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Lessons Learned Running a VC-backed Company


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Speech to OCRI Partnership Conference, May 2008

Speech to OCRI Partnership Conference, May 2008

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  • 1. 16/05/08 5:35 PM Lessons Learned Running a VC-backed Company A Speech Presented to the OCRI Partnership Conference, May 15, 2008 By Brian Hurley CEO Purple Forge Corp. Brian Hurley is an entrepreneurial leader with over 24 years of experience in building strong teams, innovative products and international businesses. Brian is currently CEO of Purple Forge which he founded in 2008. He founded Liquid Computing in 2003 and as it's CEO raised over $44M in venture financing, built a world-class team, delivered an award winning product to market and won initial sales. Brian has built and led numerous successful business teams in Nortel, Bell-Northern Research and Microtel Pacific Research. Brian is the best-selling author of quot;A Small Business Guide to Doing Big Business on the Internetquot;. He is an active member of the local tech community and is member of the OCRI Board of Directors and the Young Presidents Organization. Brian graduated from Carleton University with a Bachelor of Engineering.
  • 2. Harry S. Truman once said “It's what you learn after you know it all that counts.” Today I am going to tell you what I learned after the Lead to Win course provided me what I needed to know before embarking on my entrepreneurial career. So what did the Lead to Win course provide me with back in 2002? The Lead to Win course provided me with very practical experiences and rules of thumb taught by experienced practitioners in each of the topics covered. The Lead to Win course provided me with my first network of entrepreneurial peers who I relied on for counsel, advice and a shoulder to lean on.     2 
  • 3. The Lead to Win course provided me with an introduction to the local Ottawa services ecosystem, including legal, financial, venture, marketing and advisors. My career as an entrepreneur started when I founded Liquid Computing in January 2003. As the CEO I successfully closed the first round of venture capital financing in May 2004. I raised over $44M in venture financing and over $2M in various government programs support. We delivered an award-winning product to market in late 2006 and closed the first sale in February 2007 to the US Army. I left Liquid Computing in 2008 to form Purple Forge which is currently at the early stages. As an entrepreneur, I learned quickly in the early days of launching Liquid Computing that the distinction between the weekends and the weekdays quickly became meaningless. The entrepreneurial lifestyle is one of total focus and commitment. I learned that being an entrepreneur meant enjoying what you were doing.     3 
  • 4. As an entrepreneur, I learned quickly that the network of people and services that were available within a large established company no longer existed. However, I also learned that it was possible to develop a network of people who were able to provide the same advice and guidance. As an entrepreneur, I learned that there are many, many, many people who are prepared to tell you how bad your idea is. I learned that being perseverant, thick-skinned and optimistic were essential. Looking back, there are several things that stand out as being critical to successfully launching a start-up. The basic requirements include a great idea, a large market and lead customers. However, the key enablers I quickly learned were family support, risk-sharing partners and an outstanding team. Family support is absolutely essential. As an entrepreneur, I was going to be a drain on the family resources. I knew that I would need my wife’s support. When I first asked my wife if she was supportive of me working to     4 
  • 5. start a company instead of looking for a new job after Nortel, she asked me for how long. I told her 3 maybe 4 months to get financed… the 4 months turned into 6, then into 12 and 16 months. Around the 6th month, my wife, while still very supportive, would push newspapers in front of me and say “gee that job looks interesting what do you think?”. Risk-sharing partners are absolutely essential. As an entrepreneur, cash is king. Pre-financing, important professional services such as legal and financial are out of reach for an entrepreneur spending the family savings. It was only through risk-sharing partners that I was able to have access to these services early on. Subsequent to financing, I also benefited from suppliers who were willing to help by offering things such as heavy discounts, free samples, and on-site inventory. All these risk-sharing partnerships were done as part of either an informal or formal commitment to a longer-term relationship where I would grow my business with them as we grew to the next stage of financing or sales.     5 
  • 6. An outstanding team is absolutely essential. Early investment from venture capital firms is based as much on the team as the business. Post- financing, the execution of the plan is all about the team. In particular, the more ambitious the plan, the better the team required. I learned the importance of holding the bar high and going after world-class team members for every position. It took more effort, it took longer, and it was hard to not “settle” – but it was critical to building an effective team. I also learned that having an experienced HR professional such as Mel Mulligan on the team early was essential to help recruit, manage and maintain the team. Raising venture capital is hard work and takes a lot of time away from running the business and working with customers. I learned that raising venture capital for a Canadian company was particularly hard and time consuming due to the scarcity of capital in Canada, the challenges in having to overcome the “not in the US” barrier when pitching to US venture     6 
