#hcpsummer

- Manu Kumar, Chief Firestarter, K9 Ventures

*Update: Manu Kumar point outs out that the Series Seed (http://seriesseed.com) documents are a good set of standard/open documents for doing an easy and inexpensive "fill-in-the-blanks" equity round. 

This week we were very fortunate to have four speakers come and talk to us about early stage startup fundraising:

Rick Thompson, Partner @ Signia Venture Partners

Manu Kumar, Chief Firestarter @ K9 Ventures

Brett van Zuiden, CEO @ Ink 

Jeff Arnold, Founder @ Ksplice

As first-time founders, fundraising is something we hear about a lot but don't really get the chance to "practice" until you decide to actually fundraise. And even then, this is your first time doing it compared to VCs and Angels who have done tens if not hundreds of deals by the time you talk to them. So this was the perfect opportunity to get a lot of practical advice from people who have been on both sides of the table:

"Do your homework" - Even if you just have an idea or a mockup, investors want to see that you've done your homework and can answer questions about the market and its potential. Also research what kind of deals the investor is looking for; most have it stated right on their website (K9 Ventures for example: http://www.k9ventures.com/about/).

Use standard term sheets - For seed stage fundraising, the only numbers you should really negotiate are the discount and the cap on a convertible note. Make it simple for yourself and just use YC's vetted term sheets; they're free and if you try to negotiate on other variables, you'll likely end up doing yourself a disservice.

Try to fundraise as quickly as possible - When you're fundraising, your mind is on fundraising and not growing the business (directly), so try to fundraise as quickly as possible and then get back to growing your business.

Use AngelList to fill out a round - AngelList is great when you have over half your round subscribed, but not so great when starting your round. Investors want to feel like they're special and when the round is open to almost anyone, they don't feel so special any more.

Be careful of party rounds - While it's nice to get every big name investor you can in your round, it can come back to bite you because none of them are as dedicated to you or the company since they think 'oh, one of the other 50 investors will take care of them'.

Fundraising is an art-form - In the end, there is no right or wrong way to fundraise and there's often conflicting advice. Fundraising in itself is an art-form and can take many tries to get right, but in the process you are building a relationship with these investors and as long as you're honest and thoughtful, that can always help you in your career.

A few weeks ago we went on a San Francisco tour, where we visited Leap Motion as well as several other startup headquarters.

Our company, Splat, and Leap Motion both create devices that allow you to interact with computers in a physical way. Splat is like the Wii, but for your smartphone. It plugs into your phone’s audio jack and sends and receives infrared, allowing you to play interactive, real-life mobile games. Leap hooks up to your computer and enables you to control it through hand gestures. If Leap lets you control and visualize data like Tony Stark, then Splat lets you blast your friends like Iron Man.

Splat has been ramping up to launch a Kickstarter in the future, and become a platform for a new type of social and interactive mobile gaming experience. We are often reminded, however, that it is difficult to attract both customers and developers concurrently as a platform: developers must want to create on it and consumers must understand what to do with it. Some investors and entrepreneurs advise to create one great product and to later develop it into a platform. We decided to learn from other hardware platforms and to test the assumptions ourselves.

Product or Platform?

Leap Motion launched their platform with confidence. With no Kickstarter, little customer testing and two years of technical development, they were able to release a video demo. Many were impressed by Leap’s demo, which displayed Leap’s hand gesture hardware platform and API.  

Leap’s strategy seems fruitful in hindsight, but it can be difficult to decide to create a wide platform vs. one killer application when creating a new technology. How does a company decide whether to embrace the platform or focus on one more narrow product? Here are a few questions to ask before deciding if you should go product or platform:

Are there abundant applications? Are they all convincing?

Does the technology have a variety of applications? How obvious are these applications to people and developers outside of your company? Can you spark people’s imaginations to create new experiences, and is it convincing enough that they want to actually go out and create those applications, especially if you do not yet have customers on the platform?

The “SFC” factor comes into play here as well. Is the product So Fu*king Cool that developers are drooling to make a variety of apps for it and customers are dying to get their hands on it? If not, then ask the next question.

Are there one or two killer applications?

If you tested each application on the product as the sole function of the device, would one of them seem like a stronger or easier product to sell?

If your product becomes more understandable to consumers or if your potential customers become more targeted, then focusing on that one application might be what it takes to get your first customers.

If you are isolating a large part of your potential audience by creating a sole product, like Leap would be if it marketed strictly as a gaming console, then a platform may be the correct path for you.

