Posts from startups

I said earlier this week that in addition to spring fever in NYC, we have startup fever. There is so much good stuff happening in NYC right now.

I'm not talking about fundings and such. The financial markets come and go. Boom today bust tomorrow.

I'm talking about building a foundation that will allow the tech sector in NYC to survive these booms and busts and thrive for the long term. The foundation comes from great programs like Techstars, InSITE, HackNY, PairUp, Founder Labs, etc, etc.

Today I'd like to talk about a couple more great programs happening in NYC this spring and summer.

Last summer, SeedStart ran an accelerator program in NYC that produced a number of interesting startups. This summer, they are doing another program but it will be focused on emerging media companies. The program is called SeedStart Media and has big media companies like AOL, Hearst, News Corp, MTV, NY Times, Time Warner, and a bunch more involved as corporate partners. Here are some details from their website:

We are inviting technology companies willing to spend the summer in New York City that are concentrating on [the media industry] to apply to SeedStart. The program will give up to 10 companies $20,000, office space, and time in exchange for a small piece of equity (5%). At the end of the 12 weeks, SeedStart features an investor day where companies will have the opportunity to present to seed and early stage investors as well as potential partners and customers.

 

Info session: March 29th at 7pm, 160 Varick St. 12th floor, New York, NY.

All mentors, participating corporations, & SeedStart Media applicants are invited to attend.

Please RSVP at [email protected]

Another big problem we have in NYC tech is funneling top college graduates into the startup sector. Very few tech companies have the size and scale to run proper college recruiting programs. So the sector needs to cooperate and form recruiting efforts together. One such event is happening soon.

The second annual NYC Startup Job Fair is happening at AOL's headquarters on Friday April 8th. It will be engineers only from 1pm to 2:30pm and then everyone from 2:30pm to 5pm. We have encouraged our portfolio companies to attend and I am certain that some of them will. The list of participating companies (as of now) is here. If you are graduating from college or grad school this spring and want to join a startup, you should seriously consider showing up at AOL on Friday April 8th.

These are just two of the many great programs going on in NYC right now. We are building a fantastic ecosystem and I am so excited to see this happening.

Yesterday I went up to Harvard Business School and participated in a lunch and a class. My friend Jeff Bussgang arranged the trip and we were hosted by HBS Professor Tom Eisenmann. Jeff and I sat in front of Tom's class Launching Technology Ventures and talked for almost 2 hours on topics like Lean Startup Methodology, Pivoting, doing a startup vs joining a startup, and more.

I can tell you this, the HBS I visited is not the HBS I used to know. The students I had lunch with had all built a startup and exited before going to HBS. The knowledge and passion for startups evident in Tom's class was off the charts. If business school is turning into entrepreneur school, then that's a damn good thing.

Anyway, Jeff took notes from the day and posted them on his blog. Every time I talk in front of a large group and take questions, some things come out of my mouth that are new thoughts that I've not expressed before. Between Jeff's post and the tweet stream from the class, I was able to review the talk and a few thoughts struck me as good enough to share here.

– There is a very high correlation between lean startup approach and the top performing companies in our two funds.

– Lean startup methology is great, but it is really a lean startup culture you want.

– Lean startup is a machine, garbage in will give you garbage out.

– Early in a startup, product decisions should be hunch driven. Later on, product decisions should be data driven.

– Hunches come from being a power user of the products in your category and from having a long standing obsession about the problem you are solving.

– Domain expertise to the point of obsession is highly correlated with the most successful entrepeneurs in our portfolio.

– Ideas that most people derided as ridiculous have produced the best outcomes. Don't do the obvious thing.

– Monetization should be native and improve the experience for users.

– If you have an idea that you can't get out of your head, do a startup. Otherwise join a startup.

– If you are not technical, get product experience. Get your hands dirty and work with engineers.

– Take risks when you get out of business school. If you don't take risks, you won't find yourself in an interesting job and career.

Finally, I'd like to say that Tom encouraged his class to tweet during class. I think that is fantastic. The tweet stream is like publicly available course notes for the class we did yesterday. Every time I talk to a class full of students I am going to call out a hashtag at the start of class and encourage tweeting.

I'm very encouraged with what is going on at HBS and some of the other top business schools I've visited this year. Entrepreneurship is alive and well and a growing theme of business education. As it should be.

When people ask me what the city and state government can do to help the technology driven startup community in NYC, I tell them two things.

First, there is not one tech ecosystem. There is the software, internet, digital media sector which is thriving and on a tremendous growth spurt. And then there are the biotech, bioengineering, materials science, and energy sectors. These sectors are languishing in NYC with very little commercial activity given how much research and science goes on in the city.

