and entrepreneurs

Duration: 8 weeks

Cost: includes funding

Selectivity Ratio: NA.  Currently applications are closed for 2010.

Info: An incubator program, providing up to 10 startups $20,000 plus mentoring and guidance for any worthy entrepreneurial idea. SeedStart is a joint effort among Contour Venture Partners, IA Ventures, NYC Seed, RRE Ventures and Polaris Venture Partners, and also includes Fish & Richardson, Manatt, Phelps & Phillips and Silicon Valley Bank.

SeedStart is clearly inspired in part by similar seed fund incubator programs such as Boostphase (Atlanta, GA); Bootup Labs (Vancouver, BC); Capitalfactory.com (Austin, TX); Charles River Ventures QuickStart (Boston, MA); DreamIT Ventures (Philadelphia, PA); Iaccelerator.org (Bangalore, India); Launchboxdigital.com (Washington, DC); Nextstart.org (Greenville, SC); seedcamp (London, UK); Shotputventures.com (Atlanta, GA); Summer @ Highland (Lexington, MA and Menlo Park, CA); Techstars.org (Boston (MA), Boulder, CO, and Seattle, WA; The Difference Engine (Sunderland, UK); Y Combinator (Mountain View, CA); and Y Europe (Vienna, Austria). For more information on how to build a replica of Y Combinator, read Jed Christiansen. For a comparative listing and more background, see Readwriteweb and Dan Veltri. TechStars recently released very positive data on the success of their incubated companies.

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I’m excluding here some of the traditional incubators that typically offer a physical plant but not formal training. For a list, see the Business Incubator Association of New York State, Inc., and particularly NYU-Poly’s incubators

 

(Thanks to Nikhil Iyer for his help re
searching this post.)

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Recruiting with Social Media – talk by Fred Wilson

I attended tonight’s Social Recruiting Meetup, and heard a talk by venture capitalist Fred Wilson on "Recruiting with Social Media" .  This was a highly condensed version of his presentation at the Social Recruiting Summit (video available on that site). 

 

My brief notes:

Social web has vastly connected the number of people you can connect with every day. 

 

I got into VC in the mid 80s.

 

At the time we would seek out investments by going to conferences, walking halls, collecting business cards, and then work the phones.  We would talk to a dozen people a day.

 

Then with email we could talk to 10x as many people.

 

Then with social media we can talk to another 10x as many people.  My blog AVC.com reaches thousands of people every day. 

 

One of our regular portfolio questions: how do we hire great engineers?   This presentation summarizes my answer.

 

I tell recruiters to go to Meetup.com, e.g., the PHP Meetup. 

 

One of the event attendees runs Jibe (spelling), a new service that shows you jobs with which you have a social connection. 

 

StackOverflow is a great place to get quality engineers, and evaluate their reputation. 

 

Q: Do you use social media for sourcing deals?

A: One of my best leads are the comments on my blog posts.  I have a rule: when I hear about a company 2x I write it down.  When I hear about it 3x, I write the CEO.  We use social media for due diligence.  We contact influencers to get their opinions. 

 

Q: How do you recommend introductions to people?

A: I believe in the ‘double opt-in intro’.  I ask both parties if they want to be introduced.  I do this because that’s how I want other people to introduce me, because i get introduced to too many people to whom I don’t want to be introduced. 

 

Teten: How should traditional high-end recruiters respond to social media taking away their competitive advantage of a candidate database?

A: i’ve come to believe that the cultural fit of the candidate within the small company is critical, so we prefer to recruit via the social web.  We go to the recruiters only after trying our own network. 

 

Q: What large companies are using social media well?

A: I cant point to any.  Maybe it just doesn’t scale.

 

Q: How do you get more followers?

A: You put value out , you get value back.

 

Q: What do you think of recruiting internationally on social media?

A: It should work.  I read Russians are greatest users of social media in the world?

 

Q: Are there tools like Radian6 or a Visible that you think are helpful for assessing sentiment?

A: I dont use any of those sophisticated tools, but I’m sure they’re very valuable. 

 

Q: Talk about how you use LinkedIn.

A: We use it heavily, but not the way LinkedIn would like.  We’ve never been a paying customer.  We’ll use it to find a certain profile.  We don’t ask for a reference list.  We just connect with people on LinkedIn and look for the shared connections. 

 

Q: Do you do searches for a portfolio company?

A: We don’t drive searches; the company does.  We recommend company hire an in-house recruiter when they get to 20-25 employees.  We’re a member of the hiring team.