I am excited to announce a twist to this month’s Meet the VC event. We are bringing in three active angel investors to talk to you about investing in the Georgia area. Sig Mosley from Imlay Investments, Mitch Free, founder of MFG.com, and Gordon Rodgers, angel investor, will sit on our panel for February’s Meet the Angel event. The session will take place on Wednesday, February 11th from 7:30 to 9:30 am.
The basic format of these gatherings is a question and answer session delving into the fundraising process, venture capitalists’ investment criteria, and specific venture capital firm profiles (or angel investors, in this case). I plan to ask the panel a few questions to kick things off, followed by questions that you can submit in the comments below, and then audience questions.
The series is free but you need to register to attend.
We look forward to seeing you there!
Qcept – ATDC graduate company specializing in non-visual defect detection. Their inspection systems allow fabs to improve yield by detecting non-visual defects such as sub-monolayer metallic and organic contamination.
Qualified Stock Options – Also known as Incentive Stock Options, provide tax advantages to an employer that non-qualified stock options do not and are subject to more strict requirements.
Quality Control Manager – directs the quality control program designed to ensure continuous production/service consistent with established standards.
Restricted Stock – A method of executive compensation that has come into prominence since stock options fell out of favor. The restricted stock must meet certain conditions such as a length of time or other business performance metrics before the stock can be transferred.
Return On Investment (ROI) - A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of several investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment, the result is expressed as a percentage or ratio.
Revenue – The amount of money brought into a company by its business activities. It is the "top line" or "gross income" figure from which costs are subtracted to determine net income.
Reverse Merger – the acquisition of a public company by a private company, allowing the private company to bypass the usual lengthly and complicated process of going public. According to DealFlow Media's Reverse Merger Report, only 12 reverse mergers were completed in November and December 2008, capping the worst year for reverse mergers since 2004.
ATDC is pretty excited to be the host sponsor of CloudCamp Atlanta which will take place on on January 20th from 4:00 to 9:30 pm.
CloudCamp is an unconference where attendees can exchange ideas,
knowledge and information in a creative and supporting environment,
advancing the current state of cloud computing and related
technologies. Like any unconference, CloudCamp is an informal member-supported gathering that relies
entirely on volunteers to help with meeting content, speakers, meeting
locations, equipment and membership recruitment.
This is going to be a popular event. About 80 people have registered to attend. Join them.
Charlie Paparelli – President and founder of Paparelli Ventures, a pre-formation investment company focused on entrepreneurs in the Atlanta technology community.
Participating Preferred - A type of preferred stock that gives the holder the right to receive preferred dividends as well as an additional dividend based on some predetermined condition. The additional dividend paid to preferred shareholders is commonly structured to be paid only if the amount of dividends that common shareholders receive exceeds a specified per-share amount.
Pay-to-Play Provision – An investor must keep "paying" (participating pro-ratably in future financing) in order to keep "playing" (not have his preferred stock converted to common stock) in the company.
PHP (Hypertext Preprocessor) – A widely-used general-purpose scripting language that is especially suited for Web development and can be embedded into HTML.
Preferred Stock – A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights.
Pre-Money Valuation – A term used in private equity or venture capital that refers to the valuation of a company or asset prior to an investment or financing. External investors, such as venture capitalists and angel investors will use a pre-money valuation to determine how much equity to demand in return for their cash injection to an entrepreneur and his or her startup company. Pre- and post-money valuation concepts apply to each round of financing.
Pro-rata – A method of assigning an amount to a fraction, according to its share of the whole. For example, a pro-rata dividend means that every shareholder gets an equal proportion for each share he or she owns. Pro-rating also refers to the practice of applying interest rates to different time frames. If the interest rate was 12% per annum, you could pro-rate this number to be 1% a month.
Protective Provisions -Veto rights that investors have on certain actions by the company. The protective provisions are often hotly negotiated. Entrepreneurs would like to see few or no protective provisions in their documents. VC's, in contrast, would like to have some veto-level control over a subset of actions the company could take, especially when it impacts the VC's economic positions.
