Seattle Startup Week | Kicking off with Aviel Ginzburg of Simply Measured

aviel-ginzburg-what-is-a-high-growth-startupYesterday, we spent the afternoon kicking off Seattle Startup Week with Aviel Ginzburg of Simply Measured, which recently raised $20M in venture capital funding. Aviel joined us in our Fremont location to talk about what a high growth startup really means. During his presentation, he mentioned Simply Measured’s first incarnation, Untitled Startup, Inc., which, as Aviel described it, was pretty much two guys with $150K in funding from Founders’ Co-Op “throwing ideas at the wall.”

Which begged the question:

“Why would they put money into you when you didn’t even have an idea or specific plan?”

Aviel smiled and quickly responded, “That is a phenomenal question. You should ask Andy Sack that question.”

But then he explained what investors are really investing in: people. Aviel had a proven track record as a software engineer at Appature, and, during a Startup Weekend, he and Simply Measured co-founder Damon Cortesi built an application called TweetSum. This app utilized something called the DBI, which, no joke, stood for Douche Bag Index. (Now, keep in mind that this was before social media analytics like Klout existed.) The DBI would score your followers from 1-100, letting you know how big of a douchebag they were. The catch?  The only way to see your own score was to tweet it. TweetSum ended up trending on Twitter for four straight days, and Aviel and Damon ended up being approached by Madrona Venture Group.

So why did a company without an idea or a specific plan get funded? According to Aviel:

“We had this track record of being people who could execute and who had interesting ideas…For an investor, it’s like, these guys are going to do something. I want a piece of this.”

For those who were unable to attend the event, watch the full video here:

Seattle Startup Week is in full swing! Join us for one of our upcoming events. Each will focus on scaling up and will feature a speaker sponsored by the Entrepreneurs’ Organization:

Wednesday, October 22 @ 8am | Scaling Sales & Marketing on a Shoestring Budget with Matt Heinz
Thursday, October 23 @ 1pm | Everything I Screwed Up While Scaling up with Andy Liu + Russell Benaroya
Friday, October 24 @ 1pm | Random Acts of Cupcakes with Jody Hall

Seattle Startup Week may be over, but we’re still basking in the event afterglow. Check out these recaps of our other events:

Matt Heinz explains why you have to fail in order to succeed
Russell Benaroya talks night runs and how to ease the loneliness of entrepreneurship
Angel investor Andy Liu illustrates the importance of building rhythms




Increasing Facebook’s Revenue: New Micro-Fee Monetization Tactics

After much speculation and anticipation, Facebook went public in May 2012. Facebook’s IPO is one of the most infamous stock let-downs in recent history – making a huge splash and ultimately disappointing thousands with disappointing numbers. Since the public launch, Facebook has rolled out several ways to better monetize their website in creative ways and ultimately improve their IPO.

Since it has always been a free-to-join service, most of Facebook’s revenue comes from ads. However, a site can only have so many ads before they begin turning off users to the point where they quit. In order to keep their IPO rising, Facebook has had to resort to micro-fee monetization tactics to earn more revenue.

Increasing Facebook’s Revenue Through Promoted Posts

With a simple click of a button, business and personal users have the option to promote a post for a small fee ($5-$10 or more), which makes the fan page or a particular post highlighted on followers’ news feeds. Promoting a post is not only helpful to highlight high-level messaging and direct more pointed traffic to their pages – but also steadily increases a fan page’s following.

Facebook has also increased the reach of sponsored posts by increasing the budget amount. Previously, promoted posts and pages were limited on how much they could spend to promote. This budget increase allows businesses with large social media marketing budgets to pay more to improve a post’s visibility.

Personal profiles also have the ability to promote posts to their friends. For a small fee ($7 as of Spring 2013), personal users can highlight significant posts. Many users are taking advantage of this for fundraising for their personal hobbies, work-related items, and more.

Facebook Gifts

In late 2012, Facebook launched a feature that allows users to buy their friends gifts for special occasions, like birthdays and marriage announcements. Gift suggestions are based on the recipient’s likes, and include things like gift cards for iTunes and Starbucks.

