Colorado Startups written by David Cohen

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Startup2Student at CU

January 17, 2010

If you’re a Colorado company looking to hire interns or full time, check out Startup2Student on March 11th, 2010. This was a great event last year, and I expect that Ben Limmer who’s organizing it will make sure it’s even better this year.

The event is held on campus, and it’s an easy way for students to engage with startups. Part of the original mission here was simply to expose students to entrepreneurial companies. I know that this led to several direct hires last year, but perhaps more importantly it built awareness on campus about the lively startup scene in Boulder. And that’s never a bad thing.

If you’re a student looking for work or internship, or a Colorado based software/tech company, head here to learn more.

Written by David Cohen · Filed Under Blog, Startups · Comments

Open Angel Forum – Colorado bound!

January 15, 2010

By now, I’m sure most of you have read about the ongoing debate about charging entrepreneurs to pitch. I’ve tried to put together a chronology of links about this, but I’m sure I’ve missed some great ones. You had:

As with many things, it’s easy to bitch. So when I heard that Jason Calacanis was attempting to actually do something about it, my ears perked up. I started following his new concept, the Open Angel Forum. By email, I somehow got myself invited and I flew to LA yesterday for the inaugural Open Angel Forum. It was held at a beautiful home with one of the angels playing host (thanks Matt!). It was a great event and both the angels and entrepreneurs seemed to really love it.

Jason describes the Open Angel Forum this way: “The Open Angel Forum (OAF) is dedicated to providing entrepreneurs with free and open access to the angel investors that they need. We are firmly committed to fighting against “pay-to-pitch” schemes.” You can read the full mission and rules here.

While it’s hugely important that OAF is free to entrepreneurs, there are a few other things that strongly attracted me to the format of the Open Angel Forum. First, each chapter was to be organized by a well-connected angel investor and was to be limited to about 15-20 angels in attendance. Every one of those angels had to qualify as someone who has made at least four angel investments “of note” in the last 12 months. Because of this, the turnout in LA was truly stellar. It wasn’t just locals – many others had flown in like I had. Ron Conway, Chris Sacca, Shervin Pishevar and many more joined an awesome local crew including Mark Suster, Matt Coffin, and many more. Jason did a good job of sticking to his guns, turning down a bunch of late requests by angels to attend. Because of that, it was a manageable but top notch crowd of about 20 very active angels. Frankly, I was pretty blown away and honored to even be there.

Next, rather than some artificial process for selecting companies to pitch, the local OAF chapter just collaborates to invite companies that they’re seriously considering funding. Essentially, all the presenting companies are sponsored by one of the angels in attendance. This stops the angel group meeting from being the typical “watch and snicker” event which is not helpful to anyone. Rather, every single one of the companies presenting is a legitimate investment opportunity. Certainly, I think there’s a place for “unknown” companies to present at angel groups, but I’ve always said that if you can’t impress just one member of the group, perhaps you really shouldn’t be there. Pitching to a room full of strangers is also generally not helpful. In fact, this is one of the core things we teach at TechStars about the fundraising process.

But then came a moment at the Open Angel Forum last night where I knew this was a fantastic event that had to be replicated. I think it was the founder of Backupify, who, right in the middle of his pitch took a swig from his beer. I remember thinking to myself “I’ve never seen THAT at an angel event before.” Trivial right? I don’t think so – this was the first angel event that I’ve ever attended where the entrepreneurs who were presenting actually seemed comfortable. Relaxed even. I think it was a tribute to the atmosphere. Sipping your beer while presenting sort of became an instant tradition at OAF.

I’m proud to announce that Jason has asked me to run the Colorado chapter of Open Angel Forum. I instantly jumped at the chance to try this in Colorado, and I fully intend to transplant the “sip of beer” tradition here. I’m announcing today that the first Open Angel Forum Colorado (OAFCO) event will be held on February 3rd in Boulder. Jason Calacanis will be attending in order to help us kick it off right, and I’ve also talked him into talking about the Open Angel Forum and why startups should avoid paying to pitch at the February 2nd New Tech Meetup.

