Scott Burkett's Pothole on the Infobahn

VC Outlook from Draper Portage

Tue, 24 Jun 2008 14:19:41 GMT

Matt McCall (Draper Portage Ventures) wrote a very interesting post yesterday. In it, he describes the current venture capital landscape as having “flatlined”. Matt is an ultra bright, fairly conservative venture capitalist (at least he was way back when Portage was a key investor in one of my past lives - MetalMaker). A good read if you are currently launching a startup, and/or you are seeking funding for one.

I’m certainly not an economist, but I will say this: things could certainly be better. The job market sucks, the housing market is nonexistent in many places, and we’re staring $5 gasoline in the face. But how does it really affect the capital-seeking early-stage entrepreneur? It doesn’t sound like this is a particularly compelling time to start a new venture. Possibly, but not necessarily.

I founded my last company in 2000 - unless you were living on a deserted island then, you will remember how nasty the market was. Nevertheless, through persistence and self-funding, I managed to keep the thing going until I could exit (2005 - when the market was more in my favor). Timing is everything, as they say. Granted, the exit wasn’t overly lucrative, but we made money, and no one got hurt in the process.

I do want to point out one thing, though (and Mike and I are going to discuss this a bit in our podcast recording session later today). If you are an entrepreneur that is banking on someone else’s funding to help you to build, launch, and realize your dream - your expectations were probably out of line to begin with, so now it gets doubly hard for you. I see deals like this all the time (as do most investors):

Acme Software provides a world-changing solution to the way consumers shop online! Our cutting-edge, paradoxical approach to e-commerce will drive us to $1B in revenues in just 24 months. Seeking $5M to hire a team, build out the product, and start selling it.

Sorry, not gonna cut it. This is laughable. Telling an investor that “with my time and your money, all things are possible” is not a value proposition. If anything, it a nice fat red flag to any serious investor that you aren’t a bankable jockey (rightly or wrongly - this is the reality).
A tough capital market makes the second mile on your journey possibly more arduous - however, the first mile should not be affected. Innovate, sell, and meet the investors halfway.

In an underserved market like Atlanta, you are not likely to waltz in and secure a first round of capital with an idea alone (save for the occasional angel that truly gets what you are doing). Even if you have a prototype product, your chances may only marginally better. So guess what? Nothing has really changed for you. However, once people are buying what you’re selling, the opportunity will stand out like a diamond in the rough. This is your challenge.

If Acme came in with this pitch, however, things get interesting:

Acme Software’s beta product currently provides over 50,000 consumers with a very unique way to shop online. For the first 12 months after launch, the company generated revenues of $1M, and we’re now at cash-flow break-even. Seeking $2M to expand our product and to expand our sales efforts.

When markets get tough, investors withdraw. Their margin for error is already small, and it gets even smaller in tight markets (true for most entrepreneurs as well). However, entrepreneurs are in a slightly different position. They have the “x factor” - the gene. The thing that makes them drive for success even through the toughest of times. The thing that separates mid-level Fortune 1,000 managers from someone who will try the unthinkable. When the landscape sucks, it actually drives innovation and resourcefulness even further. A blessing in disguise to a serious entrepreneur. Not the same for investors - they are often content to ride out the storm - as well they should, since they are most likely investing someone else’s money. But if your deal represents a chance to return even a mild multiple in a tough market, you may find takers.

Good deals get funding … still. They likely always will. But proving yourself to be a “good deal” could be getting a lot harder if you are on the uber-early end of the spectrum. So adjust your expectations if you need to, then get out there, execute, and don’t worry about things you can’t control. Turn a bad market into an opportunity to move forward, while many others sit on the sidelines. If you can’t (or aren’t willing to) do this, you are most likely going to find the next 12 months to be a colossal waste of your time, energy, and precious capital.

Of course, if your venture is already off and running, Matt serves up some pretty good advice to try and insulate yourself. Good reading, for sure.

Cheers.

Where are the Rockstars?

