Four Weddings and a Funeral for an Angel Investor

Posted on March 22, 2011 by Ty Danco

Angel Investment commentary

Well, March has come in like a lion. Not only did we get 26” of snow two weeks ago in Burlington, but also I’ve been experiencing a blizzard of activity with my angel investments—4 good events, and 1 bad. Which is a great ratio, but then again, these are only midterms, and most final grades aren’t in.

So, what’s to celebrate? The best news came first: an exit on one of my investments.  The good news was accompanied by the first breaking of my Angel Investing New Year’s Resolutions: rather than wade through the reams of paper related to the sale, I just signed the consent agreements and am now waiting for the incoming wire.  If it doesn’t come in, I guess that means I should have continued to pledge to read all the fine print.

Next good news is an investment in NoiseToys, a startup out of Dogpatch Labs San Francisco. The current NoiseToys website displays an existing app, which has had a fair amount of success. However,  I’m more excited about a stealth app in beta now, called “Apptitude”, which allows people to share which apps they use—like merging social search with the App Store. I’ve always loved to just swap phones with people to see what gadgets they are using, and Apptitude allows this to be done among friends virtually rather than in-person. The app is clever and useful, and as always, I love the team. Here’s the AngelList writeup on NoiseToys. This is a West Coast company, and I can thank AngelList and the power of Skype video for making this investment both available and “diligenceable” for me.  Quick story on diligence: I saw that one of their investors was Charles Huang…who I assumed was the Charles Huang at Spark Capital in Boston. Charles and I talked for 10 minutes—we hadn’t met, but had 50 people in common on LinkedIn–when I finally asked him about what he liked about NoiseToys. Charles had no idea what I was talking about, and it turns out that the Charles Huang who invested is not Charles Huang of Spark, but rather the co-inventor of GuitarHero, out of the Bay Area.  So I got to meet two great guys out of one Huang number. (Sorry about that one.) So that much more of a bonus, regardless of what happens with NoiseToys. Just as with my investment in CardMunch, this is not a first time app for the founders—they’ve already honed their chops on previous products and are well-positioned to move the company forward on a ramen noodle budget.

Good news #3. Just last week, I visited the new Cambridge office of Incentive Targeting, which is doing a follow-on round. Incentive Targeting uses loyalty card information to more effectively target ads for grocery shoppers, and it does so in a Google AdWords-type way that makes it easier and more effective for the advertisers (the consumer packaged goods people like a yogurt manufacturer) to communicate and run promotions with grocery chains.  This was a pretty easy decision to follow-on: the round comes just on the heels of the announcement of a major new customer and another new pilot program, the combined extent of which will double their reach in terms of registered shoppers. Just as good, they have developed a novel (for grocery stores) new product along the lines of Groupon for groceries.  The two new client wins make it far less risky than at the time of investment last year when they had just one beta client, and I am delighted to follow on.  My visit also had had some serendipity to it: I had run into Rich Tarrant Jr. of MyWebGrocer at a Champlain College’s “Speaking from Experience” series. Besides running one of Vermont’s hottest internet companies, Rich is also a trustee at Champlain College, which has emerged as a key player in bringing together Vermont’s entrepreneurs. When Rich asked me what was up with Incentive Targeting, which is in the same Grocery/Internet/Ad space, it made me realize that I had been negligent on keeping abreast with the company. Which led to my meeting, and subsequent re-investment. And come to think about it, these two firms could work perfectly together—nudging me for some behind-the-scenes schmoozing to add value to my portfolio and to Vermont. Rich and Win Burke—call each other!

The fourth “wedding”—all in the space of 6 weeks, which is a bit scary—is an investment in Green Goose, a startup which recently rocked the house at Jason Calacanis’s Launch Conference. Green Goose is a combined hardware-software play (which always gives pause) combining inexpensive sensors you can put on anything from toothbrushes to barbells with a gaming layer to help promote good behaviors. Rather than describe it further, you can see links here and here, and read more about it here.  While I saw the live feed from Launch, this was a company where social proof was important. Bill Warner was the first backer, soon followed by Katie and Reed from Project 11, Jason Calacanis from OpenAngelForum and Launch, (not to mention Shervin Pishevar, Jay Levy, and other angels I don’t know)

I saw Boston investor Bill Warner last Wednesday, and when I mentioned my regret that I wasn’t able to be at the Launch Conference to see GreenGoose, Bill clued me in that the company was thinking about expanding the round. A few emails later, and now I’m in. I’m a little wary about the jumping onto the bandwagon, following the herd, being a lemming, what have you, but this is an extremely interesting company, and one that jives nicely with both my healthcare and mobile theses. With a CEO who can make a killer presentation. Expect lots of press on this firm as it expands.

