Friday, April 27, 2012
Created by Built In Chicago and New World Ventures, nominations are now open for the First Annual Moxie Awards , celebrating the best in di...
If you feel I have helped your businesses, either via direct mentorship or via this blog, I would be honored to be your nominee in the "Best Mentor of the Year" category. You can vote here, once per day through May 21, 2012.
Monday, April 23, 2012
StyleSeek is a Chicago-based startup that has been in stealth mode for much of the last year. They are building a men's fashion discov...
First, a little bit about Tyler. After graduating with a B.S. and M.S. in engineering from the University of Illinois, Tyler literally started his career as a rocket scientist, with varying jobs at NASA, the U.S. Air Force and Lockheed Martin. He was even a member of the engineering faculty at the University of Alabama and the University of Miami. But, Tyler always wanted to start his own business. He realized he did not have any venture relationships that could help him, so he went back to school to get his MBA in entrepreneurship from M.I.T. between 2009-2011. But, unlike his classmates, sending out resumes trying to get jobs with the major consulting firms or investment banks, Tyler began working on his new startup in 2010, while still in school.
Tyler's idea was to build an algorithmicly driven discovery engine around men's fashion, similar to how Pandora works for music. You click on images of what kind of cars, hotels, drinks, houses, movies, magazines, and other lifestyle topics you enjoy, and the sites profiles you against other users of similar interests, and then makes men's fashion recommendations based on the attributes that have been indexed. Once you find products you like, you can also discover similar products (e.g., same style/fit/color at better price) or related products to complete the outfit (e.g., pants if you are looking at shirts). As you "like" the clothes within the site, its starts to map your "Style DNA", and links you to e-commerce shopping from over 1,600 brands (e.g,. Lacoste) and 105 retailers (e.g,. Nordstrom) to buy the products you want. That is Tyler's vision.
Before starting to build out the site, and for most of the first year of their efforts, Tyler and his Co-Founders, Chris Walti (a fellow MIT graduate with a background in data analysis and startup business development) and Brian Hawkins (a consumer marketing expert and professor at the Fashion Institute of Design & Merchandising), were religiously focused on researching consumer desires for a product like this. They surveyed over 400 men in two hour interviews, to learn how they shopped for fashion and what they liked and disliked about the current shopping process. Once Tyler was convinced there was real market appetite, he raised $150,000 in friends and family money and started building a minimal viable product that they could begin testing with users. And, in doing so, built a product that would start with men's fashion, but could easily be extended into women's fashion or any other product that could be better sold through this "shopping discovery" process. Tyler, once again, thinking ten steps ahead.
Once the alpha site was built in August 2011, he decided to demostrate it to a room of 200 students and investors at an MIT startup event. The demo was received with terrific enthusiam as the users in the audience started to get exact matches on the types of clothing they would be interested in buying. And, as a twist of luck would have it (which entrepreneurs always need), Tyler did not realize that the famous angel investor, Mitch Kapor, was going to be sitting in the front row that day, and change the trajectory of his growth forever.
Mitch Kapor is the Founder of Lotus, the founding Chairman of Mozilla, and an active angel investor in Bit.ly, Uber, Twilio, Inkling, StumbleUpon and over 50 other startups. He is the #5 most followed angel investor on AngelList, the startup-angel marketplace, with almost 9,000 followers, as of today. If Mitch likes something, then the masses usually follow. Mitch was so impressed with what he saw at Tyler's MIT presentation, that he emailed Tyler after the event and said he was interested in investing in mass personalization stories, especially ones that lent themselves well to creating a viral buzz. StyleSeek was off to the races.
