This is a guest post by Lucy Sanders, the CEO of the National Center for Women & Information Technology.
Q: When evaluating a start-up by a mompreneur (or to go broader female first-timer) what do you typically see as the weakest link (in supporting roles, research, presentation, concept etc). With respect to this, if you could give mompreneurs or female first-timers advice on building their support system or fine-tuning their concept before asking for funding, what would it be?
A: (Lucy) In the course of my work at NCWIT and as a technology enthusiast, I speak to many people who have started and/or funded technology companies. The advice they offer would-be entrepreneurs is pretty consistent, and genderless. First, is your idea compelling? Does it address a current or future market need? You must be excited about the potential and that passion needs to be conveyed confidently, not just in formal funding presentations, but in the numerous conversations you have as you build your business. So, brush up your communication skills and ask others to critique your efforts. Your first pitch for funding should definitely not be your "first" pitch – practice makes perfect. Your business case will really come together the more times you tell others about it. You should also take the time to create a one page business brief that contains company details, the market need, market projections, revenue stream, potential products, management team and potential competition. Fitting all this information on one page will force you to hone your pitch, making it far more concise and easy to understand.
Next, be prepared to work hard. I love the excitement and risk taking involved with startup organizations, but it often requires long hours. Some entrepreneurs find that they let their personal lives slide when faced with such demands. But I am convinced from many years of experience that one can successfully integrate personal pursuits with demanding career endeavors. Since you asked explicitly about "mompreneurs", I assume you are wondering specifically about balancing family and entrepreneurial pursuits. Take heart – it is possible. You can hear successful women IT entrepreneurs talk about integrating work and family by listening to the NCWIT podcast series.
One final thing you asked about is building your support system. Heidi Roizen has achieved success as an entrepreneur, a corporate executive, a corporate director and venture capitalist. In this interview she talks about how networking is a key component of launching a company, and how people can build successful networks. Her secret? "Be a friend", "Get a friend" – in that order. If you look at networking as relationship building and nurture those ties like you would the others in your life, you’ll be on your way to building a strong entrepreneurial support system.
David Cohen has today’s great post up titled The Boomerang Founder. He defines "the Boomerang Founder is the one that “throw away” but then comes back later on and hits you upside the head, often causing significant trauma."
"You start a company, and you and a couple of buddies get together and draft a simple email about who’ll own what. You name the company, and maybe you even incorporate it. You’re in business! Some time goes by, and one of the founders isn’t work out or takes a day job or loses interest. Maybe she’s just not a startup person, she realizes. Now you’ve got one less founder, and you’re down to two at this point. It feels like no big deal. A buddy is departing – it’s all good. They’re good people."
Read the story. I’ve seen it more times that I care to recall. David has some very practical advice for all founders at the end.
Q: Thank you very much for your term sheet series. Not being that familiar with "specific" term sheets, I have heard something about VC terms that effectively allow the VC to fire the founder(s) and in the process relieve them of their shares since they had then left the company before liquidity. I have read a previous Ask the VC post about the ‘moral’ and ‘reputation’ reasons that VC’s will not do this.
However I am more interested in the legal binds and would like to know if these sort of terms are something that is standard/negotiable in various term sheets.
A: (Jason). There is certainly nothing in a standard term sheet that specifically addresses this. I’ve seen founder / CEO termination clauses in term sheets that effectively say "if X, Y and Z doesn’t happen, you are fired." I’ve always found these to be egregious and worse yet, sets up the VC and founder / CEO to be enemies, not collaborators trying to help the company be successful.
As for different mechanics that a VC might use to remove a founder / CEO / founders, etc.:
1. Board control – if the VC has board control, or the ability to elect a majority of the board, terminating founders and / or executives is fairly simple;
2. Voting rights – be careful that there aren’t any non-standard control provisions in the voting rights that allow the VCs to vote people "off the island."
As far as acquiring the terminated party’s shares, I’ve never seen a VC with a contractual right to be able to do this. I’ve seen some documents which gives the shares back to the company, but never the VC.
And shares going back to the company is rare as well, so long as we are talking shares that have vested under a option plan or are not subject to some sort of repurchase. Those shares should be free and clear the property of the terminated party.
