tej dhawan's random musings

Category: Startups (Page 1 of 2)

A decade of collaboration

November 17, 2010.

How to be a successful startup
https://www.dsmpartnership.com/news-media/blog/episode-30-tej-dhawan-talks-growth-of-the-dsm-startup-community

I had no idea a chance meeting with Mike on the Mercy Hospital skywalk would lead to a decade of collaboration and friendship. I mentioned that I wanted to help tech companies get started in Des Moines. He, in turn, asked if I had time to go to lunch with another colleague who wanted the same. Mike and I ended up at Proof and talked until Christian arrived. Of the many serendipitous moments in Des Moines startup community’s history, I know and am glad I got to be part of this one.

As Mike transitions to a retirement from *this* job as the entrepreneur-whisperer in Des Moines, his friends know he can’t really retire. Have you ever not seen him working? He’s retired more than once before, and this retirement will prove to be but a transition again.

I am grateful for having been a part of Mike’s circle of friends, where we were able to conjure up, make real, or grow ideas such as StartupCity Des Moines, Plains Angels, Global Insurance Accelerator, Accelerate, Iowa Agtech Accelerator and so much more. So, when I first learned of a new love affair with Colorado, I knew his time in Des Moines was limited. With his imminent departure from Des Moines, I know he’ll be missed by this circle of friends and colleagues, fellow angel investors, entrepreneurs, corporate partners and his colleagues at the Partnership.

I’ll miss our regular (vegetarian – his style) lunches at Centro – made rare by the pandemic, and sadly rarer now in the future by the distance.

Bon voyage, Mike and Beth. You are wonderful friends and I am glad we had lunch at Proof on November 17, 2010.

Humans of Social Media

Books have a way of transporting you to places and experiences through an author’s words. Reading an author’s review copy of wise guy by Guy Kawasaki reminded me of the wildly popular photo-essay series ‘Humans of New York’. Thought the books is organized like others – chapters and paragraphs – reading it doesn’t feel like the book filled with chapters and paragraphs, a story or plot. Instead, it feels like  Guy sitting down across the table from me, a glass of his favorite beverage in his hand and a dram of Whisky in mine.  And chatting!

The book took me through a journey through Guy’s childhood, teenage obsessions at college, the ‘tours of duty’ at Apple and his flirtatious yet committed interactions with the startup communities. Guy shares some of his aphorisms and opinions frequently on social media where millions read, some interact, some follow or retweet and many converse. He isn’t afraid of taking sides or sharing his opinion and seems to have adopted the ‘with great power comes great responsibility’ very well.  He admits his career limiting mistakes and wealth reducing missteps that still turned out to his advantage. I suppose when you are doing right by others, your karm do come back to reward you.
Though the book is peppered with hundreds of pieces of guidance, I highlighted a few and do intend to return to them often. I’m nearly certain to revisit

Don’t let people get to you, whether they are insulting you or not
Learn to like yourself, or change yourself until you can like yourself
The day after you start a job, nobody cares about your connections, history, and credentials—or lack thereof. You either deliver results, or you don’t
Changing your mind is a sign of intelligence
Learn to tell a story — Stories are better than adjectives because they are more comprehensible, memorable, and emotive
Do the right thing….. A formal contract with a dishonorable person is worth less than an informal contract with an honorable one

Imagine a book filled with stories about why the above sentences made a difference in creating Guy Kawasaki.
Needless to stay, like Guy’s other books like “Art of the Start” or “APE”, this book is a great first-read cover to cover and then a well-bookmarked reference. I have resisted loaning my “Guy” books because I am more afraid of losing my bookmarks than the physical book.
 

Entrepreneurship lessons and takeaways from the movie, Joy

We saw the movie, Joy, last night. I’ve enjoyed the onscreen chemistry between Bradley Cooper and Jennifer Lawrence in previous movies, and this particular movie, based (loosely) on a true story offers another opportunity to enjoy these fine actors. Though (this is not a movie review) the first 30ish minutes are excruciatingly slow, once the story of entrepreneurship and inventing takes off, you will be hooked.

