Events

VC Bootcamp: Why Boston is a Great Place to Launch

By Dave McLaughlin, CEO of VSnap

Recently The Capital Network presented its Venture Fast Track program, a one-day “boot camp” to prepare startups for success with venture capitalists and angel investors. So often I find that people with great ideas might be a little bit unsure whether they’re a good fit to plug into all the resources offered by organizations like The Capital Network, MassChallenge, Boston World Partnerships, Venture Café, and so many more. It’s important that people understand just how open this community is. If you have a hunger to start and grow something, just show up! You’ll be welcome.

At the Venture Fast Track, people commented on two big buckets of value: the info and the people.

Detailed Intelligence

There was an amazing volume of detailed intelligence shared by presenters. (You can click here to see the detailed agenda). This is one of the great things about being in Boston – all the specialized 411 that you need is available to you if you just dive in and start asking questions at events like this one.

Patrick Hayes is the Founder of Shopping Manager, a company that he describes as “managing a phenomenal grocery shopping experience for consumers.” For him, the most valuable part of the day was the in-depth discussion of Cap Tables and the dilution that founders and early-stage investors experience during follow-on financings.

Tonya C. Johnson is founder of Ancient Baker, a Jamaica Plain bakery that uses ancient grains and medicinal plants. For her too, the greatest takeaway was the incredible detail on all the intricacies of raising angel and venture capital.

Accessible Experts

My experience is that the Boston area has tons of super-knowledgeable people who are accessible and willing to share what they know to help someone else launch and grow their business. This forum definitely proved that out, and several of the attendees cited this aspect of the event as the greatest source of value

John Clark is President of Indivly, a startup that rewards viral content creators. He commented that “the open and honest feedback” was the most valuable aspect of the day.

Janine Franceschi is Founder of PAW, a service that helps affluent pet-toting travelers find luxury pet-friendly accommodations. She described the most valuable part of the day as the “direct access to individuals who have done it, lived it, and lived to tell about this crazy entrepreneurial ride we’re all on.”

Really Enjoyable

People all over the world are dying to learn the kind of information shared in this session. As a community, we shouldn’t forget that. And part of what’s so awesome is that sessions like this one make it really pleasant and enjoyable, like a social activity, to learn all this stuff. You leave feeling totally energized.

Aubrie Pagano, Founder & CEO of Zoora, which is a really cool online marketplace for designer custom clothing, talked about this. “I really enjoyed the small group setting and the opportunity to share a meal with investors. It was an intimate, casual way to be introduced.”

I found a lot of value in the nuanced dynamics of dialogue with venture investors in a role play negotiation acted out by Matt Witheiler of Flybridge Capital, who mock-invested in a company pitched by Matt Douglas, Founder & CEO of the event management service Punchbowl, based in Framingham. There’s no substitute for getting in a room and soaking this stuff up.

If you wish you’d known about this event earlier, well, don’t fret. Keep in mind that The Capital Network offers tons of events, all full of insight and modestly priced. It’s just one of the many resources in Greater Boston for people looking to launch!

Dave McLaughlin is CEO and Co-Founder of Vsnap. He is a member of The Capital Network’s Advisory Committee and a Board Member of Boston World Partnerships.

Private Equity vs. Venture Capital: Finding the Capital That is Right for You

Jeremy Halpern is a Partner at Nutter McClennen & Fish and a TCN board member.

Venture Capital and Private Equity get a lot of media attention. Sometimes they are the “genius” talent scouts of the business world, investing into companies with astounding foresight. In other narratives, they are the ruthless capitalists, taking control of companies and ejecting management teams from the driver’s seat like carjackers. As it turns out, neither of these stories are very accurate.

Venture Capital and Private Equity firms are key components of the corporate finance landscape, offering growth capital and liquidity at critical moments in the evolution of companies when more traditional sources of cash, like banks or public markets, are unavailable or unwilling to invest. But like all professional investors, these firms have a job to perform on behalf of their limited partners. These firms survive their own torturous sales and diligence processes to convince pension funds, banks, universities, hedge funds, fund-to-funds, and other institutional investors that they will successfully earn returns superior to public indexes and other asset classes. This is no job for the faint of heart.