With the potential of such a strong lead investor in place, Tyler realized it was time to make sure the managment team was fully lined up, and he added another well-known person in the fashion space: Ryan Plett, one of the leading men's style bloggers with expertise in creative and branding. And, the outcome of the team's brainstorming, resulted in a Trojan horse in StyleSeek's go-to-market strategy: the same 100 bloggers that would partner with the company as content contributors to the site, would ultimately become the site's trusted brand endorsers once they start promoting StyleSeek post-launch to the 25MM unique visitors on their websites, creating a very cost effective and highly viral go-to-market strategy. Tyler and team had thought ten steps ahead in designing their business, knowing those bloggers would be their "holy grail", including getting the editor of GQ on board as an early adopter of the site.
And, in Tyler's traditional style of leaving no stone unturned, before closing his seed round, he started putting out feelers to 15 of the big venture capital firms in Silicon Valley, to get their reaction to the story, to know that Series A and Series B money could possibly be secured after the seed round. But, instead of contacting them directly, he smartly asked for introductions from the portfolio companies of these firms, where he had networking relationships. And, in the process of doing so, some of these big venture firms got excited, and were pushing Tyler to raise an even bigger round and get them involved, creating a buzz in the Valley that something hot was brewing in Chicago, wanting to be a part of this great story and team. However, before taking in big VC money, Tyler preferred to have a more solid proof of concept and higher valuation in hand, and instead, stayed focused on the seed round.
With all the pieces of the puzzle in place (e.g., product, team, go to market strategy, visibility into long term financing), Tyler felt ready to engage Mitch to potentially lead an angel round in StyleSeek. And, that he did, in January 2012. Mitch promoted StyleSeek to only 500 of his followers, and Tyler had 50 interested parties knocking his door down within 48 hours, which frankly kept him glued to his email for the two weeks that followed, as he screened all these inbound inquiries (click here for StyleSeek's profile page on AngelList). There was so much demand, that Tyler was only able to take capital from around 11 of those individuals (each investing $10-$50K), and told the rest of the angels that the round was full, which had them wanting it even more, further fueling the buzz machine. StyleSeek recently closed this angel round of $550,000 in convertible debt, but left the door open to potentially raise more before the subscription period officially closes at the end of May. Perhaps, StyleSeek may be the first investment of the new fund from Catapult Chicago, called Trebouchet (translated "catapult" in French), or to other Chicago investors. Because up until this point, Tyler admittedly said "StyleSeek hadn't really received a lot of love in his Chicago home market".
Which raises the only sad part of this story. Tyler did make the circuit of pitches to the local Chicago VC's and angels, but summarized their reaction as "wanting the product launched first and proof of concept behind the business". Which is a typical reaction from the Chicago investors, more conservative than their Silicon Valley brethren. But, Tyler was disappointed that not one Chicago investor was one of the 50 angels that were fighting to get into his deal. But, he was insistent on getting "home town flavor" into his investor group for local mentorship, and successfully found a few Chicago angels to join the syndicate (e.g., Wayne Boulais, Jeff Cantalupo, Dave Hoover) . And, I am doing my best at Red Rocket, to help him find some more. I would hate to see this business blast off, and Chicago not get any investment credit for it.
So, what are the key lessons here: (i) do what you love and makes you happy, regardless how successful you are in your current field; (ii) know your weaknesses and get the proper education to round out your skills and network; (iii) research market desires before building out your product, to ensure market demand and to fine tune the development plan; (iv) stay in stealth mode as long as you can, until you are ready to lift the curtain (and when you do, wow them); (v) build your technology with an eye to long term growth and scalability; (vi) everybody can benefit from a little bit of luck, and getting the story pitched in front of the right audience, which lead to a major investor; (vii) that investor was the magic bullet in shaking up AngelList and raising funds in record speed (so find your own ambassador); (viii) never approach investors directly, always ask for an intro from a trusted relationship; (ix) always keep your audience wanting more--turning away investors further added to the buzz; (x) it's all about the strength of the management team for getting investors excited (find your own rock stars); and (xi) as Tyler has shown many times, always think ten steps ahead, for every aspect of the business (e.g., market research, tech build, go-to-market plan, financing).