This not only allows Facebook to make a little cash, but also creates an opportunity for users to quickly buy a friend a gift at the last second if they forgot about a loved one’s birthday until the day of the event. In the future, Facebook will likely be expanding the types of gift that are available for purchase.

Monetizing Messages for More Revenue

One of the other ways Facebook is increasing their revenue is through paid messages. In the past, if a user was not connected to someone and they sent them an email, there would be a potential for that email to go into the recipient’s ‘other’ inbox, which acts as a sort of spam filter and is rarely checked. Now, If a users is not connected to someone, they can pay $1 to ensure their email goes directly to the person’s Facebook inbox rather than their ‘other’.

Users have been highly divided about having to pay for a message to be received, but so far thousands of Facebook users are using the service.

All of these new changes are adding up. Facebook’s revenue shot up 40% in Q4 2012 over Q3 2012, however as of Q1 2013, their IPO has remained steady at $25-$30/share. Facebook is continuing to find creative ways to monetize the website, and users expect to see more of these changes roll out in the coming years.


Kickstarter Tips and Tricks for Startups

Starting a new project can be very stressful for a startup. Investors typically want to see a product, or series of products before jumping on board to help the business grow. Part of the early stages of a startup involves finding the funds you need to get those initial projects off the ground. Not everyone is capable of bootstrapping these early initiatives, and the risk involved with doing so can far outweigh the potential for success.

Enter Kickstarter, a popular alternative to publishers and investors that allows you to find the funding you need by appealing directly to your potential customers. A lot of startups use Kickstarter as a combination marketing tool and pre-order system. Your prototypes may be complete and all you need is some extra funding to initiate the first round of production – or your startup may have a great idea that just needs some extra funding to hire on the extra hands needed to make it a reality.

No matter what your needs are for these funds, Kickstarter is a great way to generate them without giving up a piece of your company to do so.

Here are a few ways startups can prepare for your first Kickstarter project.

Overestimate Your Needs

Offering rewards for various donation levels is great, but it could set you back more than you think. A lot of project founders use Kickstarter with a goal in mind that will just meet their needs, but forget the amount Kickstarter, Amazon, and the rewards take away from that total.

You don’t want to ask for $1,000 when you really just need $500, but you do want to make sure that what you’re asking for is enough to meet your needs. Failing to deliver on a promise made in a project can have a long lasting negative impact on your reputation. It would make it almost impossible to successfully launch another Kickstarter project in the future, and could result in legal action.

Be Honest

Every interaction you have with Kickstarter backers will have a direct impact on your reputation. Your first customers are the ones that pre-order whatever it is you’re putting on Kickstarter, and that means you’re pulling double duty as both a PR and customer service representative.

If you can’t meet the estimated delivery date, explain why in a video and combat pushback with transparency. Kickstarter is a very social experience, and so you definitely want to control the message.

Under-promise and Over-deliver

If you make your project look like the best thing since sliced bread, but know that it won’t realistically be as amazing as you claim, then you’re probably going to end up with a lot of disappointed customers which will be more hesitant to back your project(s) in the future.

Imagine the buzz that would surround your product when it comes out in stores (thanks to the Kickstarter funding) and pre-order customers are eagerly showing their friends and family what your product can do.

You Have to Spend Money to Make Money

Don’t be cheap with your rewards, and spend a little money producing a decent pitch video. This is the first time your company and/or project is being introduced to the world. First impressions is everything, and very few people will be inclined to back (or spread the word about) a project that has no visual representation beyond a few photos and rewards backers poorly.

Let’s face it: A bumper sticker is a terrible reward for someone willing to cough up $25. Consider your needs and calculate the reward into the project total. See if you can’t sweeten the deal with additional content and information. Offer a digital download, exclusive bonuses, and cut the price on your product from what you would expect to get out of it retail. These customers are your front line in generating buzz once the product launches.

