Google visits TechStars

Last week, some great folks from Google spent the day with the new founders at TechStars. Kevin Marks and Dion Almaer (also the founder of Ajaxian) kicked off the day with a great detailed tech talk. They covered App Engine, Open Social, Gears, Android, and some other awesome Google code projects.

Many parts of the talk stuck out for me, but perhap the most memorable was Kevin’s well-thought-out discussion of How Not to be Viral. Kevin added a great deal of color when he stated that “if your application behaves like a virus, people will develop an immunity to it.” Thanks to Andrew, here’s a clip from the TechStars Community site which I’ve embedded here with Kevin talking to us about this.

You can get great detailed video and audio content like this and participate in the community with our founders and mentors over at the TechStars Community site, or just subscribe to it by RSS now.Kevin also talked about “building your pleasure model before building your business model,” alluding to the fact that if users don’t first get pleasure from your application, then your business model will never be a factor.

Dion also led some great discussions including one on mobile that stood out to me where he told us that Google believes that “the web will win on the phone.” By this he meant that standard web protocols will drive the amazing mobile applications of the future. I couldn’t agree more - we’re seeing some pretty amazing Android and iPhone apps lately that are proving the viability of this model, including a fantastic implementation by Brightkite and also one by Socialthing.

We finished up the day with the story of Feedburner, let by Dick Costolo (Founder and CEO) and Rick Klau (VP Biz Dev, now Strategic Partner Develoment Manager at Google). This often hilarious story of the birth, rise and Googlization of Feedburner was a real treat. Dick kept talking about his drive to “get all the feeds.” Often, he said, Rick would come back with 5 feeds and a rabbit (representing some random business development deal). Dick would tell Rick to get rid of the rabbit, and go get more feeds. Often, Dick would ask “Do we have all the feeds yet? No? Go get all the feeds.” The lesson: This simple and easy to understand mantra kept Feedburner from veering off course.

We had a great time with Google at TechStars, and want to thank Dick, Rick, Dion, and Kevin again for spending their time with our founders. See you soon guys!

How to increase engagement on your blog in 60 seconds

Want to increase engagement and page views on your blog in the next 60 seconds? Try installing Intense Debate.

It’s a simple way to replace the crappy comment system that comes with your blog by default. And it works - reader engagement on several of my blogs has jumped 3-4x since I installed it. Intense Debate notifies commenters (or the publisher) and makes it easy to post comments by simply replying to emails. It also adds threading, which clarifies the conversation. I noticed my commenters across my blogs are talking to each other more than ever. The main reason? In the past a commenter who stopped by and left a comment would never know that someone else was talking back to them. Now they do, and they re-engage. This increases my page views and engagement. Best of all, my readers love it.

Today they released a great feature that allows you to automatically tweet your comments. Earlier today, I commented on a post over on Brad’s blog and Intense Debate dutifully notified all my friends via Twitter. Again, Intense Debate has found another thoughtful way to increase attention and engagement for their publishers. Intense Debate just keeps getting better all the time.

Here are some great examples of amazing engagement over on Don Dodge’s The Next Big Thing, on Paul Kedrosky’s Infectious Greed, and on Feld Thoughts. Great stuff.

Brightkite is flying high

If you haven’t yet given Brightkite a try, you’re missing quite a party. Users seem to flocking to it in droves lately. I’ve started using it to regularly post my position and it’s fantastic for photo sharing. For me, it’s completely replaced twitpic, and I’m using it regular to post to Twitter and Brightkite simultaneously (Brightkite automatically cross posts to Twitter for me). It’s really neat to see what’s going on at specific places like the Brightkite HQ, around downtown Boulder, or around the Rio rooftop.

You know you’re getting somewhere when even social satire leverages your site.

ReadWriteWeb has a nice writeup on Brightkite, as does Wired, Somewhat Frank, Ars Technica and CNET.

Brightkite is well funded, still hiring, and growing their user base at a tremendous clip right now. Keep watching - they’re iterating fast and I see a few new features pop up every week. I’m really proud of how Martin, Brady, and the gang have kept on cranking after TechStars last summer.