It is too early to know if these praises are premature, as the site hasn't even launched yet. But, Tyler and team have left no stone unturned, and my spider sense is saying great things are soon to follow. Keep your eye on StyleSeek, as I feel Tyler's rocket scientist background, has got this rocket ready for blast off!!
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Tuesday, April 17, 2012
For my active readers, FYI, I recently updated my 101 Startup Lessons Index . Although I did not change the name of the index, it now inclu...
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Monday, April 16, 2012
Following Lesson #112 on Startup Ideation , I started jotting down a few annoyances in my life that I wished were fixed. If still thinking...
A. Two Party System is Broken. I really hate the two party system we have in the U.S., with the liberal Democrats and conservative Republicans slugging it out on each topic, grinding our government to a halt. I feel most independents, like myself, are without a party that represents them, which I think would be "fiscally conservative, and socially liberal". I believe adding a third party would end the perpetual 50/50 log jam in Congress, and in theory, each issue would have two/thirds support, getting things done faster.
B. Campaign Finance Reform. President Obama is forecasted to raise $1BN for his re-election campaign. Really? Isn't there a better use of those campaign monies, like for education, infrastructure, jobs, etc.?? Especially since elected officials will become hostage to their contributors, to help them with their special interests. Campaigns should be capped, at a small reasonable level, and every aspiring voice should be put on an even playing field.
C. Attract the Smartest Candidates. Who wants to run their families through the public scrutiny of running for office? Who wants to work for a very nominal government salary? We need to figure out how to get our smartest people wanting to run our country, with the proper incentives in place. Each election should not come down to the lesser of two evils, but instead, to somebody that really understands the issues at hand and can drive real solutions on the global stage.
D. Too Much Time Spent Campaigning. In today's era of immediate information, do we really need candidates spending 1-2 years campaigning to get elected?? If you are in the House of Representatives, with two year terms, that means you are only getting real work done with 50% of your time in office, and trying to keep your job with the other 50% (suggesting longer terms, could get more work done). If American Idol can get 40MM votes in one night, can't we do something similar in politics?? Get our politicians more time focused on issues that matter.
E. Stale K-12 Curriculum. As I watch my kids go through school, I am just dumbfounded that the subject matter has largely gone unchanged since I was a kid. Kids in elementary school are still spending a fair amount of time learning about rocks, Native Americans, state capitals, U.S. Presidents, etc., as if the curriculum is in auto-pilot. Nothing against these other subjects, but I think we need to reinvent our curriculum on things that really matter, to help prepare our kids for 21st century thinking and jobs. How about classes on how to use Microsoft Office, how to code HTML, how to build a social media following or how to start a business. Or, instead of having a U.S. centric mindset, incorporate how the U.S. fits within the global ecosystem of countries and cultures, given the global economy we are all now a part
F. Need Age 0-5 Curriculum. Over 80% of brain development is complete by the age of 5 years old. Yet we don't start our education system until then. I think we need to better emphasize pre-school development of our children, expanding curriculum starting with 2 and 3 year olds, if not sooner in some cases.
G. Teachers Underpaid. Our teachers are building the next generation of leaders for our country. That sounds like a pretty important job, that should attract the best talent possible. And, to attract the best talent, they need the proper financial incentives to take the job and make a good living. It is disgusting professional athletes and celebrities get paid up to $25MM per year, and teachers struggle to make $50K per year. What kind of message is that sending to our kids??
H. Stop Bullying. I just saw the documentary film Bully (good movie, by the way). I was more upset with the inept school administrators and clueless parents, then I was with the bullies themselves. Shouldn't there be a simple rule that says bullies will be put on probation for one offense, kicked out of class for two offenses and kicked out of school altogether for three offenses? Put cameras on each school bus, classroom and hallway and let the video speak for itself.
I. Losing Our PHD Edge. Countries like India and China are pumping out PHDs at multiples of those earned by Americans, many of which are schooled right here in our U.S. universities. But, due to U.S. immigration rules and otherwise, many of these students go back to their home countries to build their careers and end up competing against us. That doesn't make any sense to me. We have the best universities in the world and we should keep that talent all here in the U.S., regardless of their country of origin. We have to start thinking like a scrappy underdog here, and not rest on our laurels.