I don't work every day in the latter category and I don't have much advice for how to stimulate these sectors commercially, but I do know that much must be done.

I do work every day in the former category and I have some advice for how to continue to stimulate the sectors that are working. I would focus on two areas; talent and bandwidth.

NYC has a tremendous workforce advantage over most any other city in the world. With one exception. There is a dearth of well educated engineers coming into the workforce every year in NYC. We have a large exisiting workforce of engineers, but they are in high demand and there are scarcities in NYC like those that exist in the bay area. Talented engineers are expensive and are always being recruited away from companies.

So the obvious answer is to develop ways to bring engineers right out of school into the local workforce. One way to do that is to develop strong engineering programs here in the city. The Bloomberg administration has announced an initiative to do that. I am very supportive of that effort. But that will not be enough. We also need to support our existing educational institutions, like NYU, Columbia, Fordham, CUNY, etc, etc.

And we need to start recruiting newly minted engineering grads to come to NYC to start their career. If you are a 22 year old man or woman just starting out in life, would you rather live in suburbia and work on a campus or would you rather live in Williamsburg and work in Flatiron? I think the answer to that is obvious. We just aren't making that case to the best and brightest engineering grads. There are emerging programs, like HackNY, that need our support, both financial and emotional, to do this work. It is critical. Charlie O'Donnell has put forth a challenge to bring 250 new software developers this year to NYC. I think that's a good start but I'd like to see a bolder number, like 1000 a year, or even more.

The other area is bandwidth. I mean data bandwidth. I mean fiber to every school, institution, business and home in the five boroughs. Other localities have built community owned fiber networks. A good example is Lafayette Louisiana. NYC needs to do this and it needs to do this now. The fiber plant should be owned by us, the citizens of NYC, not some company that will charge us a fortune for using the network and potentially restrict what we can do on the network.

There is a company I know of that is one of the most exciting new startups in NYC. They are locating their new office in the emerging area in Brooklyn between DUMBO, Fort Greene, and the Brooklyn Navy Yard. This is a cool new neighborhood that could be home to a lot of startups looking for great workspaces at low rents. But there is no commercial grade Internet service in this neighborhood. TIme Warner Cable wants this young startup to guarantee them $80,000 in revenues so they can afford to dig up the street and lay the cables.

That is nuts. We need to wire up this city from Staten Island to the Bronx, from Harlem to Rockaway Beach. And we need to own this fiber plant and we need it to be the best in the world.

These two moves will do it. We have everything else we need. We have the capital to fund startups. We have the real estate to house them. We have the legal, accounting, marketing, and other service providers. We've got it all. We just need talent and bandwidth to keep it going. Bring it on.

Yesterday my partner Brad told me that he thinks something special is going on in two cities, San Franscisco and New York. That something special is a creative culture that is leading to an explosion of new web services.

This post from Om Malik bears that observation out. Here is the money quote:

San Francisco saw 36 Internet deals that brought in $131 million, while New York City saw 31 Internet deals garner $126 million. In comparison, Mountain View, San Mateo & Palo Alto saw 21 deals focused on the Internet and they brought in a total of $174 million.

If you want to talk about capital efficient web servics, then there are two ideal places to start them, San Francisco and NYC. How about the valley? Well, there you apparently need to spend more money. The average Internet deal in SF and NYC was $3-4mm. In the Valley, it was over $8mm.

I'm pleased to see NYC getting the attention it deserves. NYC hasn't been a technology hotbed since Bell Labs left town in the 50s, but now in the age of Internet startups, it sure is.

I've never been much of a fan of incubators. Some have made the model work. My favorite of the bunch is Betaworks, based here in NYC. Betaworks is more than an incubator, but they have shown that they can make the incubation model work with projects like bit.ly and chartbeat.

But one aspect of incubation that I like very much is the idea that multiple projects are sharing the same workspace. The term for this kind of work setup is coworking. There are various approaches to coworking.

There is the shared space model. Foursquare, Curbed, and Hard Candy Shell have shared a single office for the past year and a half and they get a lot of benefits from working together even though they are three companies all working on very different things. Our portfolio company Outside.in has employees from our portfolio companies Disqus and Zemanta working out of their office. We see that kind of setup all over the startup world. I encourage all of our young companies to think about that kind of setup.

The main benefits of this kind of setup are comraderie (small startups can be lonely), knowledge sharing, high energy, culture, and cost sharing. I have heard so many stories of software developers walking to the other side of the office to talk to software developers working for another company to talk about a thorny tech issue. That same thing can happen in finance, legal, bus dev, marketing, product management, really all parts of the business. You can get some of the benefits of scale without being at scale.