Consider Alternatives

Indiegogo is an increasingly popular alternative to Kickstarter. Not only can you start a project and receive funds if you don’t actually hit your goal, but many users reluctant to back Kickstarter projects (for whatever reason) may be more inclined to do is in the socially-rich environment of Indiegogo.

Not every project has to be funded by the crowd. There are still plenty of wealthy investors out there willing to invest in your project, and perhaps even help your startup get on its feet. Kickstarter isn’t (and should never be) used as a startup funding source. It’s intended to fund projects, and that’s a limitation many startups have a tough time working around.

No matter what your reason for seeking this additional funding may be, consider Kickstarter as a lot more than a source of revenue. It could very well be the catalyst that allows you to generate the buzz you need to make your project the next big thing.

3 Social Media Start Ups That Are Going to Change Your Life

No doubt, these three companies will change the social media world in the next year to three years. If you want to be ahead of the curve, check out what they do and why we think they they will be so important below.

social media, social media vocabulary, social networking1. Diaspora: Diaspora started to a lot of hoopla and continues to generate buzz after some students from NYU raised over $100,000 in less than a month using the Kickstarter funding platform. Diaspora aims to be an ‘open’ alternative to Facebook. Basically, Diaspora wants to put the control over your social network in your hands. The company stresses Choice, Ownership, and Simplicity. Diaspora is for those that think Facebook takes too many liberties with your data and lets you keep ownership of whatever you add to the network. The interface will look more like a WordPress blog editor than a typical social network and will give users near complete control of how they connect with others.

The model Diaspora is pursuing is almost opposite to that of Facebook’s and they believe that as people become increasingly aware of their lack of control on other sites, Diaspora will provide them with a solution. Open is certainly the way of the future in Web 3.0, but Diaspora is very ambitious. Their values will certainly affect the social media world in the near future even if comes in the form of another project.

2. Empire Avenue: Very basically, Empire Avenue is a social stock market made up of you and your friends. The higher your influence in social media, the higher your stock price. You can add your various social networks and social media activities you do will all contribute to your overall influence score. We talked about Pay With A Tweet a while back and this plays on the same idea that individuals and their network have value. You can buy and sell friends or anyone in the virtual stock market. Additionally you are free to choose what kind of advertisements you carry with your profile and the site has a very rewarding revenue sharing set-up.

As social media users continue to become more aware of the power they posses and can build up online, start-ups like Empire Avenue that help them turn that into an actual return will explode.

3. OneTrueFan: This may be the most influential start-up of the three. They have been described as ‘foursquare for web pages’ and they love that description. This takes the idea of check-in and applies it to web page. Like Foursquare, you are awarded points for checking-in and participating with a venue, only with OneTrueFan, the venue is a web page. This has the potential to be a powerful social layer for businesses to use on their site to get more participation from their most active fans. The name comes from the idea that each site will have one true fan, in other words, a mayor. People will compete to the be the number one fan through activities placed on the website and by checking in upon visiting. Look for almost every even semi-social website out there to have a check-in system in place within the next three years at most.


GlobalMojo- Help Charities By Shopping Online

GlobalMojoGlobalMojo is the new tech startup that scored $1.15 million in angel investments and venture capital, including substantial backing from Founder’s Co-op. GlobalMojo CEO Daniel Todd is committed to making a difference and uses technology to do it. The Redmond based small business and thinkspace member company develops apps for web browsers that let people direct money to charities and causes of their choosing.With almost $30 billion spent online every month in the U.S. GlobalMojo helps people browse with purpose, allowing them to use online purchases to direct money to deserving causes.GlobalMojo is literally changing the world through web browsers. Buying something online for your mother-in-law’s birthday is now the socially conscience thing to do.If GlobalMojo were a cartoon character, they’d be a cross between Superman and The Pink Panther—saving the world, in a very slick way.

GlobalMojo CEO, Daniel Todd has some advice for entrepreneurs looking to start their own slick startup: have advisers, hire great talent, and get feedback. Todd has a team of advisers who he can “beat up ideas with” and who aren’t afraid to hurt his feelings. This honest feedback allows him to make quick adjustments and produce results.