J. Way Too Bloated, In All the Wrong Places. Our country is straddled with tons of debt and huge budget deficits. But, it is very difficult to cut government jobs, since they comprise 10% of the U.S. workforce. And, if you cut half of these jobs to rightsize government, it would take U.S. unemployment rates back up to over 13%, which would send the economy back into a tailspin. But, at the same time, tech companies are struggling to find good tech talent. Seems like we can retrain government workers with the much needed tech skills, and knock off two birds with one stone.
K. Paying for Services We Will Never Benefit From. I have been contributing to government services like Social Security and Medicare my entire adult life, and both programs are near bankrupt, making it very unlikely I will ever benefit from such programs by the time I get to the age of needing them. And, if we stop paying into the system, the current beneficiaries will suffer. We have to figure out affordable plans that actually work.
L. Crumbling Infrastructure. Largely built decades ago, we simply do not have the budgets to replace all the roads, bridges, electrical grids, communications systems, etc. that need to be upgraded to modern standards. If we don't make this a priority, we will all be scratching our heads asking how we let their demise happen (as compared to spending billions on wars in Iraq and Afghanistan).
M. Major Tax Reform Needed. The tax code is simply too complicated for the average American. I shouldn't have to hire an expensive accountant each year to help me navigate the current tax laws, pages of tax filings and all the supporting documents needed. Not to mention all the IRS jobs that are required to fulfill this broken system. I waste almost a week of my life each year, dealing with my taxes. Somebody figure this out . . . please!!
N. Birth Lottery is Not Fair. A person's financial and social fate is largely set from the day they are born. Were you born to an affluent family with loving parents and access to great schools? Or, were you born to a poor family with a single mom on drugs dependent on inferior schools? I think everyone deserves a fair chance regardless of their personal circumstances. America was built on the shoulders of a strong middle class, which is quickly evaporating. I think we need to figure out how to bridge that gap.
O. Job Search is Broken. Where do I even start here!!?? Why are we still using paper resumes, instead of online videos. Why don't technologies automatically sort applications and prioritize candidates, with no human intervention until much later in the process? Why do we all submit oodles of online resumes, to never get any responses, given the tons of clutter in the marketplace? Why are we told to leverage our networks to find new jobs, but other than LinkedIn, there aren't many useful tools that help you learn how best to build and leverage your network? Why do recruiters like to label people in very narrow buckets, making it more difficult for jacks-of-all-trade to compete on an equal footing? Why does it feel like it is an "out of sight, out of mind" mentality with the recruiters? And, so on!! Lots of great startups in development here. Let's hope they figure this out.
P. Healthcare is Broken. There are so many inefficiencies in the healthcare system it makes my stomach turn. Major reforms are needed in malpractice claim caps, to lower malpractice insurance premiums, to lower fees charged by doctors. Major integration of disparate patient data systems are needed to avoid duplicative medical testing costs (although some progress is being made to this regard, but not fast enough). Power needs to shift from the health insurance companies, back to the patients and their doctors, to keep costs down, get the best service and attract the next generation of doctors where they can actually make a good living again. Obamacare and a bankrupt Medicare will continue to put additional strains on an already broken system.
Q. Traffic. Our roads were built to support a population half of the size our cities are housing today. It shouldn't take 60 minutes to drive 15 miles on the highway, during rush hour. That is lost productivity time, better spent elsewhere. Add roads, new lanes, second levels, whatever. Just give us back our 90 minutes a day of lost time.
I may add more to this list over time, but this is a good place to start. Understanding a lot of this can be fixed by public policy, let's see what interesting startups out there can tackle some of this.
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Tuesday, April 10, 2012
Most states have long sought to foster job creation and retention by providing tax credits and other forms of assistance to startups. Yo...