Sun, 15 Jun 2008 14:41:36 GMT

I had a fun lunch with Drew Ermenc from Catalyst Magazine last week. Our office is actually upstairs from theirs, so it was pretty convenient. Among the many things we talked about was the status of “rockstar entrepreneurs” here in Atlanta. Specifically, they are working on some events for later in the year, and were trying to put together a list of entrepreneurs that would make great panelists and/or speakers.

I was asked if I could suggest some “rockstar” caliber entrepreneurs that they could engage here in Atlanta (or Georgia). Ideally, this would be someone who was currently enjoying a great deal of success, and who also had “name recognition”. Obviously, the combination lends itself to “street cred”, and the ability to draw enough people to fill a venue.

I thought about it for a few minutes, and I must admit, I was a little stuck. I mentally sifted through a few dozen names, but they generally fell into one of the following buckets:

They satisfied one criteria (are currently enjoying success in a venture), but not the other (they bring name recognition), or vice-versa.
They are too “new” - they haven’t had a big hit yet, although I’m bullish on them. But they don’t have the street cred yet as a result.
They had a great deal of success at some time in the past, but are not currently doing much of anything.
They are ultra successful (cash-wise), and do not currently face the challenges that early-stage entrepreneurs face.
They are “tired” - everyone has trotted them out over the past 5 or 10 years as a speaker, and thus wouldn’t bring a fresh perspective.
They are “real estate” moguls, or in some other industry which is driven more by how much cash you can deploy rather than swinging for the fences as a bootstrapping upstart.

If I were to plot this as a distribution curve, there are lots of people on either side of the bell (the long tail!), but not many people inside of the sweet spot (currency/relevant now, street cred, success, etc.)

The only name that really jumped out at me was Mitch Free from MFG.com. MFG went from being bootstrapped from an Excel spreadsheet/sneaker-ware marketplace to an international B2B player backed by Jeff Bezos. And they are still going strong.

Who am I missing?

While I think there may be some gaps now, this won’t always be the case. I think in the next few years we’ll have a new wave of rockstars that will emerge from what is happening here now. But boy, if we were to hold a Woodstock and try to populate it with current Rockstars in Georgia, it wouldn’t be a terribly long show.

Cheers.

Catalyst Mag's Top 25

Sun, 15 Jun 2008 14:07:13 GMT

10 years ago, Catalyst Magazine was a great resource for Atlanta entrepreneurs. Sadly, they fell dormant for a while and ceased publication. Not too long ago, they were sold to Billian Publishing and are now making strides towards resurrecting the magazine. This is cool … I’ve had a number of discussions with them over the past few months and they are really excited about the emerging wave of entrepreneurship that is occuring in the Southeast.

You may also remember Catalyst for their “Top 25 Entrepreneur” (and the “ones-to-watch”) awards. They’ve been quietly soliciting applications for the past month or so for the 2008 awards - and have extended it for a month. Click here for more info.

Cheers.

From Bankrupcty to TAG/GRA Business Launch Winner - WTF?

Mon, 09 Jun 2008 20:01:08 GMT

If you haven’t heard by now (Lance Weatherby), ATM Direct won the 2008 TAG/GRA Business Launch Competition. On the one hand, I congratulate the ATM Direct team for their victory. They walked away with $100K in cash and $200K in services from various sponsors and partners. Not bad!

My other hand, however, is left wondering why a company that at one point was a significant going-concern, and was eventually bought out of bankruptcy court was even allowed to enter a competition aimed at fostering “new” companies. According to the rules of the competition:

The competition is aimed at “new” businesses, however the time and effort required to launch a successful business in the targeted areas may require that an entrepreneur form a company and begin certain limited functions before any meaningful business operations occur. These functions could include prototype or Intellectual Property development and for these or similar reasons up to $500K in external funding may be allowed. Market trials may also be required and for this or a similar reason some limited revenue may be allowed.

