Learning from Failure How to “Fail Successfully” and Lay the Foundation for Real Success Roger Ehrenberg IA Capital Partners, LLC SIIA Previews January 26, 2009

Background 1 18-year Wall Street veteran - M&A, derivatives, trading at Citibank, Deutsche Bank 4-year early-stage investor - TheLadders.com, Wallstrip, Clickable, Buddy Media, Stocktwits and 23 others Investor, Co-founder, President and Chairman - Monitor110 Current projects - Stocktwits, Kinetic Trading

18-year Wall Street veteran - M&A, derivatives, trading at Citibank, Deutsche Bank

4-year early-stage investor - TheLadders.com, Wallstrip, Clickable, Buddy Media, Stocktwits and 23 others

Investor, Co-founder, President and Chairman - Monitor110

Current projects - Stocktwits, Kinetic Trading

History of success/failure 2 Wall Street executive - successful Early-stage investor - looking good (early returns are encouraging) Entrepreneur - failed on first try Smarter, better investor and entrepreneur - trying again after taking some lumps

Wall Street executive - successful

Early-stage investor - looking good

(early returns are encouraging)

Entrepreneur - failed on first try

Smarter, better investor and entrepreneur - trying again after taking some lumps

I hope this isn’t my destiny … 3

Is it possible to “fail successfully”? +++++ YES +++++ BUT HOW? 4

+++++ YES +++++

BUT HOW?

Case study: Monitor110 5 Why did we fail? Lack of a “buck stops here ” leader Too internally focused Too much PR, too early Too much money

Why did we fail?

Lack of a “buck stops here ” leader

Too internally focused

Too much PR, too early

Too much money

Case study: Monitor110 6 Why did we fail? Lack of a “buck stops here ” leader No single vision Inability to efficiently manage through crisis Difficult to avoid factions behind each leader Source of conflict with Board

Why did we fail?

Lack of a “buck stops here ” leader

No single vision

Inability to efficiently manage through crisis

Difficult to avoid factions behind each leader

Source of conflict with Board

Case study: Monitor110 7 Why did we fail? Too internally focused Created an offering not geared to customer requirements Managed a team not accustomed to interacting with and servicing customers Fostered an isolated, insular, tech-focused culture Facilitated an over-engineered, proprietary and costly architecture

Why did we fail?

Too internally focused

Created an offering not geared to customer requirements

Managed a team not accustomed to interacting with and servicing customers

Fostered an isolated, insular, tech-focused culture

Facilitated an over-engineered, proprietary and

costly architecture

Case study: Monitor110 8 Why did we fail? Too much PR, too early Created unrealistic market expectations Created unrealistic internal expectations Raised anxiety around customer interaction Facilitated raising too much money, too easily

Why did we fail?

Too much PR, too early

Created unrealistic market expectations

Created unrealistic internal expectations

Raised anxiety around customer interaction

Facilitated raising too much money, too easily

Case study: Monitor110 9 Why did we fail? Too much money Deferred the need to generate revenues Delayed the need to face into severe product problems Provided the resources to pursue non-customer driven “science projects” Worked against creating a scrappy, hard-edged, “us against the world ” culture

Why did we fail?

Too much money

Deferred the need to generate revenues

Delayed the need to face into severe product problems

Provided the resources to pursue non-customer driven “science projects”

Worked against creating a scrappy, hard-edged, “us against the world ” culture

Attributes of failing successfully 10 Humility - possessing the ability to acknowledge and learn from failure Insight - having the perspective to extract the lessons learned from failure Persistence - embodying the toughness to take lessons learned and move forward Paraphrased from blogger Dave Friedman, commenting on Information Arbitrage

Humility - possessing the ability to acknowledge and learn from failure

Insight - having the perspective to extract the lessons learned from failure

Persistence - embodying the toughness to take lessons learned and move forward

Paraphrased from blogger Dave Friedman, commenting on Information Arbitrage

11 “ It's not that they're brilliant or well-educated… They work all the time. They don't let failure demoralize or destroy them. They pick themselves up and keep going and eventually, every once in a while, one of your ideas actually breaks through and works, and it makes all that stuff seem worthwhile.” Dean Kamen, Founder of Segway, as told to Thom Patterson of CNN Persistence and the entrepreneur

Being a first-time entrepreneur is hard 12 True entrepreneurs - those who believe “You can’t fail - you can only stop trying” - are few and far between A recent study* has shown that: - The timing of a start-up may be more important than the quality of the idea - Entrepreneurs who are successful the first time are more likely to succeed in subsequent ventures because of available resources * Performance Persistence in Entrepreneurship , Gompers, Kovner, Lerner and Scharfstein, Harvard Business School, published December 3 rd , 2008

True entrepreneurs - those who believe “You can’t fail - you can only stop trying” - are few and far between

A recent study* has shown that:

- The timing of a start-up may be more important than the quality of the idea

- Entrepreneurs who are successful the first time are more likely to succeed in subsequent ventures because of available resources

* Performance Persistence in Entrepreneurship , Gompers, Kovner, Lerner and Scharfstein, Harvard Business School, published December 3 rd , 2008

Some other deep thoughts “ We all have a philosophy that ideas and vision are important. But execution is the thing that distinguishes companies.” - Mike Maples “ Man has an infinite capacity for self-rationalization.” - Sigmund Freud “ Don’t be so humble. You are not that great.” - Golda Meir 13

“ We all have a philosophy that ideas and vision are important. But execution is the thing that distinguishes companies.”

- Mike Maples

“ Man has an infinite capacity for self-rationalization.”

- Sigmund Freud

“ Don’t be so humble. You are not that great.”

- Golda Meir

Case study: Stocktwits What we’re doing right Single leader - Soren Macbeth Separation between Development and Product - Soren and Phil Pearlman PR only after functioning product in market Initially built for less than $50k, just raised $820k from a group of users and strategic investors (Monitor110 raised $20 million) The product is used by and shaped by our customers Our customers are the market - we live it and breathe it every day 14

What we’re doing right

Single leader - Soren Macbeth

Separation between Development and Product - Soren and Phil Pearlman

PR only after functioning product in market

Initially built for less than $50k, just raised $820k from a group of users and strategic investors (Monitor110 raised $20 million)

The product is used by and shaped by our customers

Our customers are the market - we live it and breathe it every day

Case study: Stocktwits What else we’re doing right Focused on building core IP - leveraging open source software, APIs for data and the cloud for storage and processing Ruthlessly focused on our customers - working to segment our audience and to provide the stuff they value Paranoid about data quality - built reputation algorithms and community self-policing mechanisms to kill spam before it spreads 15

What else we’re doing right

Focused on building core IP - leveraging open source software, APIs for data and the cloud for storage and processing

Ruthlessly focused on our customers - working to segment our audience and to provide the stuff they value

Paranoid about data quality - built reputation algorithms and community self-policing mechanisms to kill spam before it spreads

Key take-aways “ Illegitimi non carborundum ” - Translation: Don’t let the bastards grind you down Focus on core IP, leverage the IP of others to preserve focus and minimize costs Feel the stress of getting to revenues ASAP Raise 2 years ’ worth of capital, but ensure the plan gets you to cash-flow breakeven if you can’t raise more money at that time Failure + Learning + Persistence = Success 16

“ Illegitimi non carborundum ”

- Translation: Don’t let the bastards grind you down

Focus on core IP, leverage the IP of others to preserve focus and minimize costs

Feel the stress of getting to revenues ASAP

Raise 2 years ’ worth of capital, but ensure the plan gets you to cash-flow breakeven if you can’t raise more money at that time

Failure + Learning + Persistence = Success