Christian Renaud's Blog

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.

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.....

Champions

Yesterday afternoon I was suprised by a congratulatory tweet from Lynn Hicks at the Des Moines Register letting me know that I had been nominatated for a Silicon Prairie Community Champion award at the inaugural Silicon Prairie Awards late this month.  I am humbled to be nominated for the award and included in such a group with Joni, Thad and Dusty.

As usual, I have mixed feelings.  I think the rapid progress across the Prairie is the result of not one, or four, or forty individuals, but the entire community rowing in the same direction.  Publications such as Silicon Prairie News, the Des Moines Business Record, and the Des Moines Register continually highlight the multiple accomplishments across the region by entrepreneurs of every species.  It is the aggregate of all of these  accomplishments that deserve 99.999% of the credit for the renaissance in entrepreneurialism we are experiencing.

That said, I cannot emphasize enough the outstanding accomplishments of my co-nominees.  I met Dusty two years ago at my first BigOmaha and he has been relentless in his regional collaboration and open-door attitude so seldom found in traditional economic development organizations.  He is cut from a different cloth, and I use him often as an example to his Iowa peers as the personification of a 'abundance, not scarcity' mindset that is going to get us from where we are to where we need to go.

Joni and I met at this last BigOmaha via an introduction by the indefatigable Bart Dillashaw.  She immediately impressed me by having a fiercely entrepreneur-centric compass by which she steers Pipeline, an excellent program for mid-stage startup CEOs to work with one another to share learnings and collaborate.  She showed more of this same zeal at a recent three-state collaboration event hosted by Gallup in Omaha that we attended where she brought in CEOs from Kansas City and Omaha and discussed cross-border ecosystem building.

Thad was also at the Gallup event and immediately distinguished himself to the group by having the pragmatic, no-nonsense attitude of a serial entrepreneur.  I had not met Thad prior to the event, but was quick to grab his business card as it is obvious that he is going to go through the (somewhat labrinthine by Iowa standards) Kansas City entreprenurial ecosystem like a tornado through a trailer park.

Finally, Iowa.  The considerable progress we've had in Iowa has been the direct result of the entire tribe leaning in and taking an ownership role in the future of the community.  StartupCity would not exist without Tej Dhawan shouldering an ever-increasing amount of weight.  The guy puts circus strongmen to shame.  Ditto for Mike Colwell at the BIZ who has 4-5 meetings per day with wantrepreneurs across the entire spectrum of ideas, and who created (the desperately-needed) Plains Angels out of thin air in June.  The entrepreneurs and mentors of StartupCity, like Brian Hemesath (who is both a mentor and entrepreneur), who selflessly give their time and energy to help one another along the bumpy entrepreneural journey.  StartupIowa missionaries like Amanda Styron of SeedHere,  Joel Bennett of Veel Hoeden, Josh Cramer of CramerDev, Ben Milne of Dwolla, John Schnipkoweit, Levi Rosol, Andrew Kirpilani, Tom Chapman (who is selflessly advancing the Iowa cause from Nebraska regularly), Dan Shipton,  Andy Stoll, Alexander Grgurich, and about a million more that I will kick myself repeatedly in the ass today for not including in this short pre-caffeine list. All of these people deserve an award for their constant exertions to make Iowa a better place for startups and entrepreneurship in general.

Collectively, everyone above, and everyone they work with and everyone THEY work with (and so on, ad infinitum) deserve the real credit for being the champions of the Prairie.  Don't vote for me.

My Very First-est Editorial Submission

Tej and I submitted this to the Register just now re: SOPA/PIPA.  What a horribly misguided piece of proposed legislation.....

"Our elected leaders are always promising to put Americans back to work and create jobs.  However, Congress is now considering legislation that would stifle innovation and impede expansion of the economy. The Stop Online Piracy Act (SOPA) in the House and the Protect IP Act (PIPA) in the Senate promise to have irreversible effects on the ability of tech startups to grow and expand.
 
In addition to giving the government unprecedented new powers, this legislation would create a new “private right of action,” allowing trial lawyers to file baseless suits against web-based companies.  Because of the lack of due process under this legislation, a website can be effectively removed from the internet, allowing online trolls or unscrupulous competitors to make a site go dark without even being notified.

