Wednesday, June 10, 2009

Sources of seed funding

I am blogging from the MIT Enterprise Forum sponsored talk about raising seed funding at MIT. On the panel are representatives of Techstars, Spark capital, Google ventures and a angel/serial entrepreneur. About 10 minutes in, I heard something particularly interesting:

VCs are often hesitant to come in and invest in start-ups that have received angel funding already. They would rather be first investors. I did not understand why, I intend to find out.

Moderator asked what can inexperienced entrepreneurs do to get funded. Rich Miner said good ideas will be funded and to send email to miner@google.com. Shawn (techstars) pointed out that people in Boston are reticent as far as it comes to publicizing themselves as angels or people with good ideas and encouraged people to speak up.

Moderator asked generically, what can founders do to be successful raising a seed round? Shawn (techstars) says move the duck (idea) forward. Make progress. Spark rep. advises being ambitious and contacting highly placed people for advisors. Miner (Google ventures) says to be organized and focus on fund raising. Cold call people and ask for advice. David (angel) says to have a good elevator pitch that can be delivered in less than 2 minutes.

Twitter qn: What milestones need to be hit before looking for seed investment? Answer: depends on start-up. Need to agree with investor what that is for your start-up. An interesting response from David: if you are a new entrepreneur, take what you can get. Don't push for one form vs. another, take what you get. If you, the entrepreneur, are integral to the business, investors will give you equity in later rounds to keep you. If you are good at what you do, you will get compensated properly. Save the negotiations for the second start-up when the first has been successful.

Qn: if you are an angel looking to invest the first 25 to 50 K in a company, what should you look for? Answer was a vague look at the team and essentially, go with the gut.

Qn: among panelists, who invests in what industry sector and how capital intensive would they like their investments to be?
Spark: media, technology.
Techstars: extremely capital efficient businesses. B2B, consumer Internet, SaaS plays

Sunday, June 7, 2009

The UPromise Story

Last week, I had the pleasure of speaking with Jeff Bussgang, co-founder, president and COO of Upromise. UPromise was acquired by Sallie Mae in 2006.

UPromise is a loyalty program where participating retailers deposit 1% of the end-consumers spending into a designated college savings account. The amount deposited can be used to pay off existing school loans or to pay for future loans. UPromise's business model was to reach out to students on college campuses, and encourage them to ask their parents to shop at participating retailers, thus saving/earning money for college. This allowed UPromise to drive business to retailers, and they were in turn paid by retailers for this.

Jeff started out by saying that when he and his co-founder Michael Bronner launched UPromise, it was around a very unique set of circumstances.

- Both he and Bronner were experienced entrepreneurs who had exited their previous ventures successfully.

- The company was launched in 2000, when the internet bubble was still intact.

- These two facts helped them raise $34 Million without having a single customer.

- Bronner had extensive contacts in the retail industry, which made it relatively very easy to get their foot in the door, and land the first few customers.

Their experience, branded VC backing, and Bronner's contacts earned them credibility with retailers and once the first few retailers signed up, it was an easier task approaching everyone else. He also mentioned a couple of other interesting points:

- When they approached retailers, they had a CMO with credibility, who had executed a similar strategy before.

- They approached retailers with a comprehensive marketing plan and a branding document.

- The typical time between first contact to contract with a retailer averaged 9 to 12 months.

I found it very interesting when Jeff commented that he was not sure he could found such a company in today's climate and be as successful. It goes to show entrepreneurship is as much about luck as it is about sweat and guts.