Incubators: Startup@Parc (3/3)

I sort of stumbled across Startup@PARC. I was basically googling for incubators with technical knowhow and there they were. I'm sure most people have at least heard of PARC - it' the Palo Alto Research Center that played such a big part in Xerox Corporation's great inventions over the years. Laser printers, GUI, OOP, and Ethernet - which for most of those that don't know, allows you to get ultra fast internet connections to your cubes. In 2002, Parc was spun off and became a separate entity. Though they still work with Xerox, they work with others as well, including a number of startups.

The have a very well respected research team that consists of a wide array of different types of scientists - including social, biological, computer, and physical scientists. They have been lending their expertise to startups with their Startup@PARC program for the past few years and it's worked out very well for both PARC and for the startups themselves.

They have a fairly simple application process. In fact, I just filled out a few lines on line and they got in touch with me fairly quickly. The way it works is they pre-screen your business idea and business model. Once they identify your product and your needs, they approach their research department to understand if there may be a synergy between your company and one of their research teams. If there is a match, they will offer to provide the technical expertise and knowhow - whether that means building your infrastructure, helping create a product, manufacturing, writing algorithms, it doesn't matter - they can do it all. And their track record shows they can do it all pretty well. Their approach of providing technical help is in stark contract to Y Combinator - who requires you to come with all of your technology.

I've follow-up with Startup@PARC. We've spoken several times and the most recent time we came to a point where we believe there may be a synergy between us once we finish our beta. We're keeping in touch throughout the process and will be meeting once we reach that point.

Since this is a fairly new program for them, it's still a feel as you go kind of deal. We didn't discuss the financial situation in great depth - but it appears they take a small equity stake for their input. For us, it may make sense, since the expertise that they think they can provide to us is something that is far from our core competencies and something that can really help our offering.

Incubators: PnP Tech Center (2/3)

The second incubator that I looked into was Plug and Play Tech Center. They are a bit like the traditional incubator in that they provide office space as their primary benefit. The office space though comes at a price. And the price isn't peanuts. They do offer additional services as your company grows, which somewhat offsets the rent.

PnP charges a flat rate of $500/month for a cube in their fairly large warehouse type space. The cube consists of hookups for electricity/phone/internet. I believe the internet is an additional $30 or so a month - but the phones/electricity are included. They said that up to two people could sit in one cube and they have enough space that they can constantly add cubes as your company expands.

I went on a tour of their Sunnyvale office. They have one other office in Redwood city and are planning to expand even further. They have over 90 startups that they're hosting so I'm sure they are doing something right.

I really liked their space. I was greeted by one of their very friendly BD guys who took me around. The place definitely had the startup vibe. The ground floor was full of cubes that were decorated with a variety of different company logos, school flags, nerf guns, lava lamps, and whatever else you would imagine finding at a startup. There was lots of activity and it seems like its a good environment to foster creativity by interacting with the other companies that are there.

The second floor was more segmented - with areas that were partitioned so the larger companies had a space they could keep somewhat private. Each floor had a bunch of conference rooms you could reserve for meetings, snack areas where they provide coffee, and a pretty sweet cafeteria whose chef is one of the old Google chefs.

In addition to the cool environment, they also have connections to VC's when it comes time for funding. They actually have a VC firm in some space in the upstairs. And they have partnershiups with several others.

Overall, I was rather impressed with the place. I'm still not sold on the price - because I think they end of taking part in your financing rounds down the road - which means if you're successful, they get equity, in addition to your rent.

I think if I hadn't already had office space, I'd definitely consider looking into this place though. It's a good alternative to sitting in your apartment trying to work on a company. I've found that to be a black hole - one that sucks the motivation right out of me.

Start Up Incubators (1/3)

If you find yourself in the situation where you need to look for incubation space, you actually have a few choices these days. You used to be limited to the option of sharing office space with companies that had spare space. That's what we did back in 2000. But now, you can share office space with a variety of different types of companies, offering different types of services or opportunities. It's become quite a business in itself.

I'll talk about a few of the more popular incubators (in the following few posts) - since a great deal of incubators are very hard to get into, hard to approach, and hard to find.

Y Combinator is geared towards tech heavy startups. While their interests are on web based software offerings, like many other incubators, they want teams that bring the technology with them. They care less about your idea and business strategy - that's where they offer their expertise. The give advice and training in regards to growing your business and raising capital.

The invest in very early stage companies, generally taking a 2-10% stake in exchange for up to $20,000. It's not much money - for a lot of equity, but it's an option if you have no business experience. For us, it was never really an option. Engineers were the thing we needed, not more business people.

They have an application process that's much like applying to school. They have two application periods per year and bring a bunch of teams on at each time. It's probably a great environment to work in - you're around a bunch of people, and probably some pretty smart engineers. But I'm not sure it's a good option for anyone but young entrepreneurs. I'd seek out different options since most incubators give advice on growing your business - it's in their best interest since they most likely have, or will have, a stake in your company.

Agreements, Contracts, Stock

Sorry for the week off. I've been pretty sick. I guess it's flu season or at least that's what my body was saying.

