THE DREAM IN ACTION

I’ve been studying a lot about raising a seed round of funding for a startup. Once your prototype is out and some traction is shown, if you’re going to need capital you gotta work very hard to get it. Here is the first of a multiple (probably 3) part series on the core things I’ve learned about raising a seed round. Note: I’ve never raised any seed money for a startup. I write these observations to share what I’ve been learning and to motivate myself and the other entrepreneurs in my shoes to get out there and get’r done.

Part 1.

Cold calling is for sales people, get a referral. If you have a recommendation from a trusted source you’ll always be in a better position with an investor. Angel networks &/or individuals will always take a referral over a cold call because you’ve already been through one layer of filtering. So, because of this reality it’s super important to always ask for a referral. Even when you meet with someone who might not be a great fit, as long as you think they liked you and would pass on your name in a positive light, hit them up for a referral.

Time your pitch with 1 cup of coffee. You won’t always have the opportunity to pull out a powerpoint deck or spend an entire meal mulling over the details of your plan. You need to have 3-4 different length pitches ready in your head. If you get a change for 10-15 minutes with a high profile investor you need to have a 10 minute pitch and a list of FAQs in your head so that the 15 minutes is a powerful use of your time. The goal is always getting the money but priority number two is the next meeting.

Beggars can’t be choosers, and you’re the beggar. Go to Angel networks, conferences, networking events and always keep your A-game on. Meet with folks who are Angels, who know Angels, who want to be Angels, etc. Give them the short pitch and setup the next meeting with whoever you can.

Use the buddy system, it’s safer. You should have a partner that you’re able to share your experiences with and that will keep you accountable. You need to be able to digest the conversation with a co-founder or close adviser so that you don’t miss any critical pieces of feedback. As you meet with investors they’ll have different concerns and at each subsequent meeting you should be able to completely address their concern from the previous meeting. If they have the same question or concern twice, and you don’t have an answer, shame on you. It’s easy to miss things without someone to keep you aware of the details. Accountability is key.

Never miss an opportunity. After every meeting you should have a list of what you need to do in order for that person to invest at the next meeting. You should have a list like this for every single person or group in your pipeline. This will become important when your first/anchor  investor is locked down and you need to bring the sub investors to show momentum. Document everything and know what opportunities are available.

Always ask for the money.

image via nardip

Last night I jumped on an SWA flight with 5 buddies headed towards Denver, CO. This weekend is my bachelor party, where we’ll be in Denver 1 night, camping in Estes Park 2 nights, and Ft. Collins the last night for a brewery tour crawl. This is no doubt going to be one of the best weekends ever. Let the memories commence…

Rough Itinerary below:

This was organized and orchestrated by my buddies Dan (who likely refuses to be on Twitter), @nsabato,  @allenpenn, & @michaelberner. They have no idea how much I appreciate this.

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Over the past month or so I’ve had a similar feeling as I had back in April 2008. At the begging of April 08 I was evangelizing the use of Twitter. It wasn’t popular, it was “nerdy”, Ashton, Oprah, and Tila Tequila were not yet dominating the service but I saw value in it and I wanted my friends and colleagues to be early to the game. I got a lot of push back at the time but overtime people began to try it out. Now my entire family and my fiance’s entire family is on Twitter and they love it. I have tons of friends on Twitter and everyone finds it valuable and useful. Many of them have become evangelists for the service themselves, they love it, I might even say obsessed.

By no means am I taking credit for the growth of Twitter over the last year and a half but I do feel pretty good about the fact that I recognized it’s value early. I’m attempting to do that again.

I need you to join Foursquare. Even if you think it’s a waste of time or “nerdy”, I’m trying to help you avoid being late to the party…again. There are a few key reasons that lead me to believe Foursquare will be huge, at least huge enough for the non-internet person to benefit from. A few of those reason are the huge potential that is location based applications, it’s fun and non-internet people can see why they’d want to join it, and it helps cities work better.

The way Foursquare works is, you go to a venue (bar, restaurant, park, etc.) and check in. Once you’ve checked in Foursquare awards you points and tallies the amount of times that you’ve checked in there. You’ll receive more points at more popular places and if you’re the person who’s checked in at that venue the most you’ll become the mayor. Also, by checking in to multiple venues and checking in often you receive badges for your check ins. The competitive mood of the game works incredibly well for it’s distribution and is quickly addicting.

Here’s why it has so much potential.

1) Location

Location will be is huge for the same reason Twitter blew up; it’s ability to connect people and provide value to them. Twitter allows you to be connected with people regardless of their location, but imagine the benefit of knowing more accurately and more timely the things that are happening in your area, now. This works between friends on a personal level (where is Ryan, I want to hang out) and with businesses on a public level (where is Ryan, I want to know what he likes).