Comment here if you want to play, and I’ll get you into the beta.

Angel financing

In a few months Lijit Networks will be two years old. We started the company in a fairly common way, finding employees that wanted that “ground zero” experience, having the seed of a good idea, and finding Angel Investors that would invest and keep the idea alive long enough to germinate. It wasn’t easy but we got it done. A question I get a lot from new entrepreneurs is “how do you find Angel Investors?”

Many young startup entrepreneurs tend to look at Angel Investors as a group of people with more money than sense (which sometimes is true) but generally not. They give no thought to the motivations of their Angels, what their Angels should get from the relationship, or simply why the Angel should be interested in investing. Like anything, understanding your audience is half the battle. Don’t trivialize your Angels Investment by rationalizing the money isn’t important to them; I find that $25K is important to everyone.

I have been on both sides of the Angel Investment table. Lijit was Angel funded for the first year of its life. We raised approximately $900K from a combination of friends, family and seed professional investors. On the flip side I have made several Angel investments in other local companies – with varying success. Based on this sample set plus other random data I have collected along the way, I have established a basic way to look at Angel Financing.

Types of Angel Investors:

The Family Investor: The Family Investor is likely not really a classic Angel Investor at all but rather a supportive family member that “knows you”. Their motivation is likely out of support (sometimes guilt), but their basic investment thesis is they trust you. For me these are the worst type of investor because you likely have intimate knowledge of their financial situation and whether or not they ’should’ be investing. Likely, they have no inherent feel if your idea is good or not, but may have changed your diaper at one time or another and have overcome that experience to hand you a check for $25K or $50K. Personally, I like this category of investor the least because the investment is totally emotional and personal – and that sucks in business. But based on the financial situation of the individuals involved and the relationships this can work ok if everyone comes into the situation with their eyes open, but go out of your way to make sure.

The Relationship Investor: The Relationship Investor is probably one or more co-workers from a previous gig or business friends you have known for a while. They may or may not understand what your new company is doing but they have had a track record working with you. They want to be supportive, but are looking for a return. You won’t lose them as friends if things go bad, but the investment for them is likely not ‘trivial’. In my experience these are good Angels to have, again as long as their eyes are open going in. These people can also be wildly supportive of you in terms of finding employees and other resources.

The Idea Investor: The Idea Investor is probably very familiar with the space your company is targeting. These are in some ways the very best types of Angels because to some degree they validate your idea. There investment is based on the Idea and there is little emotion around the table (always good). If you can get them onboard they can open doors into partner relationships and just generally good advice. You will spend most of your time convincing the Idea Investor that you and team are the right people to attack this problem (as they likely don’t have a strong relationship with you or the team). Often an influential Idea Investor makes a good early board member for the company.

The Once Removed Investor: The Once Removed Investor is likely connected through a personal or professional relationship with either the Relationship Investor or the Idea Investor. They likely don’t know you, and they likely don’t have a clue if your idea is good or bad but they have translated the trust in the investment to the person they know. This is a great way to get additional Angel Investors onboard, but without a solid Relationship Investor or Idea Investor it just isn’t going to happen.

I personally have never seen an Angel Financing come together without some mix of the first three investor types plus a few Once Removed Investors. Be warned that the Once Removed category of investors will also supply the softest money in the upcoming financing. Simply put - as you verify amounts before close, the Once Removed guys are the ones that tend to “go away” or “get smaller” as the deal progresses. A friend of mine that has successfully financed several companies gave me the rule of thumb that most investors will end up being about half of what they initially committed to. This is definitely true of Once Removed Investors; I once had a $400K guy turn into $50K guy, and $50K was like pulling teeth.

Finally, there is a concept I refer to tongue-in-cheek as the Arc Angel. An Arc Angel is a Relationship Investor or Idea Investor that has a track record of success making other Angels (and perhaps non Angels) money. These people are valuable as they can be very influential attracting quality Once Removed Investors. If you can find this person and get them excited about your deal, do it.