Imagine a tiny startup company, chasing a great idea and operating with two people in a garage (or a shared workspace like ours). That company can’t afford a lawyer to defend against even one of those lawsuits.  In fact, in the regulatory environment created under this legislation, that company probably wouldn’t even exist in the first place. Who would invest, knowing most of the money would go to legal fees rather than improving the product?

Each one of the big tech companies like Google and Facebook started small, and needed that crucial seed capital.  Will the next Twitter never exist under SOPA and PIPA? Could the next Groupon have been based on Des Moines’ “Silicon Sixth?”

We cannot afford to have Iowa-based tech companies stopped in their tracks by Washington politicians. Please join me in calling on Senator Grassley, Congressman King, and Congressman Latham to vote no on this harmful legislation."

Are Iowans Risk Averse?

Tomorrow morning, I have the opportunity to be one of the panelists for the Des Moines Business Record's Power Breakfast series.  The topic of this month's breakfast is "Are Iowans Risk Averse?" 

When I mention this to peers and other colleagues, they all laugh and say "This will be a short talk, just say 'Yes', get up and walk out."  

If you would have asked me a month ago when the Business Publications team approached me to participate on the panel, that would have been my exact response, and my attitude and feedback was negative-bordering-on-sociopathy at our prep-meeting two weeks ago.  I have so much pent up frustration surrounding the rate of change in the Des Moines Metro (MSA), as well as the rest of the State, that it's easy for me to slip into anger and hostility about all the things we aren't doing.

But are Iowans really risk averse?  No.

"What do you do again?"

This is an attempt at proactively answering a question I hear frequently from new business contacts, as well as friends, and even immediate family.  I may just permalink this on my business card and email signature to make things easier, given all the balls I have in the air at any point.

First and foremost, I've really been enjoying the slow(er)-time during development of my two startups to spend time with my beautiful wife, perfect daughters, furry felines, and our new dog Hank.  That has fed the soul in so many ways that were so overdue after working 100+ hour weeks for the last 20+ years.

Second, yes, I have two startups.  The first is one that I have disclosed previously, The Athena Project. The short version is that Athena is about applied knowledge in the form of an educational massively multiplayer online game (MMOG) for school children.  I've been working on this one off/on for over a decade and I believe that we've reached an inflection point between gaming technology and outright hostility towards conventional teaching modalities that it may at last have fertile ground to grow. 

The second startup I have to still be a little guarded about as it's awaiting some final legal approvals, but it's in my old arena of collaboration technology.  I think this one is going to be a game changer and it's consuming the lion's share of my time.  The 'teaser' webpage is here.

When I'm not working on those two offspring, one of my own offspring started her own company this summer named Stork.ly, which is a baby-supply delivery service for new parents.  It's all her, with our logistical (read: "Transportation and angel funding") support, and it's been a great applied educational experience for her.

In the 'old habits die hard' category, I am evidently also regressing to my Cisco days of Technology Center with the plans behind StartupCity Des Moines, a technology startup incubator.  Tej Dhawan and I have been working on this for nine months and we are getting close to launching it in a physical location downtown soon.  Tej and I probably spend a good 20-25 hours a week mentoring startups without the benefit of a fixed physical location, so we're looking forward to getting many of these startups together with one another for their natural synergies.

Finally, I am on the boards of directors of two non-profit organizations, the Technology Association of Iowa, as well as the Des Moines Social Club.  Recently I was able to step back from my old role on the board of Des Moines Metro Opera, as it was time to clear the path for fresh blood and ideas.

There are also a million other things that I am actively working on, as usual, but that's about as current a 'status update' as I can capture for the balls that I am juggling.

Shoot self in foot, quickly reload, shoot other foot

By now many of you have read that my old alma mater, Cisco, has laid off more than 4,000 employees and is shedding businesses right and left in an effort to assuage investors.

This is a mistake.

Don't get me wrong, I can think of about 5,000 people off the top of my head who need the axe at Cisco, but those aren't the ones being axed.  They are the ones doing the axe-ing.  And please don't misinterpret this as 'I hate executives', as there are good and bad executives just as there are good and bad marketeers, salespeople  and engineers. 

