Category Archives: Funding

The Little Startup That Could Have Been

While Dropbox and Box command the media attention and VC investment, Yousendit – the service that helped pioneer file sharing – is still alive and, for the time being, doing well.

The Year is 2004

Let’s go back to 2004 when Yousendit was launched. Sure, there was Kazaa, Gnutella, and others offering peer-to-peer file sharing, but if you wanted to send someone that huge Powerpoint or Photoshop file (without the risk of getting a virus) you didn’t have many options other than burning and mailing a CD.

At the time, your Hotmail account allowed you up to 2MB of file storage. You had to keep deleting old emails with attachments. Google’s newly released Gmail service giving 1GB of storage wouldn’t be publicly available until later in 2007 with about 2GB of storage (which would then prompt Yahoo to give unlimited storage to their Yahoo Mail users). And businesses running Microsoft Exchange servers limited users’ inbox size as well to maybe a couple hundred megs. I still remember our IT admin kept complaining that we were emailing files to each other too often and he needed more disk space.  And I got the “your mailbox is over its size limit” message every other week.

Enter Yousendit. The service allowed you to upload a big file, then email a link to whoever needed access. It was confidential (only the recipient with the link could download the file), fast (no attachments), and pretty affordable (files up to 5MB was free). Brilliant. Usage skyrocketed. What could go wrong?

The FORGOTTEN founder

I always wondered why Dropbox and Box, to name just two services, were able to become so successful so quickly while Yousendit seemed stuck in the past. Sure, Dropbox is not focused on file sharing per se, they promote “cloud storage”, but Yousendit could have taken the market leadership position easily. And only recently (2011) did they announce a “dropbox-like” feature giving unlimited cloud storage for their users. They already had the infrastructure, the product, the users. What happened?

My answers came in the form of a recent Inc Magazine article, The Forgotten Founder. It sheds some light into the company’s story, and helps explain why such a promising service was plagued with problems. Also shows how important it is to have a great team assembled and what mistakes we all should try to avoid. Was this the reason Yousendit didn’t evolve the service until now? I can’t say for certain but I bet it has a lot to do with it. Could Yousendit have become what Dropbox is today?

The future

Box and Dropbox are the darlings, attracting hundreds of millions in capital investment. But they are not alone… and there is always someone that can jump into this game and shake up the market. Check below a short list of similar file sharing / cloud storage services, their launch dates, and total VC investment in each company to date. Let’s see what happens next! 

File Sharing and cloud storage solutions

  • 2004: Yousendit ($48.7M)
  • 2004: SugarSync ($41.5M)
  • 2005: Mozy ($1.9M, acquired by EMC in 2007 for $76M)
  • 2006: Box ($159M)
  • 2006: Carbonite ($66M)
  • 2007: Dropbox ($257M)
  • 2007: Google Docs
  • 2007: Jungle Disk (Acquired by Rackspace in 2008)
  • 2007: Windows Live skydrive
  • 2008: Syncplicity ($2.35M)
Sources for the figures are Crunchbase and Wikipedia.
For a visual representation of the funding timeline for the key players, see the image below (click to enlarge).
Cloud Storage Funding Timeline

Funding timeline for key cloud storage players


You Are Right. VCs Don’t Know Shit.

On his blog, Lee Hower (one of LinkedIn founders) has an interesting post titled Making good decisions still means you are sometimes wrongin which he talks about the tough choices VCs have when deciding which startup to back. There are so many deals coming their way, they can’t possibly bet on every single one of them and identifying good opportunities, especially early stage, is really difficult.

I especially liked his link to Bessemer’s “anti-portfolio” web page where they show companies they declined to invest in and have great comments on why. Just goes to show that you shouldn’t feel bad after that meeting where the VC tells you the startup you have been working on and investing your life savings is not interesting to them. Maybe they are missing on the next eBay, Google, or PayPal. Just maybe. ;-)

Cool Startups at Pitch San Francisco

Pitch San Francisco ’11 is now over. An interesting gathering of over 90 startups presenting their products and services to VCs and the public, ended with the following winners:

Congratulations!