The bottom line on Angels, spend your time looking for solid Relationship Investors or Idea Investors, they are the ones that will get you over the hump. Bring a few Family Investors along for the ride if they won’t get sick on the Rollercoaster and hope that you can mix in a good set of Once Removed Investors.

Size of Investment

Next, you have to consider the size of the investment. Money never goes as far as you think it will. My experience is you need to raise between $500K and a $1M to do almost anything. Using Angel Investors to achieve this goal you are likely looking at investments all over the board but usually in the $25K to $100K range. You may have a few smaller and a few larger but in my mind you have to target having no more than 10 to 15 total investors in an Angel round. It’s just too hard to herd the cats when the group gets larger than this.

Pre-Money Valuation

A friend of mine with much more experience then myself told me, Angels should get a good deal. They are putting money in at a time when presumably no one else will and they are taking a huge risk. I can’t tell you how many people have said, “Yeah, but its only $25K and they have lots of money”. That’s total bullshit; show me someone who lights $25K on fire for no reason.

Having been on both sides of these kinds of deals, I totally agree that Angel Investing is very high risk and the road ahead as an Angel is fraught with investment disaster. Lots of wonky things can happen to the Angels when VC’s come into the company including investment preferences that take away the Angel Chocolaty goodness. I have also, unbelievably, had meetings with entrepreneurs where they are indignant I won’t accept their pre-money valuation on their imaginary business. I always tell them the same thing, if my money is so unimportant, do it with yours. If you feel compelled to twist the valuation screws do it in the A round with the professional investors.

Investment Mechanism

There was a period of time where nearly every startup was doing convertible financings. This is where as an Angel you invest as if the investment is a debt type financing but can convert to an equity investment based on some outcome or the will of one party or the other. I tend to think these deals kind of suck. They are usually setup to attract money fast, and often in the case of the entrepreneur are empowering some kind of fantasy that the investment could be paid off based on success of the company and he won’t need to give any equity away. As an investor that’s the last thing I want because that just turns my investment into a very high risk bank account. The only time I saw this work well was a company that had plenty of investors around the table and incented them to invest early to get the company jump started faster. Early investors got some warrants to make it worth their while to have their money show up to the party sooner (and deal with the risk of being the first money in). Just skip this stuff, get all your Angels aligned, do one close, and make it a pure equity round. If you aren’t ready to sell equity in your idea, finance it yourself.

Liquidity

With the exception of possible investors in the Family category, Angels are not in it to finance your dream indefinably. You would not think it to be the case, but I have had several conversations with people approaching me for Angel investments who simply could not articulate how I would ever get any money back. They were so focused on getting money from people they forgot ‘they are an investment’, and investments have terms. Almost without exception, I don’t want to own your dream, I want to make money and have a little fun along the way. If you never sell the company, I never realize a gain.

Conclusion

There are probably 5 more posts I can do on this subject but my goal was simply to put together a primer on this subject. So many people approach me not understanding the dynamics of early stage financing. Brad Feld has written good stuff in this area on his blog as well as some quality stuff on AskTheVC. Use these resources to understand the numbers, but don’t forget to understand the motivations.

What we learned by moving to Boulder

In a follow up to our Who We Are post, Ryan and I thought we would compare VC life in Boulder, CO to that of the Silicon Valley. In some ways it’s remarkably similar and in some ways wonderfully different.

For those of you who don’t know, Ryan and I met in 2000 while at the California offices of Mobius Venture Capital, became quick friends and even started a band or two. (Shameless Plug Alert: Our band Soul Patch has recently released a new album. Check out the web site and buy on CDBaby, iTunes and Amazon. Become a fan on Facebook!). When the concept of the Foundry Group was born, one thing that the five of us agreed on was the need for one (and only one) office.

It didn’t take us long to decide that both the Boulder and Foundry Group opportunities were what we wanted to pursue with our careers, so, after a combined 27 years in Northern California, we sold our homes in the Bay Area and moved to Boulder in mid 2006. We’ve now been here almost 2 years. What have we learned?

