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Recap of Venture Club

November 19, 2008

The keynote presentation was by Wes Keltner.  Wes is CEO of the TAO Agency , an experimental media lab and of Game Cinema HD, a site that is a cross between consumer reports and CNN for gamers. Wes and his team help companies use cutting edge technologies to build their brand and interact with consumers.

The presenting company was Komfort Kruz, manufacturers of motorcycle to trike conversion kit.  The company was started by two passionate enthusiasts and they have some patented technology that set them apart.  We will have more on Kustom Kruz shortly as well.

Written by Richard Stump · Filed Under Blog, Events, Startups, Venture Capital |  

Start-Up Profile: Conexxus

October 23, 2008

Conexxus is a software start-up based in Louisville, KY.  

1) Give me your thirty second elevator pitch on what Conexxus does?

Conexxus is a software development company providing compliance solutions to accounting, finance and similar departments. Our back office and compliance monitoring solution saves companies time and money from growing compliance burdens, such as the Sarbanes-Oxley Act, the Bank Secrecy Act, etc. 

The product, CONEXXUS, was designed to bring automation to repetitive manual financial workflow processes, improve documentation management, and create a link between existing disparate software products (process, document retention, and general ledger systems). CONEXXUS is a unique best of breed, real-time, continuous monitoring system for internal controls, compliance and policy/procedure requirements. Our real time monitoring allows our solution to identify if critical procedures are being followed and completed with appropriate proof via underlying documentation and approvals. No solutions on the market today can monitor such manual processes, which typically comprise 75 to 95% of critical financial controls for Sarbanes-Oxley.  

2) Your management team and advisors have ties to Advanced Imaging concepts, how did you get hooked up with them, what are the advantages of working with a team with a previous entrepreneurial venture under their belt?

While I (Jeff), was at E&Y, I won AIC’s annual audit for 2001 and 2002.  During that time I established a great working relationship with AIC’s Founders: Jeff Amrein, John Reinhart, Jim Orms and Ed Kenney. I helped document AIC’s story which led to their team winning the Ernst and Young Entrepreneur of the Year Award.  AIC’s product was a high speed imaging and workflow solution for physician offices which eliminated the need for paper medical charts and allowed back office staff to work more efficiently.  I had discussed similarities in back office workflows for accountants at that time with AIC’s founder Jeff Amrein, but that was simply a discussion. AIC’s founders went on to grow AIC from start-up to a $20 million exit.

After leaving an electronic working environment at E&Y and moving into industry, I experienced the pain of manual, paper-laden processes, especially with Sarbanes Oxley legislation just being passed.  I knew there was more efficient way to work, but could not find a solution in the market to help me as a Controller.  Recalling my previous audit client, AIC, I reached out to AIC’s founders about creating an Enterprise Manual Processing Monitoring Solution.  The new solution would combine AIC’s technical know-how with my audit knowledge.  After these discussions, Mr. Reinhart and Mr. Amrein joined the Conexxus Board, Mr. Kenney helped with the initial business plan and market analysis and Mr. Orms came on-board as the President and COO, with over 20 years imaging, workflow and technical operations experience. 

The experience the AIC team brought to the table has been invaluable to getting Conexxus off the ground.  In fact John Reinhart was able to help us move forward with starting the business, from a coaching and mentoring perspective.  It just may not have happened without his guidance.  Overall, the value of their insight, as a team who has been in the trenches before and won, is immeasurable and has greatly impacted the speed at which we were able to bring the Conexxus solution to the market, but almost more importantly better prepared Conexxus for the highs and lows of being an entrepreneurial start-up.

3) What have been the advantages/disadvantages of founding a high-tech start-up in Kentucky?

Kentucky wants to have companies in the new economy and is working to incentivize creation of such technology jobs.  Conexxus has been blessed to be a recipient of grants and awards to date, but we have noticed that many incentive programs are designed from older business models which require large capital investments, such as manufacturing, so certain incentives are simply not feasible for the virtual companies of today.  As a technology company, there are a smaller number of people that understand the business model and thus raising capital has been challenging at times.

However, for Conexxus, founding a high-tech start-up in Kentucky has been advantageous to date.  Aside from connecting a local experienced group of individuals to develop and launch the company, local and state representatives have proven to be extremely supportive and resourceful. 

