Saturday, February 6, 2016

Baylor University New Venture Competition

“Baylor University’s Center for Entrepreneurship invites you to attend the 5th annual Baylor New Venture Competition. Come and see our finalists companies compete for over $150,000 in cash and prizes. The event takes place in Baylor’s brand new, state of the art Foster Campus for Business and Innovation on February 26-27, 2016

Register to attend through the competition website and join us for what promises to be a great day of entrepreneurship, networking, and impressive student ventures.”

You can see more at this link.

Texas Venture Growth Forum Wrap -- 5

AUSTIN, TX- Some of the greatest minds in Venture Capital and Texas’s startup scene came together at the AT&T Conference Center last week to get down to business.  With a focus on closing the series B funding gap in Texas, over 42 investors including Shell Corporate Ventures, Bain Capital Ventures, and Live Oak Venture Partners, met with over 27 $5M+ revenue companies, as well as Texas state representatives, to address the funding gap, share ideas, and close some deals.

As an intern for Texas Entrepreneur Networks, I have spent the last few weeks researching and writing articles about Texas’ startup ecosystem, and on the role of corporations in venture growth, among other things. My work with TEN gave me a glimpse of the current state of investors and founders in Texas, and the symbiotic relationship they share. But naturally, theory can only teach you so much and my entrepreneurial sweet-tooth was hungry to learn more; to experience that world firsthand, preached straight from the mouths of those who are building it.

I found exactly what I was looking for, and much more, at the Texas Venture Growth forum.

The day began with a welcome from TXVGF host Paul Watson, and moved into a keynote with Texas State Representative for House, Jason Villalba. Mr. Villalba expressed a genuine desire for the state to work alongside the venture growth industry to accelerate innovation and job creation in Texas. In light of a discussion on the shortcomings of the Texas Enterprise Fund, Mr. Villalba envisioned a relationship where the Texas government would co-invest alongside select venture capital partners. This would eliminate the need for the government to choose winners and losers in companies, as well as the potential for alleged “cronyism”, while maximizing the impact of taxpayer dollars on job creation. This was a particularly refreshing message from the Texas State that was, essentially- “we want to help you do what you do best to create jobs, and largely keep the institution out of it”.

I spent the rest of the day getting inside the heads of founders of growth-stage companies and venture growth pundits. My main reaction- holy cow these people are smart. Five of my favorite takeaways from the event are:

-The next generation of software will be centered around big data. By integrating an additional layer of data-mining, companies create a unique competitive advantage that is difficult for new entrants to replicate.

Talent “poaching” is a real and present danger for founders of tech startups, especially in Austin with larger corporations opening offices and seeking the best talent.

What makes Silicon Valley such an attractive ecosystem is the velocity of information sharing. Austin’s startup ecosystem growth shouldn’t be focused on becoming the next Silicon Valley, but could do well to better connect founders, investors, and talent. Josh Baer’s co-working space and accelerator, Capital Factory, as well as the TXVGF itself are making great strides in this respect.

Keep it simple, be succinct, and know what you are talking about to sound like a total genius.

And lastly, venture capitalists are people too. When somebody has the ability to slap down a check for $10 million, it’s easy to put them on a pedestal and view them as some sort of a financial demi-god. When it came down to it, the investors I interacted with were down-to-earth, passionate, and exciting people who are entrepreneurs and innovators at heart. They focus on holistically adding value to the world, as much as they do on making money.

It was a tremendous honor to share an experience and grow alongside all of the individuals present, and I am deeply humbled by the perspective that I gained.  This is an exciting time for Texas startups and investors, and I am exhilarated by the thought of participating alongside some of my new friends in the industry. Now, to summarize my understanding of startups and investment post-TXVGF, I leave you with the words of Anthony Volodkin, Founder of Hype Machine: “Be undeniably good. No marketing effort or social media buzzword can be a substitute for that”.

Thanks again for the insight, and I hope to see you all at TXVGF 2016.

Five Fundraising Myths Entrepreneurs Believe

Raising funding is difficult for many entrepreneurs and believing the following 5 myths make it even harder.

Myth #1 -- Fundraising is about getting the check.
Reality--Fund raising is about building a relationship with the investor.

Myth #2 -- My product will carry the day.
Reality -- Your business (if you have one) will carry the day.

Myth #3-- It should only take a few weeks to raise a $1M.
Reality -- It'll take you a calendar year for every $1M you want to raise at the seed stage.

Myth #4 --The investor didn't follow up with me from my pitch session so he must not be interested
Reality -- Investors spend the first three to five interactions trying to figure out what you are doing.

