One of the primary gaps in the Portland startup scene is the gap between those attempting to build businesses and those attempting to fund businesses, the entrepreneurs and the venture capitalists. There are any number of issues contributing to this gap from pure ignorance to cultural mores.
Start talking to entrepreneurs and side project startups in Portland—or throughout the Silicon Forest in Oregon—and the conversation will inevitably turn to one topic: venture capital or the lack thereof.
For every Oregon company that has had success attracting capital for their pursuits—Jive and AboutUs come to mind—there are hundreds who struggle with where to begin and how to engage the Angel or VC community.
It’s a difficult issue. And no one seems to put his or her finger exactly on the problems or how to solve them. Some say “buck up and play the game.” Others say “the game needs to change.” People talk about staying in Portland and figuring out how to bootstrap. People talk about leaving Portland in order to get funding.
What’s the answer? Read More
Last week, I had the opportunity to attend “Lunch with a VC” hosted by Carolynn Duncan of FundingUniverse and Epic Ventures. Carolynn took the time to field questions from a number of Portland startups and consultants on what it really takes to get a venture capitalist interested in investing in your company.
(If you’re interested in all the gory details about wooing a VC, Carolynn has a great post called “Checklists: What kind of funding are you eligible for?“)
I thought I’d hit the high points, to help you get your head around what it’s going to take.
Think about these 10 things before you think about pursuing outside funding for your startup
- Have you really solved a problem? Just because you see a problem doesn’t mean you’re the person to solve the problem. It’s far easier to criticize existing solutions than it is to invent your own solution. And even if you do invent a solution to that problem, there’s no guarantee that that’s a business.
- Are you mentally prepared? Pursuing VC funding isn’t about self esteem. It’s about business. If you want someone to review what you’re doing and give you positive feedback, Silicon Florist may be a better candidate than a VC. A VC isn’t here to build you up or inflate your ego. A VC is here to figure out how you’re going to make money so that the investment firm can make money.
- Are you ready for the oversight? Angels invest their own money. VCs invest other people’s money. As such, they’re going to have different types of involvement. And different kinds of goals. What kind of involvement and what kind of goals? Read on, gentle reader. Read on.
- Can you deliver on the promise? Angels look for incremental gains. VCs look for exponential gain. But, rest assured, when it comes to investing, everyone’s goal is to make money. Angels are looking to invest time and money to get more money than they had. VCs are looking to invest far larger sums to make an exponential amount on their investment. Why? To make up the for the other crappy companies they picked that are failing to return anything.
- Can you give up control? Angels are going to want more control because it’s their money. Why? Well, VCs invest other people’s money. Angels invest their own money. While both of those parties are going to be extremely interested in what you’re doing with their money, it’s highly likely that the Angel is going to be more involved—because Angels will be especially interested in keeping an eye on their personal money.
- Can you tell the story of the money? The old adage hold true: It takes money to get money. As a rule, VCs don’t fund ideas. They generally fund things that are already making money. For VCs, an investment is an accelerator. They invest money in order to help the company make more money faster. Not making money yet? A VC might not be the right target.
- Are you ready to make the VC pitch? To an investor, the “product” the investor is buying is the business. Not the actual product that the company sells. If you’re thinking of pitching a VC, don’t do the usual “show up and throw up” product demo of features and functionality. Give the potential investor a pitch on your business, moreso than that the product, itself.
- Are you planning ahead or are you too late? Always pursue funding before you get desperate. Why? Well, two reasons. First, no one likes the stench of desperation. And second, it takes 3-6 months to do the due diligence on the deal before you can get stuff going. Don’t wait until it’s too late to begin the conversation. Better yet, begin the conversation before you need anything, at all. Work on your pitch and test drive it.
- Are you ready to play the numbers game? How much of the final entity do you want to own? Take this into consideration… do you want to own 100% of a $1 million company, or do you want to own 51% of a $500 million company? If additional investment is going to make for an exponentially larger pie, then it might be wise to take a cut of the bigger pie, rather than try to horde the smaller pie. Angels and VC are interested in helping you build that bigger pie, so that everyone wins.