More Cool Startups

But other startups are worth mentioning. For example:

  • DealAngel: Could potentially do for hotels what HipMunk did for air travel, DealAngel has a proprietary algorithm that statistically compares hotel deals in an area to tell you which ones are actually good deals in a beautiful display that makes it easy to spot hotels and the best deals. According to Co-Founder and COO Bob Rogers, Expedia, Orbitz and the usual travel sites are not completely transparent when it comes to presenting you with the best price and they are aiming at disrupting this market. If they can crack the code and present users with a better way of saving on travel, that’s a huge market potential.
  • Let’s Listen: Yet another music site? Not quite. Let’s Listen is unique because it allows you to listen to music with your friends, online. It basically allows you and your friends to share your music library, then select a song to play and everyone will listen to the song at the same time while chatting. Simple, yet powerful. At first I was skeptic, but after watching my 15-year-old niece chat with her friends on Skype for hours while listening to music, I’m sold. Worth checking out.
  • CheckInOnMe: Want simple tech that works? I was impressed with this service. Imagine you are a girl leaving that late night study session at the college library, preparing for tomorrow’s exam. Now you have to walk all the way through the parking lot to your car or bus station. You activate CheckInOn.Me and every few minutes you get a text checking in on you. If you reply to the text, everything is fine. If you fail to reply or you reply without using the correct pass phrase, the service will alert your friends and family (you decide who) that something is not right. Is simple SMS tech used in a clever way. The possibilities are many (families checking on their kids, realtors going to other people’s homes, even babysitters).

If you missed this year’s event, make sure to sign up for the next one!

Market Size: Either You Believe or You Don’t

The question that seems to be a deal killer, no matter what type of product you are building, is the market sizing one. It comes in various formats:

  • “What is the size of the market?”
  • “How big can this get?”
  • “What are the growth prospects?”

Among others, is a key question that often turns off potential investors. Especially if you can’t answer it “correctly”.  A nice post by Bryce Roberts titled “You can never size a market in Excel“tackles this pesky problem entrepreneurs face and gives sound advice:

“An investor’s instinct around something as fundamental as whether your business can reach the scale needed for venture capital returns is one that won’t be found scouring the latest market forecasts from Forester or Goldman Sachs. It won’t be found in endless meetings and it won’t be found in detailed financial forecasts or market sizing exercises.

It will be found in the connection an investor makes to you, your product and your vision. Either they will believe it or they won’t.”

It is a refreshing view on the question of market sizing. And also tells you a bit about how to assess whether the investor in question will be really a good match with your startup.

Check out the full article here.

Bootstrapping to Success

Rob Walling, from Micropreneur Academy, has a great post about successful startups that bootstrapped their way to becoming profitable. It’s a great list and nice tales that gives us bootstrappers more incentive to keep on going!

Check out “Ten Highly Successful Bootstrapped Startups” for the full article.

 

Avoid the Common Blunders When Pitching Investors

Probably not much new, but always a good “back to basics” kind of article that is a good refresher for new and seasoned startup founders a like.

Five Worst Mistakes Entrepreneurs Make When Pitching Angel Investors“, from Entrepreneur.com gives you the problems and the fix for each potential blunder:

Mistake No. 1: You don’t explain what problem your business solves.
The Fix: Share why customers will buy your product or service.

Mistake No. 2: You offer too many facts and numbers.
The Fix: Tell a story.

Mistake No. 3: You tout sales forecasts.
The Fix: Focus on the benefit your business offers customers.

Mistake No. 4: You’re too attached to your business plan.
The Fix: Embrace new revenue opportunities.

Mistake No. 5: You discuss ownership stakes.
The Fix: Save it for the follow-up.

Check out the full article, here.

How to Turn the Table When Pitching Your Startup

Jester by mrpolyonymous @ FlickrIf there’s a subject every startup founder fears, is the pitching / fundraising. No matter how many pitch sessions, competitions, and training you do there is still room for improvement. But, as my kung-fu instructor used to say “practice doesn’t make perfect, perfect practice makes perfect!”. You’ve gotta know how to pitch right to be able to raise capital.

The Perfect Pitch

A recent Mixergy interview with Oren Klaff (author of “Pitch Anything“) is a great source of material to better understand the dynamics of the perfect pitch. A key concept he talks about during the interview is turning the table and instead being the jester performing in front of kings, make the VCs, Angels, Private Equity guys the ones who have to perform to get the privilege to fund your business.

Easily said than done? Sure,  but the interview is worth watching for great insight into how to better prepare yourself for the fundraising presentation.