  • 7. firms, and the lack of deep networking connections into the US venture industry that are essential to gaining access to the decision makers. A start-up lives and dies by its customers. The customers provide references for potential new investors, help shape the product, and ultimately deliver the revenue to validate the business model. I learned that start-up customers are the pretty much the same as Release 1 Product customers for a large multi-national company such as Nortel. It is all about finding the early adopters, developing a strong personal relationship based on openness and trust, and engaging as early as possible on the first release product and the big tent vision. I learned that running a start-up involves a lot of explicit risk management. Managing the risk of people – how many and when, what skills and where, and contractor or fulltime. Managing the risk of technology – where to invent, where to re-use, and where to outsource. Managing the risk of market entry strategies – what value proposition and when, what market segments and when, what customers and when.     7 
  • 8. I learned that many risks can be mitigated but there are some which require an entrepreneur to “place their bets”. In particular, a start-up usually only has one chance to place a bet on key technology; and changes in the market relative to competitive technologies or new technologies can have a dramatic affect on market entry strategies and success. I spent a lot of time networking with peer entrepreneurs and start-up CEO’s in Ottawa, Toronto and California’s Silicon Valley. I would ask them questions about launching a business, raising money, and valley culture. I would always ask them about boards of directors and advisors and their relationship to their success. From these one-on-one, behind closed doors, peer-level discussions, I received the following consistent comment on boards of directors “You need to be very careful what you tell them and you have to manage them very carefully.” I heard this from everyone except one CEO who said “Your board should help you build the business – if they don’t you should fire them.”     8 
  • 9. I thought this one CEO’s inconsistent comment to be very strange until I realized that that entrepreneurial CEO had not taken any venture capital into his company. From my peer CEO’s and my own experiences, I have learned that a venture-backed company faces many challenges at the board level for the entrepreneur, particularly as the company goes through multiple rounds of financing. A venture-backed company’s board is almost entirely populated with investors. The selection of these individuals is not oriented towards ensuring that the company has a full set of expertise around the board table, it is very much a potluck. Investors sitting on a start-up’s board often have several other companies and board seats in addition to their day jobs as VC’s, which means they tend to only have a very limited amount of time available for the company, and are not always available for board meetings which can result in significant time being devoted to revisiting of decisions, providing one-on-one updates and repeated discussions.     9 
  • 10. I also learned that board dynamics in a VC-backed company could be complex, as all directors on a start-up board are not created equal. Further, there are hidden dynamics at work related to investor-to-investor relationships, investor-company to investor-company relationships, and different investor agendas. For a start-up that has taken venture capital, I have learned that formal and informal advisors are a very effective way to address skill gaps in the company and at the board-level. In particular, advisors can be used to provide expert advice, serve as an objective sounding-board on strategy and tactics, and assist with identifying and recruiting key hires. Based on the many horror stories I have heard over the last 6 years and my personal experiences, I believe that Liquid Computing’s board is certainly above average in the industry and I enjoyed working with them.     10 
  • 11. I spent a lot of time in Silicon Valley California talking with peer CEO’s, partners, customers, investors and potential investors. I learned a great deal about the differences between Silicon Valley California and Silicon Valley North. There is the obvious difference between the availability of venture capital between the two valleys, but there are other key cultural differences as well. I asked an entrepreneur I ran into at an investor Christmas party in California about how he came to start his company. He was a long-time California resident of the valley… his story was essentially “I started my first company – it failed. I started another company – it failed. I started another company – and after the investors brought in the third CEO I left. Now I have started a new company.” I found his cycle of starting a company; failing and trying again to be typical of many entrepreneurs I talked to in California.     11 
