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Keeping Score: Entrepreneurs Should Stop Focusing on Capital Raised and Focus on SaaS Metrics

I am writing this on an Amtrak train returning from the last board meeting of the third quarter earnings season.  I sit on a bunch of boards and am an observer on several more.  This cycle there were at least five conversations where the competitive intelligence discussion went something like this. 

CEO:  “Two of our competitors recently raised rounds of between $15 million and $20 million and they have each raised between $40 million and $50 million since inception.  A new company that was in stealth mode just raised $25 million and we have never heard of them before.  We are falling behind and need to raise more capital.  Maybe we should think about a much larger capital raise.”

Osage: “How big are these guys?”

CEO: “Well, they have a lot more people than us and their booths at trade shows are always the big ones in the expensive slots, but we have beaten them in most customers where we run into them and from what I hear, their revenue is within the range of ours.”

Osage  “Is the amount raised the right metric?  

The problem is that we are dealing with private companies and the only data that is public is the amount of capital raised and sometimes the valuation.  This means that the data on the amount of capital raised is what people fixate on when, in fact, large amounts of capital being raised often suggests capital inefficiency, founder dilution, layers of preference, and the inclusion of very large venture funds who need to write big checks.  Maybe CEOs need to focus on other metrics.

My suggestion to CEOs is to compare their companies instead on performance metrics.  Openview Ventures, Pacific Crest, and others provide great benchmarks of SaaS performance.  If your company is more than one standard deviation above the mean for companies your size on growth rate, is better than your peer groups on CAC and CAC recovery, and your retention rates are much better than the average – then you are killing it.  If you have done this with less capital than other companies, then you are killing it and you own a ton of your business.  

My message to CEOs – if you are growing faster, outperforming benchmarks, and you have raised less capital than your peer group – congratulations.   Keep it up and you will win.


Hospitals Are Still Stuck In An Analog Age

Recently my wife and I welcomed our first child into the world.  In addition to the general excitement (if not frequent bewilderment) that comes with being a new parent, his birth of course led me to spend a few days in the hospital, a place I typically try to avoid.  During our stay, we were served with the highest care by a dizzying number of nurses, aides, and doctors who were constantly checking in on us, which naturally led to the need for a lot of patient handoffs and communication about what had transpired during the latest shift. 

Throughout the many doctor visits during the pregnancy, I actually had been impressed with the way the hospital system had integrated technology into its workflows.  I know that it had recently undergone implementation of a new electronic medical records system, and the doctors and nurses always had our latest information - including lab results - at their fingertips, had seemed quite comfortable taking notes directly on a computer, and fed that information quickly to the front desk for checkout or to send electronic prescriptions to our pharmacy.

Once in the post-delivery ward, however, it felt like we had stepped back in time.  While each room contained a very nice new computer screen and keyboard connected to a remote desktop, during our time there it served little more purpose than as a nightlight.  Doctors and nurses carried around index cards or scraps of paper with a confusing set of notations about each of their patients.  Often nurses would take several seconds of flipping the cards over and turning them around until finding the corner relevant to Sam's last feeding time or when Tracy was due her medications, with each nurse employing a unique organizational system that only she seemed to understand.  During each shift change, the outgoing and incoming nurse would then take up to 10 minutes to share what happened during that shift; while the outgoing nurse read off her paper, the incoming nurse furiously transcribed the information onto her own notecard. 

As a healthcare IT investor bombarded with entrepreneurs touting the digital transformation underway in our healthcare system, our son's first few days in the hospital provided a sharp reality check about how much further we have to go to realize the full potential of that transformation.  I asked one of the nurses, who had been at the hospital long enough to have cared for multiple generations of children in the same family, about her feelings toward the new electronic medical records system, and why she doesn't use the computer.  She replied that she isn't comfortable typing directly into the computer because it prevented her from fully engaging with her patients, in large part because she is an inefficient typist.  As a result, she would spend up to 15 minutes per patient (and cared for 3-4 patients each night - so up to 8% of her working hours) during every shift going back to the computer at the nurse's station to translate her handwritten notes back into the EMR, which she found highly frustrating and not enjoyable. 

For the most part, the antiquated pen and paper approach seemed to work well, as each nurse and doctor had his or her own method to the madness.  Yet the prevalence of handwritten notes to manage our care remained just that to me - madness.  Hospitals and EMR vendors must work to leverage the advances in smartphones and tablets to enable more efficient data collection during patient interactions.  Each nurse already carried a mobile phone for us to reach her; why not make those devices also able to run a set of well-designed apps to replicate the notes the nurses take with pen and paper?  One of our portfolio companies, Canvas, has a platform that would allow hospitals to do just that - and even provide the flexibility for each nurse to design her own app to capture the necessary data in whatever way she found most helpful.  At the same time, our experience in the hospital also reminded me of the dangers of becoming too enamored with technology.  Our nurse would likely have felt just as, if not more, uncomfortable entering data into a tablet or her smartphone than on the computer already available to her.  So, while I hope that my next experience in the hospital offers a bit of progress toward a more digital age, I will temper my expectations as we meet with entrepreneurs because it will be a slow journey away from good old pen and paper.


Two CEO Letters (Plus a Corollary)

There is a story full of business wisdom that is one of my favorites.   It has many variations but a common one goes something like this:

A new CEO walks into his office for the first time and finds two sealed letters on his desk.   One has written on the envelope: “open on your first day on the job.”  The second envelope has written: “open on your last day on the job.”  The CEO opens the first letter and printed there were the simple words “blame everything on your predecessor.”  The CEO takes the advice, gets off to a strong start and has an extraordinary run as CEO, taking the business through a multi-year period of high growth, an IPO, and an industry consolidation.  On the day he retires as a company legend and an industry icon, as he packs up his office and desk, he comes across the second letter, opens it, and reads “write two letters.”  He does just that, leaving them on the desk for his hand-picked successor.