2) It’s fun

I’ve only been on Foursquare for a few months and I always make sure I can check in to the venues I’m going to. I don’t want to miss out on getting the points and raising the ranks in Chicago and amongst my friends on Fsq. I currently hold 4 mayorships, at my local bar, coffee shop, restaurant, and condo complex. I find myself defaulting to the places I’m the mayor because I want to keep the title. I became the mayor because I like going to these venues but it works backwards too. I really enjoy knowing what bars and restaurant my friends hit up even though I’m not with them and more than once I’ve used Foursquare to meetup with friends and it’ll only get better the more folks are on it.

3) Your life improves

Sorry to reference Fred Wilson again, but he recently wrote a post on Urban architecture and how services like Foursquare make cities easier to use. In short, this type of service makes your life easier. They’ve recently, and much more aggressively than Twitter, found a revenue opportunity.  They’ve launched Foursquare for business that will allow venues to provide deals to the mayors and advertise to the patrons. They may even be able to learn about their customers and what other venues they attend. Can you say partnerships?

Early this month Foursquare announced that they would be taking an initial stage of funding from Union Square Ventures & O’Reily Alpha Tech Ventures. I’m encourage that Foursquare will grow to build some amazing things with their $1.35mm that they’ve raised.

Even if you think the location thing is still ‘creepy’ or the extra effort to connect Foursquare to Twitter isn’t worth it, please signup. Whether you don’t have an iPhone or Blackberry, that’s not an excuse either, I use Foursquare through SMS and it’s great. If you don’t sign-up now you’ll be coming back to this blog post in 3 or 4 months saying dang, I wish I would have gotten on before the hype, now it’s so tough to be the mayor of your favorite joint. Trust me, don’t be late to the party.

Don’t forget: You should follow me on twitter here.

I found these plugins through themeshaper.com image from randy stewart

For as long as I can remember I’ve always found myself envying and analyzing people who are very successful. I’ve studied their personality traits, their career paths, and anything else that I feel might reveal a common denominator that I may be able to learn from. I’ve come to the conclusion that success is about qualifiers. What I mean by that is, if someone builds a startup that is self funded, and doesn’t have any help it may go nowhere, but if they do a startup with the same product, model, etc, with Y-Combinator, they become qualified, thus have a significantly better shot at success.

In this theory I completely separate what the entrepreneur would learn from Y-Combinator with just having the Y-Cominator name associated with their startup. Another example of the qualifiers theory: If Sara goes to Harvard vs. ‘Avg Law Program University’ even if it’s the same individual with the same raw intelligence, she’ll improve her chance at success just because of the Harvard name as the qualifier. Having that degree on her resume gets her in the door, gives her great credibility, and generally impresses others.

I’ve been pondering this concept because of my consideration to pursue an MBA (vs. do a startup). If I do decide to get an MBA, I’m under the belief that it’s only worth doing if I get into a top notch program. Without the big name the qualifier argument is void, however with a big program like Northwestern or USC (likely schools I would be interested in) I believe I would definitely benefit from the positive qualifier.

Last week Fred wrote a post called “The best deal in startup land” about the positive effects of Y-Combinator and I wonder how much value is the qualifier and how much value is the teaching and networking from the program?

For folks who do have big program MBA’s or other things from their career that may work as qualifier’s, how much of that degree has served as a qualifier? How much benefit have you gotten just from the reputation vs. the education?

In my humble opinion, I believe that Umair Haque is one of the most innovative thinkers of our time. But, to be consistent with his own arguments, that doesn’t matter. What matters for Umair is ‘awesomeness’ and he gets that through his ability to deconstruct complex thoughts. Innovation, he claims is not enough for success today, but awesomeness is. Umair is the Director of the Havas Media Lab, a company that works to strategically advise investors, entrepreneurs, and those working on strategic innovations awesomeness in business models and management.

Umair writes regularly on the Harvard Business Review under the title of ‘Edge Economy’ and he truly is on the cutting edge of thought. In his recent article Umair argues that in this day and age, innovation will not be enough for success. What is required now is awesomeness.

In thinking about the economics of innovation there are 3 emerging concepts that are expressed in this article.

1. Innovation makes yesterdays goods and services obsolete, thus the result of innovation is recession and depression.

When Apple released the first iPhone it didn’t have copy/paste functionality. It was a easy feature that everyone immediately realized it was missing. But Apple waited over 18 months to release an iPhone that included this functionality. Do you really believe they didn’t know how to include this feature? How easy it would have been for them to push a software update just like they did with 3.0 and give everyone the functionality a month or 6 months after the release. But that innovation would not have been economical. They waited so that they could extract all the value possible from the original release, then maximize the value of said software upgrade. Innovation is not enough economically speaking, but I think we’ll all agree that copy/paste aside, the iPhone is awesome, thus it’s success.