I've decided it's better to be prepared than to be faced with uncertainty down the road. So I've been listening to our lawyers. They recently told us that we need to get the people who are working with us under contract. It determines that what is made for Vyoo, is owned by Vyoo.

We've sent out some of our contracts - and in doing so, we had to determine what we were going to compensate our employees with. One of the great things about being a startup with a potential upside is that people are willing to work for equity. We have 6 people working with us right now, albeit part time, but they are all taking equity in exchange for work. This is where it becomes difficult. How do we figure out what makes sense from an equity perspective - both for the company and for each of them?

There are some guidelines. For example, a CEO is expected to get between 6-8% pre Series A. Executives and directors have their own guidelines. But how do you figure out how to compensate people who are giving part time work and in a different capacity, such as development?

We've determined that a good place to start is your cap table. The cap table is your market capitalization based on your outstanding shares * share price. I won't go into the details of our cap table, but it allows you to understand what shares are worth. And it's good to plug in numbers to see what different agreements amount to.

A good benchmark is to determine the value add that someone is providing. And then to add a certain component for the risk they are taking on. The risk factor should be reasonable. And everyone has a different risk factor. Is it a full time commitment? Is it their only source of income? What is the opportunity cost, etc?

I struggled mightily with this subject when I started working for Justarrive back in 2000. I came on early, worked full time, and worked without a contract or a pay check for quite a while. What was that worth? It was a debate that raged on and it usually is, regardless of the circumstance. It's a touchy subject. We're going through it right now. I'll update how things progress - but this is our starting point.

The Funded - The Search for Funding

I've recently begun thinking about funding. Not that we're ready for it, but it's good preparation. Now, we're probably nearing readiness for angel funding, but we're far from institutional money - and here's why. We don't have a usable product right now and thus, no users. This stuff matters to VC's - and we're well aware of that. Without traction for an internet software play based on users, a VC won't look twice. Angels are more forgiving. They may be interested in our ideas. The problem with that is our valuation would get ripped. What are we worth now? A small percentage of what we would be worth with traction. In fact, if we can turn a profit, running lean, as we are now, funding may not ever be necessary - which would be a dream come true. Nobody wants to be tied to someone else's money. But sometimes there's no choice.

Anyway, I've been using an invaluable resource in my hunt to learn what I can about raising money. It's called The Funded. It's a website dedicated to providing information for the entrepreneur. By the entrepreneur. About all things VC/Angel/Legal. Only entrepreneurs can join - and they have a somewhat stringent policy towards gaining access. I had to prove, beyond a shadow of a doubt, that I was, in fact, an entrepreneur and who I said I was. You can definitely cruise the site now and gain some valuable perspective and information on specific funds, but the real value is gained when you join. There is in depth analysis of VC's, angel's, how to raise financing, what the process looks like and should look like, term sheets, lawyers, whatnot. It's incredible! And written very personally, calling out specific partners of firms, etc. If you're an entrepreneur - then sign yourself up.

Vyoo, Inc.

It's official. We incorporated, last Tuesday, under the name Vyoo, Inc. in Delaware. It was a relatively painless process. Our lawyers just filed some paperwork and we received our papers the following day.

Dell - The Great Company that Was

I usually write about my own business, but today I decided to change things up a bit. I think I'll do this every once in a while. Especially when I read something that gets me thinking. I read an article this morning about how Dell is now selling their computers in Best Buy as a way to improve their eroding market share. Well, this is my open letter to Michael Dell. Summation - Bad Idea. Not gonna work. Get back to your roots!

Michael,

Hey. Heard things weren't going so well at Dell these days? You're market share has apparently fallen a few points this year. That's unusual. Wonder what it is? I wanted to let you know that moving into additional distribution channels isn't going to stop this erosion. In fact, I think if you looked at what made Dell so great, for so long, you'd realize that there are other changes that need to take place. Changes that will take you back to your roots.

I've been a Dell customer. Er, I used to be a Dell customer, for about 15 years, give or take. I swore by Dell. I would only buy Dell. And I would recommend Dell to anyone who would listen. Oh how times have changed. I've spun the proverbial 180. Now I tell people not to buy Dell. Not to think about buying Dell. And I tell people who don't even ask.

This is how it happened: When I used to love Dell, it was for a variety of reasons. Their machines were entirely configurable. Awesome. Their prices were best in class as well. But more than that, it was their level and quality of service. They were available 24/7 to help with any problems, to provide any advice, to help with setups, or, if you were really lame, for someone to talk to. You could send broken machines back without hassles, get recommendations, and the machines lasted forever. They were a complete pleasure to deal with. And that made them great. I loved Dell!

