DreamIt Ventures

Three Angels from Robin Hood Ventures led our final Tuesday Night Speakers series-- Larry Brotzge, Tom Olenzak and Coley Brown. While all three are members of the same Philadelphia-based angel group, they represent the broad array of angel perspectives. Coley is from a technology background, having recently joined Robin Hood after retiring from CTB Consulting, a company he founded. He emphasizes the importance of mentoring, something he’s learned starting five companies. Larry, by contrast, comes from more of a financial background. He is a former CPA at a Big Four firm and Controller for a Fortune 500 financial services firm who co-founded Robin Hood Ventures. His interests were always more entrepreneurial and he has been working with start-ups for the past 14 years.   Tom is a mix.   Experienced entrepreneur, independent Angel, Investment Banker, and Venture Capitalist; running FCG's corporate healthcare venture fund. He also founded Cutting Edge Computer Solutions, Inc. Tom is currently a founding partner of Fountainhead Venture Group and DreamIt Ventures Guru.  The evening opened with introductions and important advice from the three angels.   All three agreed that angels are motivated by their own self-interest. While they may be interested in the product and people, they are investors who expect to earn a return on their money. Turn offs included unrealistic value estimates, ludicrous statements (we have no competition), and being unprepared. In an introductory setting, Coley recommended offering a “Reader’s Digest” version of your idea, with the goal being to create an invitation to talk later. Tom emphasized the “Why” element. Having a great idea isn’t enough. You need to explain why it matters and why it is a big idea.    They also spent some time discussing different funding options that might be appropriate depending on where the company was in its growth curve:   family & friends in the concept stage, individual Angels when looking for $50-100k, Angel Groups and Venture Capitalists for more significant sources of capital. They also suggested that when seeking individual Angels, look for people in related fields. Identifying someone with expertise in your area will create an opening for dialogue, feedback and ultimately sponsorship.  When creating financial projections, one Innovator queried, “Would you prefer we make our best guess or build something based on the size of the market?” All three agreed that there should be a logical progression through your assumptions. The numbers need to be reasonable, and be built from the bottom up.    Financial projections and the model used to build them are the numerical representation of your business plan. Larry added that if you can’t give revenue, at a minimum you needed to outline the steps, timeline and milestones for getting to that point.    Another Innovator asked, “Should you state possible exits options?” Again, all three agreed, especially when dealing with Venture Capitalists and Angel Groups, sharing that  Investors will want to know the type of companies that might ultimately find your company attractive.  Our thanks to Larry, Coley and Tom for another helpful evening.   Their insights will no doubt be useful as the Innovators prepare for Funding Day, September 4th.

David Kosslyn, Ryan Schoen and Shankar Ramaswamy unveiled PhrazIt  to positive reviews. “With so many detailed opinion pieces available, getting to the bottom line can be difficult,” according to Jason Kincaid of TechCrunch who broke the story.  PhrazIt is a revolutionary way to share condensed opinions on the web by creating a visual representation of consensus.  “Reviews” are created by users by adding short phrases (30 characters or less) to topics, or clicking on existing opinions to agree. The more the crowd agrees, the larger the comment becomes.   Additionally, users can track the opinions of others. The story was quickly picked up by David Speers of Phillypreneurs and Digg. Killer Startups decreed that Phrazit might be a killer because “[The] reviews on the site are really short (that’s the idea) and amazingly concise. This makes the site a sort of Twitter for reviews, and everyone loves Twitter.” John DeCesaro of Ad Outsider, an experienced marketing professional who blogs on advertising, used PhrazIt as an example of the importance of the simplicity of ideas. “A big part of brand perception is out of the hands of the branders and in control of the market. “ As this transition occurs, tools like PhrazIt will become pivotal to assess market perception. Congratulations, PhrazIt, on a successful launch.

We were fortunate tonight to host Hal Fullmer and Jake Soumis who led the discussion on protecting your intellectual property. Hal and Jake are IP attorneys for Washburn Woodcock, a leading national intellectual property firm named the top intellectual property firm in Pennsylvania by Chambers USA. Both Hal and Jake have engineering and/or scientific backgrounds in addition to acquiring, enforcing and leveraging intellectual property rights—a hallmark of Washburn Woodcock. Hal reviewed the differences between patents, trademarks, copyrights, and trade secrets paying careful attention to registration requirements. His conversation expanded to include useful tips for contracts, including assigning IP rights, non-compete clauses, issues of confidentiality, licensing, warranty of originality and ownership. Given the nature of our companies, the remainder of the evening focused on in-depth questions surrounding patents. Entrepreneurs often file for provisional patent applications while they explore the full functionality and development of their innovations. Provisional patent applications, in contrast to regular patent applications, are valid for a period of one year (after which a regular application must be applied or the rights expire) and cost significantly less. The Innovators had a number of questions. One Innovator asked if enhancements were covered in a patent or if they required the filing of a new patent, another how frequently patents were enforced.   Hal offered the following statistic—the average price to defend a case valued at $25M is $2M through trial. Realistically, this means that patents act as speed bumps, not brick walls in defending rights. Hal and Josh also warned of the dangers of “Patent Trolls.” Trolls are people who make a living by filing, purchasing and enforcing patents. Thank you, Hal and Josh for an informative evening.    