Interestingly, the differences between venture capitalists and private equity firms are often misunderstood, in part because some firms have both types of investment funds housed under the same umbrella. Publicly they are often treated as the same kinds of investors, where the only difference is the average deal size. The story goes that venture capital will put in a few million, but private equity will put in tens or hundreds of millions into companies. While average deal size is a critical differentiator between the two types of capital because of the implications for the fund structure and business model, it is by no means the only difference. I have worked on private equity deals as low as $4,000,000 and venture capital deals for greater than $50,000,000.

But the real issues are that, for the most part, they do not invest in the same kinds of companies. Primarily they differ when it comes to the stage of companies in which they invest, as well as the breadth of industries they will consider. In addition, they have differing requirements on total market size, likely return range, return horizon, technology risk appetite, market adoption risk, competitive environment, liquidity for founders, size of investor stake and whether a prospective portfolio needs a new disruptive technology or only potential for sustainable future cash flows.

Companies seeking capital from venture capital and private equity are well advised to first understand the priorities and goals of these firms, and to understand which might be a fit for their current needs. Once understood, crafting an investment deal that aligns the interests of all parties is not only possible, but usually provides benefits far superior than investments from banks, public markets or other sources of silent cash. Why? Because the premise of both kinds of firms is that outsized returns are the result of the human capital deployed by the firms into the investment. It is the venture capitalist and private equity teams that help move companies forward. As such, the very first job of any company seeking capital is to form relationships and to judge the quality of the humans involved. While firm level reputations are good general guides, they are absolutely no substitute for working with individual partners and teams at the investment firms to gauge whether these are the kind of investment and operational partners you want for years to come.

Equally, many growth or expansion stage companies often believe that obtaining fresh capital will solve all of their problems. While more cash can usually (but not always) accelerate operational goals, the wrong type or timing of new capital is often not in the best interests of current equity holders. A financing plan that articulates and balances the need and uses of cash with the resulting dilution and preferential treatment of the new money is critical. But that is the beginning of the analysis not the end. Companies and investors need to align on issues of control, leverage, management, culture, values and their operating relationship. Only after this courtship results in (mostly) true love will there be a venture capital or private equity deal that is right for you.

To learn more please join Jeremy Halpern, Partner, Nutter McClennen & Fish LLP, Matthew Witheiler, Principal, Flybridge Capital Partners and Geraldine Alias, Principal, North Bridge Growth Equity, at the XPX-Boston Roundtable on February 29, 2012: Unraveling the Mysteries of Venture Capital and Private Equity.

The One Minute Pitch

You are at a holiday party and go to get yourself a drink from the bar, and there, right next to you waiting for a glass of wine is that one magical person that you have been dying to get an intro to for months. You realize that you only have until his drink is poured to hook him in, what do you do? Tackle bartender and spill all the wine, so you can have more than 30 seconds to talk? I hope not.

This is why it’s important to always be ready with that quick, short, to the point pitch of who you and your company are (and why you are awesome).

As passionate as entrepreneurs can get about their ideas and their business it is often surprising how hard the one-minute pitch is. I say this both as someone who has given plenty and heard plenty. I wear multiple hats as someone who helps entrepreneurs at The Capital Network, and someone who is marketing a new business at Textaurant. So I know from both sides of the coin why the one minute pitch is both difficult yet crucial.

It is always frustrating to have a very excited entrepreneur come and share their idea with me and after the first minute of our discussion I’m still completely confused as to what the product is or even how they will make money.

In the beginning when I started working with Textaurant I had a very hard time condensing what we did into a few sentences that both made it perfectly clear who we are and what we do, but also that didn’t make people get that glazed look of boredom in their eye. The passion and excitement that I felt about our company and product made it easy for me to go on and on for quite a while about why we are changing the way people wait and how everyone should use our technology, but that passion also made it hard to sum up in a few short sentences.