And now for something completely different. I also had the not-pleasant task of saying no to a portfolio company who was looking to get another round. I’d already followed on once, albeit with a tiny commitment, before, but now was the time to give the bad news. Why the no? On the outset, the company is in a big space, has a potentially huge product, and is led by an experienced entrepreneur with a terrific advisory board. They had announced some pivots (which in itself is not bad—Incentive Targeting has changed their pricing model, so I’m not against those who change their minds), had missed some numbers (don’t we all—hard to remember any company which actually makes their initial projections,) but the killer problem was personnel: the company has lost several team members, and one of the replacements hired had already been found lacking.  Back to my 60% jockey, 40% horse theory, I was disappointed at a company which has a bankable CEO and advisory board seems unable to attract and retain the key technical co-founders or successors.  I’m still invested in the company, but I’m unwilling to put more into it.  While not yet a funeral, this is one of those times I’ve got buyer’s regret. There are a couple of other companies I now regret having put money into, but I’ll try to do my best to give counsel to all of those companies in the hope that they can turn it around. But the stark reality of startups is a high failure rate.  If and when (and there will certainly be a when for many) the firms end up DOA, I’ll do my best to figure it out and write about it.

I’m eager to learn more about the lessons of failures. I applaud those angels like Joe Caruso who list their loser investments as well as their winners. (And I’d happily take all of Joe’s losers if I could also get his winners.) Readers, I’d welcome any links to articles referring to “lessons learned” from bad startups, and especially bad angel investments. Know of any good blog entries? There must be several–let me know.

Filed under: Angel, Boston, Champlain College, startup, Uncategorized | Tagged: , , , , , , , , , , , , , , , , , | 2 Comments »

Vermont New Business Prescription: First in a Series

Posted on November 7, 2010 by Ty Danco

Congratulations to Governor-elect and entrepreneur Peter Shumlin on his recent election. Gaining re-election at the same time are entrepreneur/Senator Hinda Miller and Speaker Shap Smith, who with Peter were the three legislators who organized and listened to Vermont entrepreneurs during the last legislative session. If I were in their shoes, there are five themes I’d keep in mind in the effort to create new businesses and jobs in Vermont. I’ll be blogging on each in detail later on.

I. We don’t need new business models, we need to execute better based on models already proven successful
Whether it be Silicon Valley coming out of Stanford, or the Boston entrepreneurial ecosystem coming out of MIT and Harvard, innovation most often percolates out of a university system, and it’s hard to think of a successful startup region that is not led by the aggressive and smart people who congregate near the best schools.  The best regional example of an area turning itself around is the Upper Valley, led by Dartmouth. New Hampshire now boasts several companies valued in multi-hundred millions of dollars, including Glycofi and Adimab, both of which sprang out of  technology developed by Dartmouth professors. (Vermont benefits from this ecosystem too: hot startup Sound Innovations, out of White River Junction, licenses Dartmouth-developed technology.)  Not coincidentally, this new wave of companies, which includes Mascoma, all came of age after the formation 10 years ago of the “DEN”, the Dartmouth Entrepreneurial Network. The DEN, along with the affiliated regional incubator just outside of town, continues to pump out great companies. Some end up in Vermont, like Sound Innovations based in White River Junction. My first task would be to find someone young and hungry in the administration drive South on Interstate 89 and see what lessons we might learn from the DEN and reinstall throughout the rest of the Vermont. We need to create a VEN: a Vermont Entrepreneurial Network. Just as the DEN promotes business competitions as a means to gain visibility and traction for startups, Vermont also should initiate some Northern version of the MassChallenge. The MassChallenge  has already brought energy and new startup jobs to Boston, which is the whole point.

