Southeast VC

Understanding Term Sheets & Deal Structures - Venture Capital Financing Overview

I have been meaning to post this for a while. John Fogg, a partner at Hutchison Law Group here in Raleigh forwarded me a presentation he gave at CED.

Download hutchison_law_group_understanding_term_sheets.pdf

This is really good. It gives a basic overview of the historical venture capital numbers, but more importantly the presentation focuses on:

- explaining the different sources of capital and pros/cons

- identifying the basic structure of startups

- reviewing the principles of term sheets (valuation, control, exit strategy and down-side protection)

If you're new to raising money from angel investors or VCs, this presentation is an excellent starting point. And even if you've raised money before, this can serve as a good refresher and update on current trends.

Thanks to John for letting me post this. He is a great guy and a good lawyer. I'm sure if you have any questions, you can contact him directly.

Shaking the MoneyTree - Report

I really enjoyed being on the panel this morning at the PWC Shaking the MoneyTree breakfast. Thanks to everyone that came out for it! I think the room was the most packed I have seen for a while.

Anyway, here is the report Download q406_raleigh_shaking_presentation_final_2.pdf that was presented. I thought it would be good to post here especially for folks that are out of town.

Some key highlights:

- NC ranked #7 during Q4 '06 in the top ten list of states garnering venture funds ($119m)

-  For the year, NC was #10 attracting almost $472m

- Nationally, there is almost a 50% increase in number of startup/seed deals getting done in '06 over '05 numbers (great sign for entrepreneurs starting a new company!)

The report also includes: most active venture investors, venture returns, analysis of venture-backed IPO and M&A activity, a list of companies in NC that got funded in '06 with amounts of each deal and a list of VC funds active in NC.

If you have any comments about the report, would love to hear from you.

Present at Venture 2007. Friday is the Deadline.

Just a quick reminder for entrepreneurs that want to present at CED's Venture 2007 conference: the deadline to apply to present is THIS FRIDAY. I think I've mentioned this before, but the conference will showcase the most promising life science & technology companies in the Southeast and Mid-Atlantic. That is a big change from past years when the conference just focused on NC-based companies. This is the 24th year of the conference and I am guessing that it will attract between 700-800 entrepreneurs, VCs and service providers.

As Chair of the Early Stage Recruitment & Selection Committees, I know CED is getting a lot of applications. There is a really good buzz about the conference & I am excited to be involved. If you are thinking about applying and have any questions, feel free to ask me. More than happy to help.

Shaking the MoneyTree - RTP

PWC's Shaking the MoneyTree breakfast is this Thursday in Cary, NC. The event is exclusively for emerging technology companies and VCs. You need to register today to attend.

The event always follows a similar agenda:

- 7:15-7:45 Registration/Continental Breakfast

- 7:45-9am Program

This is always a good event because PWC goes through the national and regional VC trends and then they have 2 VC panelists (this quarter me and Garheng) talk about what's happening in the market. Even better and I know I have posted on this before, but it helps entrepreneurs connect with VCs in a very informal environment and it is free!

Forbes Ranks Raleigh #1 for Jobs in US

More great recognition for Raleigh, NC: Forbes ranks this area #1 for jobs in the US.

That is up from #7 last year. Click here for the full story. And WRAL has a nice summary.

Broadwick CEO - Ryan Allis, Wraps Up Series of Tips to Save $$$

Below Broadwick CEO Ryan Allis offers his tips to save other entrepreneurs $$$. Ryan is one of the scrappiest entrepreneurs I know. He started Broadwick in June '03 and now has 50+ employees, over 9,000 customers and $5m+ in revs. Oh, and I need to mention he is 22.

I was absolutely overwhelmed with responses to post here, but I included them all and hope this has been helpful to other entrepreneurs reading. If you have any input or feedback, please leave a comment.

And thanks again to all the entrepreneurs that participated. I hope everyone has a great weekend!

By Ryan Allis, CEO, Broadwick

Here are some $$$ saving creative tips -- all done by us in building Broadwick/

1. Live in your office. Forget the expensive apartment rent or home mortgage. All you really need is a futon, a computer, a George Foreman Grill and internet access. You can always store your clothes and shower at a friend's house nearby.

2. Barter. Provide your services free of charge in exchange for services of commensurate value from a vendor or service provider you need assistance from (even better if you provide software with a low marginal cost.)

3. Leverage community resources. Many colleges offer free legal advice through their law school to aspiring entrepreneurs and start-ups. Within your community, you can often get pro bono assistance from the Service Corps of Retired Executives or the Small Business Development Center Many business schools also offer programs through which they will assign a team of MBA students to review your business plan or provide free consulting assistance.

