Christian Renaud's Blog

2012- Requiescat in pace

As the curtain closes on 2012, I wanted to reflect on all of the traction the last year across the multiple projects and initiatives that we, collectively, tackled.  This is sort of the 'end of the chapter summary' literary device for me, to recap the story so far in preparation for the next act.

Startups:

I think we made serious progress across the Midwest, especially in Iowa, in 2012.  A number of startups were launched in 2012, and many more that were launched in 2011 made tangible, measurable progress.  Iowa is nationally 'on the map' for it's startup activity.  Unfortunately, much of the national visibility is still characterized with 'If they can do it in Iowa...' (emphasis added) tongue-in-cheek condescension, as evidenced in the Kauffman paper and the New Republic article.  The first one or two high-value exits will inevitably quell the condescension.  

We also have begun some very promising multi-state collaboration projects that look to tie together a larger population of Midwest entrepreneurs and angel investors into a more cohesive network. 

StartupCity Des Moines:

Throughout 2012, the original startup cohort in StartupCity were heads down building and scaling their products in the marketplace.  We added and subtracted a little here and there, but overall 2012 was a year of 'put your head down and deliver results' for everyone.  We are still in this mode, as there are no overnight successes as evidenced by overly-romanticized-yet-ultimately-tragic startup stories like Color, especially during economically hostile cycles like the one we are still completing.  The gradual economic improvement has the effect of reducing the amount of entrepreneurial activity, as involuntary entrepreneurs gravitate back to more consistent jobs.  Look to a lower number of new-business starts in 2013 over 2012, which were already down from 2011 and 2010. The good news is that the startups that are in the market should find customer orders more forthcoming when spending opens up again as we emerge from this economic malaise.

Tej and I are fully committed to StartupCity and will be continuing to work with the residents here, and reviewing potential additions, in 2013.

StartupIowa:

Wow, what a year.  In 2012 we executed on a major effort nearly every month of the year and expanded the footprint of the organization statewide without any outside funding.  The Iowa Startupedia community wiki, the Startup Calendar, OpenIowa, Startup Fairs statewide, and countless other efforts kept the all-volunteer crew pretty busy.  In 2013, we are expanding the group even more as we extend to additional population centers throughout the state.  Iowa is counted as a top region nationally by the StartupAmerica Partnership, and is often cited as a case study in how to grow an entrepreneurial ecosystem from scratch.  This will only improve with the addition of key thought-leaders throughout the state and a higher level of activity.

In 2012, I'll be helping a broader team build-out a statewide network of entrepreneurs and resources, and transition to more of a backseat role in StartupIowa.  In order to thrive, StartupIowa needs to be owned and propelled forward by all Iowa entrepreneurs, not just a small few.

Plains Angels:

Again, what a year.  In April of 2012, Tej Dhawan, who I am fortunate to count as my friend and business partner, called together a meeting of key local investors with the express goal of creating a local angel group.  In true entrepreneurial fashion, things happened very quickly after that, with Mike Colwell from the BIZ grabbing the reins and forming Plains Angels in late May.  From June to December of this year, I helped Mike and Tej create the structure and flow of the group, which has been unbelievable fun.  We expected perhaps twenty angels to attend our first meeting in June, and were surprised with around eighty.  The angels invested six-figures within nine-days of the first startup presentation.  Plains Angels now counts over 100 angels in the group and meets monthly to review really high-quality startup presentations.

The BIZ, with the broader support of it's parent organization the Greater Des Moines Partnership, will be driving Plains Angels moving forward.  I really appreciate Mike and Tej letting me help get things spun up with the group, and I hope we see a number of real angel investments out of the group in the coming months.

Present.io:

I launched Present.io after a rather circuitous journey (even by startup standards) in late 2011.  Over 2012 I conducted nearly a hundred demos and had Present.io capture appliances on-site for evaluation at many of the key corporations in central Iowa.  Despite trade shows, social media, demos, and belly-to-belly sales, I didn't see the sales traction I needed to justify moving forward in 2013 with Present.io. 

I failed.  I'm turning it off.

With Present.io, I did not get the critical market adoption that I stress daily to the startups in StartupCity as a mentor.  I tried a number of different techniques to get traction, and none seemed to pick the lock of the market. I was hemorrhaging money on equipment and cloud hosting fees and there was no revenue to offset it. To continue to flog it would be to be the opposite of the sober and introspective CEO that I tell every startup founder I meet that they need to be.