2. The challenge of the 21st century isn’t entrepreneurial it’s creative.

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Last week I drove back up to Milwaukee for the first time since my move in early August to speak at Web414. I was asked by the founder of Web414, Gabe, to share my experience of failing at a startup (SocialDreamium), a topic that people usually shy away from sharing.

The main reason that I accepted the offer to share this experience and expose myself and the weakness’s of my first startup is the fact that I think sharing, claiming, and learning from failures is likely the single best way to promote trying. Doing a startup is tough and risky but what we need more of, EVERYWHERE, is trying. Eliminating the fear of doing a startup is important. We can do that by realizing that if things don’t go well your career won’t be over, you won’t be crucified, and you’ll likely be better off for it!

I would love to get your thoughts on the talk, please comment!

Below is the presentation that went along with the talk.

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Kanye Interupts Taylor Swift

You may be aware that a few nights ago Kanye West interrupted Taylor Swift in her VMA victory speech to claim that Beyonce’s video should have one instead. It was one of the most obnoxious acts by a celebrity in recent memory and really seemed to show his true colors. I share these videos for a few reasons, one they are hilarious, but more over I want to show you that a brand can crash and burn in a matter of moments.

Microsoft recently had a huge PR fail when they ran the same ad in two different countries with the only difference being that one ad had a white male and the other had a photo shopped black male. This seems obvious that it was a bad idea but to someone it was a good call. You’re fired sir. Yes, even Microsoft can have a brand ruining moment.

Kanye has a very strong brand in the music industry. His music is revolutionary, his style is unorthodox, and his talent is raw, but he’s not invincible. Any brand can die, and this might be his over the cliff moment, only time will tell.

Later in the show, Beyonce wins an award and completely gives the time back to Taylor Swift to finish her acceptance speech, classy move. This actually makes Kanye look worse because it’s a public display that his actions were unacceptable. Even the person he meant to congratulate said, bad move bro.

Beyonce Helps out Taylor (and makes Kanye look worse)
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I recently hoped to find an iPhone app so that I could pull up TV schedules really easily. I search the Apple app store for “tv schedules” and found 3 options (screen shot below), of which had reviews but they really weren’t enough to find out which app was actually the best. I needed more reviews, I needed better screen shots, basically I needed a better solution.

Well here it is, directly out of Chicago. Appolicios indexes and gives tons more user populated information on appropriate applications, in this case it pulled 49 applicable apps. We all know Apple just doesn’t give us enough information to decide whether or not to purchase. As applications cost money people really want more information before they purchase and Appolicious fixes that problem.

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Eight years ago, I was a SR. in high school and I woke up to my alarm clock set to 91X, the local San Diego rock channel. The only problem was that on this particular morning they weren’t playing ‘Crawling’ by Linkin Park or ‘How you remind me’ by Nickelback, they were just talking, and it sounded serious. In my drowsy state at 6 am I continued to listen to figure out why I wasn’t getting my morning dose of alternative rock.

It didn’t take me long to realize that there was an event that had occurred in NYC. I knew by the sounds of the Dj’s voices that it wasn’t a joke, I knew this one was serious. The radio Dj’s encouraged everyone to turn on their TV’s and watch the events unfold. You know it’s serious if a radio Dj tells you to turn the TV on. They said that a plane had just crashed into one of the World Trade Towers and at this point everyone was still under the safe assumption that it was an accident. When my mind was clear enough to grasp the severity of what was going on, I hoped out of bed and yelled to my Mom and 2 sisters in the neighboring bed rooms, “I think a plane just hit the World Trade Centers in New York, it’s on TV!”

As we frantically began watching the television coverage, jaws on the ground, we slowly grasped the magnitude of what was going on. My Mom and I looked at each other and did double takes at the TV as if we couldn’t believe what we were seeing. As this was 2800 miles away, we still didn’t get it, not like they did on Manhattan.

Later that morning at school people were obviously still in shock, I ditched 3rd period English to stand in the library with 2 close friends and watch the news coverage. This was about the point when they realized that these events were likely planned and they were just starting to release theories on who might have been involved. The reporters were going nuts trying to accurately report the crash at the Pentagon and also the flight that went down near Pittsburgh. It was a true shit show.

I remember watching the TV standing in that library. It was still mostly shock, but for the first time that morning they started to show images of people running from the towers. They showed graphic images of people covered in soot and covering their mouths in horror. These were business men, mothers, children…real people. For the first time on that ridiculous day I welled up and shed a few tears. Before that every image I saw was like some amazing set or stunt perfectly executed in Hollywood, but when I saw the people it sunk in, this is real.

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We will always remember.

I’ve been spending a lot of time thinking about the best way to start a company. As my co-founder, who’s the technical half of our venture works his ass of on the code, I have been working on the design.