Industry rags have already created their listicles of “5 lessons” from Joy, and “lessons entrepreneurs can learn” from Joy. In my role as mentor and investor in startups, I notice items in current startups that Joy experienced as told through the movie. Here they are in no particular priority order.

  1. Pick your advisers carefully – we naturally turn to our parents, relatives, friends, siblings and business associates for advice. However, advice from a family practice attorney isn’t appropriate for patents, and a bookkeeper doesn’t necessarily make the COO. A parent’s natural role is to protect you from perceived and real adversaries – not exactly the person who is prepared to help through risk-assessment.  Joy’s best advisers ended up being a close friend and ex-husband – who do you trust?
  2. Read your contracts fully – you needn’t be an attorney to understand the minutiae of legal docs. Your legal counsel exists to understand the documents fully. But you as the business owner need to read each of your documents cover to cover. Yes, that includes the operating agreement (30+ pages), the patent application (100+), the tax rules (pub 515 is at least 76 pages), and any contract with a vendor, employee, partner, co-founder, and even the real estate lease for your office. When shit hits the fan – you’ll  need to revert back to these very documents. Having read them during peace, they’ll be far easier to manage at times of duress.  Though Joy managed to get through the minutiae during severe duress in the movie, this is not a common occurrence.
  3. Receive input from many, but decide from within – be the basic building block of our bodies – the cell. Receive input from all directions – positive and negative. Collect the various inputs without defending or supporting. Then, when you’re ready, find your place of solace, close your eyes, filter the inputs, and make your decision. Joy makes such decisions while shooting at a range, alone in her bedroom, scared witless at a hotel, and confident on a street. The place of solace will change, but your nucleus is constant – focus and decide.
  4. No one cares about your business EXCEPT you  – Employees, shareholders, investors, advisers, friends are all there in good times and bad, but their focus is forever on themselves – their job, their investment, their dividends, their billing and reputation, and their social standing. So, while you may be focused on growth, survival, collapse, payroll, contract, customer and security – they are not. So, survival depends on your ability to perform perfect CPR. Growth depends on your ability to spot opportunity. Collapse depends on your strength to perform euthanasia. Employee payroll may take money away from your own paycheck. Your business -> you are responsible.
  5. The littlest pieces of your entrepreneurial journey are worth cherishing – this one got me at the end of the movie. Through the early years of your journey, the tiniest elements set your direction. They may be a sketch, a photo, a piece of clothing, whatever. They were important then and will be imminently important in other parts of your journey.  Keep a time capsule through the journey and visit it occasionally. You may be surprised at the feelings that capsule unleashes.

In the end, it was a movie. Probably 50% true story of Joy Mangano and 50% artistic license derived by David O’Russell.  It was entertainment but left me with enough parallels to daily life that I felt worth sharing. Worth a matinee investment.

The critical elements of a term sheet

The “Term sheet” carries an air of mystery and intrigue in the entrepreneurial community. Founders are either nervous or giddy about them, want to get one and celebrate its arrival. Investors are eager to sign them (while tending to wait for a lead investor to generate them).
Working with startups and angels in my community gives me a perspective on term sheets.  Since the landscape that governs capital here is markedly different than that in VC hotspots, I’m sharing the elements I see ignored/problematic/contentious, here, in Des Moines, Iowa.
Disclaimer: Getting introduced to Brad Feld’s Venture Deals, following a number of blogs, and ultimately digging through dozens (hundreds now?) of term sheets, I feel like the 4-10 page document is boiled down to a few critical elements that trip up entrepreneurs and angel investors alike. I am not a VC, nor do I represent a fund, so the motivators behind VC decisions are still largely remote to me.
Oh, and also – I am not a securities attorney – use this as a starting point in your journey on term sheet education but seek competent advice at the time you begin working with these documents.
What is a term sheet?