And I learned a ton.  It was awesome.

I'm having a wake for Present.io in January when I can find a free afternoon/evening.  I invite you all to come and have a sip or two of Irish whiskey over the grave of the dearly departed, and I promise to honestly and openly share what worked and what didn't, so we can till these learnings back into the soil of our collective startup knowledge. As humbling as it is to fail at something that myself and others spent so much time and energy getting to market, I refuse to miss the learning opportunity and deny the failure.  I will celebrate it.

So where does this leave me?  Tej and I will continue to deliver solid results at StartupCity, I will slide out of the front seat and into the back seat on StartupIowa, Plains Angels is in the Partnerships capable hands, and Present.io ex mortis.

Close curtain on 2012.

Open curtain on 2013. Here is what I intend to do:

Keep building.  If I am not building product, I feel like I'm not breathing.  I suspect I'll have another dozen new product/company ideas before the ball drops tonight in Times Square, but I'll be proceeding much differently based on what I learned with Present.io, Athena, and even Stork.ly.

Deliver.  I will double-down, and then double-down again, on StartupCity Des Moines.  We've had our ups and downs in our first full year, and have learned a ton about what works and what doesn't with technology incubation in Iowa.  We intend to apply those lessons in 2013 to take it up a gear to push the innovation limits in the Midwest.

Infect.  The change of mindset, the risk taking, and the raw energy we've seen from the entrepreneurial renaissance in Iowa has been mostly isolated to information technology companies.  There are much larger segments of our regional economy, like biotechnology and manufacturing, that could have a greater transformative effect on Iowa with the same energy. I'm going to do my damnedest to permanently infect those sectors with the entrepreneurial perspective that we now take as given in IT.

Be real.  I intend to be much more direct with entrepreneurial feedback ("be the asshole in the room") to StartupCity residents and prospective residents alike.  I will point and yell 'No Clothes!' at every well-intentioned public or private initiative that I feel will sidetrack our efforts.  I will politely decline meetings with every entrepreneur within a 500-mile radius to avoid becoming a gate-keeper, and instead direct them to the excellent local resources all over the Midwest.

That's what I am going to do.  Now I'm off to go do it.

Mounties and Tesla Roadsters

"Asking a nation-state to manage Internet crime is like asking a Mountie to pull over a Prius"- Meng Wong

By the end of this year or in early January, the Federal Trade Commission (FTC)  is going to weigh in on their 18-month investigation of Google over antitrust accusations.  This will conclude a contentious period where Google competitors lobbied for draconian penalties while an uncharacteristically introspective FTC considered the viability of ongoing government regulation of the fast-moving Internet technology sector in general.

Lets be clear, shall we?  Any government agency trying to keep up with the rate of change in the technology sector is a futile gesture. Technology is changing constantly, and by 'constantly', I don't mean monthly, quarterly or annually.  I mean minute by minute, hour by hour, day by day.  Government agencies, when they are fast, work on 18-month intervals, like the FTC did in this case.  Technology has its own rate of speed that (in my quarter century in the sector) doesn't slow down to accomodate externalities like regulation and taxation.

This investigation of Google for monopolistic activity, like the prior investigation of Microsoft, existed for two reasons:

1) The question if Government should be involved in anti-trust behavior in technology, and/or if the market will respond more efficiently than some externally imposed regulatory regime.

As Microsoft would argue, any regulation that prohibits or partially limits any company's behavior will move slower than market forces.  Microsoft learned a punishing financial lesson at a Federal and State level about bundling Internet Explorer in Windows, as Google is currently learning with Google travel and other services receiving prioritized rankings over other search results.  So what do we do, not regulate?

This isn't financial services, people, with principled regulations like the Glass Steagall act that were created in more rational times in preparation for these irrational times.

The technology sector eschews static regulation by definition.  It is too fluid and dynamic to regulate without killing it in the cradle.  The best way to regulate technology, unlike, say, financial derivatives, is by market forces.  When left to their own devices without regulation, banks will implode the economy as evidenced by the value of your 401(k) since 2008.  When left to their own devices without regulation, US technology firms will innovate at an increasing rate of speed, which in turn has created unprecedented wealth for individuals, companies, and the tax income of the United States.  

