Lead to Win Some Lessons Learned July 28, 2009 Chuck Colford, CEO – Congruance IT, Inc.

My Biases I like helping people solve problems especially customers I LOVE invoicing its one of my favourite things to do I like calling the shots While I’m not a control freak – I HATE to be controlled Don’t ever tell me I can’t do something I like some VCs 99% of them give the other 1% a bad name I probably won’t do business with them again I admire good private investors They are cut from a different cloth than VCs I’m a results junkie I have a bias for action over study – I’m impatient I believe I can do anything, but know others can do certain things better than me I’m probably a lot like many of you but maybe with a bit more scar tissue I would like to help you avoid acquiring that the hard way

I like helping people solve problems

especially customers

I LOVE invoicing

its one of my favourite things to do

I like calling the shots

While I’m not a control freak – I HATE to be controlled

Don’t ever tell me I can’t do something

I like some VCs

99% of them give the other 1% a bad name

I probably won’t do business with them again

I admire good private investors

They are cut from a different cloth than VCs

I’m a results junkie

I have a bias for action over study – I’m impatient

I believe I can do anything, but know others can do certain things better than me

I’m probably a lot like many of you

but maybe with a bit more scar tissue

I would like to help you avoid acquiring that the hard way

Lessons to learn – LTW 2002 Class 29 participants 10 went on to found firms securing VC money More than $90M VC funds raised Every founder who secured VC financing is no longer running their company (1 is still employed there.) Founders who used VC last time that have pursued VC for their next startup - 0 7 bootstrapped 3 are still running their businesses Graduates were good at raising money and launching businesses Graduates had difficulty retaining control when VC financed.

29 participants

10 went on to found firms securing VC money

More than $90M VC funds raised

Every founder who secured VC financing is no longer running their company (1 is still employed there.)

Founders who used VC last time that have pursued VC for their next startup - 0

7 bootstrapped

3 are still running their businesses

Lessons in Venture Capital You will deal with an employee of the VC firm As employees they have salary & pensions – they may not be entrepreneurs - Their skin in the game is not the same as yours Their “experience” may not be applicable to a startup They don’t want to own a piece of your company – they want to sell it Types of VC firm players you will meet The analyst – Does not make decisions – screens & researches The displaced executive – Left a large corporation as VP or higher The one-hit wonder – Had a good exit – possibly lucky The serial entrepreneur – Did it more than once; Has scar tissue # 1 is not that helpful, # 2 & 3 can be dangerous, # 4 is a rare and ideal find – May be very helpful and most respectful Smart money has a centroid Menlo Park first; Waltham next, then elsewhere I pitched to over 100 VCs – Some things I learned

You will deal with an employee of the VC firm

As employees they have salary & pensions – they may not be entrepreneurs - Their skin in the game is not the same as yours

Their “experience” may not be applicable to a startup

They don’t want to own a piece of your company – they want to sell it

Types of VC firm players you will meet

The analyst – Does not make decisions – screens & researches

The displaced executive – Left a large corporation as VP or higher

The one-hit wonder – Had a good exit – possibly lucky

The serial entrepreneur – Did it more than once; Has scar tissue

# 1 is not that helpful, # 2 & 3 can be dangerous,

# 4 is a rare and ideal find – May be very helpful and most respectful

Smart money has a centroid

Menlo Park first; Waltham next, then elsewhere

Listen to Customers Your sales calls should outnumber your money-raising calls My VC pitch went through about 50 iterations My sales deck went through > 100 They got excited in what was unique about my product – and told it to me It was not what I thought It was not what Gartner said (then; Gartner have learned too) It was not what the VCs thought Customers are your best referrals To potential investors – Don’t release their identity too early To other customers To their strategic investment groups Protect your customer advocate – at all costs! Customers will help you find your story Customers can be your biggest advocates

Your sales calls should outnumber your money-raising calls

My VC pitch went through about 50 iterations

My sales deck went through > 100

They got excited in what was unique about my product – and told it to me

It was not what I thought

It was not what Gartner said (then; Gartner have learned too)

It was not what the VCs thought

Customers are your best referrals

To potential investors – Don’t release their identity too early

To other customers

To their strategic investment groups

Protect your customer advocate – at all costs!

Learn to Sell Selling - Get over the discomfort Learn, get coaching – Practice, practice, practice You will need to know this stuff to manage the sales team anyway It will put you in the situations to hear customer needs It gets easier as you go It gets more profitable too Don’t ignore channel relationship opportunities If there is something in it for them – they can be GREAT advocates Grease the wheels as necessary – Making the pie bigger can be more rewarding than owning all of it. With channels I send less time selling and more time invoicing Good relationships can create many “pull through” opportunities.

Selling - Get over the discomfort

Learn, get coaching – Practice, practice, practice

You will need to know this stuff to manage the sales team anyway

It will put you in the situations to hear customer needs

It gets easier as you go

It gets more profitable too

Don’t ignore channel relationship opportunities

If there is something in it for them – they can be GREAT advocates

Grease the wheels as necessary – Making the pie bigger can be more rewarding than owning all of it.

With channels I send less time selling and more time invoicing

Everything is Negotiable Extend your runway & avoid dilution A dollar saved is $1 or more you won't need to raise Downturns are great for getting a bargain Resist the urge to pay “the asking price” on anything Priceline.com + BetterBidding.com for travel Negotiate with hotel management – You can beat corporate rates Sharpen your own sales skills But don’t squeeze small businesses to death – leave some goodwill on the table You may need relief and your suppliers can become good advocates Love recessions!

Extend your runway & avoid dilution

A dollar saved is $1 or more you won't need to raise

Downturns are great for getting a bargain

Resist the urge to pay “the asking price” on anything

Priceline.com + BetterBidding.com for travel

Negotiate with hotel management – You can beat corporate rates

Sharpen your own sales skills

But don’t squeeze small businesses to death – leave some goodwill on the table

You may need relief and your suppliers can become good advocates

Manage Your Personal Exit Strategy Plan to take yourselves out Selling your business to someone else Going public Succession/transition plans & timeframes Winding up Handcuffs Who will your acquiring partners be? Likely players who will acquire your business Why? Plans to attract and engage them Window of opportunity (timeframes, triggers) Getting Cash Out Voting rights – all players not equal Registration rights Severance payments Dissent rights Capital gains, Dividends (Tax implications, benefits) Stock or Cash How are you going to get money out of your business? Will you exit your company? Or will your company exit? Founder’s plans may differ from the investors! Slide

Plan to take yourselves out

Selling your business to someone else

Going public

Succession/transition plans & timeframes

Winding up

Handcuffs

Who will your acquiring partners be?

Likely players who will acquire your business

Why?

Plans to attract and engage them

Window of opportunity (timeframes, triggers)

Getting Cash Out

Voting rights – all players not equal

Registration rights

Severance payments

Dissent rights

Capital gains, Dividends (Tax implications, benefits)

Stock or Cash