The Naked Truth: 7/24 Event Connecting Entrepreneurs to Journalists

Surrounded by entrepreneurs, venture capitalists, and journalists, awash with beers and barbeque, my boss Susannah Malarkey and I attended "The Naked Truth" panel and party Tuesday night. Though we saw and got to chat with no fewer than 15 companies we’ve interviewed in recent months (and CEO of the AoA Company of the Year, event host Glenn Kelman), apparently a few of you may have missed this free, Madrona Ventures- and Redfin- hosted event. Attendance was capped at 200 and “sold out"ridiculously fast.

I kept myself to one cocktail during the panel discussion and took copious notes, some of which we’ll share here:

How do you get noticed on TechCrunch, Michael Arrington’s blog?
He says you need good product. “Even dysfunctional founders can do ok in the press,” he claimed (that may be true, but to get funding from AoA, a team that can execute is key!)

What kinds of entrepreneurial stories tend to interest the press?
John Cook (Seattle PI) prefers to focus on people, product, and funding, but needs a hook. Oftentimes this will be a financing event, which is “transformative in the company’s history.”

Tricia Duryee (Seattle Times) and Rebecca Buckman (Wall Street Journal) like to comment on trends (Tricia notes: even if you don’t hear back from the Times on a press release, individual examples help inform trend data, so keep her posted).

Who should talk to the press?
According to Fred Vogelstein (Wired Magazine): definitely the CEO (vs. a PR firm). “You guys are the best salesmen for your ideas,” he described. He also cautioned against engaging a PR firm if your motive is to save time. Proper management of a PR firm (and the efficient use of one) is a real commitment.

How does the press feel about off-the-record?

Answers ranged from “there’s no such thing,” (Becky) to “tell me everything then tell me what I can print.” (Michael). The take-away is that entrepreneurs should find out the journalist's policy before commenting.

At the end of the day, if the panel agreed on one topic, it was to avoid spin. Be succinct in your value proposition, avoid flowery marketing language, and tell the truth. Turns out that advice works in investor pitches too.

2007 Deal Trends

As the Alliance of Angels enters its 10th anniversary year, we’ve been struck by the opportunity to pass on the insights we glean from daily discussions with entrepreneurs and investors. Thirteen months and 191 interviews into my tenure here, I’m lucky enough to be sitting on a wealth of data that we can mine for answers to the questions CEOs ask us every day. The graph charts our monthly 90-minute coaching sessions with entrepreneurs. We’re averaging about 17 of these interviews per month, and after a busy July, have met with 120 early-stage companies this year.



Some interesting trends have arisen, and when a CEO called me on Tuesday to ask about our “policy” on convertible notes, it inspired some investigation. For those unfamiliar with this type of structure for angel financing, here’s an excerpt from
Brad Feld’s clear but thorough description:

"a promissory note that converts into equity on the terms of a qualified financing. The note will either convert at a discount, will have warrant coverage, or both, to give angel investors some additional ownership in exchange for taking the early risk.”

In the second half of 2006, we saw a significant uptick in this type of financing, and 50% of the companies that presented to our membership were convertible notes. However, in the first half of 2007, only 26% of the deals presented to the members were structured this way. Is the observation affecting the observed? Is the word on the street that AoA "doesn't do" convertible notes? Though we are not in the business of giving financing advice, we are in the business of presenting the best deals to our membership and getting the deals done. From a Program Director's perspective, part of the coaching we provide applicants is to share aggregate data on the companies that successfully make it through our four-step process and get funded. When it comes to deal terms, the feedback from our screening committee and membership has been clear: convertible notes can be attractive to our angels if and only if the timing and the terms are right.
Historically, our angels would get involved in a convertible debt round when it was a true bridge, i.e., funding at a critical juncture that would enable a company to hit milestones which would in attractively position it to institutional investors. This was predicated on an imminent round of venture or institutional funding, which, given the time it can take to close this kind of deal, would suggest the company was already in discussion with this class of investors. In terms of a time-frame, this might suggest a priced Series A round three (and possibly up to six) months out.
Last year, we started seeing debt rounds that wouldn't convert for 9,12, and in one case, even 18 months. While our membership is by no means monolithic, a prevailing perception was that this structure wouldn't properly reward the highest risk class of investors: the angels. Imagine the progress that a successful company could make in 18 months, achieving its development, traffic, staffing, or other significant business plan goals. If the initial funding round had been priced, those who participated could enjoy an impressive step-up in valuation, with a pre-money on the Series A significantly higher than when the angels got involved. Instead, in a convertible debt round such as this, early investors are instantly diluted when it eventually converts to equity.
As to our policy? We don't have a policy per se, just a preference towards deals that are structured to reward both the entrepreneur and the angel. A convertible round doesn't have to be a deal-killer, but timing is everything. Much has been written on this topic, but for some validation from the east coast, here's a link to a Redeye VC post by Josh Kopelman, Managing Director of First Round Capital.

Technology Alliance Establishes Fellowship to Support Future Entrepreneurial Leaders

The Technology Alliance (TA), an organization of technology business and research leaders dedicated to Washington’s long-term economic success, announced today the establishment of the new William H. Gates, Senior Fellowship in Innovation and Entrepreneurship. TA chair emeritus Tom Alberg revealed the creation of the new fellowship in front of 1,000 business, academic and community leaders gathered for the organization’s annual State of Technology Luncheon in downtown Seattle.

“Bill set the Technology Alliance’s focus on promoting a healthy entrepreneurial climate in Washington,” said Alberg, who is managing director at Madrona Venture Group. “He is also deeply committed to education in general, and the University of Washington, in particular.”

“We began thinking of a way we could honor and thank him for his leadership,” continued Alberg. “Of course, we came back to students, especially those students who are seeking to pursue an entrepreneurial path.”

Each year the fellowship will provide a University of Washington graduate student with a unique learning experience by enabling him or her to work with the TA on special projects and research geared toward improving the climate for young, innovative companies in Washington State. The fellow will have the opportunity to engage directly with experienced investors and entrepreneurs through the TA’s Alliance of Angels program, which has successfully connected active investors with early stage companies seeking funding since 1998.

“The Technology Alliance’s commitment to entrepreneurship grows stronger by the year,” observed Susannah Malarkey, Technology Alliance executive director. “AoA is committed to advancing entrepreneur education and bolstering support for startup companies in high-growth sectors in our state, and this new fellowship adds another exciting dimension to our efforts. It is also a fitting tribute to Bill Sr., who was the driving force behind the formation of AoA nearly 10 years ago.”

John Stanton, founding contributor to the fellowship fund and partner at Trilogy Partners, said, “I can’t think of a better way to recognize and build upon Bill’s civic leadership and commitment to improving Washington’s climate for young businesses than to cultivate the next generation of entrepreneurial leaders. This fellowship will give students valuable, hands-on experience by enabling them to work with the people who take promising ideas and turn them into new products, companies and jobs in our state.”

The fellowship will be open to MBA candidates, or similarly qualified students, who are midway through a graduate degree program at the university. Fellows will be selected based upon their academic performance and commitment to entrepreneurship in Washington. The first William H. Gates, Senior Fellow in Innovation and Entrepreneurship will begin working with the Technology Alliance in September 2007.

Congratulations RedFin!

At the most recent Technology Alliance annual luncheon, featuring Steve Ballmer and Ed Lazowska, The Alliance of Angels recognized Redfin as the 2007 Company of the Year. Seattle based Redfin is the real estate industry's first online brokerage. For full coverage, please visit our press page.