Polaris Ventures – Polaris invests in seed, early stage, and middle market companies in high growth industries. As the lead or co-lead investor, they take an active and long term role in helping management teams build highly successful business. Polaris has over $3 billion under management and current investments in more than 90 companies.
Post-Money Valuation – The value of the company after the investment has been made. This value is equal to the sum of the pre-money valuation and the amount of new equity. The implied post-money valuation is calculated as the dollar amount of investment divided by the equity stake gained in an investment.
Purewire – ATDC member company that secures business and social interactions on the Web. Founded by veteran security industry entrepreneurs, the company offers Web security-as-a-service to increase ROI and lower the total cost of security for businesses.
Getting the right first customers is critical to the success of a tech startup. The right first customers can validate a company's value proposition, the market need, and product features. The right first customers can also be an invaluable marketing asset when done right. They can become part of your ongoing development team, helping you plan the product road map and the next release schedule while refining the product delivery model.
There are several competing theories for obtaining first customers:
- Low-risk, low-hanging fruit: In this model, a company can leverage a trusted relationship to get the benefit of someone who is personally invested in your company and where the risk of imperfect delivery may be lower. The personally invested customer can help shape and refine the product, be careful to ensure the results from these customers still prove out the unique value of the solution and do not take you off the critical path.
- Large, reputable leader: A win and an early reference-able customer can lead to a rapid acceleration from one to many customers through this strong reference. The risk of chasing a Bank of America or Coca Cola is that pursuit of that one large customer can consume most of a small organization's limited resources with an uncertain result. If you pursue a high profile, larger first customer, be sure to prioritize companies who whom you have done business. It is also essential that your product is a must have, not a like to have with no alternative.
- Dual path: With sufficient resources, it is possible to pursue a large prospect while delivering value and proving out the value proposition to a set of lower profile early customers.
Critical attributes of first customers include:
- Eagerness to provide feedback and help shape the product
- Participation in a ROI success story or customer testimonial
- Willingness to pay for the product – either in full cash or through significant investment in R&D with a highly discounted product (validate the business model!)
It is probably not realistic to fully prove out your business model or to refine your sales process with first customers, but you should be able to prove and refine your value proposition and to refine your ideal target customer profile. Moreover, you can begin to create a compelling marketing story to take to the next set of customers to prove that you can gain customer traction.
Sound strategy around pursuit of first customers can be one of the most important factors in a company's success. Be sure to pursue them thoughtfully.
If you have a success or failure story about first customers to share, please share with us.
Open Architecture – a type of computer architecture or software architecture that allows adding, upgrading and swapping components. For example, the IBM PC has an open architecture, whereas the Amiga 500 home computer had a closed architecture, where the hardware manufacturer chooses the components and they are not generally upgradable. Workshare unveiled a new open architecture platform in September.
Open Source Software (OSS) – Open Source is a development method for software that harnesses the power of distributed peer review and transparency of process. The promise of open source is better quality, higher reliability, more flexibility, lower cost, and an end to predatory vendor lock-in. The law firm, Morris Manning and Martin, has a blog about Open Source law.
The Open Source Initiative (OSI) is a non-profit corporation formed to educate about and advocate for the benefits of open source and to build bridges among different constituencies in the open source community.
Opportunity – a broad term to imply the overall investment opportunity in your venture if you are pitching to an investor
Opportunity Costs – The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.
Options – A privilege, sold by one party to another, that gives the buyer the right, but not the obligation to buy or sell a stock at an agreed-upon price within a certain period or on a specific date. Critical Outcome Technologies issued stock options on Monday as part of a CEO compensation package.
Shachar Oren – The CEO of the ATDC graduate company, Neurotic Media. As the co-founder of Neurotic Media, Shachar has steered the company's strategic direction from inception to becoming the premier digital service provider in the B2B space. Shachar is also the system architect behind the company's patent-pending, ground-breaking technology platform.