The Jester is Not You

Throughout the interview Oren talks about key concepts he discovered that allowed him to get multi-million dollar deals. Here are a few:

Turn the Table: When you come in for a meeting with a VC or private equity firm, usually right in the beginning they will spend a few minutes introducing you to their partners and telling you about their company. Turn it around and instead suggest you pitch right away and have them at the end talk about their company in the context you presented. This will save you time and will put you in a stronger position.

The Big Idea: Instead of being too quick to dissect your pitch, talking about the market, opportunity, distribution, etc. think of the Big Idea. Capture the painful problem you are trying to solve and tell the audience (VC, Angel, etc.) how you can solve it. Your big idea should trigger an emotional response, be insightful. You want people to start thinking/saying “wow, I didn’t know that! That is very interesting. I want to learn more.”

Creating Tension: If you had two, three, five hours to pitch someone you probably could convince them that your idea is good and worthy of investment. But you have 20 minutes of their attention, so you have to use tension and novelty. When you lose the neediness, when you push people away, that is when the most amount of capital is raised. Be direct, forthright, not supplicating.

Want an example? This is a great clip to watch:

(Don Draper, from Mad Men, giving a pitch).

Novelty: People come to meetings or talk to you to learn about new things, meet interesting people, learn about places and ideas they have not heard about before. The second people can interpolate, extrapolate, figure out, or create a pattern on what you’re doing, they are checked-out and gone. Don’t use the same powerpoint deck template everyone uses, try something different, show that you are different. Peak their interest in you and your idea.

Big Picture: Don’t let yourself get bogged down during the pitch by detailed questions that want to escape the “big idea” frame, because that’s just a way they are using to filter you and go from an emotional to analytical frame of mind. So when asked about revenues, put that off by saying you have them and will get to that later but let’s just focus on the big picture first, the whole concept you are trying to present. You only have 20 minutes (even if the meeting is scheduled for one hour, you only have 20 minutes of their attention anyways), so better make it count and focus on the big important things.

The Full Interview

MixergyIt’s worth checking out the full interview at Mixergy. Andrew asks detailed questions and Oren is a great speaker. Definitely worth watching.

How Much Equity Should You Give?

Allocating equity among co-founders is typically a process, involving a lot of gut feeling, some back of the napkin math, and good judgement. Is also a frequently asked question with no easy answer.

So here comes a great new tool, built by Foundrs.com, called “Co-Founder Equity Calculator“. Based on simple but important questions, it gives you what it believes is a fair equity stake for each founder.

Even if you don’t agree with the results, is a great way to get a productive conversion started with the founding team on how to allocate equity fairly.

Try it out!

C-Founder Equity Calculator by Foundrs.com

C-Founder Equity Calculator by Foundrs.com - Click to Use

How to Choose an Incubator and the Ideal Entrepreneur

Confused about incubators, accelerators, and all the in-between types of places geared for startups out there? Well, maybe this video won’t clear that up but it will give you some good laughs.

At the recent panel discussion “Incubator Summit: How to Choose the Right Incubator for your Startup“, some great entrepreneurs discussed what characterizes incubators, co-working locations, accelerator, and also talked about what makes for great entrepreneurs.

Participated Adeo Ressi (Founder Institute), Dave McClure (500 Startups), Jonathan Abrams (Founders Den),  Kindra Tatarsky (Astia), and Cameron Teitelman (StartX). A great exchange of ideas (especially since the panelists didn’t necessarily agree with each other) and good content worth checking out.

Click below to go to the video page.

Incubator Summit How to Choose the Right Incubator

Hackers & Founders Launch New Incubator

If you’re in San Francisco and wished you could join an incubator but for any reason you didn’t, now there’s another option. Hackers & Founders “The Co-Op” is a different type of incubator, focusing more on business advice than in giving you money, is an interesting proposition.

How The Co-Op Works:

  1. Founders in The Co-op get together for weekly dinners where they listen to speakers and mentors and become a community.
  2. Founders are encouraged to become advisers in each other’s companies by trading small (0.25% to 0.5%) equity stakes.
  3. After working together on things like learning how to pitch and present, as well as the ropes of funding, founders are connected to the investment community (office hours are setup with a prominent angel in the community, personal introductions are made and AngelList).
  4. Towards the end of the program short video pitches are made and investors can view them online.
  5. Finally, there’s a party where investors meet founders in person.

For a full description and the history behind this new incubator-style program, check out the full article on Hackers & Founders site.