Some incredibly cursory research on the web revealed that back in 2005 or so, ATM Direct was bought by Pay to Touch for a little over $30M. One person told me that deal was a bankruptcy matter as well, although I can’t seem to find any reference to it. Just a few months ago (February, 2008), ATM Direct (or at least their patent portfolio) was sold under bankruptcy court supervision for a mere $600K to Accullink LLC (also located here in Atlanta).

No matter how you slice this, it bothers me. It bothers a lot of people that I’ve talked to over the past few days.

I volunteered this year as a pitch mentor for the other three companies that were in the competition (Skybloxx, Global Crypto Systems, and ProperNotice). Each of these embryonic teams worked extremely hard to make it to the finals of the competition. During our pitch mentoring sessions, ATM Direct was absent - no idea why. But I know the other 3 teams came in and walked away with newly gleaned insights into their stories, and a genuine hope that they had a shot to win and get their companies off the ground. Instead, they lost to a company that had been auctioned off on the bankruptcy circuit (at least once, possibly twice).

In any event, the TAG/GRA business launch competition should be aimed at promoting and fostering the launch of new companies here in Georgia. Unless I am missing something obvious here, I can’t help but feel a little shame in this year’s affair. It sort of reminds me of a 16 year old trying to play on a little league team - great for the team that recruited him, but not terribly fair for the other teams. I suppose one argument would be that since the assets of ATM Direct were sold to Accullink, it is a new incarnation, new company, etc. So that would qualify them for the competition. I still don’t like it, though. It just doesn’t give me that warm and fuzzy feeling that I expect from a winner of a competition like this.

In fact, one could counter-argue since the assets were purchased for $600K, that alone would disqualify Accullink/ATM Direct as that would constitute an investment that is greater than the $500K limit outlined in the rules of the competition. I’d have much rather seen a true green-field idea company in that slot (like the other three contestants).

Nevertheless, I sincerely hope that TAG/GRA addresses this matter at some point, if nothing else than to send a message to would-be entrepreneurs here in Georgia that your dreams and efforts still matter. Due diligence is a good thing. Hopefully, someone from TAG or GRA will come and post here and help make some sense of this.

Cheers.

The Storm is Finally Here

Wed, 21 May 2008 00:18:07 GMT

I foresaw it a year ago. Stephen Fleming eloquently described it today. Lance Weatherby posted a nice rundown, too. Ashish Mistry piled on as well. Former Earthlink PR exec now turned media blogger, Dan Greenfield, wrote a nice bit as well.

I was unable to attend Startup Riot as I came down with a nasty cold over the weekend, but from all I’ve heard, the event was another stepping stone for the Southeast. Kudos to Sanjay for stepping up and putting a lot of his time into the event. (StartupRiot Flickr stream here). Lance Weatherby posted a nice rundown of the companies that presented at StartupRiot as well - check ‘em out.

I think the smart kids leaving Atlanta to go ply their trades in Silicon Valley are going to eventually regret their move. Atlanta is back - and what we’re seeing now is merely the tip of the iceberg. As I was quoted saying in Dan Greenfield’s excellent piece - I think a year or two from now and Atlanta’s tech and startup scenes will be unrecognizable.

Now we have to sustain this momentum as a community. History is full of flashes in the proverbial pan. I, for one, don’t want to see it go down like that. And it won’t.
Our StartupLounge event tomorrow night will hopefully put a nice bow on what has been an incredible month for startups in Georgia. The event is full - unless you are a last minute investor who wants to attend - but you can read the details here. We’ve also posted new dates for CapitalLounge, AngelLounge, and PitchCamp …

BTW, congrats to SoloHealth - who just scored a new round of funding. They’ll be hanging out at our CapitalLounge event again tomorrow - so if you’re coming, be sure to congratulate Bart Foster and his team.

Yes, the storm is here. No, I mean really. As fitting as this sounds - as I write this draft, we are under a tornado warning. One just touched down a few miles from here.

See you on the bitstream …

Cheers.

Cleantech and ATDC Showcase Wrapup

Mon, 19 May 2008 18:01:43 GMT

Man what a busy week! I think this month (May) will go down as one of the busiest in Atlanta startup history.