Our founder Josh would tell me over and over what he said and I would try to remember it perfectly I would always mess it up or stumble. The way that I finally got it down was when Josh handed me an iPad to demo at a networking event and pushed me into the crowd. “Don’t come back until you’ve spoken to everyone”

Two hours and who knows how many unsuspecting people later I finally had it! Every person I talked to would ask a different question after I explained who we were and I used that to fine tune my next pitch adjusting my pitch based on what I was realizing were the key aspects other people were picking up on, which might be slightly different than what I had originally thought.

Depending on who you are talking to, what your company is and how complicated it is, there will be different things to focus on, but if you are just sitting down to plan your first attempt at a one minute pitch there are three main points that can guide you through:

1. Who are you?

Introduce yourself. Don’t give a whole long life story, nobody needs to know that you were born in the rain on a Tuesday, but they do want to know your name at the very least.

2. What do you and your company do?

Yes, I know it’s obvious, but if you don’t get this out after the first few words you will lose everyone. You should be able to some up the big picture of what you and your company do in one clear sentence. The following sentences just expand on the overall picture of what you do.

3. Why are you different?

Why is your idea so important and different than any other option out there. This shouldn’t be a total break down of the competitor matrix you have on your desk, but should at least give the listener and idea of that “wow” factor behind your business that makes it so great.

Once you have the basic script figure out, throw it away. The last thing you want to do is memorize it word for word and sound canned. You will never say the same thing twice, and that is ok.

The most important thing to do is practice. Practice on someone who knows very little about what you do, especially if you have a highly technical or complicated product. Give your pitch, pay attention to what people ask you after. If people are asking you things that seemed like they should be obvious, that is usually a good indicator that the obvious, isn’t really that obvious.

The more you talk to people about what you do, the better you will get at explaining it. Never stop practicing.

Next Friday, December 16 The Capital Network is teaming up with MassInno and LaunchPad for an interactive Pitch Practice and competition event. You will get to work one on one with LaunchPad members to practice your pitch and hear feedback. The company with the best pitch will win a $100 gift card, just in time for holiday shopping! More Info

When to raise capital and the trap of the artificial timeline

This was originally posted on April 19 by Micah Rosenbloom on his blog. View the original post here

Timing is everything – especially when it comes to raising a round of capital. My Founder Collective colleague Eric Paleyand I discuss (and debate) it often. Here are some observations having been an advisor to two recent TechStars companies and co-founder to three start-ups.

Be weary of the artificial timeline

Both Brontes and Novophage are classic university ventures. They started in labs, later received university and government funding (Deshpande Center, BU’s office of Tech Development).Both companies went on to win or place in the finals of highly regarded business plan competitions at Harvard, MIT, Duke, etc. It seemed opportune time to raise capital, but the businesses were still not ready. While business plan competitions are excellent catalysts for founding teams, and useful for gathering feedback, they do not ensure that a business is ready to launch (even so for winners/finalists).

Any process that sets an artificial timeline – expiration of government or university funding, graduating from school, a business plan competition or the conclusion of an incubator program does not inherently mean it is time to raise money. All businesses need to incubate at their own pace. Early market pivots, prototype development and building the founding team should generally happen on the founder’s nickel.

Fundraising = acceleration not inertia

All too often entrepreneurs approach fundraising as the start of the venture. This attitude often leads to disappointment. A business should be operating as a regular business – with the makings of a culture, meeting routine and infrastructure (Novophage had 6 gigs of in its Dropbox before fundraising)!

Capital is invested to accelerate a business that has initial momentum but has reached a point where only money can get the company to the next accretive, and risk-reducing, milestone. VCs use the terms “traction” flippantly but in essence what investors want to see is momentum before the fundraising. At Brontes, we needed a clear market focus (dentistry) and industry advocates before we were really ready for a Series A raise.