4. Offer equity. Some entrepreneurial-minded law and accounting firms will accept stock options in your company in exchange for payment or will allow you to hold off on paying for their service until you raise your first round of funding. If you need their services but don't have the funding, it certainly doesn't hurt to ask if they would be willing to work for you under this type of arrangement.

5. Get in the organic listings. Get a website up, build lots of related content on your website, then ask related web site owners to link to your website in an article or in a resources section. By building good content and quality related incoming links, you can, over 9-12 months, get good rankings in the major search engines for your targeted keywords--which will provide a stream of free leads for your business for many years to come.

Consumer Internet Entrepreneurs Share Their Tips on What They've Done to Save Money

Below the founders of WeddingWire.com, HotPads.com and eMinor share their tips on what they've done to save money as they grow their consumer internet-based business. Thanks to Tim, John and Jed for participating and sharing their experiences with other entrepreneurs.

By Tim Chi, Founder and CEO, WeddingWire.com

Create a virus - leverage the power of viral marketing to gain initial traction within the market, with minimal capital outlay.

Find the All-Stars - Create partnerships with well-known, established companies with good reputations. It will build your brand equity and establish credibility amongst your user base. Consumers' positive perception of the partner will be transferred to your business. Choose your all-stars wisely.

Get on Oprah - Don't wait to get started on your public relations campaign. Keep your PR spending to a minimum by maintaining focus on key markets and specific media outlets. Even a small PR firm can make very big waves.

Be thrifty when it comes to IT - There's no need to shell out big bucks for your initial IT infrastructure. There's plenty of inexpensive (or free) open-source IT products that perform just as well as high-end products. And always be on the lookout for unwanted hardware that other companies no longer need; their trash can be your treasure. Being resourceful when it comes to IT can save substantial dollars early on.

An example: If you are looking for a phone system, check out the Asterisk open-source software. A $400 telephone card, an old Linux box and an $80 IP phone will get you a full blown phone system with digital assistants, extensions, phone routing and all the other bells and whistles!

If you have extra room in your house, use it for the business! Office rent is often expensive and favorable contracts that provide flexibility for growth are often difficult to find. Save a few grand a month and work right out of your living room.

Network, network, network. The easiest way to find information, people and resources are to leverage existing relationships you have already. Instead of paying for information, you might have much of it available to you already through your network. A few well placed emails or phone calls could open doors that would have been very expensive otherwise.

By John Fitzpatrick, Co-Founder, HotPads.com

Do the work yourself that you would normally hire 2 additional people to do. Do not make costly hires and increase the company's burn rate until the company's demands have surpassed the founder's work capacity. It is easier to grow than shrink. Summer interns and a part-time staff completed most of the HotPads' early technology development. Outside of the three founders, HotPads did not hire its first full-time staff for over a year, seven months after launching.

So long as your workforce is small and your operations do not require formal space, work out of your home. Office space is expensive and inflexible. After almost two years of operations and with seven team members, we will run HotPads out of the first floor of a townhouse.

As founders, pay yourself as little as possible. This saves the company precious cash, it saves the founders valuable equity, and it demonstrates the founders' confidence in the future  of the business and willingness to sacrifice and take risk. At HotPads, as the founders, we did not pay ourselves for the first year of operations and now only pay ourselves enough to cover the bills.

By Jed Carlson, CMO and Co-Founder, eMinor

Use interns when possible. Reach out to local university message boards or contacts om the job coordination dept or the dept relevant to your business. You can get a lot of labor in exchange for learning on the job. Beware, however, that you will need to spend some extra time managing inexperienced interns.

Great article on Pay for Performance PR. If this becomes a trend, it could save startups a lot of money.

Outsource payroll. This may sound like a crazy way to SAVE money, but there is fierce competition in the payroll space. Spending $50 per payroll to ensure that all rules and regs are being followed may save tons of money and time over the long haul.

Software Execs Offer More Advice on Saving Money

The 5th in a series of money saving tips.....I am starting to bunch a couple of these together given the volume of responses.

By Greg Burnell, CEO, 6th Sense Analytics

We spend money where it matters most, on people. Everything else we try and do as inexpensively as possible.

Here is the 6th Sense approach:

Office space - You won't find any Herman Miller furniture at 6th Sense and we're not in the most stylish location (in fact, we're in the RDU flight path). Folding tables and rolling white boards enable us to maximize our workspace. Our workspaces are open and unadorned, which fosters collaboration and holds down our costs. It's not fancy, but it works really well and it doesn't break the bank.

Phone - Our corporate PBX is based on VoIP and we're heavy users of Skype and Google Talk for international calling. No other way to go. Use of IM, wiki's and free online collaboration tools also offer cost effective ways to manage work byproducts.