When an entrepreneur chooses to accelerate the journey of building or scaling a business with outside capital, the term sheet is a formal document that outlines the summary terms of exchanging a portion of the company (equity) for cash from an investor (investment). Though filled with legalese about a variety of important topics, it sets the initial terms of engagement, specifically through core elements that would fit on a napkin.
Untitled
The elements boil down to three simple drivers –  economic, team and control. Drivers that control the money aspects of the transaction, those detailing the people building the company, and how the power will be shared once the investment is initiated, respectively.
Economics (equity, valuation…)
Though it should come later, this is frequently the starting point of a negotiation.  A placeholder for the amount the two parties think a company is worth, valuation is a key point of the negotiation. Of course, like any parent, the entrepreneur values their company higher than the dispassionate observer. Similarly, the investor tries to justify the entrepreneur’s assessment or comes up with their own yardstick for evaluation. The mid-western investor rarely puts down a $1M or higher value on a company that has no product, no real customers, and an incomplete team. Ideas alone seem to rarely receive outside funding, and when they do, the term sheets are skewed toward a great deal of control in the investor’s hands for significant share of equity.
What’s an entrepreneur to do?  If the desire is to raise local money and not travel nationwide pitching to investors, then appealing to the local investors motivators is key. Those motivators, at this point in time, are product, revenue, and team:

  • Product – a company needs a minimum viable product (MVP) that demonstrates the founding team’s vision. It must be usable, demonstrable, available on the relevant platform (web, mobile, physical goods etc.), and one or more customers be able to speak to its viability and use.
  • Customers – Revenue comes from customers, so this is important. The history of a product’s sale to an unrelated customer — one with whom the entrepreneur didn’t have an established relationship –is important. Customers provide external validation of an idea and are key to an investor’s ability to preview a product’s market viability.
  • Team – a complete team is generally a pre-requisite for a company raising funds and must include founder (with a concrete role – not just title) marketing, product development, and ability to execute. These people and roles will change over time, so, a complete team needs to reveal the people who fill to roles to adequately guide the minimum viable company to the market where their products are sold, licensed, and used by real customers.
  • Exit – there will be discussion, however premature it may seem, about the liquidity or liquidation event. It could be brief, or a full buy-sell analysis, but there will be one. READ THIS CAREFULLY, especially the section related to liquidation preference that establishes rights to the funds received at a liquidity/sale event.

Team
Though the term sheet will have a signor on behalf of the company, the team does not need titles like CEO, CTO, COO, etc. At this stage, there really isn’t a true CEO or CTO – but rather founders, builders, designers and hackers. The first developer on a team will very likely NOT be the CTO of the fully baked company — the skill sets for the two are vastly different. Similarly, the founder will very likely be replaced as the CEO over the venture-backed lifetime of the company. The team, therefore, needs to be able to present a diversity of opinion that will lead the company to grow, but show a unified front through consensus building.
Rented CEOs and other titles are a let down – angel investors invest in passionate founders, and founders who have given up critical equity for a part-time CEO in early stages of building a product can actually hurt themselves. So, for the purposes of showing off the MVP and raising capital, founders (not a bunch of rented suited professional CEOs) should demonstrate their wares .  Business attorneys do a far better job negotiating terms.
Control
Once money and equity exchange hands, those providing the money will often desire control over the operation of the company in material areas. These terms change the daily behavior of the company and its founders, and must be negotiated early and clearly. If legalese in the documents is not understood, clarify – it’s a lot easier to do before the deal is done than after.  Any attorney worth their salt understands that the legalese in the documents is a necessary evil, and can summarize the entire document in a page of plain English. That page is worth its weight in gold for us mere mortals.  Key elements of control include such things as

