(1) Some people are personally offended that I don’t want to see their product demo. Somewhat akin to not wanting to see pictures of the grand kids. I understand that there is such pride in ownership, but recognize WHY I don’t want to see your demo, which is the next point.

(2) I ASSUME 100% that your product kicks ass. I assume that it is indeed the best in the category. That seems like a crazy assumption, but it quickly gets us past features and to your thinking as to WHY you will win. HOW you will win. What’ s the go-to-market, what’s working and what’s not. Quite frankly most companies win or lose on this part of the discussion not the latest UI innovation.

(3) Since you have already won the argument that you have the best product (in my mind), engaging in a further discussion on this topic can not possibly be of any benefit. Are you shooting for 110%?

One more related insight is around your pitch deck. Some people really don’t want to send it in advance. I find this puzzling – wouldn’t you want your audience to be familiar with the material in advance? I promise you I will read it in detail and the meeting will be a much more useful way to spend your time.

I find it a huge red flag when the CEO doesn’t want to send the deck before the meeting. It sort of says to me that there is something that is being hidden. Or that only with the voice over it will make any sense. Don’t get me wrong, I WANT TO MEET YOU. I want to learn about why you elected to change your life and start this company etc. But having it all be a surprise vs. allowing me to prepare seems like  a bad idea.

I welcome your comments. Your demos, not so much…!

— (ORIGINAL POST BELOW) —

Being in the VC game now and not a start-up CEO, I am asked to speak at events frequently. If you have seen me speak you will know that I have two really big pet peeves.

(1) No, I don’t want to see your demo. I really want to know:

- Who you are?
- Why you decided to dedicate your life to this crazy new venture?
- Who else is involved?
- How much money have you raised, and how much more do you need?
- How big can this be?

ONCE I have answers to that and understand what you are all about, then I might want to see the demo.

I don’t understand how the eco-system has gone to this approach of: “I don’t need  slides, I can just do a demo, because the product is all that matters.” Nothing could be further from the truth. Early stage investing is all about the people and big markets.

(2) Related: Please don’t tell me that raising money is a waste of time.

I hear variants of the following all the time:

“I need to get back to the office to work on new product features.”
“Raising money is slowing the down the business and its a waste of my time”
“Raising money is taking my eye off the ball”

You are the CEO and therefore one of the most important parts of your job is ensuring that the company has enough runway to not go bust. That is just as important as any other task you have. If you don’t feel that way, then perhaps you should be the VP of Product and a CEO who cares about this should be raising the money?

Please recognize, I am not insulted by the fact that you thinking raising money is a waste of your time – i.e. that my ego is bruised and you don’t respect me or my profession. I don’t care about that. But what I do care about, going back to point (1) is that you have identified yourself as a person that is perhaps not in this for the right reasons!

Venture Shift 2013
Wednesday, July 17th
3:30 PM – 10:30 PM (PST)
Cafe du Nord, San Francisco 

Grassroots Unwired brings the real-time voter targeting used by campaigns like Obama’s in 2012, to door-to-door selling efforts for traditional businesses. (Even though I am on the other side of the political aisle, I must admit that the data advantage in the 2012 election was perhaps insurmountable.)

In 2012, Grassroots Unwired knocked on 1.7 million doors. That data was used in real-time by the district campaign managers and others who needed access. During the course of the campaign many local sales companies (think Groupon-like), asked if they could use the same product. The company is now in beta with its first non-political start-ups.

This is trend of political data and targeting coming to Silicon Valley start-ups is going to continue. Can’t wait to see what happens next.

Electronic Arts, whose birth I have a blood relationship with, was “seeded” by Sequoia Capital, and two other firms, with a $2 million Series A round, equivalent to $4.4 million today. It took all of that, and a Series B follow-on less than six months later, to get EA to market. EA, as much money as it took, was actually a “lean” deal. It was software. Software of all kinds was the “lean” play of that hardware dominated era.