Feedback from consumers is also priority and people can stay in touch with GlobalMojo via Twitter, Facebook and The Mojo Blog. Asking users what’s meaningful to them inspires ideas and helps create a browser product worth using. But Todd doesn’t just listen to users, he’s also in touch with his talented employees. Employee culture matters around GlobalMojo, and “hiring the right people is one of the most fundamental pieces of long term success,” Todd says.

And just to test how hip Daniel Todd really is, we used the universal measuring stick: Mac or PC? “I’m stuck as a PC, but I’m seeing the light. It’s only a matter a time, and then I’ll make the jump. So, I guess I’m a PC, soon to be Mac?” Can’t argue with that.

How to Divide Equity to Startup Founders, Advisors, and Employees

Since returning from MIT back in June I’ve been focusing on the growth of the company. It has been pretty much on mind non-stop for months now. The part that I’d like to zero in on is when you’ve got a high growth company what are some of the best practices out there to distribute equity to the founders, advisors, and employees?

Equity for Founders

The Founders’ Pie Calculator by Frank Demmler, an Associate Teaching Professor of Entrepreneurship at the Donald H. Jones Center for Entrepreneurship at the Tepper School of Business at Carnegie Mellon University invented an interesting way to divide equity between founders in a way that is both logical and fair. Sometimes when people start up a company they make decision to divide up the equity evenly because it’s “fair”. Demmler’s approach is a bit different in that the calculator provides a way to quantify the elements of the decision making process, and that it appears to be logical and fair. The elements of the decision making process are 1) Idea; 2) Business Plan Preparation; 3) Domain Expertise; 4) Commitment and Risk; 5) Responsibilities.

The idea behind the calculator is to come up with a weight for each of these five elements and then assign a value to each founder on a scale of 0-to-10. Then you take the weight and multiple it by the founders score to come up with the weighted score. From there you can get the percentage of equity. I like this a lot better than splitting things equally because it allows you to quantify what is important. See table below for example of how this works.

WeightFounder 1 (Contribution)Founder 1 (Weighted Score)Founder 2 (Contribution)Founder 2 (Weighted Score)
Business Plan236816
Domain Expertise5630420
Commitment & Risk700749
Total Points106142
% of Total43%57%

Equity for Board of Directors and Advisory Board

When figuring out how to provide equity to advisors, you can use this chart as a guideline. Typically for an Advisory Board it ranges from 1/10th of percent to 1/2% and for Board of Directors from 1/2% to 2%.

Equity for Employees

It’s important to figure out how much equity you give to your employees. David Crow writes in his article “Founders versus Early Employees“, “Remember the goal is to incent early employees to have an emotional ownership of the product and company they are building. Equally said, potential employees need to understand what they are getting into”. The one thing that I think is missing is distributing equity to every single employee in the company regardless of title. Quite honestly, it takes an entire team to build a company and giving each employee a piece is important so that employees are rewarded in the upside of the company as they have made a decision to work for you instead of some other opportunity. Giving equity to employees also helps foster the “act like an owner” kind of mentality. Below is an example of how some companies may approach distributing equity to employees.

TitleRange (%)
CEO5 - 10
COO2 - 5
VP1 - 2
Board Member1
Director0.4 - 1.25
Lead Engineer0.5 - 1
5+ years Experience Engineer0.33 - 0.66
Manager or Junior Engineer0.2 - 0.33
By Nevi on

Number of shares = Meaningless. Just the % Matters

Chris Dixon wrote a blog post about “The one number you should know about your equity grant“. The one number you should know about your equity grant is the percent of the company you are being granted (in options, shares, whatever – it doesn’t matter – just the % matters).

  • Number of shares: meaningless.
  • Price of shares: meaningless.
  • Percent of the outstanding option pool: meaningless.
  • Your equity in relation to other employees: meaningless.
  • Strike price of options: meaningless.