This is what happens now: When I call Dell, normally for technical issues these days, they are a complete nuisance. I don't mind the fact that they are outsourcing their call centers. In fact, I'm all for outsourcing in general (it makes America more creative). But when you're outsourcing and using VoIP, it shows a lack of attention to detail. It shows cutting costs. It shows cutting corners. And it shows that you aren't paying attention to the customer's experience. I can't stand the delay in VoIP. I can't stand having to say "what?" 50 times a call. Especially when you're trying to solve a problem and there is lots of back and forth. I can't stand customer support that doesn't know their own technology. You know what else I can't stand? When a company sends you to a thousand different departments just so you can speak with the right person. Nobody knows what's going on. They also ask you to enter service tags and service codes on the keypad and then ask again when they answer the phone. WHY DO YOU DO THAT?! Now this has been going on for a while, but recently it came to a head. My 2.5 yr. old laptop was acting up. In fact, it was burning my legs when it rested in my lap. Now they call it a laptop, partially, because you can use it in your lap, usually without having to worry about 2nd degree burns. I called Dell to tell them about the problem. It took about 4 weeks, various phone calls, and an argument that I felt would have come to blows if we were in the same room. It should have been embarrassing for them. The told me supervisors weren't available, that they couldn't even speak to me since it was out of warranty, etc. If I had burned myself, I'm sure Dell would have enjoyed that lawsuit and listened to me then.

I've had many other calls to the Dell Helpdesk besides this. My mom's computer was on the fritz. My dad had keyboard/mousepad breaking on his laptop - all within the last few years. And I was the one to deal with customer service. And I hated it.

Saving money on using VoIP, for example, will NOT save you money in the long run. Hiring staff that isn't knowledgeable about your technology won't work either. It will make reliable customers like me leave. And leave I will. Next laptop will be either an IBM/Lenovo or an HP. They just feel like real computers too. This flimsy Dell in my lap feels like it could fall apart at any minute.

Anyway, best of luck. Should you go back to your roots, think of what made you guys great and what's making you guys lose right now. Your customers.

Sincerely,
Marc

Shameless Plug: Haas School of Business at UC Berkeley

This is a shameless little plug for the business school I just graduated from - UC Berkeley's Haas School of Business.

Before attending business school, I was a software engineer, helping other companies, much like mine, develop their products. It was a thankless job. Long hours and little credit for your time. And so, I decided it was time to move on to bigger and better things. Before I left the Gap, I started looking for jobs that would allow me to become more involved in the direction of the business, rather than just listening to direction from the business. Unfortunately, not many people came calling, or would even listen to my pleas. After all, I was just a software engineer and that's all I was good for.

All I heard, time and time again, was that I didn't have experience. I obviously didn't have experience because nobody would give it to me. But I felt like I was smart enough to contribute. That didn't matter. Nobody was willing to give me a chance. That's when I decided I had to go back to school in order to further my career. I thought I just needed that piece of paper. That little diploma that said I graduated and studied something different. So I applied to business school. And that's what brought me to Haas.

Two years have since passed and I've recently graduated. The doors have swung open, far and wide. It was more than that little piece of paper that's helped. It was my entire Haas experience. The other students, the faculty, the administration, and all of the experiences I had along the way(clubs, trips, conferences, you name it). It's created a genuine avenue for me to pursue other endeavors. And now people listen to me. Unfortunately for them, I'm still pretty much the same guy that started out there two years ago, albeit with a little more confidence and a little more understanding about the importance of business.

As an engineer, I always thought business was fluff. After all, I created the damn product! Well, now I can readily admit it, there's a lot more to business than meets the eye.

Today I used some of the resources that Haas provides for us, as students or alumni. I met a VC in the area, not to pitch my idea, but to talk about strategy for our company. It was a breath of realistic fresh air from the same people I'll be pitching down the road. The opportunities that business school provides are invaluable. And I saw that firsthand today.

And the Winner Is:

We chose our lawyers this past weekend. We decided to go with Fenwick & West. We made that decision based on various factors. We met with them initially, several months back, and they were incredibly insightful, helpful, and genuinely excited about our business. As we continued to grow and brought them back into the mix last week, they continued their genuine interest.

We met with several other firms last week. One, although it was a well respected Silicon Valley startup law firm, wasn't very up to date on the latest technologies and internet software companies. They made it clear they weren't here to help the company and its strategy - but could certainly help make introductions to VC's down the road. They seemed a bit apprehensive to help a firm that didn't want to take VC funding right away. We weren't psyched about that.

The third firm was great! This made our decision quite difficult. In fact, there were two factors that made us choose Fenwick over this other firm. The first was that we got much better terms from Fenwick. These terms revolved around the equity that we had to give up for obtaining their services in exchange for deferred payment. That means we get legal assistance that we don't have to pay for until we raise series A financing. The second, and most important, was that Fenwick had in house patent attorneys that could help us patent our ideas, while allowing us to take advantage of the deferred payment terms. The other firm would have required us to use a boutique patent firm - which would have been a lot of money out of our pockets.

The advantage of this third firm was that they were much more responsive, which was the one hesitation we had in deciding to go with Fenwick. I wanted to make sure Fenwick would be able to get back to us on important issues, regardless of what was going on on their end, in a reasonable amount of time. We were assured that once on board, they would assign enough people to our company that it wouldn't be a problem.

So... now that the legal issue is out of the way, we need to get to our patents, which I promised I'd write about. I'll get back to that after I meet with their patent attorneys - since I'm not sure how the process will play out until then.