Greetings!
In this issue of Neo, I review Mastering the VC Game: A Venture Capital Insider Reveals How to Get from Start-up to IPO on Your Terms by Jeff Bussgang. Together the start-up and venture capital communities form a central engine of innovation. Bussgang describes the various phases of getting VC backing -- the pitch, the offer, growing the company and the exit -- and what both parties should seek from each other to insure a harmonious partnership.
In the New and Noteworthy Technology section, I describe the NYC Big Apps 2.0 competition. Intended to improve the way New York City offers information and transparency, it invites the development of applications that deliver information from the NYC.gov Data Mine. I also outline Code Red, a smart phone app I envision for preparing for a variety of emergencies, and making decisions and staying informed during a severe-risk alert .
Frustrated when your "a-ha!" moments evaporate? In the Neat-o section I highlight the NapApp by Systematic Inventive Thinking. Keep track of and share ephemeral ideas, thoughts and learnings so you can turn them into new products and services or enhancements to existing ones.
Questions? Suggestions? Your feedback is welcome.
Read on! Lead on! |
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Book Review
Mastering the VC Game: A Venture Capital Insider Reveals How to Get from Start-up to IPO on Your Terms by Jeffrey Bussgang
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 Jeffrey Bussgang, a serial entrepreneur turned venture capitalist at Flybridge Capital Partners gives the reader a behind-the-scenes look at how early-stage companies get funded in Mastering the VC Game: A Venture Capital Insider Reveals How to Get from Start-up to IPO on Your Terms (Portfolio, 2010). Venture capital has long appeared to function like a private club, with a privileged few entrepreneurs having the proper connections to win attention and lock in financial backing. The process was shrouded in mystery that offered little insight into who the players are, how they make their investment decisions, and how someone with a great idea and the gumption to pursue it knows that she is getting fair terms on backing offered by a roomful of financial wizards. Calling on his personal experience founding and leading start-up businesses and then, as a VC, vetting and funding ventures, Bussgang dispels the mystique, flips on the lights and provides a guided tour of all the rooms in this otherwise windowless castle.
Mastering the VC Game starts by profiling the two central players, the entrepreneur and the venture capitalist. Bussgang explores what motivates them (the desire to build something in the first case, and to change the world in the second). And he asks what characteristics distinguish them. The typical entrepreneur, he suggests, has "a certain kind of visionary optimism; tremendous confidence in oneself that can inspire confidence in others; huge passion for an idea or phenomenon that drives them forward; and a desire to change the game, so much so that it changes the world." The VC, in contrast, "is the backer of a movie in which he never stars.... [H]e would rather be the enabler and facilitator than the builder or onstage performer." Bussgang profiles successful examples of each, defines the jargon, untangles valuation methodologies, and reveals key financial drivers in the deal-making process.
The early phase of the relationship between entrepreneur and venture capitalist centers on the pitch. This is a courtship of sorts, which, if successful, will evolve into a marriage that will endure for several years, "for richer or poorer, in sickness and in health." Getting this document and its delivery right is essential to getting off to a positive start. Bussgang outlines what the investor is looking for: Does the presenter demonstrate a firm grip on the financial details of the opportunity? Has she taken a cold hard look at all the ways it could fail? Likewise, the entrepreneur should do her homework before approaching prospective backers. For example, having just raised a new fund, does the firm have substantial capital to invest? Or is the firm "sold out," with all funds invested and none available for new deals? How many other boards is the sponsoring partner sitting on and therefore responsible for? Bussgang describes how VC partnerships process the "deal flow," or evaluate investment opportunities, and the criteria they use.
With luck, the courtship phase ends and the VC makes an offer. Bussgang considers the qualitative and quantitative aspects of this assessment of the business and the terms under which the firm will invest. In addition to checking references, the entrepreneur needs to consider the ways in which the VC is going to contribute to the success of the start-up: strategy, recruiting, business development and future financing are all domains of VC expertise and access. Bussgang discusses how to determine whether there is a good fit between the needs of the start-up and its funders. He walks through the term sheet of the deal and discusses the pre- and post-money terms of the valuation, including the option pool and liquidation preference. He discusses the elements of control, such as the composition of the board of directors, protective provisions that require the approval of the VC and the board, and the voting threshold and drag-along rights that determine if VC votes get precedence over those of other shareholders. Not to be overlooked is how much money ought to be raised.
Once the deal is in place, the drama continues. Bussgang describes the "social" aspects of the interactions between the leadership at the start-up and its board of directors. There are many opportunities for things to go wrong, and every seasoned entrepreneur and VC has waded through his share of misaligned expectations and outcomes. These range from the "Fall from Grace" and "High Noon Shoot-out" to the "VC Mutiny" plot. Bussgang discusses how to avoid these scenarios and how to tackle them should they arise.
Finally, there is the eagerly-awaited exit, when entrepreneur and investor "cash out" and get their rewards for their years of effort. The options include selling the company to another one; going public by doing an initial public offering, or "IPO;" and doing an IPO and then selling.
Bussgang concludes with a review of the important role innovation and entrepreneurship have played in the U.S. economy and, increasingly, overseas.* He describes the differences in the dynamics of these markets and includes a list of VC-related blogs.
Mastering the VC Game provides insights, straightforward explanations, helpful resources and level-headed guidance. This transparency surely will facilitate communication between seekers and providers of funding and enhance the entrepreneurship that is central to innovation.
