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Thursday
Mar032016

Physical Space or No Physical Space – No Question

Start-up with Physical Space or No Physical Space – No Question

I was going to call this blog post “To office or Not to Office” – but the term office can be used to mean where the company is located or whether people sit in little private boxes versus open space, so I changed it to Physical Space.  I am a fan of start-ups eliminating offices in their physical space, but I am increasingly NOT a fan of companies being completely virtual and eliminating physical space altogether.

Osage Venture Partners has a couple of companies that truly are virtual.  At the seed stage or pre-revenue stage maybe this works while the company is only a handful of people.  At the Series A stage when we invest, I am convinced that it doesn’t work. 

Maybe I am missing the stories that are becoming cultural lore, so I welcome the opportunity to be informed.  Stories like: “We founded the company in three different cities and didn’t meet until we hired our tenth employee;” “We hire only anti-social people who don’t leave their apartments because we find they work 20 hours a day;” “Our culture is one of only using Slack from remote locations so that ideas are valued on their merit, not by how tall, attractive, or funny the person is.”  I did find some stories online about companies that had a culture of no office but I often get the impression that companies are built this way because the CEO wants to work this way, not because this is the best way to create a sustained culture of success.

The stories I know are the famous and not so famous ones like this: Hewlett and Packard in a garage; Jobs and Wos in a garage; Pied Piper in a rented incubator house (maybe a fictional company, but one with a fictional space); Facebook in that crazy summerhouse in Palo Alto; SevOne behind the comic book store; Verticalnet in that tiny little office located halfway between Hagan and Nults.   And so on. 

People are inherently social.  Culture is about interaction.  Loyalty is about relationships.  Something is lost in text and email and Slack including irony.

The entrepreneurial community is redefining what an office is.  Incubators, accelerators, and co-working spaces are making it easier to have an office, to expand, and even while small to be part of something bigger.    We have two companies in WeWorks.   One of our investments, Canvas, has always had a co-working space (called Refraction) as part of its overall office model because the founders believe that being part of a broader start-up ecosystem is critical to remaining entrepreneurial.  Sidecar (not the ridesharing guys) is moving all of its people back into one office from the two they were forced into due to space constraints because the CEO felt the separation into two offices was killing their culture.  What if all of these people worked from home?   What is the culture like then?

People come up with all sort of reasons to not have offices – here are five (and my counterarguments):

  • You can hire the best talent anywhere – not near the office.
    • Start your company near talent and hire people near your company or who will commit to relocate
  • Offices mean more meetings
    • Meetings happen on the phone too and people on the phone are far more prone to distraction, email, games.  Meeting quality and quantity is about management discipline
  • I can work more productively without distraction
    • Buy a set of sound compressing headphones and read the data – people need interactive breaks in order to sustain productivity
  • It keeps costs down
    • Then why am I seeing all of the costs for all of this travel and for the Regis bills because we need to bring the team together to create culture
  • I can be more flexible in my hiring – older people, blind people, handicapped people, people with social challenges – this gives me a huge hiring advantage
    • Really – do older people or blind people or people with other handicaps place a lower value on social interaction?   I don’t think so.

Senior experienced executives who have worked together in the past may have established norms that allow them to work together without being in the same place.  But when they bring in new people, and younger people, and people who need training and mentoring – how does that happen?  Without an office it is a challenge.  Entrepreneurs – if you are building something sustainable and large and meaningful, your company needs a home.  And if you are pitching us at OVP, have an office in your future.

 

Tuesday
Feb232016

Start-up Executive Survival Tip - Live Within your Salary

I hate to say this but if you join a start up, you need to be able to live within your salary.  Not salary plus planned bonus.  Not salary plus 50% more coming out of savings, justified by the value of future stock options.  Live within your salary.

Too many executives leave corporate America and $300k jobs to join startups.  The rationale is like this: “I want to do something entrepreneurial and get out of the corporate rat race.  I love the team, the product, and the market.  It is something I always wanted to do and the time is now.” (That is all awesome)  “I can live with a salary of $150k for a year and with my bonuses targeted at 30%, that takes me to $195k.  The company is growing and we should raise a Series C next year, so twelve months out I should be up to at least $200k and with the bonus that is $260k and by then my stock options will be close to 50% vested.  So what if I need to pull $50k out of savings in year one to cover after-tax gap in cash flow, it will be worth it.”