- Are you foregoing a “great” funded company in favor of a “good” company that you control? A dead company doesn’t help anyone. The longer you can reasonably put off funding, the better off you will be. But don’t kill your company to retain control (see #9). If garnering additional funding ensures the fulfillment of your idea—even at a loss of control—funding may be the way to go. Bootstrap what you can, but not if it means the loss of your pursuits.
And that’s what I took away. But as always, that’s the high-level. For the deep dive, see Carolynn’s post.
Hopefully this overview helps. Interested in getting more feedback or answering different questions? Carolynn is planning to do this on a regular basis, here in Portland.
It would be great to have you at one of the future events.
Seems like Silicon Florist has lunch on the brain as of late. What with looking for Portland Lunch 2.0 hosts and hosting a Portland Lunch 2.0 in August. So, clearly, mentioning another lunch or two won’t hurt.
Okay, let’s do that.
Come hang out with Epic Ventures to learn more about VC funding. Bring questions! We’ll have 45 min. of Q&A, then head out to lunch as a group.
Carolynn Duncan of Epic Ventures will host this first-of-many-to-come event as a way of introducing herself to the Portland startup and entrepreneurial community.
And lunch isn’t all she has in mind. There will be some other capital-related activities that she’ll be kicking off in the near future as well.
For more information or to RSVP, visit Upcoming.
Now, I don’t usually write about traditional software companies. But it seemed like this one definitely deserved it.
Portland-based Elemental Technologies has secured more than $7 million in its first round of funding.
Okay. So what’s being funded and why am I writing about it?
Utilizing general purpose, programmable “off-the-shelf” graphics processing units (GPUs), ETI software performs video encoding, transcoding, and filtering at unprecedented speeds while maintaining the highest video quality.
Who’s a-what-uh hunh? Okay. Maybe this will help:
[This technology] allows consumers to format their media up to 10 times faster than existing solutions.
Ah ha! Now you’re talking.
With the growing popularity of services like Seesmic, Vimeo (Portland connection), and Viddler—oh and that little site called YouTube—it’s obvious that video is very much a part of our future existence in the Web world. And while any number of companies have come up with ways to deliver that video content on the Web, there always seems to be one major sticking point to widespread adoption: Encoding video content for posting is excruciatingly slow.
To be successful, we’re going to have to be able to encode and upload video as quickly as we can download it. And Elemental may just be able to deliver.
The first product out from Elemental is consumer oriented, will arrive sometime before September and is expected to cost between $30 and $100, depending on the features. The software will allow consumers to take HD inputs such as a Blu-ray disc or homemade HD video and rip it to a computer, iPod or other device five to 10 times faster than existing technologies using the CPU.
No doubt, the infusion of cash will go a long way in promoting this offering—and ensuring that development continues.
Industry-leaders General Catalyst Partners of Boston, Massachusetts and Voyager Capital of Seattle, Washington co-led this $7.1M investment. Mike Rogoway of The Oregonian and the Silicon Forest blog notes:
In Oregon’s venture capital community, [Elemental]’s new investment represents the second big funding round this month. Last week, NexPlanar Corp., a small semiconductor company that recently moved to Hillsboro, announced it had raised $14.5 million in venture capital.
And let’s hope that greases the skids for other Silicon Forest startups looking for some backing.
Talk to enough startups and the conversation eventually turns to that of funding. And the search for that seemingly elusive operating capital.
Ultimately, this discussion devolves into a lament about the frustrations of the VC dance, the cross-purposes, the potential loss of control of which entrepreneurs live in fear, and, ultimately, some inherent evil in the whole process.
We live with this folklore. And we continually repeat it. And reinforce it.
A series of horror stories about what could happen. Stories that we continue to spin, time and time again, until we begin to see them as universal truths.
And then we begin to believe that the concept of VC investment and the culture of the Silicon Forest are at odds with one another.