The mistake is that they are repeating their error of the dot-com crash of 2001 and contracting when they should be expanding. They are cutting down the new growth areas in their infancy, thereby hobbling their future growth potential and damaging themselves more in the long term.  They are retreating to a conservative posture of their core, cash-cow, mature (read: Geriatric) businesses that have no rapid growth potential.  They had market dominance and cash on hand during the last downturn, and could have purchased key technologies and companies until the DOJ red carded them for a market monopoly.

This is the bigger problem.  Investors want consistent quarterly results and linearity in a non-linear market.  This gives no latitude for executives who need to rapidly innovate, as rapid innovation introduces large upswings or downswings depending on success.  Investors hate swings, but they are an inevitable byproduct of market maturity.  They want a clear, linear path to RoI.  That's the Indy 500, driving  circles consistently over and over.  Unfortunately, Innovation is the Rubicon, off road and harsh.

Innovation Occlusion

Early in my career, I had the opportunity to work in cardiovascular research and development.  Among the many projects I worked on, one was a coronary-artery bypass graft for situations when an individual's primary coronary arteries would become occluded, or plugged, with plaque.  This is called vascular occlusion, and will kill you if not caught early.

We have innovation occlusion in this country, and we did it to ourselves.

Here are two examples from last week alone:

First: The United States House of Representatives passed the Leahy-Smith America Invents Act, now in front of the Senate and headed quickly to the willing signature of the President.  For those of you not monitoring it, the Act changes the current patent approval system from 'first to invent' to 'first to file'

Rant

(Those of you who are still forming opinions of me should probably skip this post)

Over breakfast this morning, my eldest daughter and I were speaking about her recent biography presentation on Beethoven for school. In passing, she said that her teacher had stated unequivocally that Wikipedia was an unacceptable source "because anyone can get on to Wikipedia and just make stuff up."  I talked myself into a knot trying to explain the difference between learning and formal education, and the difference between doing an assignment for school to learn the material, versus pandering to the instructors biases/beliefs for a grade objective.

Never mind the countless studies that prove the increasing viability and equivalency of Wikipedia as a source, or (more often) a source of sources.  The teacher was saying that his opinion was fact, and that Wikipedia should be (wholesale) disregarded as a source. I am not a Wikipedia-lover, nor hater, but the bias-as-fact statement was what I took issue with.

I would have let it go, and just deprogrammed her at breakfast and thought no more of it, but I made the mistake of asking her what site he recommended she use instead of Wikipedia as a source.

It is an individual, faith-based, learning site that also had a small area for biographies of some famous people. The biography was sandwiched in-between all sorts of rhetoric about the religious beliefs of the site author.

For the record, I have no problem with people of faith, or people being proud of their faith in public.  I do take issue with the not-even-remotely-subtle direction of my children to a particular faith-based site by their schoolteacher in a secular setting. My children could be of a different faith, or no faith, and this could confuse them at this early age.

Given the nearly-infinite quantity of primary sources other than Wikipedia, why choose this one above all others?

I am now presented with two choices:

1) Discuss my issues with the teacher, potentially raise their ire and defense mechanisms, and potentially see my child suffer indirectly as a result, or

2) Make sure that my eldest, now that she is learning Algebra, comes in with some equally faith-based sites from the Middle East (the birthplace of Algebra, ancient Babylon) to support her homework.  This will point out by demonstration the bias inherent in their Beethoven-biography reference-site selection.

Or am I overreacting?

Palisade Systems- Denouement

Today I announced to the team at Palisade Systems that I was stepping down as CEO and Chairman of the Board.  I've had a number of conversations over the last months with the Board of Directors of Palisade on the direction the company should take and the strategy to get there.  Ultimately,  leadership in any company works for the Board, and the Board is the elected group representing the investors. It is not uncommon for the Board and the operational leadership to differ in direction, which is exactly the situation here.  My direction and strategy and the Board's opinion ultimately differ, so the best course of action for the company and investors is to step aside and allow them to put in a leader that will be able to execute on their vision. I will be helping in the transition to the new leadership to ensure continuity.

I very much enjoyed the time I spent at Palisade Systems and am proud to have been part of the history of the great company that it is.  I am confident that the company will ultimately be even more successful in the future.

I've already been asked repeatedly where I am going from here, professionally.  The honest answer right now is 'I haven't decided yet'.  I'm going to take as much time as necessary to get some perspective and then decide on my next chapter.  I'll be sure to post something when I have decided.