Travel - We're disciplined about lowest-fare bookings and we try to consume every waking hour with meetings. Priceline helps us get great hotels at a reduced rate. Staying in really cheap hotels is a bad idea in my mind. People need rest. Our team has a very real sense of ownership in what we're doing and they treat it as their own money. We're don't impose unfair per diems. We just ask our team to be responsible and judicious, as they typically would be with their own money.

Partners - We try not to go it alone. We always look to tie our marketing programs to a partner or third party to maximize our reach. This is critical.

People - We optimize our spending for talent. Our salaries are fair and our benefits excellent for a company at our stage. We stock the refrigerator and do everything we can to ensure our team is taken care of and feels appreciated. It is critical to create an open and respectful environment to get the most from our people. We work seven days a week and I make it clear this is noticed and appreciated.

By Sean Harrison, COO, BrightDoor Systems

Enlist a champion. Identify and enlist a well known and respected industry voice that can open doors and quickly validate the product and company with target customers. This may be the most important recruit in the company. Traditional marketing and sales efforts applied too early can drain scarce working capital with little or no impact on revenue. Influence from a connected veteran who knows the landscape and can reach out to their existing network of prospects can be the fastest and least costly way to drive early sales.

Seek speaking opportunities. Avoid trade show booth rentals. Lead generation is one of the most costly and time consuming aspects of building sales for a company at any stage. The challenge is compounded for a start-up with limited marketing and promotional resources. Aggressively seek speaking opportunities at industry conferences, trade shows, and association events to promote your company and product to a captive audience of potential customers. Save the time and money that you would have otherwise spent on an exhibit booth and get more exposure as a speaker. Most importantly, invite prospective customers to meet immediately following the presentation or ask that they drop off a business card with a convenient time to follow-up.

Plaxo Founder, Todd Masonis - Money Saving Tips to Help Entrepreneurs

This is the 4th in a series of money saving tips from entrepreneurs. Hope everyone has a great week.

By Todd Masonis, Founder and VP of Products, Plaxo

Tip #1 - Don't pay legal fees. If you are just starting up, you can often fund a law firm that will defer fees or trade fees for some small amount of equity. Usually you will still need to pay anything that they would have to pay (incorporation papers, filing fees, etc.) but this can result in significant savings. The high cost of legal work can be a real surprise - especially when you are working with a big firm and out of your own pocket. There are also some side benefits of skimping on these fees - pitching the law firm can be good practice before going in front of VCs and firms that are willing to do this are usually more start-up savvy and likely to be able to introduce you to new sources of funding and advisors.

Tip #2 - Managed servers. Even if you plan to have a massive server center someday, its often much cheaper to go with dedicated servers when the company launches. There are many providers (e.g. layer42.net) that allow you to not hire an Ops guy at the beginning and also not have to worry about hassles of burn in and hardware burn out. As your traffic and company grow, it will actually be cheaper to take this over yourself - but in the beginning you avoid a large cash outlay, minimize your risk of backups and hardware failure, and get going much more quickly.

Tip #3 - Hire well. Almost all of the cost in running a software company comes from the people you hire. Its also much easier to sell off some hardware or cut back on the company lunches rather than lay people off when times get tough. I prefer hiring fewer people who are true superstars and pay them better. Its amazing what you can do with a small team and if you can be careful about which positions and people you really need, then you will save much more in the long run.

Red Hat Former CFO Manoj George - More Money Saving Tips

This is the 3rd in a series of entrepreneurs sharing their secrets on what they've done to save money as they build their business.

I don't have a link to his bio like in previous posts, so here is some background on Manoj: I've known Manoj for over 8 years when he recruited me to North Carolina to work for him at Red Hat. He was the CFO at Red Hat and later we had the opportunity to work together again when he became the CFO and president of one of our portfolio companies, Art.com. After Art.com, he took some time off and became interim CFO of another one of our companies, ChannelAdvisor. Anyway, we know each other really well and this is a guy that knows how to stretch a dollar. Trust me. :)

By Manoj George

I believe the following three things have been key to efficiently managing costs while effectively producing results during my tenure at various organizations.

1. Being focused on the mission and always being clear of the mission. The many ideas that come as opportunities tend to be distractions that take valuable resources away. Keep the organization away from being penny wise and pound foolish.

2. Make your vendors and service providers your partners. Help them understand your mission and the passion you have in achieving that mission. Treat them with respect yet challenge them to give you the best value, so that both of your organizations can succeed. This will ensure that your partners will go the extra mile to make you successful.

3. Above all, walk the talk. Lead by example as an executive so that you create a culture focused on the core mission and not on self-serving expenditures.