Organizational Culture – describes the attitudes, experiences, beliefs and values of an organization. It has been defined as the specific collection of values and norms that are shared by groups in an organization and control the way they interaction with each other. Read ATDC's best practices for forming a productive organizational culture.
Outstanding Shares – stock currently held by investors, including restricted shares owned by the company's officers and insiders, as well as those held by the public. Shares that have been repurchased by the company are not considered outstanding stock. Avalon Technology recently announced a buy-back plan to reduce outstanding shares.
Oversight Systems – a recent ATDC graduate company that was founded to ensure confidence in the integrity and accuracy of financial reporting and underlying transactions for customers. The solutions and technology provide global industry leaders with the forensic audit capabilities so much in demand in today's environment of heightened regulatory enforcement and corporate compliance initiatives.
Oversubscribed – a situation in which the demand for an initial public offering of securities exceeds the number of shares issued. The goal of a public offering usually is to price the security issue at the exact price at which all the issued shares can be sold to investors. If there is more demand for an IPO than there is supply, it means a higher price could have been charged and the issuer could have raised more capital. Clearwater's IPO in 2007 is said to have been oversubscribed.
At the most recent version of Meet the VC, the entrepreneur community of Atlanta had the pleasure of meeting with Vimal Patel. Vimal talked a bit about his firm, Silicon Valley based Sierra Ventures, gave some helpful tips to our entrepreneurs, and put in a good word for the Atlanta community.
The Numbers
Sierra Ventures sees 2,000 – 2,500 deals a year and they sit down with 50-75% of them. Most of the deals come to the firm through referrals. Due diligence is completed on about 75 deals and term sheets are given to approximately 20 companies a year. Twelve a year will close.
The Attitude
During the economic slowdown, VC's are looking to extend the cash runway of their deals, cut costs, and streamline operations. For new investments, VC's are looking for recession-proof stories and if the case is good, they will keep spending. The VC's are paid to invest money that has already been committed and they are looking for good opportunities to do it.
Entrepreneurs: Tips
- A successful management team is made up of a CEO who can hire well and open the right doors and a technology person who is passionate and knowledgeable about the industry
- Effective product management is a key driver for success. Be sure to clearly define what the product is, understand the market, how your product fits and how you are going to sell it.
- For your pitch, 12-15 slides {Sample presentation file} is plenty!
- During due diligence, the VC will ask your customers three questions: Why did you buy the product? Why did you chose this particular product/company? How much money are you going to spend on this product in the next year?
The Good Word for Atlanta:
The capital efficiency is great in Atlanta. The area is less flashy and not caught up in the buzz and that can prove to be very fruitful when cash is short. Vimal says that he has never seen anything like ATDC in the country! ATDC is a great resource and the executive talent in the region is also very good.
NAICS – (North American Industry Classification System), a set of industry categories standardized between the U.S. and Canada. In the U.S., it is taking over from the SIC code system.
Needle & Rosenberg Intellectual Property Practice of Ballard Sphar – focuses on intellectual property and includes a well-established and highly regarded national patent prosecution and patent litigation practice
Nelson Chu – managing partner of Kinetic Ventures, a leading venture capital investor in communications, information and power/clean technology driven businesses
Net Present Value (NPV) – the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project. NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield.
Networking – the strong association between the entrepreneur as a person and his or
her business demands that entrepreneurs get out into the world and
create and maintain business relationships. This is a key to success in finding people and resources for your company.
New Growth Theory - emphasizes that economic growth results from the increasing returns associated with new knowledge. The theory supports the importance of investing in new knowledge creation to sustain growth. Ample attention and incentive is needed to encourage knowledge creation (research and development, the education system, entrepreneurship and the tolerance for diversity, macroeconomic expectations, openness to trade).