All this information that I’ve gathered up here seems rather logical. Are there other tools that you’ve used that you think would be helpful to share with other entrepreneurs and founders? Are there principles that you live by that you’ve implemented in your startup that have worked really well? How long should people vest – four years? Five years? No cliff? Should founders have anti-dilution rights? I would really like to hear your thoughts on this.

Funding: Avoid Problems When Borrowing from Family and Friends

Quite a few start ups begin as bootstrapped companies, using their own out-of-pocket funds and being extremely frugal in their first years of business. Eventually most of these businesses find themselves in a spot where, in order to grow, they need outside funding. Many turn to family and friends for financial support. This can be a great way to help your friends turn a profit and a way for them to show you their support. However, borrowing money from friends and family can become quite a sticky situation.

If you are looking to go down this path, make sure you are prepared for he worst – before it happens. One of the best ways to safeguard a relationship from the possibility of your company’s unrealized financial goals is to tie financing to equity instead of a loan. It can be extremely difficult to dilute your ownership in your company in order to get the capital you need, but can ultimately protect your relationships with those close to you.

I’d love to hear from people who have borrowed from friends and family or are thinking about it and precautions that you took to make sure everything worked out. So, let me know. Have you had any experiences related to this topic?

The Founder Institute – Kick Start Your Business

The Founder InstituteLast week, I had the pleasure of meeting with Dave Parker, founder of and mentor at The Founder Institute. After showing Dave around the thinkspace digs, we sat down to chat a bit. I had never heard of the Founder Institute before, but getting to hear about it straight from one of their mentors was great and brought to light a couple of great points to consider.
1.     They aren’t soft. Founder’s Institute isn’t full of a bunch of people who are going to tell you that your business idea rocks. They are tough, they are direct and they aren’t going to cut you any slack. Less than 50% of the would-be entrepreneurs who start the program finish it. But don’t look at this as a bad thing. Look at this as being a perfect opportunity to test your business idea against some of the greatest business minds in the area. Just think, if you can make it through this, there is a good chance your business will make it too!
2.     They aren’t cheap. Submitting an application costs $50 up front. Founders who actually make it to the program pay $900 for the 16 week course (this covers all course costs and 14 plus meals). The founders who graduate are asked to contribute warrants for 3.5% of their company priced at fair market value into the shared equity Bonus Pool that is split between the other Graduates, the Mentors, and the Institute. And, finally, if the company is successful and raises any significant amount of outside funding, the Institute asks for an additional $4,500 to help the Founder Institue grow.
3.     They might be worth it. Going through the program at the Founder Institute is tough stuff. It’s not easy and it’ll be a pretty penny if you actually make it, but it just might be worth it. Take a second to consider what you get out of this course: the four month program has weekly company-building assignments guided by a network of over 500 Mentors that are business founders themselves. The topics of the weekly lectures range from Startup Legal to Fundraising. I think Dave said it best, “You will have to do this stuff to start up your own business eventually, The Founder Institute gives you the push to do it faster and better than you would have on your own.” Not to mention, if you are a graduate, you get 1% of the Bonus Pool of your graduating peers – not too shabby!

Why Write a Business Plan?

If you are struggling with writing a business plan or executive summary, you are not alone. Writing a business plan is supposed to be hard. But, don’t give up! There are critical reasons why you would want to write a business plan and I’m going to share just three of those critical reasons with you. A complete business plan can be a great tool to help you gain the necessary funding for your idea, complete the actions needed to start your business, and then keep your focus once everything is up and running.

A Sales Tool: You may need to gain outside financing to start your business. If you do, then a business plan is a great tool to help you convince investors to hop on board. A well- written business plan can also serve to sell even friends and family members on your idea and it’s chance for success. It might also serve to help you convince yourself to get going. Creating a business plan requires you to engage in a rigorous process that will help you ensure that your business will be a viable venture.

A Call to Action: A business plan can help propel you to take action, to engage, to participate. Many people think about starting their own business for years but shy away from the idea because the process seems too large or complicated. A business plan helps you break up the large task of starting a business into smaller, more manageable tasks. By solving this sequence of smaller problems, you will eventually solve the big one.