Boulder is an entrepreneurially vibrant community. We were both surprised and encouraged by the sheer amount of startup activity there is in Boulder. It’s not just a by-product of having several good universities nearby; rather it’s really part of the culture and fabric of the community. I’d compare this to Ann Arbor, MI, where I went to school. Many people compare Ann Arbor to Boulder (without the mountains). While I see plenty of similarities, Ann Arbor is missing the ingrained culture of entrepreneurship (and associated risk profile) although it may have similar engineering and management talent.

Boulder is a supportive community. There really is a sense of community here. While there is a ton of activity, I don’t know if we’ve ever been to place that is as supportive in each other’s efforts. Instead of competition, there is collaboration. Whether it’s the Boulder NewTech Meetup, the Boulder OpenCoffee Club, Boulder Software Club, or TechStars, there is a general sense of community and responsibility to help the entrepreneurial community grow. I can’t say that I ever felt that sense of responsibility and “giving back” in the Silicon Valley that I feel here.

Boulder makes nationwide travel much easier. As national investors, it’s much easier for us to travel anywhere in the US from a central location like Denver. We’ve even been able to take day trips to New York, an impossible feat from the Bay Area, at least without a private jet. While an East Coast day trip is not the most fun one can have, our families appreciate us being home at night. And getting back and forth to Los Angeles and San Francisco, where we travel most frequently, is a relatively painless and efficient experience.

Speaking of travel, both Ryan and I (coincidentally) live on the same block in a neighborhood a few blocks away from our office. Our “commute” to the office is infinitely easier than our prior commutes in the Bay Area. The time saved can be spent on work or play, but either way, it’s not spent in the car. (For those voyeurs among you, you can check out our neighborhood by going to Google Maps and clicking “Street View”.

Being in Boulder helps focus our West Coast activities. There is no doubt that the volume of startup activity in the Bay Area dwarfs that of Boulder, and we have often been asked if we are concerned that we are missing out on opportunities by not having an office in the Valley. On the contrary, we consider being outside of the (sometimes provincial) echo-chamber of Silicon Valley to be genuinely useful. After experiencing life as VCs in the Valley for several years, we experienced a very real “time tax”, which resulted from taking meetings with entrepreneurs and executives we knew we were unlikely to invest in, but we felt were ultimately necessary to participate in in order to maintain our relationships with friends and colleagues in the area. Not being in California every day means we can opt out of that process. With our new location in Boulder, we still have our great networks and deal flow in California, but we have removed the Sand Hill Road friction from our day-to-day lives. When we do go to California to look at deals, meet with entrepreneurs or attend board meetings, we are better focused at the matters at hand and tend to have higher quality meetings, since those meetings have passed the “is it worth hopping on an airplane to meet face to face?” test.

Boulder’s culture encourages a healthy work-life balance. Boulder has an incredible amount to offer with easy access to mountains, hiking trails and natural beauty. People actually have time and focus to concentrate on things outside of work. It’s definitely a slightly saner pace. It’s not that people don’t work hard – they do – but there is a certain amount of balance that isn’t completely explainable unless you live here. For us, it’s meant that the hours we do work are more efficient and our brains are sharper.

So is Boulder utopia? No, nothing is. Ryan and I will “forever” tease our partners who told us that winters were mild in Boulder. Upon our arrival, we had the “opportunity” to experience the worst winter “ever” in 2006-2007. We’re also being told this winter is “below average,” which means that we’ve clearly brought bad luck with us. Either that or we were sold a bill of goods. More on that next year, I suppose. Also, we both miss some of the culinary options of the Bay Area, but we’d be in the same situation if we lived anywhere else but New York or Los Angeles (with apologies to Chicago). Finally, we must mention that the Denver Airport has the worst parking facilities in the world. They are regularly full, making for some tense moments pre-departure.

But in general, Boulder is a great place to live, work, play and (in Ryan’s case) raise kids. We’ve embraced our new hometown, and we look forward to continuing our integration into the community, both from professional and personal standpoints.