Myth #5 -- I just need 5 investors to raise $250K.
Reality -- You'll need 50 investor prospects from which you can raise $250K.

Can you support the team -- at least a little bit

As an investor, I see many deals coming through the angel networks and increasingly across the funding portals. I dropped the "crowd" out of the name as it's fast becoming the standard for entrepreneurs to showcase their deals on crowdfunding portals -- so much so, that pretty soon, it'll be the default.

After deciding the team has something and they are in the right market, the next question I ask myself is, "Can I support the team -- at least a little bit."  I've learned that passive investing is really not that interesting.  It would be easier to invest in an index fund if that's all that I'm going to do.  If I'm investing in a startup, then I want some role in the business.  I ask myself:

1. Can I help with the product?
2. Can I help build the team?
3. Can I help make sales?
4. Can I help with the business process/
5. Can I help with the marketing?
6. Can I help with lead generation?
7. Can I help with recruiting?
8. Can I help with the operations?
9. Can I help with the logistics/office?

If I go through the entire list and I can't find any way to help, then I take a pass on it.

Angel investing should be active investing -- at least a little bit.

Hall T.

Erik Huddleston on Funding Trendkite

TrendKite was founded in 2012 by two young sales executives of a company called Meltwater Group in Philadelphia. AJ Bruno and Matt Allison were aware of the innovation in software for sales and marketing that were taking place but thought that something of a similar caliber was lacking in the PR sector. Motivated to serve the PR market, the two entered the accelerator DreamIt with an idea and emerged with TrendKite: a computer software company that provides analytics to help PR professionals succeed.

With the help of seed funding from DreamIt Ventures, TrendKite was relocated to Austin, TX.  Here, an initial investor, Silverton. was secured. TrendKite then acquired a valuable connection to future CEO, Huddleston, who helped the company takeoff by acquiring a stronger customer base and a $3.4M investment from Mercury Fund.

TrendKite has raised $20.1M in four rounds with more than 75% of that acquired after the placement of Erik Huddleston as CEO. Huddleston has past experience with software startups, as he founded BetweenMarkets in 2000 and paired with Chris Porch in order to raise 6.2M. Erik Huddleston shares insight about his success in fundraising for TrendKite.

The Mercury Fund investment of $3.4 M allowed TrendKite to quickly build a strategic business plan and test their channels into the market. With the successful channels in place and a notable 250% growth in 2014, TrendKite was prepared for another round of fundraising. With momentum around the idea of keeping it an inside round, the initial two investors (Silverton and Mercury) were ready to double down. In addition, TrendKite partnered with Battery Ventures, another Austin based venture capital and private equity company.

“It was the fastest fundraise of my career, weighing in at about 3 weeks.”  The total raised for this round was $5.5M.

With a price similar to existing analytical platforms, TrendKite’s growth was accredited to the technology - the company was offering more technology than competitors for a price that was commonplace in their sector. To continue to differentiate, the 5.5M from Series A was going to be used to strengthen sales and marketing as well as reinvest in the technology of the product.

In October of 2015, Huddleston hit the west coast for a Series B round. This time, Huddleston approached only those he had relationships with or those who had suggested interest. The offers came quickly in this round because of Huddleston’s primary strategy: keep the potential investor’s informed. The Series B raise ended with 10.7M primarily from a partnership with Noro-Moseley.

Huddleston approaches potential investors in the earliest phases. A relationship begins built on a transfer of information about the state of the startup. At this point, there is no intention of acquiring an investment. Instead, Huddleston is keeping the contacts aware of the milestones the company is accomplishing. When the time comes for a real round of fundraising, the investors are familiar with the company and less likely to be dissuaded by the gaps in information that are common with
new businesses. He suggests to get on the radar of the people you would like to partner with by divulging what you’re up to, where you’re at, and how you believe your future plans are going to unfold.

“You can spread out the pain of fundraising and increase the chance of conversion by approaching folks early.”

Specifically, Huddleston makes a phone call to his top tier investors every two to three months. Generally these calls are made to seek help from Venture Capitalists in non-financial forms such as introductions or advice. Providing the advice gives the capitalist insight in the company and a sense of “buy-in.” Essentially, Huddleston is building relationships that are useful to him and altruistically gratifying to the capitalists. For instance, Eric Huddleston has maintained a business relationship with Silverton and Mercury for over 10 years of communication and value exchange.

“If they’re helpful to me when they have no reason to be helpful to me, I suspect they are going to be even more helpful when it effects the return of their funds.”