At the first OAFCO event on the evening of February 3rd, we expect a similar format: 10-15 angels and 5 companies. If you’d like to attend as an angel investor, please let me know. Likewise, if you’d like to present your company at the first OAFCO event, please fill out this form. Note that presenting companies and angels don’t have to be from Colorado. Like the LA event, I’m hopeful that we’ll have great angels and companies from all over the country at the first Colorado meeting. If it’s interesting to you, come join me, Jason Calacanis, Brad Feld, and many more investors at this special first OAFCO meeting in Colorado. There are also tickets available for service providers – as Jason explains on the Open Angel Forum web site – this is how the event is supported. Only five tickets are available, so if you’d like to attend and help sponsor the event, head here before they’re gone.

I’m excited to try this new format out here in Colorado. There are a bunch of other chapters being started in cities all over the country, but I won’t steal their thunder. Suffice it to say that each chapter is being run by some great local investors. So again, I feel honored to be given the baton for Colorado.

I’d welcome your thoughts in the comments!

Written by David Cohen · Filed Under Blog, Startups, Venture Capital · Comments

Boulder is showing the world about mentorship

November 15, 2009

During the last TechStars summer, we were visited by representatives from two foreign governments: Singapore and France. Both had heard about something interesting happening in Boulder. Each came and observed the program for a half day or so, looking for a productive exchange of ideas and opportunities.

During the summer, I was invited by the Singapore government to visit their country and I jumped at the opportunity. I love to travel to places that I’ve never been before. They also invited Andrew Hyde to come along, which made the trip even more fun.

Singapore is pretty much as far away as you can go in the world from here. It’s a beautiful place with very warm, tropical weather. The total population is about 4 million. As you’ve probably heard, it’s very clean and there is a very low crime rate. It’s an extremely international city, and you can find an amazing variety of food there. We ate at a Korean BBQ place that was out of this world. See my Everlater trip for my notes on my visit.

We met with various government organizations, incubators, and startups. What was shocking to me was the sheer volume of funding, programs, and services for startups. It’s quite easy to get government funding to launch your startup in Singapore. There are about 10 incubators there to support you once you get going. Unlike in the United States, immigration is easy – nearly anyone who wants to live in Singapore can just move there. It’s only necessary to fill out one form to start a business in Singapore. It’s an amazingly business friendly place.

One of the government officials described the situation to me this way. He said that from a funding perspective it was as if you had walked into a restaurant where you were the only customer, but where there were about 16 waiters and staff waiting to serve you. It’s that awkward feeling of over-supply of servers (funding) and undersupply of customers (startups).

I actually (respectfully ;-) ) disagreed. I saw a very vibrant and young web2 entrepreneurial community. Sure, it wasn’t huge, but it had plenty of critical mass.

I think it was something else that was actually lacking. And it was part of why I had been invited.

Everyone was telling me that the few web startups that were there were mostly learning on their own. There wasn’t a strong visible culture of mentorship in the community. They were hungry for the benefit of some of my experience building and working with startups. Perhaps insatiable would be the better word.

All of the government funding support in the world can’t create deep, engaged mentorship out of thin air.

On my trip, I met one of the founders of Match.com, who happens to be from Singapore. I asked him why there wasn’t more mentorship, and he thought that it was a simple lack of supply of experienced mentors who had been there and done that. You got the feeling that a few of them were certainly trying.

E27, a great startup organization there, had invited me to do a talk on my final night in town. I tried to focus my talk on entrepreneurial ecosystems, comparing what was happening in Singapore (as far as I could tell) to what had happened in Boulder over the last 15 years or so. I encountered the usual “Silicon Valley envy” and challenged the entrepreneurs in the room to start a new culture of mentorship. I asked them not to wait until they were rich and successful, but to mentor someone else now. Today. They had all learned things that they could share with others in their community. Certainly, I also asked those that had startups that had been or would be successful in the future to go above and beyond in helping others follow in their paths by mentoring them, angel investing, and by creating visibility for their community. I think it was fairly well received, although the cultural differences there are evident.