Here is an example of these market forces in action: Microsoft, leveraging market forces, started Scroogled, which highlights paid results over organic search results on Google's search platform.  As a result of this campaign and others, they've seen their marketshare of overall search grow from 0% in May 2009 when they launched Bing to nearly 16% as of September 2011. 

I don't recall where I originally heard this aphorism 20+ years ago.  It is along the lines of "The Internet routes around bad routes, bad routers, and bad business models with equal equanimity." And it does. Anyone who becomes abusive in their pseudo-monopolistic business practices will find themselves in the elephant graveyard alongside IBM, Hewlett Packard, and others who felt that their incubancy gave them inevitability.

2) Companies attempting  to use regulation as a competitive market tool.  This is usually the exclusive domain of very well-heeled companies, using the SEC/FTC/NIH/DEA/FDA/EIEIO as your competitive weapon to quash competition from a non-market angle.  All of the big boys in the tech field are guilty of having tried this course in recent years, including my old alma mater Cisco.  The fact that Google's competitors are doing this to Google right now, when they have been beaten by the same regulatory stick, is humorously ironic.

And dirty pool.  

It's a sign of failure of competing in the open market to play the Government regulation card.  The market in technology is remarkably and painfully efficient.  Using regulation as a substitute for free market competition distorts the natural forces of market inputs, competition and outputs, and is ultimately counterproductive to all market participants other than the bad actor who invokes them.

As for Mr. Wong quoted above, I would respectfully modify his quote to read, "Asking a nation-state to manage the Internet is like asking a Mountie to pull over a Tesla Roadster."

Startups are Hard. Funding is Harder.

Back in October, I had the pleasure of driving Lydia DePillis from New Republic magazine around Des Moines for a day and introducing her to a number of startups.  Earlier this month, she wrote a story based on some of those discussions entitled "Silicon Valley's Profit Killing Provincalism" that bemoans the lack of easy-to-find capital for technology startups in the Midwest.  The story is replete with anecdotes from top tier VC firms about the Midwest ('icefishing') and local startup founders lamenting the lack of local/regional VCs.

Life sucks.  Get a helmet.

Funding is hard.  I'd wager that 98% of companies that climb up Sand Hill Road to secure funding come away empty-handed.  You never read about them in Pando Daily, TechCrunch, or VentureWire.  You read about the funded.  As such, it's an easy fairytale to believe that there are magic money trees that exist in a grove between El Camino Real and 280N, which is sadly not true.

The reason that (probably, again) 98% of companies don't get funded is that about 85% of them should never get funded. Their idea sucks. 10% of them probably don't get funded because their pitch sucked, which got between their idea and the investor.  The other 3% were victims of the associate being hungover, negative association, or some other externality that they had no control over.  

You read about the 2% and think "Wow, these midwestern investors just aren't investing!".

Midwest investors are investing, in companies and markets they understand, like biotech, ag, and manufacturing.  This is why Silicon Valley VCs invest in tech deals, because that's what they see most of in deal flow.  We have ~200 tech startups in Iowa, and the percentage of these that hit local money is relatively low, so it's not surprising that they don't know what the hell you are talking about most of the time.  And when you whip out that valuation that looked so good in "The Social Network" outtake, don't be surprised when these professional investors, who are accustomed to looking at manufacturing deals where the valuations are far more reasonable than tech, do a spit-take of their chai latte all over the Microsoft Word term sheet template you scraped off Google.

Go get funding from people that understand you.  That's always good advice.  Find people that believe in you and your idea.  It will take fucking forever to find these people, just ask Ben at Dwolla who spent a year finding the right investors .

HINT: They won't be the people who offer you money first.

As Bob Marley said,  “If she's amazing, she won't be easy. If she's easy, she won't be amazing. If she's worth it, you wont give up. If you give up, you're not worthy. ... Truth is, everybody is going to hurt you; you just gotta find the ones worth suffering for.”

So load up your iPod with some Bob Marley and start knocking on a lot of doors, in the Midwest and outside of the Midwest.  If anyone ever told you that your startup was in any way entitled to be funded, they lied to you.

Bailouts, Part Two

My cardiologist, if I had one, would be shooting me with a tranquilizer rifle about now.

The legislative vilification of the Iowa Fund of Funds continued in today's Des Moines Register, with juicy quotes from elected officials like "We shouldn't pass things that we can't explain to each other" and demands that the Fund managers return large chunks of their administrative fees.