Friday, February 5, 2016

Interview with Scott Hilleboe of Revolution Growth

What is the background of Revolution?

Revolution is a Washington, D.C.-based venture capital fund founded by AOL co-founder Steve Case in 2005. The firm has two funds, Revolution Ventures, a $200M fund for early stage investments and  Revolution Growth, a $450M fund for  later stage investing.  We focus on investing in technology-enabled companies that empower consumers and have the potential to disrupt multi-billion dollar industries.  There are 15 investments in the Revolution Growth portfolio and 9 in the Revolution Ventures portfolio, and we hope to invest in a handful more in 2016. We take a team based approach to investing that allows us to concentrate our strategy and time on building successful companies.

What kind of deals are in your wheelhouse?

On the Growth fund we seek companies with a revenue run rate of $20M or greater.  We look to fund consumer tech and SaaS-based businesses that are attacking large, traditional industries with innovative new products and services.  Many existing industries are on the brink of disruptive change.
We’re flexible on ownership stake and deal structure.   We take board seats in most of our deals.  We want the right team, with the right product disrupting preexisting multi-billion dollar industries. 

How do you handle syndication and how do you divide up the work?

We have done deals with a wide range of top-tier venture investors.  Examples of this include venture deals with General Catalyst and private equity deals with Carlyle.    With regards to the work, it comes down to filling in the gaps with our expertise. We have a focus on the four Ps -- partnerships, positioning, people, and policy.  Partnerships are about helping them build key strategic partnerships on deals that will actually help move the needle.   On people, it’s about recruiting top level executives and also recruiting exceptional, well-known board members.  Presence is about gaining visibility in the marketplace for customers, partners, and investors.  Policy is important if they are in a regulated environment.

What do you do to help the portfolio grow?

We help them get the next round of funding or go public.  And help them across the life cycle with many different aspects of the business including strategy, marketing, product, and finance.

Do you have any portfolio companies in Texas?

We have two investments in Austin--Bigcommerce which we syndicated with Softbank, General Catalyst, and Floodgate.  We’re also in Sparefoot with Floodgate, Silverton, and Insight Venture Partners. We would love to find more deals in Texas as the Rise of the Rest is a big part of our thesis, which is the idea that high-growth companies can now start and scale anywhere, not just in a few coastal cities.

Wednesday, February 3, 2016

Larry Allhands Talks about Fire-X

Where are you from originally?

Born and raised in San Jose, CA. Grew up there in the 70s and 80s. My brother and I bought our first computer in 1979 with money from a paper route and taught ourselves Basic and Machine Language, programming to program our first video game in my bedroom. We have been hacking on computer systems ever since in a more professional capacity.

What university did you go to?

My brother and I both went to Michigan State University. He graduated but I did not. I left to work in the commercial nuclear industry as a senior nuclear power plant operator after serving as an operator on nuclear submarines in the US Navy in the 80s. After deciding that the commercial nuclear industry was not for me, I went into technology in the early 1990s, working at tech startups, Gateway Computers, and eventually ending up at a company in this Silicon Valley in 2000. Since then I have worked in several Silicon Valley startups, picking up experience along the way.

In 2004, I went back into the Military to support the Nation’s war effort joining the Army National Guard as a “citizen soldier”. My Vice President and I are both graduates of the US Army Warrant Officer Candidate School and the US ARMY Signal Corps Warrant Officer Basic Course. We are skilled and proven leaders and technical experts.

What is the idea behind your startup?

Smart Homes are the fastest growing segment in the Consumer Electronics market. Smart home systems typically consist of four pillars of automation; environmental, lighting, security, and entertainment. Of those four areas, the sexiest area (the one shown off the most) is the entertainment system. We design and manufacture award winning professional grade media systems for the entertainment segment of the home automation industry. Last year, 350,000 home automation systems in America included a professional grade media system. Our system is the best value on the market at a mid-ranged price point.

We identified that our market was a two-tiered market consisting of system integrators and end users. We also found that in this market the system integrators specify the brand and model of equipment being installed in home automation projects 89% of the time. So we went into the market to make a product that system integrators love to install with our patent-pending self-configuration technology and over-engineered best in class performance and reliability.

What need does it fulfill?

Using “Lean Startup Methodology” we brought our product to local system integrators and made iterative improvements with direct feedback from the customers in our target market. We learned their pain points directly and engineered a solution to attack those. The result was a superior, award winning product poised to dominate the custom integration market.
Their pain points consisted of media systems that are unreliable, difficult to deploy, inflexible, and expensive. Our system is designed from the ground up to be very easy to install with modular components that allow for flexible design and deployments. Put simply, we offer an award winning media system at a price point that makes it the best value purchase on the CEDIA market for system integrators.