Does the following sound familiar:

Because it was cheap to start software companies (relative to other kinds of deals), too many were started. Those VCs that made the pivot from hardware to software were the lean thinkers of their day. They understood the efficiency of their capital could be maximized by going lean.

But as this caught on, the industry collectively followed the same rule they follow today…when it’s cheap enough to do so, make sure to start many more deals than you can possibly finish.

The number of seeded companies always exceeds the appetite of investors for follow on funding. It is inherent to the process. Start-ups are fields of dreams, and the VC business attracts dreamers. (The tougher-minded go to Wall Street or to the PE firms). When dreaming is cheap, throwing around lots of early money just happens. The subsequent crunch isn’t news. It’s the business.

According to CB Insights, in 2012 seed deals outpaced Series-A by a ratio of 2.5 to 1. A year later, the numbers created by those seed deals looking for their Series-A will certainly exceed the appetite of the follow-on funders.

The companies not getting money will have failed the product/market fitness test. They will still be “pivoting.” The tolerance for internally bridging “the next pivot” is waning, which puts companies at the mercy of new investors, who have even less tolerance for funding pivots. That dynamic sets up the crunch.

Is this “crunch” more dramatic now than in EA’s day? I don’t think so. It is true that the proud old Venture Capital brands, bloated by eschewing the lean lessons they once knew so well, have turned over today’s lean world to the Y-Combinators, microVCs, and Bullpen type funds. And that passing-of-the-guard has made for a drama that has gotten mixed into the crunch story, even though it doesn’t really belong there.

In our role of extending the lean rounds, we take account of the coming crunch by continuing to apply our usual (and very simple) criteria for judging deals:

• Has the company reached product/market fit?
• Does the company know with total clarity how another lean round of capital will get it to its next, much larger financing?

Because of the crunch, we will likely see more deals. The intensity levels will be higher. The sorting process may take a little more work. But the opportunities will never be better. Crunch time is a good time.

http://techcrunch.com/2012/12/20/in-the-studio-bullen-capital-anticipated-todays-series-a-crunch-years-ago/

The article makes reference to a really nice piece my partner Duncan Davidson wrote on the state of the VC ecosystem. You can see that here:

http://www.scribd.com/doc/117460225/Bullpen-VC-Outlook-2013

Please give it a read and let us know your thoughts on it.

All this chatter of a Series A Crunch makes light of a widening gap that looks more like the jaws of death for many seed funded startups, as the gap between Seed and A is becoming a yawning cliff. As part of our VC Outlook for 2013, we incorporated the latest info from CBInsight, as gathered by the ever-diligent Dan Primack.  The Crunch data is usually presented as this year’s Seed vs. this year’s A, but because this year’s Seed will seek the A round next year, it really should show Seed shifted one year to the right, as we do below. The growing maw of the Series A Cliff is now vivid.

Bullpen follows the seed funds and provides an alternative to the A, not a bridge, so we watch the Seed-to-A market closely. We have noticed an increasing tendency of the seed funds, as they have grown in size, to inside-bridge their deals towards the A.  They may find these are more piers to nowhere than bridges to A.

]]> http://bullpencap.com/2012/12/19/series-a-cliff/feed/ 4 SeriesACliff duncandavi SeriesACliff http://bullpencap.com/2012/12/05/tello-acquired-by-urban-airship/ http://bullpencap.com/2012/12/05/tello-acquired-by-urban-airship/#comments Wed, 05 Dec 2012 14:39:21 +0000 Paul Martino http://bullpencap.com/?p=1537 ]]>

We are very pleased to see that Urban Airship has acquired one of our porfolio companies: Tello.