  • 12. I asked several California investors about their perception of entrepreneurs who have started a company and had the company fail. The investor comments were consistently that “they valued entrepreneurs who had tried and failed because of their experience”. I asked California entrepreneurs and investors how they networked – they commented “we knew each other when we were at Sun or HP or IBM or Oracle or Microsoft” or “we went to school together at Stanford or Berkley”, or “we worked together at start-up X, Y or Z”, and often a combination of all three. It was also clear from the discussions that many of those businesses and universities have large, active alumni organizations. Reflecting back on all those discussions, I believe that the key cultural differences between Ottawa and California’s Silicon Valley are that - entrepreneurship is viewed as a career path; failure is valued and expected; and the entrepreneur’s network of people is orders of magnitude larger in geographical reach and size.     12 
  • 13. I also learned during my discussions with California entrepreneurs that we have some advantages that California entrepreneurs envy. In particular, they were envious of our government programs such as SRED and IRAP. For Liquid Computing, the IRAP program was an essential factor that enabled me to close Liquid’s Series A round of financing which brought in our first US investor. The IRAP grant allowed us to demonstrate key elements of the underlying technologies which let us do a slam-dunk on the technology due diligence for the new US investor. I have found the SRED and IRAP program staff to be among the most professional and dedicated government services people I have met. In the case of IRAP, the relationship went beyond financial to include introductions to other relevant entrepreneurs and technologies. I learned that while there is effort involved in submitting for the IRAP and SRED programs, the effort was well worth it from a financial and a relationship perspective.     13 
  • 14. Looking forward, what can we do to help entrepreneurs and create economic growth for Ottawa, Ontario and Canada? I believe that existing programs like SRED – which are tied to R&D expenditures, and IRAP, which is tied to developing technological capabilities; are two legs of the stool required to advance Canadian international competitiveness and economic growth. The third and missing leg of the stool is a program that helps make investment in Canada more attractive, encourages entrepreneurism, and helps Canadian companies remain Canadian. One idea for such a program would be to match some or all equity investments in new Canadian companies from entrepreneurs, angels and venture capitalists. This program would have three key advantages – it would let private industry make the investment decision with skin in the game, it does not dilute Canadian company ownership and therefore     14 
  • 15. increases the likelihood the company will remain Canadian, and reduces the “not in the US” barrier since “money talks”. Our governments at the federal, provincial and municipal levels could also help by making it easier for start-up companies to sell to them and consequently establish early sales and reference-able accounts. Early sales are an essential factor in start-ups ability to sell to large organizations and to secure follow-on venture financing. Today for example, it is very difficult for a start-up to sell into the Canadian Federal government. The US government by comparison is much more small business friendly, with special programs to get small businesses into the government supply chain and facilitate purchases. Our network and associated ecosystem will never match that of the US or California. This means we need to be more efficient and pro-active in growing, strengthening and leveraging what we have.     15 
  • 16. Organizations such as OCRI are essential to help get local businesses and entrepreneurs coupled into ecosystems outside of Ottawa. Initiatives such as the Talent First Network are essential to help develop new networks and associated ecosystems for emerging market opportunities such as open source software. Networking groups such as The Ottawa Network are essential to help bring together aspiring entrepreneurs with like-minded peers, and with the local services ecosystem. In the US the entrepreneurial career path and associated motivation is ingrained as part of the “American Dream”. In Canada, entrepreneurial wealth creation is almost shunned. Our universities are an essential part of our ecosystem that we need to more actively support and develop.     16 
  • 17. Our universities are the vehicles for training and orientating students towards pursuing entrepreneurial career paths. Our universities are also a relatively untapped means to sustain networks among entrepreneurs in the same manner as the US university alumni networks --- providing skills, relationships and opportunities. I would like to leave you with three key messages today: First - if you want to try and fund your company with venture capital - go in with your eyes open. When you take venture capital you face significant challenges in finding capital in the current environment and if you are successful in securing venture financing you will be giving up control of your company and taking on significant challenges that go beyond the already significant challenges that come with simply building your business.     17 
  • 18. Second - we can help shape a better future for ourselves in Ottawa – we have the necessary ingredients. We need to work together – private, academic and government -- and leverage what we have. And third, I believe that the Lead to Win program was one of the most economically impactful events to have occurred in Ottawa in a longtime. I believe that we should learn not just from the experiences of the speakers today, but from the Lead to Win program itself. In closing, I would like to extend my personal thanks and appreciation to Tony Bailetti and the Lead to Win trainers for their efforts. I would like to thank Tony for organizing today’s session, and I would like to thank you for your time. I look forward to taking your questions during the Q&A period. THE END     18