New Media – a generic term for the many different forms of electronic communication that are made possible through the use of computer technology. The term is in relation to "old" media forms, such as print newspapers and magazines, that are static representations of text and graphics. New media includes:
- web sites and web advertising
- streaming audio and video
- chat rooms and online communities
- e-mail
- DVD and CD-ROM media
- virtual reality environments
- integration of digital data with the telephone, such as internet telephony
- digital cameras
- mobile computing
"No Shop" Provision – a binding provision, usually in a Letter of Intent, contract, or term sheet, that promises exclusive rights to negotiate
Non-Compete Clause – a term used in contract law under which one party (usually an employee) agrees to not pursue a similar profession in competition with another party (usually the employer). The use of such clauses shows a concern that, upon their termination or resignation, an employee might begin working for a competitor or start a business and gain competitive advantage by abusing confidential information about their former employer.
Non-Disclosure Agreement (NDA) – a legal contract between at least two parties that outlines confidential materials or knowedge the parties wish to share with one another for certain purposes, but wish to restrict access to. An NDA creates a confidential relationship between the parties to protect any type of confidential and proprietary information or a trade secret. NDAs are commonly signed when 2 companies are considering doing business together and need to understand the processes used in each other’s business for the purpose of evaluating the potential business relationship.
On Wednesday October 22, 2008 at 11:45 ATDC will resume its BrownBag series and for the first time we are systematically opening up this program to startups and entrepreneurs that are not a part of ATDC’s incubator program. For a little background, the BrownBag Series is designed to provide tangible educational
programming of interest to technology startups. These programs are led by subject matter
experts and cover early stage business topics that range from marketing,
sales and operations, to fund raising, hiring, legal and management.
We are kicking off the new format with a bang. The topic is "Establish, Enhance, & Grow your Web Presence." It is being presented by a trio of marketing mavens who will each offer a unique perspective on how to effectively improve the Web presence of your startup. Erika Jolly Brookes, VP of Marketing at EarthLink, Toby Bloomberg the self proclaimed Marketing Diva and head of Bloomberg Marketing, and Stacy Williams of Prominent Placement are all scheduled to present. It should be a good show.
It is free to attend and lunch will be provided to those that register.
Market – The opportunity to buy or sell; the extent of demand for merchandise. The market niche you should participate in should reach at least several hundred million within 3-5 years and, ideally, your company can become a leading player in a large market.
Market Segmentation – A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will respond similarly to a marketing action. For example, an athletic footwear company might have market segments for basketball players and long-distance runners. As distinct groups, basketball players and long-distance runners will respond to very different advertisements.
Mentor - 1. a wise and trusted counselor or teacher; 2. an influential senior sponsor or supporter
MMM – Morris, Manning, and Martin – a leading technology law firm in Atlanta
MOU – Memorandum Of Understanding – A legal document outlining the terms and details of an agreement between parties, including each party’s requirements and responsibilities. The MOU is often the first stage in the formation of a formal contract. An MOU is far more formal than a handshake and is given weight in a court of law should one party fail to meet the obligations of the memorandum.
ATDC CONFERENCE ROOMS:
- Magic - The ATDC conference room, Magic, is named to describe a company’s "secret sauce" or its proprietary technology that will, along with other company strategies, create a unique offering in the marketplace.
- Management - The ATDC conference room, Management, is named in honor of the successful companies that are run by management with experience in the industry and/or the technology critical to the business. ATDC entrepreneurs include first-timers and serial entrepreneurs.
- Mettle - The ATDC conference room, Mettle, is named to inspire courage and fortitude. ATDC seeks a diverse set of member companies who will take advantage of our services and connections. Members who want to share experiences and expertise with the community are a good fit.
- Money – The ATDC conference room, Money, reminds entrepreneurs of the importance of having capital to grow and to sustain their business. Because one of the top causes of business failure is a lack of capital, it is important that companies have a business that can generate good cash flow to sustain growth. Also, investors typically look for entrepreneurs to put their own money or sweat equity into a business before they will consider investing.