That we can’t get there from here.
And that’s why I’m glad to see posts like this one from early stage investor Jeff Pulver.
Because these types of stories counteract the folklore. Because the kinds of things he’s seeking don’t seem to be cold-blooded or mercenary. Because Pulver seems to be the type of investor who is right in line with Portland’s startup culture.
When meeting with an early-stage startup looking for funding, if I am interested in the company, I look to connect with the founders and find out the inspiration behind the company they are creating. I try to understand the problem they are solving and the opportunity they are seeing. I also look to see how as a team they get along, work off each other and I try to get a feel of their creative energies. I look for teams where each member is watching each other’s back and a core team whom I feel will be together for the long term. I look for people who are both smart and creative who can be focused when necessary and whose personality allow themselves to be open to change directions and re-map themselves when needed.
If there’s one thing of which we have loads in Portland, it’s creativity. Whether that creativity manifests itself in traditional ways like art and music, or in less traditional ways like crafts, cooking, brewing, vintner-ing, designing… or coding interesting Web apps.
We tend to wield technology like a brush or a pen. Using it as an outlet for our creativity. And then, we tend to relish partaking in others’ creativity, be it culinary or brewery.
And there are VCs out there who get that. Who aren’t big scary monsters. Who are interested in the same types of things you are interested in doing.
We need to remember that. We need to start wooing the right kind of VCs. For you. And for the Silicon Forest.
Investors who, like Jeff Pulver, “invest in people first and ideas second.”
Let’s get started with that, shall we?
Portland-based iovation, the company with whom I hate to start sentences, has announced the closing of its latest round of funding. The round contains an additional $5 million follow-on from SAP Ventures and the brothers Samwer’s European Founders. The round is, well, rounded out by a promised $10 million from Intel Capital that was announced last November.
Mike Rogoway at The Oregonian‘s Silicon Forest blog reports:
SAP and European Founders both have good ties abroad, which Iovation [sic] is counting on to help the Portland Web security firm expand overseas.
iovation (argh!) says they “pioneered the use of device reputation for managing online fraud, abusive behavior and multi-factor authentication.” I say, they have stuff that helps online companies prove you are who you say you are and not some bot. But, easily the best description? “iovation exposes known fraudsters and abusers.”
One of Portland’s new breed of startup success stories, iovation been especially successful in areas where high traffic and small amounts of cash are in play, like online gaming and ecommerce, areas where spoofing and bots can result in millions of dollars of lost revenues.
Or, as I like to think of it: with iovation, the plots of Hackers and Office Space become completely implausible. (Please note: I refuse to listen to any comments that claim the plots of those movies were implausible prior to iovation.)
For more information, visit iovation.
(Hat tip Lisa MacKenzie)
One of the most enigmatic components of any startup’s life is “funding.” Do I need capital? Should I pursue capital? How do I approach venture capitalists? Should I avoid venture capitalists? What are the benefits? What are the drawbacks? Necessary evil or rite of passage?
There are a ton of questions.
And unless you’ve been fortunate enough to learn the funding mating dance as part of another company, it’s a completely foreign—and intimidating—proposition.
Well, have heart Web-app-mogul-to-be. CenterNetworks is running a series on venture capitalists that may help inform your understanding of this strange and elusive beast.
The topic? How VCs get their money:
NYC Venture Capitalist Mark Davis is authoring a four-part series on how a VC is funded. Davis notes the four methods are: diverse limited partners, family office, government or public capital. Today, Davis looks at diverse limited partners. The other three methods will follow throughout the week.
I highly recommend you follow the series. Not only will this provide a great vantage point for helping you understand the motivations for the venture capitalist, it may just help demystify the whole venture capital question for you and your startup.
Earlier this week, I tried to shoot a hole in news that the “Web 2.0 sky is falling” by highlighting that Web 2.0 investments may be down in the Silicon Valley and Texas—but Web 2.0 venture amounts are up practically everywhere else, including the Silicon Forest.