What exactly does it do?

FIREFX Media Systems store and manage media libraries and play movies and TV shows in a home automation environment. Think of it as a professional grade Apple TV (on steroids) capable of full integration to a home automation control system.

Who is it for?

We have a two tiered market consisting of the end user and the system integrator. Our system is not for a “do it yourselfer” but rather a professional installer. Much like an end user would never attempt to install their own central air conditioning system. You could compare our system to that type sales of model; sold through authorized dealers.
  1. The Home Automation (Smart Home) System Integrator that specifies, designs, installs and configures the entire system.
  2. The end user (Smart Home Owner) that wants a system that is robust, reliable, and awesome to use.
What was the most challenging aspect of starting up?

Learning the professional consumer electronics integration market and developing the right product to attack that market.
Building the business and brand. It is a grind, but we are soldiers… grinding is what we like to do!

What is the next step for you and your business?

Scale our business to grow with our new distribution contracts as a base while expanding our direct sales model. Develop our ERP solution to allow us to scale with growing demand. Continue to listen to our market and innovate.  Continue to build our brand aggressively.

What advice do you have for entrepreneurs?

Don’t wait for things to happen to your business, make them happen for your business. Share your vision, build a team, delegate, listen to your subject matter experts, learn quickly from your mistakes, correct your actions, and never, ever… ever give up.

What resource have you found to be the most helpful and why?

My executive team; for their vision, ingenuity, teamwork, willingness to sacrifice, and diligence.  Our board of advisors; for their breadth of business experience and willingness to contribute to our organization’s growth.

The CEDIA (Custom Electronics Design & Installation Association) organization; for providing an awesome market environment for our business to grow.

To learn more about Fire-X visit this link

Venture Capital Profile -- Kevin Diestel of Sapphire Ventures

Sapphire Ventures is a growth/expansion-stage tech investor that focuses primarily on enterprise software, as well as consumer technologies such as wearables, networks and vertical applications.  Its growth fund typically invests in companies that have a few million dollars in run-rate revenue and up, focusing on companies with product-market fit and a proven go-to-market strategy.  

The firm writes checks in the $5-25M range with plenty of follow-on capital reserved to support the portfolio.  They lead ~75% of their rounds and they take board seats to remain active in assisting their partners.  Sapphire Ventures also manages a fund investment team that invests in earlier stage funds and operates a dedicated market development team to add value to its portfolio.

Currently they have independent funds and leverage their legacy affiliation with SAP to drive value to their portfolio companies.  The firm was founded in 1996 as SAP Ventures as a lens into the startup world within and external to the Silicon Valley.  In 2011, the firm spun out of SAP and raised a dedicated fund of $350M and in 2014 rebranded to Sapphire Ventures to mirror the business model.   They have a $650M second direct fund as well as a $400M investment fund targeted at investing in earlier-stage VC funds across the United States, Europe and Israel.

While growth is an important metric they evaluate, the team is ultimately looking for the most innovative and disruptive technologies and teams.  Another key area of focus are the underlying business metrics, from cash burn to efficiency of the sales engine.  Sapphire Ventures looks for sticky customers, increasing average selling price (ASP), and increased usage/engagement with the product or services.  More importantly, they look for efficiency behind the growth to see if the company is diligently spending to maintain the growth.

Sapphire Ventures is uniquely positioned to add value through their relationship with SAP as well as some of the other largest enterprises in the world.  They can make introductions to customers in the enterprise software space, reach the CIOs of many Fortune 500 companies, and put on executive and industry specific events.  This effort is facilitated by their dedicated market development team that works directly with their portfolio companies.  Sapphire also spends a lot of time digging into SaaS and other key business metrics to help guide their portfolio companies.

They commented that the Austin ecosystem is hitting an inflection point in which fast growing companies are hitting scale and are excited to continue looking for investment opportunities throughout Texas.

Venture Capital profile -- Alan Schoenbaum of BuildGroup

BuildGroup is a growth-stage technology investor focused on specific emerging B2B software sectors.  BuildGroup was founded by a team of proven operators and includes former Rackspace executives Lanham Napier, Jim Curry, Alan Schoenbaum, and former General Catalyst Partners Principal Pete Freeland. With a strong operational background from working at Rackspace and Pete’s professional venture capital and private equity background, they help build and grow extraordinary companies.  They believe that the best companies in the world are built not bought.
BuildGroup is attracted to founders who seek investors with relevant business-building experience, not just capital, to focus on the long-haul.  Their market/sector preference includes infrastructure software, big data analytics, artificial intelligence, machine learning open source platforms, vertical SaaS, and marketing technology.