  • Information rights – this gives the investor a right to receive regular (quarterly or otherwise) updates from the company that summarizes financials without divulging too much information that may be proprietary. Though angel investors have significant insight into a company and operate like many insiders, this right is still necessary to document and usually a requirement for an angel investment.
  • Founders salaries – investors know that the first influx of cash can alter the incentives and behavior in a company, including such major items as founder compensation as well as minor items like benefits. Thus, term sheets may dictate how much or if the founder can give themselves a raise.
  • New stock/dilution – investors understand there will be dilution during successive raises but want to have a say in when/how much/rules surrounding such raises. Expect a clause allowing the angel investor to participate in future rounds to maintain their ownership percentage, participate in sale of stock by the founder, and advance warning about upcoming events that can cause dilution.
  • Board Seat  – though many investors would love to be on the board for their new portfolio company, angel investors in particular, frequently decide against it and choose to serve instead as informal advisers, rainmakers, network connectors, and  supporters. Still, a paragraph or two will be dedicated to this element.

In closing, remember, a term sheet is not the final definitive document that guarantees an investment. It is simply the first formal document used to begin the conversation. Treat it with care.
 
Additional Resources
Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist
Ideal First Round Terms, Chris Dixon on cdixon.org

Is it fear or failure when you fold 'em

The startup world is full of advice surrounding how and what to do for startup success. Though failure is often embraced and supported, the fear of failure or the outcome of failure actions is not often reported. As a regular subscriber to The Moth Podcast, I came across a story by Annie Duke that may be especially poignant in this area.
Moth is a podcast of a live storytelling event. The events feature real life stories by real people, told candidly in a 10-minute stand-up format. Stories are as varied as the people who tell them. I would suggest subscribing for some free, though-provoking, and amazing stories. Warning – some will make you laugh hysterically, think deeply, and even cry.
Though neither a startup, nor a founder of a tech company, Annie is simply an accomplished Poker player. Playing her hands and listening to her gut, in the spirit of Malcolm Gladwell’s Blink, she plays a game of her lifetime.  I won’t give the story away, except remind you of Kenny Rogers and The GamblerThe lessons of failure, fear, victory, and discipline are clearly peppered throughout this story.  Of course, in the testosterone filled world of gambling, a bit of sexist commentary rears itself as well.
Here is a link to the story and the podcast on iTunes.

Goodbye, Pikuzone

Today was the day I took the final steps to shutdown pikuzone. Created to provide a safe place for kids to be able to send emails to parent-approved contacts, it served several thousand messages for several hundred kids over the site’s three year life. It is being retired because of a cultural and a commercial shift.
pz
Culturally, the children gravitated toward the tablets and smart-mp3 players. They utilize games and secure text messaging applications and, just like Facebook, email is the old people’s platform.
Commercially, the size of the market served is limited to parents who care about privacy and security of electronic communication. Many of these parents are hard to find and, therefore, expensive to market to as they themselves like to not be found :). Out of various marketing approaches we attempted, the one that worked best was Google Adwords – adwords that targeted highly-educated moms from blue states with two or more kids. Unfortunately, the size of the market didn’t leave the project to be commercially viable and we have run its course.
At the end of the day, the project paid for its daily operation costs but the commercial realities would never recoup the effort expended in creating the site. We end the company in black, notwithstanding development costs. Thanks to all the parents and friends who supported Erin, Joe and me in this wild adventure.

Marveling at how innovation continues to surprise

A colleague and I sat across from each other yesterday at a coffee shop as we worked out mutual task lists for one new, one future, and two ongoing projects.  There were names to add, tasks to do, people to assign, call and drop from the lists.  It was a few minutes into this seemingly simple management task that a thought struck –

  • we both work for disparate employers
  • I was using a Microsoft Surface tablet and he an Apple iPad
  • we were connected to a free public wireless network
  • we were managing tasks for four separate projects that represent four separate legal entities (companies, people, etc.)
  • we were using the free version of a publicly available application, Trello, to manage our work
  • the free application, on disparate computers, on a public wireless network was concurrently handling and synchronizing data as we worked
  • we paid a nominal rent for the office being used – essentially a portion of our $1.96 coffee
  • we had no idea where the data we entered into our tablets is actually stored
  • we didn’t care

This is so remarkably different from where I started in this industry that the various inflection points that led to here seem insignificant and forgotten. But the magic remains. I am glad to have retained the ability to still marvel at this stuff – the sense that attracted me to computers and computing in the first place.