On August 6, 2008, Ben Franklin Technology Partners of Southeastern Pennsylvania (BFTP) announced that they had approved Hovitate LLC, the parent company of Vuzit, for a $100k investment.  Hovitate’s Vuzit product had already won the Most Innovative Product or Service award at the 2008 Ben Franklin Emerging Business Awards earlier in the year.

Our own Mike Levinson was the featured speaker tonight.  Throughout the 2008 program, Mike has been keeping a notebook of tips and advice to share with the group.  Tonight, he shared these bits of wisdom.

The first part of the evening covered his successes and challenges.   He spoke about the first companies he founded and the lessons learned throughout his career.    He recalled an early turning point in his career when a Venture Capitalist pointed out the downside of his service business— “your assets walk out the door every night”.  This led Mike to shift his business over time until 70% of his revenues came from product sales:  “A product can be generating revenue even when you are asleep.” 

Having a great partner was another key to his success.  While sharing core values was integral to the partnership, they were very different people.  Mike loved the challenge of building the business.  His partner, on the other hand, excelled at selling and being an evangelist for their  products and services. 

He discussed his creative approaches to marketing and market share.  He talked about a few of his favorite books “Positioning” and “Crossing the Chasm,” both of which helped him identify and build unique market segments.    He also encouraged the Innovators to be creative not only in solving product problems but also attracting capital.  Understanding the motivations at both sides of the table often led him to propose a solution that was a win for both parties.   He concluded by sharing insights into angel investing.

During the second part of his session  Mike focused on advice regarding the business aspects of what they were doing:  accounting, legal, human resources, insurance and marketing.  He offered tips to the Innovators as they begin to hire and grow their businesses.    He shared tips about hiring, payroll services, legal documents, and terms sheets..

With product launches and staff expansion on the horizon, these tips couldn’t have come at a better time!

Steve Barsh, frequent visitor and mentor extraordinaire, spent the afternoon meeting with a number of the DreamIt companies while David Speers of Phillypreneurs conducted interviews.  David will be posting a series of stories on Phillypreneurs featuring DreamIt Ventures and the companies currently involved in the program.    

Gil Beyda, co-founder of Real Media (acquired by 24/7 in 2001), inventor of Open AdStream, and CTO of Tacoda (acquired last year by AOL), joined us in the evening to discuss internet advertising, eCommerce and his perspective on pitching to seed stage venture groups.  Gil is currently a managing partner of Genacast Ventures, a seed stage fund founded in partnership with Comcast Interactive Capital that specializes in new media, digital marketing, consumer Internet and web x.0 companies. 

Gil was able to combine his experiences as a developer of technology, entrepreneur and investor in early stage companies to develop a series of “lessons learned” to share with our Innovators.  His tips included how to select a strategic partner and raising capital/seeking an exit in difficult markets, recounting his experiences finding an exit as the “bubble burst” in 2000.  The Innovators were particularly engaged as Gil described Tacoda and behavioral targeted online advertising.  He described the shift that is occurring away from targeting pages toward targeting people.  There is not enough diversity on a single site to get value.  In his opinion, the value comes from tracking behavior over multiple sites.  He also discussed how to monetize this information.

A self proclaimed “lover of technology,” Gil stated that technology is important for one reason—it should make you more capital efficient, creating value.  In determining which technology to focus on, he recommended that Innovators focus their developers on “the nugget,” that aspect which is new, different and unique.  It is that element which creates value. 

The last part of his speech focused on his own journey of self-discovery that led him to the role of investor.  After Tacoda and meeting with more than 30 start-ups, Gil decided that he enjoyed figuring out who would be successful. 

Thank you, Gil, for providing an opportunity to peek behind the curtain of online advertising and behavior.

One of our DreamIt teams, Beanstockd, was featured in an article in the August issue of Entrepreneur Magazine as well as the July 30th issue of US News.    Congrats to Beanstockd and thanks for the DreamIt mention!