Great logic - except for a couple things.  Startups don't give 30% raises even after a Series C – they use this money to hire more people.  Bonuses get paid when a company is on plan, but startup CEOs are aggressive, plans are hard to hit, and bonuses at 80% of plan (in the companies where I am on the compensation committee) often equal zero – especially for the leadership team.  So now, twenty four months in, you are making $160k and didn’t quite hit the bonus threshold; you are having the time of your life; you are learning a ton; you are working with great people but have never worked harder; and you just hit your IRA for the second time, with penalties, to cover the second year of $75k after-tax shortfall.  You love your job but your wife or husband doesn't.  

What do you do?   Most often you try to stick it out for another six months but the pressure gets too much and you start looking back toward the security and paycheck of the kind of job you left two years ago.  It is just too hard to dial back a lifestyle and it is impossible to operate in negative cash flow for too long.  Maybe your experience in the startup positions you for a new gig and even more money.  I hope so.

CEOs need to understand this challenge when they hire experienced people for their executive team or for key management positions.  Explain that bonuses are a stretch.  Explain that wealth creation is in options not raises or bonuses.  Explain that cash is king for the business and the focus of all employees should be on sharing in value created.  Explain that this is likely a five year or longer journey and not a get rich quick scheme unless you really get lucky.  Try to understand the cost structure of the person being hired.  Ask the question and be honest.   “Can you live on this salary?  Because if you can't, don't take this job.”  It is the CEOs responsibility to fully explain what should be expected in compensation.  Don’t paint a picture you can't deliver on because having this great hire join with the wrong expectations is not only bad for her but also bad for the company.

At the end of the day though, it is up to the executive or manager to answer responsibly.  “Can I live on this salary for the next several years assuming little to no change in salary and little to no bonus?”  If yes then congratulations.  This looks like a great job and you are off on a great adventure and the possibility of real value creation down the road.  If no, then do yourself a favor and stay where you are and enjoy the benefits of a great health plan and a 401k match.  You will be doing everyone a favor – including yourself, your family, and the company you are thinking of joining.

Monday
Nov232015

Quick Pitch: An Online Venture Fair Featuring Seven East Coast Venture Funds – Join Us

Osage Venture Partners, First Round Capital, Greycroft Partners, Grotech Ventures, Edison Partners, Safeguard Scientifics, and Ascent Venture Partners are excited to host Quick Pitch: An Online Venture Fair, during which entrepreneurs will have the opportunity to hold one-on-one chat sessions with VCs.  The overall concept is relatively simple and analogous to an in-person venture event.  Each VC fund will have an online "booth", and entrepreneurs can choose to wait in line in one or multiple booths.  Once connected in a chat, entrepreneurs have eight minutes to convince the VC of how exciting their startup is and to secure a follow-up phone call or meeting.  There are no plug-ins, downloads, or software requirements; all you need to participate is a computer, tablet, or smartphone with a reliable internet connection and the latest versions of Firefox, Safari, Internet Explorer, or Chrome.

If you are an entrepreneur of an early stage business-to-business software company on the East Coast, we encourage you to join us for what we expect to be a very popular and exciting event.  The key details are below

  • When: Friday, December 11 from 2PM – 4PM
  • Where: Your computer / tablet / phone wherever you might find yourself that afternoon
  • Who: 2-3 representatives from seven great funds: Osage Venture Partners, First Round Capital, Greycroft Partners, Grotech Ventures, Edison Ventures, Safeguard Scientific, and Ascent Venture Partners and 120+ entrepreneurs of B2B software companies on the East Coast
  • What: A chat-based event through the Brazen platform, which automatically pairs you with VCs for an eight minute, one-on-one discussion through which you can pitch your business and the VCs will have the opportunity to ask questions
    • Entrepreneurs submit a company description, LinkedIn profile, and business plan for review by the VCs, which is available during and after the chat sessions
  • What Does it Cost: Absolutely nothing.  OVP is sponsoring the event
  • How to Join: Register here ASAP - space is limited and we expect it to sell out quickly 

Earlier this year OVP invested in Brazen, an exciting company based in Arlington, VA led by a great team in Ed Barrientos and Ryan Healy.  Brazen offers a real-time messaging platform that helps organizations create better engagement with a range of stakeholders through chat-based online events, proving particularly effective in facilitating interactions between individuals who don't know each other but otherwise have an shared reason to interact.  We had tracked Brazen for a while from its origins in the recruiting space providing virtual career fairs, and became excited enough to lead the Series A round as the company broadened use cases to include alumni engagement events for universities, employee engagement events for large enterprises, and marketing and lead generation events for businesses.  We are excited about this partnership with Brazen to launch its latest, and what will undoubtedly prove its most lucrative, use case.   -.  