One fact that consistently blew my mind was that everyone in the web startup community in Singapore, on the other side of the world, had heard about little old Boulder. They knew something was happening in the startup scene here. And they were looking to us for inspiration, knowing that they too will never be Silicon Valley, but still wanting to be the best Singapore that they could be just like Boulder is becoming the best Boulder it can be.

When I got home and reflected on this great trip, I was reminded that we need to keep doing more of this right here in Boulder too. I was inspired by the fact that we’re an inspiration to others around the globe. How amazing is that?

So…. Hey you – yes you – go be a mentor to somebody that you can help. Today. Keep helping others a core part of what our community is all about. The payback is truly mind-boggling.

Mentorship is on the rise in America. I’m proud that TechStars has been some small part of the inspiration for that when it comes to web startups. I’ve already been to a few other cities here as well, answering their questions about what’s going on in Boulder. Soon, I’m off to England and Denmark to work with local communities there on improving their own entrepreneurial ecosystems. So far, a pattern seems to be emerging.

Want your town to be the best it can be? Create a sustainable culture of mentorship, and participate in it.

Written by David Cohen · Filed Under Blog, Personal, Startups · Comments

Internet Business Models of the TechStars

November 7, 2009

I’m a guest lecturer for an executive MBA class at Denver University later today. I was asked to talk about Internet business models (among other things), so I thought I’d take a look at the 39 companies that have been through TechStars to give them a sense of the relative popularity of various business models. I think this represents a fairly decent cross section of reality, since about 75% of these companies have raised outside funding after TechStars ended.

Some of these are open to interpretation or are really a hybrid of a couple of forms. My categories might be somewhat arbitrary. But here’s the data as I see it:

SaaS (33%) – These companies sell their product to customers via the web, and don’t bother with a “try before you buy” product. Examples include Rezora, SendGrid and Filtrbox.

Freemium (20%) – These companies give away a free product, and then try to upsell more sophisticated features or solutions on top of that. Check out Baydin and TimZon.

Sell Installed App (5%) – I broke this out from SaaS, because these companies are actually selling software that is licensed and physically installed. Subtle difference these days. A good example is RedLaser from Occipital.

If you add the three approaches above together, you get 58%. So well more than half of the companies we’ve funded are ultimately selling software to people who pay for it. Novel idea, huh?

Gather/sell eyeballs (18%) – You might call this the “advertising” model, or the “underpants” model. Some call it “audience aggregation”. Some of the companies which achieved early exits were in this category (Socialthing, Intense Debate) , but it’s quite risky too. Often, companies doing this initially have other models in mind once they reach a critical mass but can’t use that approach early on because they don’t have enough scale.

Marketplace (13%) – These companies try to aggregate buyers and sellers, and generally take commissions or service fees for providing the marketplace. Foodzie and oneforty are examples.

Lead Gen (5%) – These companies often provide a valuable free service, and then provide qualified leads to buyers. This is very similar to the Freemium model, except that the upsell is not more software, it’s other services or software provided by someone else.

Virtual Goods (2%) – This model typically involves providing a game or other interesting virtual environment and then selling virtual goods in that environment. J-Squared Media’s MiniPlanet is a strong example.

Crowdsourcing (SaaS) (2%) – These companies use the power of a large distributed workforce, often to do things that computers can’t do automatically or efficiently. Typically they ultimately deliver a service to the customer. Retel Technologies is a good example.

Content Production (2%) – Although it’s a perennially unpopular approach with investors, these companies create content and then attract an audience for that content, typically selling advertising inventory targeted at the audience or subscriptions. Howard Lindzon’s WallStrip is an example of this approach that worked well.

Enterprise 2.0 (0%) – I was surprised to see that we haven’t funded any companies (yet) that are taking web 2.0 consumer technologies and applying them to enterprise settings. Some companies I know of that are doing these sorts of things are Yammer and Brainpark, as examples.

So there you have it. If you’d categorize the models differently, please let me know in the comments.