The EDGE Tax Credit
The EDGE Tax Credit is one of the most important tools that Illinois has in its economic development tool kit. EDGE is an acronym for “Economic Development for a Growing Economy.” It is a negotiated state income tax credit designed to offer a special tax incentive to encourage companies to locate, expand and retain jobs in Illinois, when there is active consideration of locating such jobs in competing states or countries. Alternatively, some businesses want to create jobs in Illinois because of the deep talent pool or access to transportation, but need an incentive to help bridge the gap between Illinois’s cost structure and those of other locations.
The credit is calculated based on the amount of state income taxes withheld from the wages or salaries of employees in newly created or retained jobs. To quantify the amount of the credit, as an example, let's say a business is considering hiring 10 new full time employees at its Illinois office, instead of an office in another state or country. If each employee will be paid $50,000 in salary per year, at the current rates, the amount of the credit could be as much as $25,000 per year, in the aggregate, recurring for a total of 10 years. So, once you hit profitability, these tax credits can result in meaningful cash savings that can be accumulated over time (e.g., up to $250,000 in this example), which will be attractive to the company's cash flow and its value to investors. Each situation is different and the amount of the credit is determined on a case-by-case basis. Although the credits are non-refundable, unused credits can be carried-forward for five years, which is a good benefit for startups that are incurring losses in their early years (creating future value down the road).
In order for a typical small business to qualify, it must meet certain capital investment and job creation requirements. Typically, for a company with 100 or fewer employees, the company must: (i) agree to make a capital investment of $1 million (e.g., for IT or other assets); and (ii) create at least five new full-time jobs. But, the state can approve projects that do not meet the minimum investment and job creation thresholds on a negotiated case-by-base basis, depending on the situation and at the discretion of the state.
The Small Business Job Creation Tax Credit
The Small Business Job Creation Tax Credit was created in 2010 for businesses with no more than 50 full-time employees. Originally, the credit only applied to newly created Illinois jobs for the “incentive period” beginning on July 1, 2010 and ending on June 30, 2011. But, the Illinois General Assembly recently extended the incentive period to June 30, 2016, to stimulate more job growth. The amount of the credit is $2,500 per new employee hired and the credit is applied towards any owed payment of Illinois payroll withholding taxes. The state is currently updating its rules for obtaining the credit in light of the extension and the website will be updated accordingly. The web-site is http://jobstaxcredit.illinois.gov.
The Illinois Invest Venture Fund
The Invest Illinois Venture Fund is a new $78MM venture capital program that is part of the Advantage Illinois program. The fund describes itself as “a venture capital program seeking to support young, innovative companies, and start-ups that show a high potential for future growth resulting in the creation of high-paying professional Illinois jobs.” It is part of Advantage Illinois, which consists of three programs to spur institutional lending to small businesses and one program to leverage private venture capital in start-ups and high-growth businesses. An on-line application can be submitted directly to the Illinois Department of Commerce & Economic Opportunity (DCEO) at www.ildceo.net. Before applying, make sure you also have an actual or conditional, market-based third-party lead investor commitment, as this fund follows the lead of other professional investors and doesn't typically invest more than 20% of the monies raised in any financing. Two Illinois start-up businesses, Buzz Referrals. and AuraSense Therapeutics, were the first to receive investments from the Invest Illinois Venture Fund in January 2012.
The Angel Investment Tax Credit
Illinois offers angel investors a tax credit in an amount equal to 25% of an investment made directly into a qualified new business venture, as defined below. The credit is designed to encourage investment in innovative businesses, but there are several conditions and restrictions that must be met: (i) the business must be registered with the state as a qualified new business; (ii) it must be headquartered in Illinois; (iii) at least 51% of the employees must be employed in Illinois; (iv) the business must have the potential for increasing jobs and capital investment in Illinois; (v) the business must be principally engaged in innovation; (vi) the business must have fewer than 100 employees at the initial time of registration; (vii) the business has been in operation in Illinois for not more than 10 consecutive years prior to the year of certification; and (viii) the business has not received more than $10,000,000 in aggregate private equity investment in cash or $4,000,000 in investments that qualified for tax credits. Businesses desiring to be registered as a qualified new business venture must submit a registration form in each taxable year for which the business desires registration, attesting to the fact the business still qualifies to being a new business venture as defined above.
