BlogHer: Fund, Build and Sell Things

Conference: BlogHer 2005
Location: Santa Clara, CA – Techmart
Session: Fund, Build, Sell
Date: July 30, 2005
Time: 130PM PT

Moderators: Mary Hodder, Denise Howell, and Patricia Nakache

Mary: Started a company recently. Am getting angel funding. Blogging has helped me quite a bit; people have seen and read me for a while. Even if they don’t know me, seeing me talk about technology issues for years has helped me get funding. Tools I’m using include a 3 page summary document and a one page spreadsheet around the model; PowerPoints didn’t work for me. If you’re thinking about starting a company; do it. It’s scary, but even failure brings credibility. One thing I’ve found that works is asking the people who I’m pitching for advice; they’ll tell me if they want to participate (financially) or not. Think about how to divide up the introductions you get; some might be funders, others might be advisors — having advisors means leveraging their credibility.

Denise: Lawyer with the firm Reed Smith; one of the 20 biggest law firms in the country. I’m on this panel because lawyers can really help you move your business along, including connecting you to people who can fund your business. What we hope to do today is familiarize you with the conventional ways that funding happens… and then take that a step further, understand how blogging could help you.

Patricia: I’m with Trinity Ventures; we’re a classic fund with $1B in management. My focus is on business and consumer services, particularly leveraged by technology.

Audience (Canter): How about those who have taken venture funding and will never do it again?

Audience: What’s the difference between angels and venture?

Patricia: Angel funding is from individuals. Venture funding is from institutional investors. Venture funds are purely profit driven; we (and our investors) seek 5-10x returns on our investment.

Mary: On a practical level, the requirements for what you have to do… I mentioned 3-4 pages of documentation; that wouldn’t be enough for Patricia, but it’s right for Angels… The angel funders write me a check, informally, based on a conversation and my reputation. Venture is more formal.

Audience (Rafer): Might want to talk about amounts of money…

Mary: Right… I’m trying to raise $350K, and in small amounts. Patricia can talk to this, but if someone is going to give you an amount of money, in the millions, they have to do a significant amount of due diligence.

Patricia: It’s in part due diligence, but also about the ongoing engagement with the company. Most VC’s take board seats and pride themselves on actually helping the company; so you can only have so many investments. Angel is great for getting your business off the ground, usually a few hundred thousand. Venture is usually $2-10MM

Audience: Do angels get paid back?

Patricia: Angels get a percentage of the company like other investors; they’re just earlier in.

Audience: But you talk in rounds…

Patricia: A company could have multiple rounds of financing. What typically tends to happen is a new lead investor is sought to set the market price. Your existing investors usually participate in it. As the owner, you’re always giving up a piece of your company. So you want to be cash concious.

Audience: So does that mean if you have 3 rounds you’ve given up 30%?

Patricia: A typical series A round is $4-5MM dollars in trade for 30-50% of your company.

Audience (Canter): You should talk about 51%, and taking over the company and kicking out the founders…

Audience: I’ve had the same experience; so I’d never choose to take venture funding again.

Patricia: The only thing I can say is to check references of both the firm and the person who’s going to sit on the board. You need to know if it’s going to be a good relationship.

Denise: Your dollars go a lot further now than they used to. Mary’s an example of this.

Mary: The stuff that I’m building right now would take 5-10 times as much money a few years ago. You’re trying to create a certain amount of technology and build up a community; if you do that, you can prove an increase in valuation for the money you spent, which allows you to take more money (in subsequent rounds) for less of your company

Audience (Canter): Every round, higher valuation

Mary: Right.

Audience: You can bootstrap today; we’ve been building a product and consulting all the while, flowing the consulting money into the product.

Audience: Mary’s building technology. You guys aren’t going to fund someone who’s not funding a product. I’m building a media company; nothing I read indicates that anyone wants to fund those things. It’s not clear that women are going to be building technology companies, vs. using technology to build companies. So where’s the money?

Mary: I’m finding that across angel investors, there’s a wide variety o thing that people are interested in. Part of it is in figuring out which investors are funding in your area. Patricia’s web site lists the companies that they’ve funded, which would help you evaluate fit.

Patricia: Two questions… one is where is the money for women. Has been abysmal, not getting any better. Only 4-5% of companies funded in 2003 had female CEOs. As for media vs technology, I think what Mary said is dead on. It doesn’t have to be technology, but there have to be other assets.

Audience: I don’t come from a CS background and I wasn’t the VP of Shockwave. Women come with a big disadvantage. I’d love to have money to get a break. It’s not just money, it’s also mentors. It’s easy for men.

Audience: There are investor groups that are focused on women.

Denise: There’s a lot of money looking to be invested right now; lots of opportunity for investment in new ideas and new people (who might not have done it before).

Mary: I get things in going to tech conferences that most of the men who attend don’t. I think there are huge opportunities for women developing technology right now. Technology development is not just about writing code; there’s a social component. If the technology doesn’t interact socially, it’s not going to succeed.

Audience (Kalyia): I have an earned income non-profit focused on social software; networking audiences together. It’s a different approach to building a company; I’m not going to get anyone a return on their investment.

Audience (Adina): Comment first. What I heard you say was that you deserve an investment, not what you were doing to earn it. My question is.. in hearing pitches from men & women, are there differences, and if so, are there mentoring resources available.

Mary: In the beginning, I was terrified about asking for money. People don’t talk about how much they make. Talking about how much you need, etc, is hard and weird.

Patricia: I hate to generalize, but… there’s a tendency for women to sell less, and you really have to sell yourself as a leader and why your product/idea is great. On average, women want more of a conversation, whereas most venture people speak powerpoint… that’s an unfortunate thing, but powerpoint is great for making sure you get your points across, because your access is limited.

Audience (Heather): I’m looking for angel funding. I have friends & family, we have an attorney we picked because we thought he had great contacts. But the question is, who are the angels who have the money.

Mary: One thing to do is to look at other companies in your space who have been successful; who were their angels. And, of those who were successful, how many of them made money and could invest. You can also build an advisory board to help you do introductions

Audience: How much do you give an advisor

Mary: I was told if had 10MM shares, you should give an advisor 3500. That’s a grant, not vesting.

Audience (Marc): People, soft, sensitivity, unique insights, Web 2.0. These are not male things

Audience (Scott): Your advisor numbers are off by about an order of magnitude. Put them on a vesting schedule; that way you can kick them out if they aren’t contributing.

Audience (me): Tell them what the legal requirements are for being an Angel

Audience: There’s also a Band of Angels, Angel Forums, etc

Patricia: An angel is someone with a $1MM in liquid assets; only these people are “qualified” to make “risky investments”

Denise: If the blogging is working both your funding and marketing in a cost productive way, building on top of open source infrastructure is a great way to keep you ahead with a minimum of funding.

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