II. Vermont isn’t missing critical pieces, we just need to better use what we have
True, we don’t have a Silicon Valley ecosystem here, but no one does. Yet in the last 10 years Boulder CO has been able to create incubators that not only create, but attract vibrant new companies to town. Vermont already has established its own VCET incubator, great research out of our university and colleges, sufficient infrastructure (Burlington Telecom financial debacle notwithstanding, the fiber network here in Burlington just screams), established angel groups, venture forums, local venture capital funds, and a State-sponsored Early Stage Capital Seed fund. But lots of these elements don’t work coordinate together, and some organizations have the trouble of deadwood and bottlenecks, like anywhere. What would Bain or McKinsey say about this? Well, the first task is to take inventory, map out what we have, and then have a 360 peer review to separate wheat from chaff, and also to find out who connects well with whom. Until you can map and grade the network we have, you can’t improve it. I suspect that those who would object most to this process are the ones who need it most.

III. Track Records Count–Listen to the Winners, Not the Whiners
Successful entrepreneurs almost always want to give back. Several companies started in Vermont turned into multiple-hundred million markets, including IDX, Ben & Jerry’s, and eSecLending. Dealer.com and MyWebGrocer are crushing it and will be next, and MA-based (but VT CEO-led) MocoSpace may follow it. I’m sure that those who have built considerable success stories exporting VT brainpower to international clients, like John Dwight (Charlotte) of Dwight Asset Management. And let’s not forget others, like John Abele (Shelburne) of Boston Scientific, who grew great companies elsewhere but choose to live here. The shining examples of community service from great entrepreneurs (on different sides of the political spectrum) are Tom Evslin and Bill Schubart. State government can’t afford that kind of expertise in competitive markets, but ask the winners first, and give them a big scissors to cut through the tape.

IV. Skate Where the Puck is Going to Go
Where are the best jobs being created? In technology, primarily information technology. We all love maple syrup and artisanal cheese, and we can encourage those businesses…but they are neither scalable nor high margin business. Dealer.com is probably growing jobs faster than anyone else in the State, and Champlain College is attracting terrific students majoring in computer science (as well as running an impressive entrepreneurship program via BYOBiz.) So, let’s put a lot of thought on how to keep and motivate this young entrepreneurs-to-be in Vermont. Who would be a good person to lead this type of community building effort? I’d ask Matt Dunne, energetic good guy and Googler to lead the charge.

V. Choose Investments Wisely, then Coordinate Programs
I’ve heard respected voices in the community say “You can’t pick winners”, i.e., the State should have a level playing field to help all companies, old and new, big and old, equally. But there is no such thing as bias-free decisions. What about all those industries already with community-financed infrastructure. We let railroads die, but continue to subsidize airports, for instance. So face up to the bias, and most importantly, don’t let others screw things up.
Case in point: UVM budget cutbacks have meant that they are cutting back on funding for their Tech Transfer Office, which finances patent applications from the discoveries of their faculty. UVM isn’t in the business of creating jobs for Vermonters, so I can see (although I disagree with) their reasoning. I’m not arguing for increasing general funding for UVM, I’m suggesting that funding from the state be targeted for specific purposes that best go to helping us grow high-tech jobs in Vermont. I’ll be writing more about UVM’s College of Medicine, College of Engineering and Mathematical Sciences and Business School later. (Disclaimer: I’m the husband of one faculty member, the uncle of another, and I am a mentor of UVM’s Engineering Dept’s “SEED” program. I’m speaking my thoughts from my perspective as an entrepreneur and investor, and not as an interested party.) Back to the point–there are ways to integrate some of the best of a “managed economy”–think China–and venture capital investing (doing follow-ons in winners, and not following-on with those who fail to gain traction). I haven’t figured out thoughts yet on fiscal and tax policies regarding job creation, but I’ll have my recommendations by the time we get around to Part V. I know the answer isn’t a knee-jerk “cut taxes”, but there is some type of incentive program to be arranged. However, 90% of the work that needs to be done to revitalize Vermont does not require more money, it’s more 1/3rd attitude readjustment, 1/3rd assembling critical mass such as Boston has done last June (Innovation Month) and in October (BREW), and the last 1/3rd establishing momentum.

Filed under: Angel, Boston, Entrepreneur, MassChallenge, UVM, Vermont | Tagged: , , , , , , , , , , , , , | 1 Comment »

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