I have been contacted by a large number of people working in city, state, and federal government recently asking me how they can help small tech companies. They often ask about real estate. I tell them that small office spaces are plentiful and not terribly expensive, but that what we need more of is coworking spaces. And we have been getting them at a nice clip here in NYC.

The "grandaddy" of NYC coworking spaces is New Work City. They just raised almost $20k on Kickstarter to open "the awseomest coworking space NYC has ever seen."

A few weeks ago I was down at the NYU Poly coworking space on Varick St right near the Holland Tunnel. They have about thirty companies in one large open floor in a very nice buiding owned by Trinity Church. NYC Seed keeps their manhattan office there as well.

Dogpatch Labs has coworking spaces in SF, Boston, and NYC. The NYC Dogpatch is on 12th between University and Broadway. There are a lot of great companies going into and coming out of Dogpatch these days.

A new coworking space has opened in Williamsburg recently called The Brooklyn Makery.  The image at the top of this post is of their space. I am really excited about this project and a few of us from our office are going out there in a few weeks to visit all the teams.

There is an all woman entrepreneur coworking space on 23rd St between Fifth and Sixth called InGoodCompany. There is an all green/environmental startup coworking space on lower broadway called Green Spaces.

I could go on and on, but I'll just link to this wiki of coworking spaces in NYC. If yours is not on there, please add it.

If you are launching a startup or have one that is just one or two people, you should really try to get into a coworking space. It can be more cost effective, but that is not the best reason to do it. You'll get knowledge sharing, energy, and a lof of camraderie. And you can't put a price on those things when you are doing a startup.

I failed to post a MBA Mondays post last monday. Sorry about that. I had something else on my mind when I woke up, wrote about that, and didn't realize that it was monday and I was supposed to do an MBA Mondays post until late in the afternoon.

So we are now picking up from where we left off two weeks ago. Which is in the middle of a four to six post series on projections, budgeting, and forecasting. We covered budgeting in a small company two weeks ago. We are now going to talk about what happens to the budgeting process once revenues start coming in, headcount gets to between 50 and 100 employees, and you are now a full fledged high growth business.

Once you have real revenues, 50+ employees, and a real business, you should have a full time finance person on your team. It could be a CFO or it could be a VP Finance. There are tradeoffs between the two. If you think you are going to be an independent company for a long time that will go public or do a large number of private financings and M&A transactions, then you will want a CFO. If you plan to keep the business simple and head for the exits within a few years, a VP Finance should be fine. I should do a post on the difference between a CFO and a VP Finance and I will, but this is not the time for it.

So your budgeting process should start with your lead finance person. He or she should run the process with you as their partner. Your budgeting team should also include the leader of your sales or revenue operation and your head of engineering or tech ops if you have one. The way I like to think of these two people is the person who "owns" revenues and the person who "owns" capex. This group is sufficient to run a budgeting process in a 50 to 100 employee company.

There are three inputs to the budgeting process in a company of this size; a detailed revenue plan/model, a comprehensive cost model including headcount, and a set of key performance indicators (KPIs). 

Start with the revenue plan/model and do it bottoms up (meaning identify where the revenue is going to come from and how much of it you are going to be able to pull in during the year). The sales leader will give you a plan that he or she thinks they can hit. Dial it back. As much as I love sales leaders, they are optimists. Very few of them can properly estimate revenue in a high growth relatively early stage company. I believe they generally do a good job of identifying where the revenue will come from but a poor job of estimating how much of it will come in during your time frame. Things always take longer. So dial the sales leader's numbers back.

Then once you have a set of revenue numbers, lay out all the KPIs that it will take to hit them. What is needed from the product team? What is needed from the engineering team? What is needed from the bus dev team? What is needed from marketing, customer service, HR, etc? The KPIs are the glue between the top line model and the cost model. Spend a lot of time on this part of the process.

Going from KPIs to a comprehensive cost model is not that hard, especially for a seasoned finance person. The key is being comprehensive. If you are growing headcount aggressively, will your current space be sufficient? If not, you'll need numbers for more space. Things like legal and recruiting costs really start to pile up at this stage. They may not be very large in your historical financials. Plan for them and budge them.

And make sure to budget for capex costs. Some companies rent their capex via leases or managed hosting. If you do this, your capex will show up in your operating costs. Some companies acquire their capex with cash. If you do this, your capex will show up on your balance sheet. Either way, capex can eat up a lot of cash. So budget for it correctly and make sure your engineering or tech ops leader is held accountable to the capex budget.

