Starting, growing and managing a starup

Panel: Starting, Growing, & Managing A Business: Opportunity & Pitfalls

Speakers:
Sumita Batra, CEO of Ziba Beauty, and author
Himanshu Bhatia, CEO of Rose International, a IT services company
Jody Dunitz, member of Tech Coast Angels
Sharon Stevenson, partner at Okapi Ventures
Moderated by Toni DasGupta, 4D Convergence

TiE logoOn February 21st, 2007, the TiE Southern California chapter showcased an all women’s panel, which discussed the challenges and joys of starting and growing a business. The discussion was aimed at being a practical, how to, down in the trenches perspective from two entrepreneurs who have been there and done that, and two investors who have helped entrepreneurs get where they are going.

1. Starting/ Growing your business: Often, one hears of people starting companies, effortlessly raising funds, growing the company spectacularly for a few years, and then taking the company public. Reality seldom seems to mimic such perfection.
What prompted you to start your first (or present) company?
What did you need to do to get your company off the ground, and to grow it?

What is the biggest challenge you can remember facing in the early days?

Sumita spoke of taking on the responsibility of running the company (Ziba) that was started by her mother. Although the business was in existence, she spent several years growing the franchise, and very importantly, giving the brand a lot of cache (she and Ziba have been associated with many of the beautiful people - Madonna, Naomi Campbell and a host of other Hollywood regulars).

Himansu spoke of starting her IT services company Rose International, initially, as a lifestyle choice, over working at a corporate job. Over the years Rose has grown to 1000 employees, and is a long way away from a “lifestyle” type of business.

Sharon credited her entre into the VC business to a case of good timing. She came into Okapi ventures at an opportune time, when she was able to apply her extensive training in the bio-med field into directing Okapi’s life sciences investments.

2. Self fund or venture fund: Did you choose to boot strap/ self fund your start-up or did you decide to look for outside investors? Are there advantages to getting outside investment vis-à-vis funding your own venture?

Rose International was bootstrapped from the beginning and had never pursued venture funding. Ziba has had a line of credit with the bank for use in financing its expansion. Jody spoke about start-ups, particularly technology companies, needing large amounts of capital, initially, and that although some companies might do well without any outside infusion of cash, for many, being well funded at the start is not only necessary, but is a critical determinant in its future success. Both investors also mentioned that the value is not just in the cash, but in the know-how and expertise that the angel or venture investor brings to the table. In other words, smart money is good money.

3. Women in business: Today about 50% of all businesses are started by women, yet there are very few women heading up large companies. Only 4% or all women led companies make it past the 1M in revenue mark. Why don’t we see more women leading companies (both entrepreneurs and in corporations)? Is it a choice or from lack of opportunity?

Neither entrepreneur felt that there was a lack of opportunity for women. It was also clear that the women on the panel were all self starters and that gender would not be factor for them. They all acknowledged, however, that they had always been in professions where they were seriously outnumbered by men. Having the strong support of their families was cited as one of the reasons why these women felt they succeeded through many hard times.

4. Mentorship: How important is it to find a mentor. Did you find a mentor over your business career?

While having a mentor was considered to be very important, it is clear that it is not very easy to find a good mentor, who has no other agenda than helping their mentee succeed. A key factor in finding the right people to help and support you seems the be the willingness on the part of the entrepreneur to get out there and talk to people about the business, and about any issues they might be facing.

There was some discussion about the fact that for specific problems, it might be a good idea to pay a professional (such as a consultant) for advice. Sumita talked about having a mentor who had helped her over the years by providing guidance, when she hit various business road blocks. She was able to make best use of his expertise by calling upon him when she had a specific problem, and then putting his advice into action. She found that such targeted interaction, followed up with specific action on her part to resolve the problem, helped her to use her mentor’s time most efficiently.

5. People power: We hear that investors invest in people, not ideas. How important is it to attract the best talent? How do you go about recruiting and retaining the best? How important is the management team in companies that you invest in?

All the panelists agreed that the people factor was the biggest determinant in the success of a company. It has been said that it is better to invest in an okay idea with a great team behind it, than an grand idea with mediocre management. Sharon and Jody agreed that it is the management team, ultimately, that will make or break a company. Sumita explained that Ziba maintains its edge by hiring the best, and they are able to do this by maintaining a close knit family atmosphere in the company. Himanshu spoke about that fact that when a company grows to 1000 employees, there needs to be a structure where the top management is intimately connected to the next level of executives, who are closely involved with all the employees that they are responsible for. Besides that, a generous, and well administered incentive program is a good vehicle for retaining top talent.

While there is no single formula for success, it is clear that the one common factor that successful people share is the passion that they feel for their endeavors, and the extraordinary effort that they are willing to make in order to realize their dream.


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The Fundas of The Funded and The Funders !

A new site called the TheFunded.com has just launched that rates venture capitalists, giving entrepreneurs different type of information about the VC firms.

Considering the venture funding process is still secretive, and there is limited public and/or objective information about venture capital firms (and their individual partners) the information might be helpful.