BuildGroup invests in post-seed, growth companies that have product/market-fit, and have the opportunity to become large businesses.  They engage with companies that have bootstrapped their way to revenue, or had a seed or Series A already, and are now ready to grow. Because their background is as business operators they jump in at any kind of problem solving opportunity including recruiting, helping think through a business model issue, legal challenges, budget, culture, HR, go-to-market issues and more.

They look for companies with at least $3M-$5M in revenue and up to $$150M in pre-money valuation.  They invest broader than Series B and have also done Series A investments. 

For larger deals BuildGroup will syndicate with one or two other funds.  Their first investment was in Continuum Analytics, in which they co-invested with General Catalyst Partners.  Lanham Napier is chairman of the Continuum Analytics board, and the other BuildGroup partners dive in with the management team on a regular basis.

BuildGroup attended in the Texas Venture Growth Forum last fall and came away impressed with the companies that participated.

Tuesday, February 2, 2016

Ed Healy talks about RF Code and how it raised Funding

Yet2Ventures, a venture firm specializing in the secondary market, sought to purchase Questmark Partners interest in RF Code in the fall of 2014. They secured their shares in a transaction that concluded in October 2014 and became an active investor in RF Code at that time.  That’s how we met Becker Chase, a general partner at yet2ventures. It worked out very well for us. yet2ventures’ energy and commitment to the company has been a positive step forward.

I joined RF Code in June 2014.  The company was started in 1997 in Arizona, originally under the thesis of capitalizing in the nascent market of passive RFID tags.  In 2005 Woody Hunt and Moshe Azoulay invited Intel Capital and QuestMark to join the company as investors.  The company evolved from a passive RFID company to a company developing battery-powered active RFID asset tracking technology. The company built a solid solution in the data center market and began winning business at IBM, HP, Vodafone, and other large enterprise companies. The foundation of the technology was solid and grounded.

The next wave of value creation in technology will be in the global deployment of real-time sensors in everything from toasters to trains - the Internet of Things.  The ability to read that data and make useful intelligence of it is what IoT is all about.  In 2009, I sold my last company, a semiconductor company specializing in short-range wireless communications, and began thinking about this on-coming wave in the IoT space.  In fact, I incorporated a company in early 2014 to begin development of a self-learning irrigation system comprised of sensors and software.  When RF Code approached me, I wasn’t interested in RFID. Upon further research and investigation, I became intrigued about the core technology at RF Code. They had built a data-gathering machine of middleware, data mapping, and applications for managing assets and environmental operating conditions in a data center. It was an internet-connected, sensor-based platform feeding data into data center operations and into the information technology service system. I quickly realized that this technology had the underpinning of an IoT-based SaaS technology using internet-connected sensors.
Last year we transitioned the company from a hardware-centric company to a subscription-based SaaS company with recurring revenues. We manage the physical assets in the data center as a service. From when an asset arrives until it’s decommissioned and everything in between we can tell the client where the asset is, how it’s being used and analyze whether it is being used efficiently.

Additionally, we provide the data center with sensors that measure, report, and alert operators on such things as temperature, humidity, air pressure, leaks, power, etc.  Data centers can easily deploy these sensors throughout the facility (without wires) and turn on our software in hours. We are at the forefront of using connected sensors in the data center. 

I spoke to many investors last year.  We were telling our story to see if it resonated with the investment community.  It did – in spades. We explained how we were transforming RF Code.  Just about every investor we spoke with was excited about our story and all were interested in our deal.

How did you find investors?

I found many of the investors we spoke with through my own personal network.  Intel Capital has a strong network as well as does yet2ventures.  It’s all about networking. I had a lot of folks coming to me as well, telling me they heard the RF Code story and asking for a meeting.  It’s all about being out there, engaged, talking, telling your story and building your network so that when the time comes and you are ready to raise funding you have a group of investors who have heard your story and can validate your progress. Most of the folks we have spoken with are west coast or east coast guys.

For valuations we look at companies similar to ours. For new investors we look beyond the money to what value they can bring.  The investor should be able to help you achieve an exit. You don’t want to be in the mode of raising Series B, then Series C, Series D and so forth. We are looking for experienced folks in M&A that can make difference.