Having been a new CEO and an ex-CEO, I can say with certainty that there is a lot to this story.  It suggests a new CEO is really a restart in so many ways.  Old traditions can be put aside.  “This is the way we do things” stops applying.  Hard decisions can be made because no one will hold the new CEO accountable to previous bad decisions or bad investments or bad hires that now need to be unwound.

The corollary is that Letter 1 has a statute of limitations.  Blame everything on the previous CEO – but do it quickly and move on.  Blame is about “they” and leadership is about “we” – so make the changes fast, dump the baggage, reset the financial expectations for the board, and embrace the company as its leader.  Six months into the role it really needs to feel like and be your seat.  Twelve months in and no one remembers the old CEO’s name.  Your name is on the door and the company’ past, present, and future are now your responsibility and the responsibility of the team that supports you.  Remembering this will help keep the second letter in the drawer for a long time to come.


They Are Coming to Philadelphia

We recently invested in Sidecar, a Philly-based e-commerce marketing solutions company.  Great company, great team, and an awesome CEO.  While the company is note-worthy in its own right, it is also noteworthy for being located in downtown Philadelphia (near 13th and Sansom).   Until about a year ago, we had one portfolio company with a Philadelphia presence – now we have four.    Our first was InstaMed, which has been downtown for close to ten years.  We invested in InstaMed in 2008 and have seen its staff grow more than 10x in Philly to well over 120 people in the city by year end.  PeopleLinx, in which we invested in 2013, was our second.  SevOne, a Wilmington-founded tech company in which we invested in 2007, this year established a large development satellite on South Broad Street in order to attract talent.  Is this just serendipity and the law of small numbers or have things changed?

From 2002 to 2008 when I was running Verticalnet , which was originally founded in Horsham and then later moved to Malvern, I only went downtown to see our lawyers or for a rare social dinner.  I technically live in the city (if Chestnut Hill counts) but it was clear when I moved to Philadelphia in 2000 that the technology community that existed here had its nexus in Wayne around the 202 corridor and the Safeguard campus.  Technology companies were in office parks.  There was also a brain drain with a constant complaint that we had great universities but that we were training people in order for them to graduate and move elsewhere.  The reputation for the Philly region was that it was a great place to raise a family (which it still is), but the converse of that reputation was the difficulty in attracting and retaining young people. 

So what’s happening?  I think it is a lot of small things that have come together to begin a groundswell.  Urban renewal of some vibrant neighborhoods has been successful, with West Philly, Northern Liberties, Fishtown, and other neighborhoods offering affordable options with a restaurant, bar, and activity scene that is much more appealing for the recent graduate (and tech entrepreneur).  Philly’s start-up scene is real and growing and more fuel is being added to the fire, while an increasing number of Route 202 corridor companies are building satellite offices to attract tech talent in Center City.  What was the catalyst?  Was it Mayor Nutter? John Fry? Stephen Tang at the Science Center?  Was it Philly Start-up Leaders?   Was it Ben Franklin Technology Partners?  Was it DreamIt, GoodCompany Ventures and other incubators? VentureForth and other shared workspaces?  Was it fueled by Philly Tech Week and PACT with its IMPACT and Phorum conferences?  Frankly, I think it was an environment that was ready for this and a lot of visionary people contributed to the momentum we now feel.

The other sub-trend that has been emerging is that the types of businesses being started have changed.  Six years ago as the Philly revival began, the companies being started were consumer facing – mobile apps pursuing the next social, mobile, texting, location based ideas.  Today we are seeing strong business-facing solutions emerging with greater frequency from Center City.  These are companies with sustainable business models and experienced leaders.  These are companies that are recruiting talent in Philly and drawing experienced people into Philly from outside.  

I am not proclaiming that Philadelphia is the next Silicon Valley.  It doesn’t need to be.  What I am saying is that Philadelphia is a city that is going to be increasingly hard to ignore when looking at cities on an upswing or cities where strong investing opportunities exist for angels, venture investors, and private equity firms.   At Osage, we certainly have an eye on Philly and we look forward to seeing our number of Philadelphia investments continue to grow and our current investments continue to thrive.


Congratulations to 2014 PACT Enterprise Awards Winner Bill Marvin of InstaMed and Finalists SevOne, PeopleLinx, and Tim Kowalski of Halfpenny Technologies

On May 8th, the Philadelphia Alliance for Capital and Technologies (PACT) held the 2014 Enterprise Awards, their annual black-tie awards gala to honor the region’s top companies, executives, and entrepreneurs in the technology and life sciences sectors.  Once again, the Osage Venture Partners portfolio was well represented.  The event recognizes three finalists and crowns an ultimate winner across eleven total categories, six of which focus on technology, corresponding to different stages of business maturity.  OVP was proud to have four finalists and one winner within the portfolio. 

  • Bill Marvin, InstaMed -  Technology CEO of the Year Winner
  • Tim Kowalski, Halfpenny Technologies – Technology CEO of the Year Finalist
  • SevOne – Technology Company of the Year Finalist
  • PeopleLinx – Technology Startup Company Finalist

Congratulations to all four companies for being recognized as leaders in their categories, with a special call out to Bill Marvin on a well-deserved win, the second in a row for InstaMed, which won as Technology Growth Company of the Year in 2013.  OVP also recognizes the fact that two of the three Technology CEO finalists were from the OVP portfolio, celebrating publicly what we know privately – that leadership drives success. 

Nate Lentz, Robert Adelson, David Drahms, Sean Dowling