Hosting the Cleantech Georgia 2008 event was a ton of fun (my corny jokes aside). We had a great docket of speakers and panelists, and each delivered some incredibly valuable content.

Mike McQuary’s low-speed electric vehicle (RETV) got a nice workout after the event. Attendees could stand in line and take it for a spin around the block. Good stuff!

(more…)

Ruff and Tuff Electric Vehicles at Georgia Cleantech 2008

Sat, 10 May 2008 13:21:46 GMT

Just a quick update on the upcoming Cleantech Georgia 2008 event, which is being held this coming Wednesday, May 14th.

In addition to having featured speakers from Coca Cola, Southern Company, Suniva, Hardin Construction, and Valhalla Partners, we are thrilled to have locked in Mike McQuary as a speaker. If you don’t Mike, or know of him, he was one of the original principals behind Mindspring (later merged with EarthLink). McQ is doing something really neat these days. Among other things, he is the CEO of Ruff and Tuff, a manufacturer of electric vehicles. Rumor has it that he will actually have one of their vehicles on display at the event.

Also, here is the list of startups that will be delivering a 3 minute fast-pitch at the event:

Ride Cell
i-Linc Technologies
Radiance Energies

If you’d like to attend, here are the specifics.

Thanks again to all of my fellow board members of the TAG Business & Technology Alliance for helping to pull this together. It should be a great event! A special thanksto board member Cindy Cheatham of the ATDC. Cindy has really gone above and beyond to help bring this event together.

Cheers.

A Busy Month for Georgia Entrepreneurs

Fri, 02 May 2008 16:45:34 GMT

If there was ever an indicator of how things are improving here in Georgia for early-stage entrepreneurs, you need to look no further than the amazing slate of grass-roots and established events going on this month (shown below in chronological order):

AngelLounge - May 1st - May we just held this yesterday, and again, we had a nice crowd of Atlanta-area angel investors in attendance. AngelLounge is a monthly peer group comprised solely of angel investors. The goal is networking, education/mentoring, and deal flow. This was our 4th meeting, and things seem to be rolling along with it. During yesterday’s gathering, the focus was on “deal flow” - we also talked a bit about BoostPhase - Stephen Fleming’s new grassroots funding/acceleration vehicle for early-stage (idea stage) technology ventures. Good stuff … more soon.
PitchCamp - May 7th - PitchCamp is our free afternoon workshop for entrepreneurs. The goal is to work on pitches, one pagers, and investor networking basics. Good stuff. We (StartupLounge) do this monthly, and the results have been fantastic. The session next week is nearly full (we have one company slot still open if anyone wants to come). We’ll have some great mentors in the room as well, including Sanjay Parekh (co-founder of Digital Envoy and creator of Startup Riot), Steve Walden (angel investor, and one of the key early guys at Prodigy - also the guy who helped launched Bellsouth.net), and Clark Gilder of the Atlanta Technology Angels.
Cleantech Georgia 2008 - May 14th - The clean energy technology sector is real. In fact, last year, the total dollars invested in cleantech eclipsed the investments made in information technology - wow. This is the second annual Cleantech event here in Georgia. Aside from the great slate of speakers (Coca-Cola Company, Southern Company, Valhalla Partners, Hardin Construction), we have another fantastic line-up of early-stage cleantech companies that will be delivering fast-pitches to the crowd. Brought to you by TAG’s Business and Technology Alliance (B&TA).
ATDC’s Annual Entrepreneur Showcase - May 15th - held once a year, this is a great event that celebrates the graduating class of the ATDC incubator down at Georgia Tech. A great batch of companies this year, including Emcien and Vendormate. There will be a huge crowd, and StartupLounge will be doing a podcast remote again this year - good stuff!
Startup Riot - May 19th - Sanjay Parekh is a one-man wrecking crew, in the positive sense. This should be a cool event - 75-80 companies delivering 3 minute pitches throughout the day. Drew Curtis (Fark.com) will be delivering a keynote as well. I spoke with Sanjayyesterday at AngelLounge, and it looks like around 200 folks will be there. Booyah!
CapitalLounge - May 21st - the month concludes with StartupLounge’s flagship event. Formerly called “Capital Connections”, this quarterly event brings together 250-300 fast-growth entrepreneurs, venture capitalists, and angel investors for a great night of cocktails, gourmet food, and open networking. And, in true StartupLounge fashion, no job-seekers or service providers allowed (save for our handful of stalwart sponsors).