A Compass: Once you have started your business, your business plan can be an invaluable tool to keep you on track. It can be all too easy to get distracted by the  day to day tasks of running your own business. There will always be many matters that need your attention making it very easy to lose sight of your main objections. Your business plan can help keep you focused and remind you as to what your priorities should be.

Dealing with Angel Investors

“I want to invest in your company.” These are words that almost any start-up owner would love to hear. However, asking someone to hand over their hard-earned cash to you and your company is like asking them to take a major leap of faith – actually, more like an Olympic-level , chasm-crossing, mega-jump. Last week, MIT Enterprise Forum held an event that was geared towards those looking for some cash support for their businesses. “Meet the Angels” was held as an opportunity for CEO’s and small business leaders to bring all their burning questions to some of the top Angel organizations in the Seattle area. Representatives from Alliance of Angels, Keiretsu Forum, NW Energy Angels, Puget Sound Venture Club, Seraph Capital Forum and Zino Society were there and ready for battle.

Angel organizations and Venture firms are a common topic among the entrepreneurs at thinkspace, so I thought that I would brush up on what our local Angels are looking for – and I definitely got an earful! Representatives from each of the organizations presented a little bit of background information on their organization and the services they provide. This was interesting enough, but it really got good once they allowed entrepreneurs in the room to start asking their questions.

The answered we received from the panel were definitely interesting and though all of them seemed to have a bit (if you were there, you probably think that “bit” is a poor choice of word) different opinions, there were most certainly a few themes that seemed to stand out as being agreed upon by (almost) all. These general rules could probably be applied to Venture funding as well (but, I won’t be an expert until I attend an event about it – wink, wink).

1. Keep Up Communication with Interested Investors:

Just like potential leads for business, relationships with potential investors need to be nurtured. Even if they’ve only showed a slight awareness in the company, don’t lose hope. Create a “go-to list” of folks that showed some level of interest and do not forget to send updates at least once a month. This way, when they are serious about becoming a lead investor, they are already warm.

2. Create Real Business Results:

Measure, Record, Rinse and Repeat. Keeping track of your data (especially the stuff that makes you look good) is extremely important. Even if you are only a small company, spend the time recording your website traffic, leads and revenue, or you will certainly regret it. If you claim that you “feel” your company has made progress in the past year, no one will believe you unless you have the hard numbers to prove it. The progress that you make before your funded could be the catalyst for an investor.

3. Remove the Investment Risk:

There are three main risks that are involved with a startup investment: financing risk (will the company make enough money to avoid bankruptcy?), model risk (does the business model show enough profit?), and execution risk (can the current team pull it off?). Do everything you can to remove as much of this risk as possible.

4. Raising Money Can Be Ridiculously Hard:

Rebecca Lovell (Executive Director of NWEN) stated that only 5% of all U.S. companies receive funding from Angels and only .1% from VC’s. So, set your expectations accordingly and don’t necessarily expect to skate through the fundraising process without a hitch. Most companies have to get through hundreds of “No’s” before they get even one “Yes.”

Also, be Aware. After attending this informative event, I started to ask around to some of our thinkspace members and hear what they had to say about Angels. Many of them made it sound like looking for an Angel could be a great option, but there are things that you should be wary of if you are looking to take that route. Always keep in mind that you do stand a chance of accidentally presenting the “secret sauce” of your business to a direct competitor. Angel groups typically do not do the research to find out whether someone that’s listening to the presentation might be directly involved in a similar industry. Also, always be aware that when you apply to these networks, most of the time, docs that you submit to the angel networks or upload to AngelSoft can be viewed by hundreds of people that you can’t screen.

Long story short, MIT’s “Meet the Angels” event was a great way to hit a couple of points home; nothing necessarily earth-shattering, but some good information none-the-less that some of our start-ups might like to review. It also raised some great things to be aware of as a start-up looking for investors. Any comments on what you’ve seen work in your experiences or what hasn’t, I would greatly appreciate.