Written by David Cohen · Filed Under Blog, Startups, Venture Capital · Comments

Brad Feld interviewing me at Entrepreneurs Unplugged

October 27, 2009

A few people have asked, so here’s a link to a video of Brad Feld interviewing me at the Silicon Flatirons Entrepreneurs Unplugged event last week down at the University of Colorado. In the interview, Brad asks about:

There’s some fun Q&A at the end about TechStars and more. Enjoy!

Written by David Cohen · Filed Under Blog, Startups · Comments

An offer to Funding Universe

September 22, 2009

UPDATE: Funding Universe posted a response to this post and has now waived pitch fees nationally as a result.

Funding Universe is expanding their presence in Colorado and they are presenting a CrowdPitch event on September 30th in Denver. It costs $125 to present your company there, and it’s free to attend otherwise.

Some of us vomit when we hear that promising entrepreneurs are being charged to pitch to investors in Colorado (or anywhere). I’m hoping people will stop doing it. In my opinion, If investors want to see companies they (or sponsors) should bear the costs instead of the entrepreneurs.

To be fair, CrowdPitch is an event that is geared towards to general community and not specifically towards investors. It’s designed as a fun investor role-playing “monopoly money” type event. But still, it’s a bummer that companies have to “pay to pitch” in any setting.

So to welcome Funding Universe to Colorado, I’ll offer to pay the presentation fees for half the companies if they’ll match me.

In any event, here’s some more information about the event:

Want to pitch?

At LivePitch early stage entrepreneurs have 4 minutes to pitch to a panel of experts and a live audience of 40 - 70 peers in order to:

1. Discover investor insight.
2. Let the community know what resources are needed to move forward (partners, services, funding, connections, talent).
3. Gain visibility in the business community.

Want to attend, but not pitch?

Attendance is free. You’ll learn how investors think, meet the hottest start-ups in Colorado, and have a lot of fun. You’ll also help decide the winner of the event by investing your monopoly money in the business of your choice.

When and where

When: Wednesday September 30th
Time: 12:00 - 1:30 pm
Where: TAXI
3457 Ringsby Ct.
Denver, CO 80216

Written by David Cohen · Filed Under Blog, Startups, Venture Capital · Comments

More on LLCs

March 29, 2009

Two days ago, I lamented about how much of a pain LLCs can be for investors. The comments were lively.

Many people pointed out the “double taxation” issue involved with C corporations. C Corporations pay taxes and then when money is removed from the corporation to the investors or founders, another round of taxes is imposed. On the surface, this is a good argument for an LLC but it turns out to not have much of an impact in reality much of the time.

The other issue that people pointed out is that valuable losses can be passed through to the personal taxes of the investors and founders with an LLC. While this is also true under ideal circumstances, it turns out to not be true at all in most common cases.

Victor Fleischer reached out to me by email with a thorough research paper called “The Rational Exuberance of Structuring Venture Capital Startups” he had written on this very topic in 2003. I found it to be very educational and I think you will too. It’s absolutely worth a full read (10 minutes or so) - and it’s not as long as it looks because there are many detailed footnotes and supporting references.

Here’s the gist of his paper as I read it. Many observers of the venture capital industry believe that VCs ignore LLCs primarily because C corporations are the devil they know, and secondarily because they’re focused on gains only and are not typically major participants in losses (since they are investing other peoples money and not their own, primarily). This paper goes a long way towards showing why professional investors prefer C corporations and includes many potential surprises such as:

  • Tax losses are often not as valuable as they seem on paper as tax rules prohibit many investors (and entrepreneurs) from capturing the full benefit of the losses.
  • Corporations are less complex than partnerships. “Friction” costs associated with LLCs may make legal costs substantially higher over time for LLCs.
  • Gains are taxed more favorably when companies are organized as C corporations from the beginning (vs converting late, if that is even legally possible).
  • Employee compensation issues are much more complex with an LLC than a corporation. This can cost more and can devalue “options” equivalents coming from LLCs.

In short, at least in my mind, much of the argument for LLCs as being more tax efficient ends up being an illusion and only true “on paper.”

I hope that this starts another big argument. Blogging is for learning, and your comments and participation are really helping me learn. I thank you for that.