Do you feel compelled to make the platform?

Some technologies seem wrong to tame. A team is driven by a vision and they build their product around it. It can be disheartening to compromise on one’s vision because the market says to do it.

The hard realization is that while there may be several applications for a technology, the company might be better served by delaying their vision and focusing on one. The question really comes down to the goals of the company. Are you willing to create a narrower experience if it means a more obvious and affordable product, or does your technology have to be unleashed for the world to tinker with?

Splat’s Choice

The questions do not have obvious answers, and Splat is currently working to figure out some of them. We think our technology can enable a more fun gaming experience, and know lots of games and apps that could be developed with the device. To figure out if people feel the same way, we are currently beta testing our products. We created minigames to test which Splat activities people find the most fun. If they like many, then a platform may be our best approach. If one or two games stand out as clear favorites, fleshing out those games and creating Splat as a device specifically to play them may be a better option. 

So far, people have responded very positively. Kids have a great time playing (as do adults), and parents have expressed pleasure in seeing their kids actually moving around instead of tethered to their living room couch.

We hosted Scott Weller, CTO and co-founder of SessionM, for lunch last week in Cambridge. Scott has a number of startups under his belt throughout his 20 year career as an engineer and software architect, so we talked a lot about early decisions founders make and how those decisions affect their businesses down the road.

Scott made the point that startup ideas usually end up far from where they start; yet, there exist some key observations that do not change, even as the idea evolves. SessionM, in particular, started out as a consumer application wherein users would traverse a world strewn with branded rewards and discover them as they moved about. The company has since evolved into a platform that connects users to brands through rewards in mobile ad units, not its own first-party app. What SessionM has kept at its core is the notion that game dynamics, implemented through rewards, can create meaningful interactions with brands. What has changed is simply the distribution channel for those interactions.

Scott also discussed the early team-building decisions that he and his co-founders made at SessionM. In fact, Scott and his co-founder Mark initially started working on SessionM before their third co-founder Lars joined. Scott and Mark identified that, if they wanted to go to market through a mobile ad unit, they needed to bring on someone who understood the market. Fortunately, Lars had previously helped build the mobile ad network that is today known as iAd at a startup called Quattro Wireless. Lars had the right complementary skill set to both Scott and Mark for this new distribution channel.

In addition, when Scott thinks about bringing on additional team members, he encourages his employees to go out and “find their replacement;” that is, to hire someone that could do your job better than you. A key part of the SessionM culture is that employees are not insecure about their own abilities and are not threatened by A-players who raise the average bar of the company.

Scott also likes to create a bit of a competitive dynamic with his managers when it comes to new hires. It can be easy for 5 managers to sit around a table and say, “We should hire this guy/gal.” But it’s harder for them to say, “We should hire this guy/gal, and I want him/her working for me.” Unless Scott hears the latter from multiple managers, and in fact hears them argue about who gets that particular candidate, he questions whether that person should be hired at all.

Last week, we held a Google+ Hangout with students from Columbia, Dartmouth, Harvard, University of Maryland and Stanford in order to let them ask some questions about the Summer@Highland application and the program itself. It was a ton of fun, so we decided to host another one, and also detailed a few of the topics we discussed below.

If you’d like the chance to join the next Hangout tomorrow at 1:00pm PT, RSVP here: http://highlandsummerqanda.eventbrite.com/

And don’t forget, the final deadline to get your application in is ONE WEEK from today! Don’t wait until the last minute; apply now at http://summer.hcp.com/

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Other programs require a detailed business plan, while the Summer@Highland application only needs a two-minute video. Why is that?

We think it’s a relative waste of time to write a long, detailed business plan if you’ve barely launched. We structured the application so we could get the “minimally viable information” we need to decide if we should advance you to the next round for an interview. So, we’re basically looking for two things:

Whether the team you’ve compiled has the wherewithal to execute on your vision

How well you know the market and problem set you’re tackling

What else are you looking for in the video?

The main purpose of the video is to get a feel for the team, so please do NOT just submit a screencast. Other things we look for:

How well you communicate what your product is/does

How well you communicate your long-term vision

What you hope to accomplish during your 10 weeks with us over the summer

What is the difference between being located in the Boston vs. the Silicon Valley office?

Boston weather is surprisingly good in the summer time, believe it or not, so you’ll all set in either case. Besides that, we suggest you choose the place where you want to base the business going forward for the purposes of hiring early employees, or finding your first customers.

Do you favor startups in certain markets over others?