In 2007, the median deal size was $5 million, up 22 percent. And the median pre-money valuation was $10 million, up 66 percent (from $6 million in 2006). Both deal size and valuation for Web 2.0 companies remained below the average VC deal across all industries ($7.6 million and $16 million, respectively)
But again, there’s a silver lining to this Silicon-Valley cloud. For us, at least.
Take a look at where the top investments landed. Lo and behold, there are two Silicon Forest companies on the list. Corvallis-based MyStrands appears on the list twice with nearly $50 million combined investment, and Portland-based Jive Software appears courtesy of their $15 million round, last year.
This is the kind of news that begins to put Portland and the entire Silicon Forest on the map. It’s news that, hopefully, makes the venture capital community take notice. And maybe, just maybe, the type of news that motivates those investors to take a second look at the Rose City technology scene.
I can’t wait to see what 2008 holds for our local companies. But the bar has been set. And I hope to see more than two of our companies on the list, next year.
(Hat tip Jeff the Great)
Man oh man. With all of these Silicon Forest startups attracting funding, it’s about time I establish a “graduating class.” And here’s one of those startups that’s definitely in the running for Salutatorian, if not Valedictorian: Portland-based SplashCast.
First, the funding. Because that’s the real news here.
SplashCast announced today that it has secured $4 million dollars in Series A funding, led by Mark Bayliss, an Australian (remember the Australia trip not too long ago?) media and advertising executive veteran of some of the world’s largest advertising and media companies who runs in the same circles as fellow Aussie and media mogul Rupert Murdoch. Emergent, an emerging growth investment fund also with strong ties to advertising and consumer brands, was a follow-on to the round.
I asked Mike Berkley, SplashCast’s CEO, to put this funding—and the organizations providing it—in perspective for me.
“What does this mean for the company?” said Berkley. “The relationships that Bayliss and his partners bring to SplashCast gives the company a monumental step-up in social marketing.”
Which bring us to my second point. I’m a marketing geek. So, let’s talk about SplashCast’s newest take on their positioning. Or better yet, let’s not use some stupid buzzword. Let’s talk about how SplashCast is describing their product as of late.
If you haven’t been watching SplashCast, this probably would fly right by, unnoticed. But, I’ve been watching these guys ratchet down on the language they’re using and their efforts to make the product more attractive to a broader big-media advertising market. They continue to make definitive changes in describing what they do. And they seem to be honing in on something new.
SplashCast started in user-generated content. Then they moved to more of a “branded content” sort of play, building custom apps for big names like Justin Timberlake, Britney, and Hillary Clinton. Now, they’re directly positioning themselves as an alternative to what—as silly as it sounds for me to describe it this way—can only be referred to “traditional” online advertising models.
SplashCast calls this new focus “social advertisments.” I call it “advertisements that actually do something.” But regardless of what you call it, they’re pushing this message very strongly as of late:
[SplashCast’s] New Social Marketing Solution Viewed As Breakthrough For Advertisers Looking To Reach Users On MySpace, Facebook & Other Social Networking Sites
Splashcasting represents a new form of online marketing called social advertisements – tools marketers use to reach the growing demographic of social network site users. SplashCast’s video-based social advertisements on average receive click-through-rates that are about 75 times higher than typical banner advertisements used on MySpace, Facebook or other social network sites.
This seems to be their new home: taking on traditional online advertising. And that puts them directly in the sites of some very big players.
Now, some may look at these recent changes and cast aspersions. Claiming that this belies a lack of focus.
In my opinion, these changes don’t seem to be wishy-washy or “searching for a problem to solve.” These are simply the pains that any growing company goes through as it works to figure out where its true market lies.
And there’s a very clear reason that the messages have been moving in that direction.
You build a product based on your ideas and passion. You tend to build a company based on what people will buy.
And given that SplashCast is securing funding and landing customers with this new positioning, it only makes sense—from a business perspective—that they continue pursuing this stance.
I, for one, will be continuing to watch them.
For more information on the funding and social advertising, visit SplashCast.