Thursday
Oct152015

Pneuron Finds Itself at the Center of Containers and Microservices

In 2011, we invested in Pneuron, impressed by a strong and proven leadership team behind Simon Moss and Elizabeth Elkins and a technology that was a bit mind-numbing in terms of its capabilities.  While the team at Osage called it ”p”-Neuron for a while, we learned soon enough that the ”p” is silent and the company is simply pronounced Neuron (though Simon exacts his revenge by still pronouncing Osage incorrectly even four years later).  Once we got the name right, the rest of the diligence process came together pretty smoothly.

Pneuron had a core product called the “Pneural Cortex” that managed a distributed network of “pneurons” – mini-applications that performed very specific and narrowly defined functions.  By assembling pneurons into different logical sequences through a graphical design studio, Pneuron enabled enterprises to “wrap” an existing application or database or design entirely new products to perform functions ranging from focused actions such as selective data extraction in near-real time to complete application migration.  At the time of our investment, this was already a working, though early stage, product that had been tested at enterprise scale inside two financial services leaders.  If it hadn’t been enterprise tested, we probably would have thought what they were doing was more fiction than fact.

Pneuron was a new and early solution.  People tried to categorize it incorrectly – ETL, BI, and Big Data, among others – and more than once Simon was accused of black magic or simply lying while presenting to some big brand CTOs.  The company’s approach broke the paradigm of the last generation of data management and analysis because it did not require huge data warehouse solutions as a prerequisite for meaningful heterogeneous system analysis.  Slowly, companies with seemingly unsolvable problems came to find Pneuron, such as banks with a need for comprehensive anti-money laundering solutions that they needed NOW not in five years and financial institutions looking to create full 360⁰ views of their customers for regulatory and account management reasons.  It wasn’t clear what exactly the Pneuron technology should be called, but it worked to solve some of the biggest and most urgent challenges enterprise customers were facing.  Much marketing angst existed as the company sought to find definitions for what it was versus what it was not.

Fast forward to today.  There are now terms for what Pneuron does.  The “Pneural Cortex” is a “Container” and a pretty advanced version of one at that.  The ”Pneurons” are “Microservices”, which are combined together in different forms to rapidly build customer solutions at the point of implementation.  Both “containers” and ‘”microservices” are terms best known to forward thinking analysts, bleeding edge CTOs, and of course to VCs.  The poster boy for containers is Docker.  The poster girl for microservices has yet to be found.  Advanced technology teams are using both in places like Facebook and Netflix, but to date no one has demonstrated the ability to commercialize these technologies into products that are justifying enterprise investment.  No one, that is, except for Pneuron, which has quietly been doing this for years and which is likely the best example of what is possible in this new product category.  Pneuron has an e-book that discusses its perspectives on Microservices and Containers which is quite well done.   

Simon and Elizabeth have been joined by an exceptional leadership team including Tom Fountain and Ken Lawrence, and will add another exciting executive in the next week.  I am excited for Simon, Elizabeth, Tom, Ken and the Pneuron team, for they finally have the ability to define themselves by what they are versus what they are not.  From thought leaders to category creators, to market leaders – what’s next? 

Friday
Sep252015

PHELAN – Entrepreneurship Runs in the Family

Mike Phelan was CEO of SevOne from 2006 until 2012.  After he stepped down as CEO, we at Osage Venture Partners were lucky enough to have him join us as a venture partner.  Mike has proven so valuable for us in assessing infrastructure investments and in connecting with entrepreneurs, though that comes as no surprise – he is one of the best.

Last week, my wife Suzanne and I had the opportunity to go to New York and to experience what one of the next generation of Phelans is doing.  We were privileged to be invited as Mike’s daughter Amanda Phelan launched her new fashion line in what Vogue described as a bang.

“Get ready to hear a lot more about Phelan: The new label by former Alexander Wang knitwear designer Amanda Phelan launched this afternoon with a bang. The show, seated theater style, was led off by an extraordinary four-woman performance choreographed by Vim Vigor Dance Company founder Shannon Gillen, and it concluded with the assembly, onstage, of models clad in some of the most innovative looks to come from a young New York designer in quite some time. The rapturous applause was earned.”

Mike is the behind the scenes advisor and is leveraging some former SevOne finance talent to support the enterprise, but the leadership, vision, and drive is all Amanda.  Seeing her come out on stage after the show, seeing her working the crowd of critics and buyers, and, even to this untrained eye, seeing what she produced and the way the show was confidently staged, I was reminded of what it was like back in the board room at SevOne when Mike hold the reins, loosely but in control. 

I remain ever in awe of talented entrepreneurs and Amanda is going to be a great one.  While we at OVP don’t invest in fashion and only in b2b software, after the Phelan show, I wished it wasn’t the case.  I guess someone in the Lentz family is just going to have to invest in the product versus the business.  Clearly an opportunity missed.

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