In my last post on this topic, I said that budgeting time is October and November so that the board can approve it in December. That is generally true for a 10 person company but not for a 50 to 100 person company. I like to see budgeting start in September for a company of this size and I like to see the Board look at the budget in November. That way if there is a disconnect between management and the Board, another revision to the process can occur before the year starts on Jan 1st.

The budget is not just for the Board. It is first and foremost for the team. So make sure to share the budget with the team and make sure they are all bought into it. If they are uneasy about it, listen to them and don't force a plan on the team that they do not think they can hit.

A company at this stage will have a senior team and they should be accountable to the budget. They may even have incentive comp associated with the budget goals. I like to see the entire senior team participate in the budget presentation to the Board. I like all of them to talk to their parts of the budget. That shows they understand it, they have bought into it, and they are behind it.

To be brutally honest, very few budgets are met in companies of this size. These businesses are still very much in flux and things change a lot during a year. But I still believe in the value of doing budgets. The process is incredibly helpful in establishing what can be done and what can't be done. It focuses the mind and the company. And if you realize half way through the year that you are not going to meet your budget, you can and should do a forecast. We'll talk about that in a few weeks.

Next up is budgeting in a 150+ person company. We'll do that next Monday assuming I don't have another brain fade.

Fast Company is doing a five part series on startup hubs outside of Silicon Valley. Part one was Boulder, Colorado, featuring my friend Brad Feld. I know there is a piece coming on Seattle and two other cities that I can't recall right now.

Part two was published yesterday and is about NYC. I talked to Laura Rich last month and she did a great job of capturing my thoughts on why you should start a company in NYC.

If you are in the startup sector in NYC or are thinking of relocating here to do a startup, you should read the piece.

I'd like to highlight one part of the article. Startup hubs take time to develop. You do need infrastructure and that takes time to build, but more importantly, you need mentors and role models. And that's what we have now in NYC that we didn't have ten years ago:

we're into the second decade now, and what the second decade is really turning out to be is serial entrepreneurs who've done it one, two, three, sometimes four times now, who can bring teams together very quickly, often teams that have worked together very quickly, can get on opportunities fast, can get money raised fast, can build companies pretty fast.

And now you have role models. So the first time entrepreneurs can find angel investors. It's exactly what has been going on in Silicon Valley for three, four decades now. Marc Andreessen becomes hugely successful, makes a bunch of money, becomes an angel investor, backs a bunch of people, mentors them, becomes a VC. That migration path is now playing out here in New York, and so most of the investments we do at the first angel-round stage is ourselves and a bunch of serial entrepreneurs in New York who are now making twenty-five- to fifty-thousand dollar investments as angels in these companies, sometimes acting as informal advisers and mentors to the first-time entrepreneurs.

So now we have the best of both worlds. We can back first-time entrepreneurs and have mentors and role models for them and we have those role models in their second, third, and fourth startups and that's the magic–that creates a sustainable startup economy that Silicon Valley has had for four decades now. We're three or four years into our second decade and I think it's going to be a great period for New York. I feel like we have just taken it to another level sometime in the past couple of years.

I'm very pleased to see Fast Company highlight startup hubs like NYC, Seattle, and Boulder. All three cities have nicely developing startup communities that are poised to produce some big companies in the coming years. Entrepreneurs and developers don't have to move to Silicon Valley to chase their dreams anymore. They've got options to fit their work to their lifestyle. And that's a good thing.

I'm in London for Seedcamp 2009 and I've been spending the day with entrepreneurs and technologists from all over europe. It's a reminder that the world is full of great entrepreneurs and technologists.

I started my day in a board meeting with one of our companies that was started in Europe. It turns out one of the founders of that company, one that is growing and hiring in the US, cannot get back into the states right now because of a Visa issue.

That is infuriating to me and to the founder in question. His risk taking and the innovations of him and his partners and team members are creating a business in the US and creating jobs and wealth that will largely stay in the US. And he cannot even get into our country right now.

This is nuts. I've got an issue with our immigration policies generally, but specifically we should modify our rules around Visas for founders and key team members of startups that are at least partially based in the US, particularly if they have been well financed by angels and VCs.

Fortunately, there is a growing political movement called The Startup Visa movement and there is real momentum behind it. If you are close to your legislators, particularly representatives and senators, please bend their ear on this issue. Though I am not close to the politics around this issue, I suspect this is not a hard issue to get behind politically. Nobody is losing jobs because entrepreneurs around the world are starting companies that are based, at least partially, in the US.

We should make it easy for these people to get back and forth into our country. And with your help, I suspect we will.