But strike while the iron is hot …

Having said all this, timing truly is everything. The investment community is momentum driven, just like the stock market. You’ve got to have a nose for when the timing’s right. A strong signal from a VC often suggests its time to talk to many and leverage the interest to terms sheets. If your segment is “hot,” find those pre-disposed investing actively in the segment you’re in.

In the end, the sequencing of fundraising often has a significant bearing on the outcome of the process.

Micah Rosenbloom is the Chairman and CEO of Novophage. If you want to hear more from Micah he will be a panelist during the Life Science Venture Fast Track on November 8, 2011. Early bird ends October 26 so so get your tickets now.

Top Ten Tweets from Yesterday’s Venture Fast Track

1. In life sciences, if it’s “viral,” it’s bad. (Web Consumer vs. Life Sciences) @kentbennett #TCNNE

2. Panel 1 is wrapping up. The relevant meat-and-potatoes of dealing with pitching to VCs and the process of raising a first round. #TCNNE

3. #TCNNE: Don’t cold call. If an entrepreneur hasn’t taken the time to contact a VC through their networks, they’re not a true entrepreneur.

4. #TCNNE: The only thing investors know is that you have the wrong answer. What they want to see is that you’ve thought it though.

5. #TCNNE Communication Math 9×1=0, 3×3=1. That is: 9 messages once each- nothing sticks. 3 messages 3 times each- 1 sticks.

6. The CEO of @BzzAgent has some salient thoughts on term sheets on the #TCNNE panel. Oh yeah, last week he made millions. http://tcrn.ch/ivkRkK

7. Interesting rule: In Massachusetts, companies that pay employees in ONLY equity are violating the minimum wage law. #TCNNE

8. Think of #VC as a big credit card w/ a 30% IR . . . u are going 2 be careful when u draw down $5M. @kentbennett killer soundbytes #TCNNE

9. Now @TCNupdate Chairman Jeremy Halpern leads a #TCNNE panel on how to craft the perfect pitch. Opening comment: ZOOM OUT! #legit

10. Thanks #TCNNE for a great Venture Fast Track event today. Great panelists and tons of valuable metrics and tools

If you are interested in attending a TCN event, click here to see more upcoming events.

5 Tips for Talking to Investors: Make sure your growing company gets the funding it needs by perfecting your pitch

By Marielle Segarra of CFO.com, reprinted with permission from this May 13th post.

A young company looking for outside funding won’t get very far without a well-crafted pitch. And pitching to investors doesn’t just mean showing them a raft of numbers; it also requires skillful storytelling. “The biggest challenge is distilling [the pitch] down to something that’s irresistibly compelling,” said Greg Erman, a serial entrepreneur who has founded six medical-technology companies, at a recent conference held by Boston-based The Capital Network, focusing on fundraising for life science startups.

A compelling pitch is especially important for seed-stage companies these days, given current trends in the venture capital market. Although first-time financings by venture firms in 2010 were up about 30% from 2009 — with more than $4 billion going to about 1,000 companies — the flow of funds going to seed-stage firms declined by 2%, according to the Moneytree Report by PricewaterhouseCoopers and the National Venture Capital Association.

Similarly, angel investors poured $20.1 billion into growing companies in 2010, an increase of 14% over 2009, but reduced seed-stage investments by 4%, according to the Center on Venture Research at the University of New Hampshire’s Whittemore School of Business.

Erman was one of several experts who talked about creating and delivering a successful pitch at The Capital Network’s Life Science Venture Fast Track. Here, distilled from their discussion, are five tips for talking to investors:

1. Don’t cold-call potential investors. Use your network instead to connect with angels or venture capitalists. “The first priority in approaching any investor is to have a credible referral,” Erman said. This person should know “enough about the entrepreneur and the business to be able to offer recommendations that are authentic.” If an investor allows electronic submissions, entrepreneurs should submit a plan and try to reach out through a referral.