Q: One of your deal screens that you mentioned was “comfort with the people involved.” What do you say to the entrepreneur when that is the main factor that steers you away from a deal – e.g. the situation where there is a clear sense of discomfort in your gut with the ability of the founder to be an effective CEO, and yet that CEO doesn’t recognize or admit his/her own weakness?
A: (Brad) There are actually three cases here: (1) I like the deal and the founder, but don’t think he can or should be the CEO, (2) I don’t like the deal, but I like the founder, but don’t think he can or should be the CEO, and (3) I don’t like the deal or the founder (or – usually – I don’t feel any connection to the founder.) Let me address each of these separately.
Case 1: I like the deal and the founder, but don’t think he can or should be the CEO: When I realize this, I immediately sit down with the founder and have an open discussion with him about this. For example, shortly after I started spending time with Greg Reinacker (the founder of NewsGator), I realized I really wanted to back him, but not if he wanted to be the CEO. Over dinner early in our discussions, I told him this directly. I recall him being guarded in his reaction (I’m sure he was thinking something like "who is this asshole?") I explained my point of view, was clear that I would completely understand if he wanted to be CEO (in which case I wasn’t a good candidate for funding), but encouraged him to talk to some other people "like him" (who I viewed at "CTO / founders from central casting.") Greg went off, thought about things, talked to a handful of folks, and came back a few weeks later and said something to the effect of "Brad – you are right – I don’t want to be a CEO – let’s go find a great one together." Needless to say I went ahead and funded NewsGator and have had an awesome time working with Greg, the CEO we worked together to identify and bring onto the team (JB Holston), and the rest of the NewsGator crew to create an awesome company.
Case 2: I don’t like the deal, but I like the founder, but don’t think he can or should be the CEO. In this case, I pass quickly but offer to give the founder (who is often someone I know from another context) some constructive feedback if he wants it. If he takes me up on it, I try to be very thoughtful in delivering a direct message that he should have a different role than CEO. I’m clear that identifying and bringing on a great CEO won’t change my view that I’m not interested in funding the company, but that I think it will help him be more successful in building the business. This is the most difficult case for me because it’s a one way, open loop situation. I’m delivering bad news and difficult to hear feedback, but I’m not providing any future willingness to engage as an investor. Occasionally I’ve encountered a negative response from the founder and in one case I changed my mind after a CEO was brought on board and ended up funding a company, but usually my directness and candor is acknowledged and appreciated.
Case 3: I don’t like the deal or the founder (or – usually – I don’t feel any connection to the founder.) This is the simplest case for me. I pass and usually don’t give much additional feedback. In most of these cases, if I didn’t feel a connection to the founder, he probably didn’t feel a reciprocal connection to me and we generally each just move on.
Q: I have developed a really cool technology that I really think could essentially solve several huge issues: Piracy (music and even movies), Apple’s monopoly on digital media players and much more. How the heck do I approach this? I really think I’ll need to not only develop the technology (which is my area) but also to do some heavy PR (not my area) and evangelizing (not my area, although I see myself crossing over to that) across the board to get this going, as well as business establishment (not really my area). All of this costs money (also not my area). What to do?
A: (Brad): Find a partner that is an experienced entrepreneur. Or find a mentor that is an experienced entrepreneur. Or find both. Or find several of both. As a technical founder, you should spend your time on what you do best. Use your network to find / attract great people who have been through creating companies before and are motivated / interested in helping you.
Q: What are the most important functional skills that you look for in a startup’s founders and on a startup team? Sales/Marketing/Operations/Technical/Changes every times?
A: (Brad): There are two attributes I want on every founding team – deep tech skills and capable sales skills. Occasionally these come together in one person (e.g. a deep tech person also knows how to sell), but it’s usually great to have a combo. Now – a "sales guy" is not what I mean by "capable sales skills" – the sales oriented person needs to get the tech, understand product, and be passionate about talking to whoever is going to be using the product.
When I look back on my biggest successes, they usually had two to four co-founders of which at least two were technical and built the original product. One of the founders was also the CEO and responsible for "the business" and – while he often had heavy involvement in the product design, he wasn’t coding on a daily basis.
I don’t think I’ve ever had a success where at least one person on the founding team wasn’t deeply technical.