These events are all free for entrepreneurs (save for the Cleantech event, which is free for TAG members, and also free for fast-pitch entrepreneurs). Events that charge entrepreneurs and/or are sponsored by organizations that play “middleman” are not listed here.

This is perhaps the busiest I’ve seen this community since the late 90s. Life is good, and getting better.

Cheers.

Must-See Entrepreneurship TV

Fri, 02 May 2008 15:22:07 GMT

I’ve started watching (Chef Gordon) Ramsey’s Kitchen Nightmares on BBC on my cable package. Although I started watching because cooking is a hobby of mine and I’ve always been fascinated by the restaurant business (when I worked at McDonald’s as a kid, I loved it), it has struck me how wonderfully educational the program is for entrepreneurs in general.

(note - Chef Ramsey does a reality show on Fox called Hell’s Kitchen - not the same show at all)

The premise of the show is Ramsey, a celebrity chef and owner of multiple high profile restaurants around the world, visits small restaurants that are failing and provides 7 days of consulting to turn them around. I’ve noticed several themes that have clear parallels with entrepreneurial ventures in general. For example:

Understanding what drives profit is important and often counter to conventional wisdom (serving high-end, elegant food is sexy but is much harder to do profitably - the profitable activity often isn’t the sexiest).
There’s no substitute for roll-up-your-sleeves marketing. When Ramsey analyzes a restaurant, he goes into town and interviews people to see why they aren’t coming. Then he goes out with the owner go out into the general public when the restaurant re-opens for marketing. Lesson 1: lots of the most important marketing is not all that sophsticated. Lesson 2 - even millionaires should never think they are too good to sell to the public. Lesson 3 - Figure out who your customers are and talk to them.
Lack of product focus is an insidious source of pain for a company. When restaurants have menus with dozens of choices, food production is a nightmare - you don’t get particularly good at preparing many dishes. Plus, your sales staff (wait staff) has a much more difficult learning curve.
Denial of problems (Ramsey is excellent at facing the brutal truth, usually involving a great deal of profanity) is a killer - once you recognize problems, even deep problems can be surprisingly easy to fix if you take a cold, dispassionate look at them.
Even one wrong person on the management team can be a company-killer. They need to be excluded from the company quickly once it’s determined that they are the wrong person.
Managing employees who are friends is really difficult because it’s hard to ask your friends to do things that you expect your employees to do - and it’s even harder to provide firm guidance when required.
Management is leadership - people have to want to do what you say not just because you pay them, but because they value your approval. You can’t leave your employees in the trenches and hide from crisis. You have to treat employees with respect (that’s very different from coddling), and you have to be willing to do whatever it takes to make the customer happy.
Poor communication among the production (chef), management (restaurant owner) and sales (waitstaff) - often leads to lousy food and lousy service.
Lack of passion on the part of owners and employees leads to sloppy execution (you can’t provide good service to customers without a passion for what you do). In one show, the head chef realized he really wanted to work with troubled teens (which is why he staffed his kitchen with them) and he left the restaurant to be a social worker.

If you’re interested in becoming a more skilled entrepreneur, I highly recommend watching this entertaining and edcuational show. My wife Cordelia, who also loves entrepreneurship, is also hooked and it’s become quality time for me and the Mrs.

I’ve found good lessons for me as a manager from the show. You may also.

– mike

Congrats Trajectory Learning!

Fri, 02 May 2008 05:20:11 GMT

I just learned that Trajectory Learning made the final 15 list for the TAG/GRA Business Launch competition. Good job, Henry!

Cheers.