How killing net neutrality will affect you

This off today’s news stories – FCC poised to changes in net neutrality policy
The lobbies, supporters and the FCC continue to make the debate around net neutrality more complex than it really is.  Through the various gyrations, the lobby for media and internet companies has figured out that by removing the immediate costs to us end users, they can take us out of the debate. They’re right – most people you speak with don’t really give a damn about this issue because it won’t cost them a dime…. yet.
I have a simple analogy that I’m sure I’ve heard someplace but can’t recall to properly credit – how would you like the public highways to provide priority to those who can afford to pay for high speed driving privilege down the left lane. If the left lane gets filled up, the middle lane becomes available to the payor, continually squeezing the ‘public’ to the right lane, shoulder, and ultimately off the road. It really is that simple in networking terms also.
If you’d like to read my reasoning why – read further.  If not, think about your commute this morning and imagine the above scenario.
The news out of FCC this morning hints at rules allowing a Netflix or Apple to pay for better, faster connections to the Internet for better delivery of video. The way it actually happens in Internet hardware is that, in addition to a fatter pipe to the Internet, Netflix is provided a higher Quality of Service that gives a priority to its traffic, through networking gear, over others’ on the pipe.  Our corporate networks implement such a priority where telephone traffic is generally given higher priority than someone browsing social networks.  Extend this analogy for a moment –
highwayrobbery
You are entering a freeway and the on-ramp checks your license plate. The freeway computer recognizes that you are a standard driver, checks current traffic, and gives you access and you start driving merrily.  A convoy of trucks enters the highway and they happen to pay 10 bucks a truck. Their priority is, therefore, set higher and the highway computer moves your car off any lanes needed by the trucks until they have passed. On the Internet today, it is reality that lanes are so busy that the entity using it as a public infrastructure will be moved off-road (network term: squelched).
We enjoy Netflix, Amazon VOD, Hulu, Youtube, Vimeo, and many other services because the Internet was setup as a public utility without being called one. No one entity had more rights over the other. It isn’t a libertarian concept to seek to keep it that way. Just like our public highways, our common airspace, our electric supply, phone lines, and access to fire department or police, our Internet needs to remain a public utility, devoid of favoritism.
Netflix, Amazon, Hulu, Youtube, Vimeo were all startups once. And there will be startups again. Will they get squelched because NBC and Comcast chose to pay for higher QoS and eliminate the potential for competition. Bet your bottom $ they will.
Your senators and representatives need to hear. Your newspaper needs to hear. And ultimately, people fighting this fight need support. Head on over to Freepress and the EFF. Join their work, support their work, and more importantly, spread the word about their work. They’ve made it as simple as a button click.

My article on open records and Government contracts in the DMRegister

This article appeared in December 1, 2013 issue of the Des Moines Register’s Business section. It is encapsulated here and the original article is here to discuss my opinion on open records/FOIA as they relate to government contracts and the innovation economy.
——————————————–
The massive debacle that is Obamacare’s website launch is the latest example of what happens when you shut out the innovation economy from government contracts.
As the largest buyer in the country, the U.S. government spends amounts as mundane as a few hundred dollars for goods to hundreds of millions in technology for its various agencies. The services are procured using requests for proposals, or RFPs, multiple award master contracts and, in many cases, no-bid contracts.
These are meant to inject transparency and equal footing for service providers. But they do not.
As a former government contractor, one of the greatest challenges was even finding RFPs to respond to. In the world of public sharing of information, federal, state and even local governments hide behind a labyrinth of systems when they file their requests. Registration systems pre-screen vendors and respondents while creating bond and insurance requirements only a chosen few can meet. This filters out the innovation economy.
It is no surprise that innovation centers of the U.S. aren’t home to government contractors. Innovators don’t have, or don’t spend time developing, lobbyists who simultaneously act as salespeople. Innovators are usually first to market with new ideas and products and are, thus, not often able to provide three or more customer references for people who have used the products.
While Obamacare’s website is the latest technology solution to fall victim to a lack of innovative solutions, it’s certainly not the first. Between 2000 and 2005, the FBI spent $170 million on an ultimately abandoned software application that ended up being “incomplete, inadequate” and “unusable under real-world conditions,” according to a Washington Post report. The job was done by an American defense contractor.
We must demand more public access to how our dollars are being spent and give innovators a chance to help.