As a special 2nd session this week, Steve Barsh, experienced CEO, entrepreneur and senior executive, led a discussion tonight on De-Risking Your Business Model. Steve is currently an entrepreneur in residence (EIR) at First Round Capital and an active Guru for several DreamIt Ventures companies.  Steve’s presentation was a how-to for de-risking your business; building upon the insights shared by many of our other speakers. According to Steve, entrepreneurs often seek capital before adequately de-risking their businesses. Investors consider the attractiveness of the business (return) as well as uncertainty (risk). For most investors, it is a balance act. He encouraged Innovators to think outside the box. For financing he offered alternative sources—bootstrapping; angels; and customers as alternatives to Venture Capital. “Customers financed many of my new products.” Not only did they provide real feedback; but they also required no equity. To dissuade doubt, he recommends entrepreneurs stop waiving their hands and start pointing-- turning assumptions into facts. Two methods he recommends are hypothesis testing and use of proxies, a capital efficient method for de-risking. One company Steve is mentoring shared their experience with a recent product introduction. They were interested in determining how much someone would pay for their product. To test their hypothesis, they created a   The remainder of his presentation focused on types of risk and techniques he’s used to reduce uncertainty. Main areas to focus on include the management team; product development; competition; market size; customer/market demand; pricing; marketing; the sales cycle; capital demand; execution and exit value. Steve opined that programs like DreamIt Ventures help entrepreneurs in the de-risking process by providing an environment for providing feedback. One advantage is the exposure to other entrepreneurs and seasoned mentors who may all out assumptions. They provide an opportunity for unbiased brainstorming as well as challenges in a safe environment.  Thank you, Steve, for your continued insights. Click here to read Steve’s blog or review the presentation.    

Founder and CEO of CDNOW, Jason Olim, joined us last night to discuss his experiences “living the dream” and the lessons he learned along the way.

Jason started CDNOW in 1994 with his brother in the basement of his parent’s house. By 1999, the company had grown to over $150M in revenues with more than 500 employees in a global operation. Since CDNOW, Jason has devoted much of his time to studying entrepreneurial psychology—what makes entrepreneurs unique—as well as continuing to start business, serve on boards and be an ardent supporter of start-ups. His current project is the Freshman Fund.

Jason’s presentation involved polling our own Innovators and providing feedback. He began the evening by asking questions about what motivated the Innovators to start their own company, quickly leading into a discussion about team size and the role of the Founder(s) over time. Jason offered a simple, global definition of the role of the Founder. “In an early stage start-up, the Founder is the person who must do whatever can’t get done by someone else.” However, as the organization grows, it was important for the Founder to take on a more specific role—that of mission/vision/culture keeper, strategist and motivator. The group also discussed common characteristics of entrepreneurs. According to Jason’s research, studies have shown that entrepreneurs are actually more risk adverse than the average population. As one Innovator suggested, “I know and understand the risks of my business. I have the ability to actively address and diminish them.”  Other topics included advice for working with family; the importance of providing positive and negative feedback; and how hiring can impact a company’s culture.  When asked what his biggest regret was, Jason responded with a chuckle, “Sell books.” [Amazon offered a competing model and now owns CDNOW.]  We’d like to thank Jason for sharing his research and advice.

On Tuesday, July 15th DreamIt Ventures was thrilled to host Albert Wenger of Union Square Ventures, Rob Adams of Next Stage Capital and Chris Fralic of First Round Capital - three early-stage venture funds focused on internet/technology companies. All are experienced entrepreneurs and business professionals who occasionally co-invest alongside each other. The group spent one-on-one time with each company, hearing their pitch and story. Afterward, they shared a panel presentation where they provided insights into attracting and working with VC firms.

Chris broke the ice with a “Top 10 List of Things You Should Know Do When Courting VCs,” including #1 Make it easy to contact you. Put your name, company name; email and phone number on all communications. Next, the conversation migrated to motivations and mechanisms of VC funds including the structure of the fund, who their clients are, the expectations of those clients and attributes they look for in emerging companies.   

All three emphasized the importance of people in VC relationships. For VCs, they need to evaluate the people involved, not just technologies. They all agreed that it is better to wait three months to hire the right person for job than hire the wrong person now. Equally important, they felt entrepreneurs should expect support from VCs. As one attendee put it, VCs are not just checkbooks with faces. The management team of the VC (and their network) can often help emerging companies by providing advice, guidance and introductions. 

  Other questions related to the math of ownership with multiple rounds of capital (how IRR, % ownership, and market value can affect the amount of capital you can reasonably expect to raise) and the filter process (how many companies do they look at, how many progress (less than 1%), does the format change as you progress). One company member asked: “Do I have to show revenue to attract capital?” The panelists had different answers to this question with Albert offering that it was not necessary for his firm, and that they were comfortable with less developed plans. He pointed to twitter as an example of focusing on the technology first.   It was a great session offering a unique insight into the world of Venture Capitalists and we thank Albert, Rob and Chris for their candid answers and advice.