Keep in mind the paper is a little old and some tax laws may have changed in the interim. As always, consult your attorney and accountant as I’m no tax lawyer.

Incidentally, Victor is returning to CU as an Associate Professor at the law school this June! I’m glad to welcome him back to Boulder after he spent the last few years at the University of Illinois College of Law. I’m excited that he’ll be an asset to the local entrepreneurial community once again.

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Venture Capital in the Rockies presenting companies announced

February 3, 2009

I was on the selection committee for this years Venture Capital in the Rockies conference. We had some really interesting companies to choose from this year, and it took a few more conference calls than normal to get down to the final group this year. Here’s the list of companies that will present.

Hope to see you there!

Written by David Cohen · Filed Under Blog, Startups, Venture Capital · Comments

Don’t hide behind your board

January 15, 2009

This is a lesson that first time entrepreneurs in funded companies usually learn very quickly. I’m on the board of several companies currently, and if you know me you know that I rarely take an aggressive stance. I use the magic of subtle influence, not a brick over the head.

I’ve adopted Brad Feld’s mental model and I try to think of my role on the board as one in which I work for the CEO until the CEO no longer has my support. It’s binary. If I support the CEO then I work for him or her. If I don’t support the CEO, then it’s time to find a new one or to get off the board.

Using this framework I think of my role on the board as a my conduit to make constructive suggestions. I’m very careful to make sure my suggestions are never perceived as marching orders. And I’m supportive and not disappointed when my suggestions are not taken as long as I know the management team has been thoughtful about my suggestion.

Something I’ve seen a couple of times now is a CEO hiding behind the board. This is almost always going to backfire. Here’s how it usually works: Someone on the board or the whole board has a strong opinion on an issue, and the CEO points something out as a board decision to a vendor, employee, investor, or partner. The cart is then pulling the horse - this is the definition of dysfunction. Here’s the punch line. Often, the CEO will actually agree with the board on the issue, and usually the CEO is on the board too! It’s just easier to say “well, the board decided that…”

As a general rule of thumb, a CEO should never start any sentence with “The board said …” or “The board decided…” The CEO makes the decision. Always. Presenting something to a third party as a board decision is simply going to cause a loss of respect for the CEO. Replace “The board said…” with “I’ve decided…” Parenthetically, the advice of the board was taken. So what. That’s irrelevant.

The bottom line is that the CEO is the CEO and as such should make and take responsibility for all of the decisions made by the company. This is true even in the face of a strongly opinionated board member. Magically, when they do so, they’ll almost invariably earn respect from the board members rather than losing it as they might have feared.

Written by David Cohen · Filed Under Blog, Startups · Comments

Don’t prop them up

January 9, 2009

I had a very short but interesting “random” call with Taylor Davidson today, after I had commented on his blog a while back. Taylor recently drove across the country stopping along the way to meet as many interesting entrepreneurial people as possible. He’s been thinking about early stage company development extensively, so it was one of those rare times when I wanted to jump on a quick phone call to say hello. He’s also leading a discussion at SXSW called “Venture Capital for Long Tail Entrepreneurs” which I plan to attend to meet him in person.

On the call, Taylor and I talked briefly about how some incubator models take a very service heavy approach. Some offer up sustained “marketing services”, or other “business services” and work with companies for many years. We both talked about how we’re not huge fans of that model. At TechStars, we like to teach them how to fish (in 3 months), then let them go fishing. We don’t want to catch all the fish for them. If they catch fish, they live. If they don’t they die. And that’s natural selection, and that’s good.

We talked about the need to force companies to sink or swim early on in their lives, and to focus on building their teams and fixing their weaknesses from day one. Perhaps that’s why I’ve always disliked it somewhat when people call TechStars “an incubator.”  Don’t get me wrong, some true (old school) incubators are fantastic for the right kinds of companies, I’m sure. But right or wrong, for me, the term incubator evokes an image of companies who can’t (or won’t) survive in the wild.

Written by David Cohen · Filed Under Blog, Startups · Comments