Tello did a masterful job of launching a new product that generated tremendous buzz. Their new offering called PassTools really sparked interest in the entire Apple Ecosystem. You can read about that launch here:

http://techcrunch.com/2012/09/19/tello-launches-passtools-to-help-businesses-build-their-apple-passbook-passes/

Information about the acquisition can be found here:

http://techcrunch.com/2012/12/04/urban-airship-acquires-tello-maker-of-passtools-for-apples-passbook-because-not-all-brands-need-fully-featured-apps/
I want to personally congratulate Joe Beninato and Echeyde Cubillo who really did a great job in getting to this outcome. Urban Airship will be proud to have them and the rest of their team on board!

Fred observed that these factors are making it harder for young companies to generate the breakout traction that traditional follow-on VCs have become accustomed to seeing, and it’s important to expand on that thought.  For nearly a decade, growth-VCs have been spoiled by a flow of consumer deals showing massive and rapidly growing user-bases, and they now hold certain arbitrary benchmarks as prerequisites for investment.  This has paralyzed some large cap venture investors, since it is becoming increasingly difficult for them to identify winning deals in the new flood of lean, seed-funded companies.

Despite the high-risk / high-reward aura surrounding the venture capital business, many (if not most) venture investors are indecisive and wait for social proof from the herd before making decisions.  While that strategy may be successful in bull markets, it’s bound to fail when the crunch comes.  In difficult financing environments, the emergent winners will be the investors with the domain expertise to recognize disruptive companies on early evidence of traction, without having to wait and see social proof or the inflated growth of the early consumer web days.  This is true regardless of whether the company is a consumer deal, an enterprise deal, or anything else, as long as the investors are adequately prepared to help CEOs navigate the market prejudices they might encounter from later stage VCs.

At firms like Bullpen, Floodgate, First Round Capital, etc., we carefully selected our positioning in the venture ecosystem to thrive in good times and bad.  With an increase in angel investing and a decrease in founding capital requirements, it is only natural that we’re seeing a flood of seed-funded companies.  But while it’s easier than ever to start a company, it is perhaps more difficult than ever to build (and spot) a great company.  With Series A financings remaining flat, it’s only natural for us to expect many seed-funded companies to face fundraising difficulties over the next year.

No need to fear – at Bullpen we designed our fund to bridge the gap between the top seed funds and traditional “big check” VCs.  At a time when Series A investors will go hoarse telling companies “come back when you have more traction,” we extend the lean investment strategy into the later innings so that companies can go hit those key milestones.  We help CEOs arbitrage their valuation by staying leaner longer and either (1) taking an early acquisition with minimal dilution, or (2) proving the traction necessary to raise their growth capital at a significantly higher valuation than they would have otherwise.  Large cap VCs that are hungry for deals with traction will pay a premium to gain access to substantially de-risked opportunities, creating a win for the founders, for Bullpen, and for the late stage investors as well.

So for VCs, the correct strategy when the crunch arrives is as follows: (1) maintain a small fund, so you can deploy capital efficiently; (2) stack your team with domain experts to stay ahead of the herd; (3) invest small amounts in the early stages; (4) maintain oversized reserves to support your winners; and (5) remain disciplined and don’t throw good money after bad.  For entrepreneurs, your best bet will often be to seek smaller follow-on rounds or seed extensions in the $1m – $2m range.  This will allow you to survive the flood of seed deals and prime your valuation during the struggle to cross the gap between the seed and Series A.

Follow James on Twitter: @jamesconlonvc

People ask us all the time how we got our name at Bullpen Capital. We’re not just baseball fans, there’s more to it than that.

We asked two of Bullpen Capital’s good friends Dan Scheinman (co-owner of the SF Giants) and Chad Durbin (relief pitcher for the Atlanta Braves) to help us make a short video explaining our name. We wanted to stand out from most venture capital firms, which seem to pick bland names based on things like the street where they formed or some mountain range. Our name speaks to the way we support our portfolio companies, and we think this video tells the story well.

Now that the SF Giants are once again the World Series Champions, this is the perfect time to unveil the video, since it was filmed at AT&T Park in San Francisco. Please enjoy a quick laugh and share with your friends!