There is some quantitative information available on a few of the funds (SDC Platinum and other databases) but a central place for qualitative information about the people and process behind the VC groups is still lacking. You hear a tidbit here and there and here, or can see a visual map by linksview blog but a meeting place that has exceeded the critical mass would be welcome.

My concern here is that the “reputation” of the firm has very often have no relationship with the “reality” of the firm. I can name several VC firms where my perception of a particular firm, which I had gleaned from talking to others in the field, was proven to be completely off base when I actually interacted with them in real time.

This reputation process has been tried in the dating context without much success. As ouriel ohayon quipped:

Although at the end of the day, like in dating sites, you don’t know what you get until you are married and signed the papers. And even then…

So true!

Michael Arrington noted in his Techcruch blog, that since most startups are turned down for funding, there will be a tendency for people to leave negative comments. I actually think that since the postings are not anonymous, most of the comments will be extra positive.

Also a note of caution: TheFunded was started by an entrepreneur who says he was really “burned�? by a VC firm. So make sure to bring some salt and some A1 sauce when you are reading the site.

Although I haven’t used it, the InsiderVC.com has similar service and it will be interesting to see how theFunded.com evolves.


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Thoughts on Geni’s Valuation of $100M

Geni, a web 2.0 genealogy site received $10M funding with a post money valuation of $100M.

I am not surprised about its funding, but I am surprised about the speed of the of the round, and the valuation.

Some background: Geni was launched a few weeks ago (I was one of the early users of the system. I stopped using it when the system crashed on the first day, and when I realized that there was no easy way to export the data). In a few short weeks it has acquired 100k registered users. Geni did a $1.5M fundraiser earlier this year from Founders Fund. And now Charles River Ventures paid a 10x valuation from the previous round, for 10% of the shares. Geni has received a lot of coverage: Venturebeat, NextNet, Techcrunch to name a few.

Geni does have a lot of buzz words associated with it; Web 2.0, Social networking, but even then, a $100M price tag sounds more like a capital fund willing to pay ANY price to get in to a hot startup, rather than refelecting the real valuation of the company. Nothing wrong with it, per se; Things are worth what others are willing to pay for it. But we have been through this before; After everything is said and done, the fundamentals have to make sense.

A $100M valuation now means that one is expecting $1B valuation at some point, which will require a revenue of $150M or so; I find it hard to imagine that a geneology website, no matter how good, can ever generate that kind of revenue.

One particular issue that depresses the value of the genealogy sites is that it is a good place to attract new users but very hard to keep them there. Most of the users will visit the site a couple of times in the first week and then never return to it. It is not going to become the next Myspace of Facebook. I wonder how many of the 100,000 initial users that Geni got have returned to the site after one or two visits? Should one really count them as users of the site?

There are also several other sites that have impressive databases: One of the biggest is The Generations Network (MyFamily.com), which owns Rootsweb.com and Ancestry.com. There are also TribalPages.com, OneGreatFamily.com, Genealogy.com and Allfamilytree.com.

George Zachary of Charles River Ventures recently commented on the valuation of Geni as:

It’s a company with global breakout potential that’s showing a clear ramp to getting there.

Back when Skype and Facebook were funded, people were surprised by the valuations in both companies. And we are seeing signs that Geni is on a similar ramp.

Well, interesting times we live in for sure!


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Trends in Detailed Terms of Venture Financings : Q4′06

termsheetFenwick and West has an interesting survey of Silicon Valley venture financing for the fourth quarter of 2006.

I especially enjoy reading Fenwick’s survey because they include details about the “nitty gritty” of the terms. Having served as a counsel in many financing transactions, I can vouch for the fact that some of the details of the term-sheet turn out to be as important as the initial pricing of the equity purchase.

Specifically focusing on the terms of the VC financing:

(i) Senior liquidation preferences were used in about 40% of the financing. This is a good gauge of the confidence in the long term survivability of the companies. In Q1′05, the liquidation preference was included in 50% of the VC financing deals.

(ii) Antidilution Provisions - Weighted average anti-dilution provision was included in 95% of the deals. Only 1% of the deals did not include any antidilution provision and other 4% included ratchet-up antidilution provision.

(iii)Price Change – The direction of price changes for companies receiving financing this quarter, compared to their previous round, were: Up 67%, Flat 11% and Down 22%. (compare this to Q1′05, where price change in up direction was in 59%, flat in 10% and down in 31%; a clear improvement)

Some general observations include:

The amount invested by venture capitalists in the U.S. in 4Q06 was approximately $5.8 billion. Although this amount was approximately 15% less than the amounts invested in 3Q06 and 2Q06, it fell solidly within the $5-7 billion quarterly range seen since the end of 2003. Overall the amount invested by venture capitalists in the U.S. in 2006 was up approximately 8% over 2005.

2006 in general was the best acquisition year for venture backed companies since 2000, both in terms of aggregate amount paid ($31.2 billion) as well as median amount paid per transaction ($52 million).


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