From the investor's perspective, the maximum amount of an investment that may be used as the basis for a credit is $2,000,000 for each direct investment in a qualified new business venture. Interested investors desiring a tax credit must submit an application to the Illinois DCEO which attests to the fact that an investment has been made and remains in the qualified new business venture for no less than 3 years. The credit is available for taxable years beginning after December 31, 2010, and ending on or before December 31, 2016. There are other considerations related to the credit as well, so make sure your investors seek proper counsel from their tax adviser. For more information about the Angel Investment Credit, including the current list of qualified new business ventures registered, can be found on the Illinois DCEO website.
If you need futher guidance from here, I suggest reaching out to an experienced startup lawyer with expertise in securing these tax credits from the state, including close working relationships with the state agencies that administer these credits. One such lawyer, who assisted me in preparing this post, is Kevin Spiegel, a colleague of mine. So, if you have any additional questions, please reach out to Kevin directly at 312-870-0829 or kevin @ spiegelesq .com. And, keep in mind, fees for Kevin's legal services are more than paid back by the tax credits that he is assisting you in securing, and can be structured in a way that are "startup friendly" (e.g,, contigent based on the success that the tax credits are realized).
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Tuesday, April 3, 2012
Back in Lesson #1 , we talked about determining whether or not you had a good business idea for your startup. I just assumed everyone read...
To me, startup ideation is centered around solving real life problems, with a solution you are passionate about. Notice I intentionally did not lead with: can you make a lot of money with this idea. Although that is an equally important concept, that analysis will come later, as we learned in Lesson #1. But, as we discussed in Lesson #50, unless you are passionate about what you are building, your startup will most likely not survive all the potential pitfalls that come along the way. It is much easier to get frustrated and walk away from a business you are not passionate about. It is much harder to walk away from a startup that hits you in your softspot. And, it is that drive that every good entrepreneur needs, to get through the good times and the bad times.
Launching iExplore was like that for me. I was passionate about adventure travel, as a traveler who had been to 50 countries looking for an easier way to plan trips to remote destinations, based on the pain points I had identified in the process of booking my own trips. And, that passion fueled the business through both the good times (e.g., the dot com boom) and the bad times (e.g., after the impacts of 9/11/01). When you are passionate about something, you want it to succeed that much more, regardless what hurdles get thrown your way.
So, what is the best way to identify real world problems that need solving? Simply living your day-to-day life will identify plenty of opportunities. Every time you get frustrated about an inconvenience you experience, write it down in a notebook. Before you know it, you will have pages of inconveniences, that most-likely, millions of other people are frustrated by the same things. Then, prioritize that list of inconveniences around the products or services that are most meaningful to you. Perhaps these are your hobbies, or certain interests that really get you excited. And, worth mentioning, the more first hand experience you have around a topic, the better you will be in building a business around that topic.
So, an an example, in my life, I am passionate about many things. I love movies, music, collecting books, traveling, college football, history and spending time with my family, to name few. We already learned iExplore was born out of my love of travel. So, what other pain points exist across these topics, that a startup may solve real world problems? As one example, I hate movie reviews from professional film critics, as I usually never agree with them. I would rather rely on the movie critiques of friends and family that I trust, who best understand my interests and would recommend movies that I would most likely enjoy. Voila! There is a startup idea of turning my Facebook friends into movie reviewers, in an industry I am passionate about, and with a solution that will improve my life. Whether or not it is good idea, or a investor backable idea, would be the next question solved by Lesson #1.
So, keep your notebooks handy and you will find startup ideas will be aplenty!!
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