I'm pretty sure they used this wheel from SouthPark to decide what to do

Informal feedback  informed me that I was somewhat ambiguous in my last post, so I am going to be really unambiguous in this post.  

• I appreciate the work that went in to reporting this by Donnelle, however I feel that this is less than 1/2 of the full story, and it's creating a bonfire that will scorch the earth for legitimate economic development priorities in this legislative session, which will only make matters worse than they already are, and speaking as one of many victims of an inconsistent legislative posture, we didn't really need any more obstacles to building companies in Iowa.  

• The Fund of Funds is not a flawed approach.  Having professional venture fund managers manage funds for the highest rate of return is always the best idea, especially when the alternatives are pundits like me, or government workers hiding behind their pensions with no personal compensation on the line (and therefore no reason to perform). Dividing the total investment dollars across multiple independent venture funds is portfolio diversification, which is a cornerstone of sound investment policy.  Oh, and also the underlying foundation of the Fund of Funds approach.

• There were a number of issues with the implementation of the Fund of Funds, some on the part of Government support for it, and some by those who decided to pursue bank financing instead of the original plan of private capital.  This is now a moot argument, because the bank financing was approved as the new approach and the Fund of Funds team went forth to execute on that.  Second-guessing the decision seven years later is the acme of disingenuousness.  

• Signing a contract, as an individual, a company, or a State Government, and then changing your mind years later when you are getting heat for the decision and demanding that you change the deal terms ex post facto, is not acceptable.  This is the reason that the entire legal concept of contracts emerged, so you couldn't weasel your way out of a deal months or years later.  Double bonus points if you try to weasel out of a contract once the services have been rendered, as they have been in this case with Cimarron Capital, the manager of the Iowa Fund of Funds. The suggestion that the legislature would demand a portion of the management fees be returned after services have been rendered, as a businessman, is distasteful in extremis.  If an individual businessperson in Des Moines was guilty of this type of behavior, everyone in town would know about it in a matter of days, and that individual would find it exceptionally hard to find people willing to do business with him/her.  Why would you think that being a state government behaving badly gives you a pass?

• As I stated in my previous post, these investments are still underway due to both normal market maturation times of venture funds, as well as the rocky start the IFOF got with the lack of funding availability. The investments have not matured, so stop measuring return.  If you didn't know that this was a 15-year minimum attention span when you signed the legislation, you shouldn't have signed the legislation.

• Pulling the funding rug out from underneath the Fund of Funds, as was done with downshifting to $60M from $100M, put a whole bunch of agreements with banks and the invested venture firms/funds at serious risk.  If those agreements require that we pay up or violate the contracts, we should pay up.  We have our long-term reputation in the private capital markets to consider.  If you really want to encourage young, entrepreneurial companies to grow in Iowa, then for the love of God would you stop pissing off every venture fund that tries to invest in them?

• It's not a bailout.  Using that phrase implies that the Fund of Funds did something other than they were legislatively mandated to do, and were a poor fiduciary of the funds, neither of which was true.  The 'bailout' is actually completing the funding commitments that were originally stipulated by the Legislature.  Lets find another term for it, like 'Being an ethical and consistent business and following through on our contractual commitments', versus 'Being a weasel and trying to sneak out on our obligations like some deadbeat.'

• If you can't explain it to each other, then by all means don't create legislation.  All you are doing is victimizing those people that are trying to build companies in Iowa by alienating the private investment capital they need to grow here.  If you want them/us to leave, by all means please continue to starve us for venture funding.  You will have single-handedly made true the myth that if you want to build an innovative small company, you have to move elsewhere to do so.

 

A classic case of misdirection

I try not to get myself worked up these days.  I exercise hard in the mornings in the gym, eat and sleep well, meditate, and conciously practice stillness of mind.  

That didn't seem to stop me from getting a blood-pressure spike this morning when I read Donnelle Eller's piece in today's Des Moines Register about the Iowa Fund of Funds 'bailout' costing taxpayers $26 million dollars.

While I applaud Donnelle for her story and providing the background, she didn't get a chance to pursue the 'why' of the fund as much as the ex-post-facto 'what' of the current situation. She chose to focus the story on the current, incomplete status of the Iowa Fund of Funds, and not on the inconsistent and failed support of the program by our State government.  This is a classic case of misdirection.....