When I say design, I mean the design of many different aspects of our company. Yes, I have begun to dive into the CSS, the styling, the logo, and other aspects of the visual design, but probably more important is the time thinking about the design of our company and how we will do business. At my day job process is highly important and I think that mentality will benefit me a ton in my startup.

As I work to design our company I have to consider many factors. Our meetings, our development methodologies, how we report and track tasks, and how we keep one another accountable to those tasks, are just a few. These are all part of an intricate design that will eventually make up the culture of our company. I believe that this is important to design the right culture early so that the mood is set early. The design of how we go about our daily meetings (and by daily I mean nightly) determines a lot about how we work together and accomplish tasks in the most efficient manor. We’ve adopted an agile development methodology and this works well as we are both part time on the project. We meet at least 3 times a week with numerous Basecamp task updates and emails in between. These communications help to define our culture too.

One thing I truly believe is that culture starts with the founders. It’s not something that can be put in place after you have 10 or 100 employees, it starts day one. I also believe that it needs to start in the right direction otherwise it may never find the right course.

Recently, Reed Hastings Netflix’s CEO, was made famous when his lengthy Culture ppt spread through the interwebs. His companies culture might be second to none and it’s heavily due to great leadership from the beginning. As we work to built our own great culture, we will surely learn a ton from Reed as a founder, and Netflix as a company. Here are 9 of the behaviors that are expected from Netflix employees, that in aggregate set the culture of this great internet company. Truly impressive.

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What I’d like to see more of in Chicago is…

1) VC’s and Angels who blog – so that they communicate what is interesting to them and so that they are more accessible or even appear more accessible to the areas entrepreneurs.

2) An increase in the understanding that failure won’t kill you – in the Valley, as well as in NYC, people understand that successful businesses often come from trial and error. Here in Chicago, with the strong industrial goods trading culture, failure is BAD. We need to get over that.

3) Midwest cities need to stop fighting for control – none of you are as big as the hubs (SF & NYC) so work together so that you can pull resources to create a single, strong, job pool and start to create really solid companies.

Next week I’m speaking in Milwaukee about a startup that I started and how/why it failed. That’s my first step.

The reason why I’d like to see more of these 3 things is because from what I’ve seen through the people that I’ve talked to here in Chicago, there is absolutely no reason that Chicago shouldn’t have as strong of a startup culture as any other ecosystem outside the Valley (like NYC or Boulder). People always ask the question, “can you start a successful tech company or web company outside of Silicon Valley?”

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I am a huge fan of Mint.com for managing and aggregating my accounts, I have the Mint.com application on my iPod touch (getting an iPhone soon) and use it all the time. I also use ING Direct for much of my savings accounts. I love the functionality ING provides of being able to split separate withdraws from my checking account directly into sub-accounts on ING. It’s super helpful when I want to keep saving generally but also need to pull some cash together for this wedding thing I have coming up…I heard they’re expensive.

Anyway, I would love to be able to feed my ING accounts into Mint for better management of them, but I’ve had some issues. They’re very strict with having all of my security questions aligned in order to feed the data to Mint.com which can be a pain, but I’ll deal with it for security. However, I recently got this response via email, from a question that I posted on Mint.com’s Get Satisfaction page (GS is a user feedback tool, if you’re not familiar with Get Satisfaction).

The email read:

“Justen replied to ING Direct account cannot be added!, a problem about Mint.com.

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Many of you followed the process of starting, building, then closing SocialDreamium. I’ve been learning and exploring over the past 3 or 4 months and I’m back on the startup bandwagon. I’m cofounding a startup that’s focused on social commerce (announcement soon) and I’ve been working on setting up that company. In the process of this formation there are some detailed questions that needed to be asked and some considerations that are critical in order to answer this question appropriately.

These are common startup questions who’s answers are dispersed around the web but I’ll aggregate much of that information here with resources that I found and some of the learning’s that I’ve acquired. As a disclaimer, don’t take my advice or learning’s as fact, just learn what you can from it, but seek further legal advice if necessary. I have consulted my attorneys in this process, and so should you.

So, as a bit of a background, I’ll address some of the questions and answers that led me to this question. First…

Why a C-corp, not an LLC?

To simplify, and likely over simplify, LLC’s don’t have shares, they have ownership percentages. Percentages get messy in divvying up, and it is also difficult to value the amount that a specific percentage is worth. So it’s much easier to say that 100 shares at $10/share = $1000, rather than saying 1% = X amount. Share values can change quickly, especially when investment is introduced.

Also, LLCs are a product of state laws and it is those laws that often make it impossible (or difficult) to do an IPO of an LLC. When VC’s invest they are looking for that company to do 1 of 2 things, be acquired, or go public, this is called an exit. If IPO’s (going public) are difficult or impossible, it makes perfects sense that VC’s would discourage this structure.

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