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* - Among the countries Bussgang singles out for the role entrepreneurship is playing in the growth of their economies is Vietnam. The challenges of developing businesses in a Communist country with a powerful military and strong kinship ties are not to be underestimated, however. Bill Hayton's book, Vietnam: Dragon Rising (Yale University Press, 2010) enumerates some of the hurdles, such as the fact that the state controls the economy and directs foreign investment to joint ventures with state firms. This results in endemic corruption and erratic lending by state banks, with some firms becoming "mini-empires" and state-controlled corporations, "outright criminals." |
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New and Noteworthy Technology
NYC Big Apps 2.0 and the Code Red App
by Teri Mendelsohn | |
The second annual NYC Big Apps competition was announced recently. Intended to improve the way New York City provides information and transparency, the competition will reward developers of the most creative, best implemented, and impactful applications for delivering information from the City of New York's NYC.gov Data Mine. Software developers will compete for $20,000 in cash, wide exposure for their work, and a meeting with the Mayor. Submissions may be any kind of software application, for the web, personal computer, mobile handheld device, SMS, or any software platform broadly available to the public. The application deadline is Jan. 12, 2011.
Data has been supplied by agencies ranging from the Business Integrity Commission to the Mayor's Office of Film, Theater and Broadcasting to the Times Square Alliance. The raw data sets have been divided in categories such as Administrative and Political Boundaries, Environment and Conservation and Women's Issues. And the Department of City Planning, Department of Mental Health and Hygiene and the Office of Emergency Management, among others, have submitted geographical data. There is, in short, a veritable smorgasbord of opportunities to develop some cool and useful apps.
What would app would I create with this data? Since 9/11, I have had a bee in my bonnet about Emergency Management. In the months after the event, I found myself wondering: What is Code Red? How do I find out whether we are experiencing a Code Red threat? What should I do - stay put or evacuate? How do my family and I get off Manhattan if we need to evacuate? To answer these questions and prepare for and act during a heightened alert, I would develop a smart phone app called Code Red.
The app is named after the highest level of alert in the Color-coded Threat Level System created by the Department of Homeland Security in response to the tragic events of 9/11. The system "is used to communicate with public safety officials and the public at-large through a threat-based, color-coded system so that protective measures can be implemented to reduce the likelihood or impact of an attack." The United States consistently has been at a "high risk" of terrorist attack, or Code Orange, since the scale was implemented. In a Code Red situation, the risk climbs to "severe."
A mashup of NYC.gov data and already existing tools, the Code Red app I envision would enable users to prepare for various types of emergencies, make decisions about how to respond to a severe-risk alert, and stay informed and communicate with key parties throughout the situation. The app would offer content and tools to:
Prepare. By referring to the Red Cross' Disaster Supplies Kit checklist users could assemble and order the necessary emergency supplies and documents. The Center for Disease Control outlines how to prepare for and respond to specific hazards (bioterrorism, chemical emergencies, radiation emergencies, mass casualties, natural disasters and severe weather, and recent outbreaks and incidents), thus clarifying the conditions under which one would shelter in place or evacuate.
Decide. In an emergency, users need to assess and respond to the existing conditions. The Code Red app would allow them to:
· Understand the severity of the situation and the recommended response (shelter in place or evacuate) by accessing a livestream of WNYC 93.9 FM public radio;
· Identify an evacuation route with the least traffic using Weekday/Weekend Traffic Reports combined with Realtime Traffic Speed Data and Street Network Changes (Department of Transportation data available at NYC.gov Data Mine), or by getting directions on Google Maps;
· Locate the nearest bridges, tunnels and ferries - the app would display the Mass Transit Authority's Bridge and Tunnel map and updates on Bridge and Tunnel Current Service Status.
Stay informed. The Code Red app would deliver alerts about potential hazards, weather events, preparedness, disaster recovery, and other emergency-related news from the New York City Office of Emergency Management. It would enable users to post tips which then would be mashed up with map data and forwarded to the police in order to aid their responsiveness. Having agreed in advance on rendezvous points, family members would be able to monitor each other's whereabouts during the emergency using a GPS display. In order to communicate with key parties who are not smart-phone-enabled, a link would allow users to register at List Yourself as Safe and Well and search for the missing at Find Loved Ones.
Finally, since the iPhone network is likely to crash in an emergency, the app must cache data, such as evacuation routes. Wireless companies should install the app for free on all smart phones or the government should require network operators to provide the app. |
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 Mendelsohn Consulting is a New York-based consulting firm specializing in the development of digital information products for online and mobile environments. We work with clients to achieve top-line growth through innovation.
Cordially,
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| Neat-o Innovation Tool | | Israel-based innovation firm Systematic Inventive Thinking developed the NapApp (a.k.a., napkin application) for capturing ideas. Jot down your ideas, thoughts or learnings and required actions in this pad of number-stamped forms. Intended for collaboration and sharing, each sheet creates a carbon copy so you can throw your ideas in the hopper and keep the original for your own reference and follow up. | |
| My Newest Client | |
I was engaged to create breakthrough products and services for a respected professional publisher. Plumbing my proprietary database of innovative and emerging technologies, I designed content and service solutions for online and mobile platforms. I also created flexible packages and pricing.
Together, these tools and services will allow the client to accelerate their speed to market, expand the types of products they offer, diversify their revenue streams, and in general catapult them into the twenty-first century of must-have information delivery. |
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