Importance of the STEM Jobs Act

The STEM (Science, Technology, Engineering, and Math) Jobs act, H.R. 6429 was introduced in the House by Rep. Lamar Smith on September 28, 2012 and passed on 11/30 in the house 245 to 139.  Iowa Representatives Braley and Loebsack voted No while King, Latham and Boswell voted in favor.  The bill was referred to the Senate and was read on 12/3 and 12/4/2012.  I spoke with Jens Krogstad of the Des Moines Register on this topic recently, and read the article and accompanying citizen commentary today.  I am disappointed in the direction the article took, as it focused on an individual’s plight instead of the larger problem surrounding the STEM worker shortage.
As the Governor and Lt. Governor of Iowa have outlined via their multi-year, statewide STEM initiative, there is a need for this state to grow the population able to fill open STEM jobs.  A University of Iowa survey in 2012 documented that 61% of Iowans agree that there aren’t enough skilled workers to fill STEM jobs in Iowa (slide 14 of the UNI Study). The Iowa Workforce development projects the need for STEM qualified workforce to grow from 57,830 in 2008 to 67,330 jobs by 2018, especially in the priority economic sectors of bio-science,  information technology, and advanced manufacturing.  These industries are prominently represented by employers large and small – names like DuPont/Pioneer, Monsanto, Rockwell Collins, Vermeer, Pella, and others in all corners of the state.
Our pipeline of homegrown talent, however, is leaking.  Our 8th graders, at the top in 1992 nationally, have fallen to 25th in Math and 13th in Science.  Only 51% of Iowa ACT test takers in 2010 were college math-ready, and only 11% of them were actually interested in a STEM major.   To top off the data, 93% of Iowa’s population growth comes from Latino/Asian/African-american populations who are half as likely to pursue a career in STEM fields than their white counterparts.
So couple the increasing need for workers in our STEM industries (from ~58000 to ~67000) with a decreasing population of potential homegrown STEM workers (STEM-interested high school graduates now at about 4000) , and we have a deficit.  Since it takes at least 22 years to take a newborn through college, and our STEM agenda is working hard to grow the number from K-16 within the 22 year constraint), our deficit will naturally grow over time until we fix our production problem.  The choice is to export the jobs or import the people.
Importing individuals may sound petty and trite, but economically it is a choice.  Without the oceans, mountains, temperate climate, and activities, we know that our government officials’ desire to import new Iowa citizens from the coasts will be minimally fruitful.  So, why not figure out a way to keep talented, STEM-ready, young people here?  BTW, this problem isn’t localized to Iowa – Brad Feld has shared his frustrations via his posts, Vivek Wadhwa through his book, the Immigrant Exodus, and numerous others, our industry titans are hurting for qualified individuals and unable to find them.
That’s what the STEM Jobs Act is designed to do.  The democrat representatives and President I voted for killed that movement to protect a silly diversity lottery.  A lottery that brings people with no eye for what they bring to the country.  More partisan politics that bears little benefit for the country’s citizens.  There is a chance I might get to discuss this with the President himself in a few weeks.  Hopefully I can deliver the message more concisely for political consumption by then.
Please hit your employees in DC to tell them we need the STEM Jobs act.  Here are the links –
Bruce – http://braley.house.gov/contact
Dave – https://loebsack.house.gov/contactform/default.aspx
Barack –  http://www.whitehouse.gov/contact/submit-questions-and-comments
–Tej
 

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