Read more →

For Start-ups, Another Source of Cash

ROYALTY-BASED FINANCING GIVES START-UP COMPANIES A NON-DILUTIVE, ALBEIT EXPENSIVE, SOURCE OF FUNDS.

TCN and SVB Bring Seasoned Entrepreneurs to Kendall Square’s Venture Cafe

These are exciting times for the Boston start-up community. New entrepreneurs, new investors and new companies are everywhere, and experienced entrepreneurs and investors are lining up to mentor them. Nowhere is this dynamic more clear than in Kendall Square, and the Venture Café at the Cambridge Innovation Center is quickly becoming the nexus of much of that activity.

learly, good things are happening at the Cambridge Innovation Center, and the Venture Café is quickly becoming the place to meet the next generation of entrepreneurs. With that in mind, I’m very excited to announce the launch of TCN UpStart Roundtables which will feature CEOs with many years of experience to help mentor brand new entrepreneurs.

COO of SmartCells to Speak at TCN Event

James Herriman, COO of SmartCells Inc., will speak at TCN’s upcoming Negotiation & Valuation Financing Roundtable on February 9th. SmartCells is a private company based in Beverly, MA that develops a glucose responsive insulin formulation for the treatment of diabetes mellitus. They have received funding from Boston-based angel groups including Boston Harbor Angels, Angel Healthcare Investors, Beacon Street Angels, and Common Angels.

In December 2010, SmartCells was acquired by Merck & Co., Inc.. Nancy Thornberry, Senior Vice President and Head of Merck Research Laboratories’s Diabetes and Obesity Franchise, said that “maintaining control of blood glucose levels represents a daily challenge for people living with diabetes. Through the acquisition of SmartCells we have obtained innovative technology that may enable us to develop glucose-responsive insulins.” Merck acquired all outstanding stock of SmartCells, Inc., and in return SmartCells shareholders received an upfront cash payment and will be eligible to receive clinical development and regulatory milestones for products resulting from the transaction for potential aggregate payments in excess of $500 million. Sales-based payments for products resulting from the transaction will also be payable. SmartCells’ board of directors unanimously approved the transaction. [Taken from the SmartCells website.]

Learn more about SmartCells’ successful financings and exit and enjoy the opportunity to test your valuation abilities and acumen in real time at TCN’s Evening Roundtable on February 9th. Seats are still available. For more information and to register, visit the TCN website.

The Capital Network (TCN) is Boston’s leading non-profit organization providing extensive educational programs and a community to help early-stage entrepreneurs master the entire funding process and successfully raise seed capital for financing their high-growth startup.

Spotlight on Past Season Pass Holder: Hepregen

By Bonnie Fendrock, President and CEO of Hepregen Corporation, a Massachusetts-based company that is developing bioengineered solutions for drug development, including a platform for advanced toxicity screening and drug discovery. Read more about Hepregen.

In 2008, when our team was in the early stages of starting Hepregen Corporation, TCN’s programs offered a myriad of relevant topics faced by start-up companies. We had assembled a founding team with core technology to be licensed from MIT. As CEO, I attended programs and met individuals who furthered my understanding of the implications of different financing strategies. Since we had several different business models that could be pursued, it was important that we understand the upside as well as the downside of the financing options to support each model. At every event, I gained additional insight and perspective to issues relevant to early company formation. As we headed into the Series A fund raising process, I found that we had addressed and resolved many of the questions that arise during financing as a result of my participation in TCN’s programs.

Since closing the $5M round of Series A financing from Battelle Ventures in July 2008, we have grown to 12 full time employees based in Medford, MA. We are partnering with more than a dozen pharmaceutical companies to validate Hepregen’s technology platform, HepatoPac^TM , a highly predictive liver model to assess drug safety. We are working towards commercial agreements with several major pharmaceutical companies with the goal of reaching profitability by the end of 2012.

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TCN is proud to have contributed to Hepregen’s success in raising capital. Consider purchasing a TCN Season Pass to take advantage of TCN’s programs at a discounted rate.