Written by Richard Stump · Filed Under Blog, Startups, Venture Capital |  

Blog Action Day

October 15, 2008

Today is Blog action day. The topic is poverty. To help fight global poverty, how about providing a loan to an entrepreneur in the developing world. The tech site Techcrunch has a fund raising team set up on kiva.org. You can make a loan to entrepreneur anywhere in the world. Often just $20 can make a difference. Remember, this is a loan that could be paid back so it is not just charity it is business. I think we ought to apply this type of lesson to fighting poverty in our own country as well. Many in appalachia in Kentucky could use a small loan to get an independent business off the ground.

UPDATE:  I know Prosper.com operates in the US but I am looking for site geared to small entrepreneurs in porr communities around the country, providing “extreme micro-loans”

Written by Richard Stump · Filed Under Blog, Politics, Startups, Venture Capital |  

Angel Investors are Overrated

October 13, 2008

Angel investors get a lot of publicity as the key to the growth of high-impact start-ups. A recent study by Scott Shane and the US SBA office of advocacy has statistics that show this impact is overrated.The key passage“…It finds that the angel capital market is smaller than previously estimated, and that most angel-backed firms are not potential high-growth start-ups”  This was first highlighted here. In addition, a previous post here highlighted the different types of angels and Venture Hacks gives a good look at the value different investors here.  Key takeaway:

“ Smart money is money plus the promise of help that’s worth paying for, dumb money is money plus hidden harm, and mostly money is mostly money. Weed out the dumb money with diligence. Evaluate supposedly smart money with the smart money test. Finally, assume your investors are mostly money: unbundle money and value-add to get money on the best terms possible and value-add on the best terms possible.”

Written by Richard Stump · Filed Under Blog, Venture Capital |  

Pitching to VC’s

September 10, 2008

At the Techcrunch 50 event, they had a panel of VC’s answering 20 questions on a wide variety of subjects.  You can read the full text here or watch the video but i think the following exchanges go a long way towards understanding how VC’s think when it comes to evaluating entrepreneurs and pitches:

Schonfeld: What are the most common mistakes by entrepreneurs in pitches or in the early stages of a business?

Levinsohn - if you can’t tell the story in a couple of sentences, its a problem. You need a story. Pincus asks what percentage of investments are made on formal pitches versus connections. Levinsohn says more formal pitches because they are fairly new.

Zachary: Whatever the mistakes, recognizing them quickly is important.

Botha: Number 1 indicator of entrepreneurial success is how good of a listener they are?

Mandal: In a pitch, make sure you prepare and understand your audience. Also, realize that VC decisions are largely emotional, you have to tell a story and connect with the VC.

Question: Number one indicator of success in a company? Botha says good listener. Thiel says low paid CEO.

Zachary: A good team that doesn’t want to take too much money early. Shows they believe in themselves.

Levinsohn: A sincere passion for the product.

Mandal: People. And honesty.

Kapoor: Ability to adapt

Written by Richard Stump · Filed Under Blog, Venture Capital |  

Drew Curtis, Fark and a curry recipe database Part 1

July 31, 2008

Drew Curtis is the founder of Fark.com news site/aggregator that focuses on the absurd in life. With 60 million page views a month, 4 million unique users, 3 employees, 1 book and not a drop of venture capital, Drew has proved you can build a tech start-up to success in Kentucky. (Fark is now 10 years old). What follows is our wide-ranging conversation over beers at Marikka’s, a local watering hole. In part 1 we cover the start of Fark and ventire capital, start-ups etc.  In part 2 we will talk about new features for fark and various other topics.

Why did you start Fark?

Really it was an accident.  I had been spending some time each morning e-mailing weird stories I had found, this was in 1995, to my friends.   The first story in fact was about a US fighter pilot who crashed his plane in the Arizona desert and the reason for the crash was he had been trying to remove his flightsuit so he could moon another pilot and lost control.

When did you put up the website?

In 1999, but just really as a hobby.  I had two ideas for a business one was Fark, the other was for a curry recipe database.  At the time their was only one really good curry recipe database, death by curry and I figured their was room for at least two more but I chose Fark.

When did you know you had a business?

In 2000 we had about 1000 page views a day but the AD market had crashed so we just continued to limp along and in 2002 we had about 10,000 page views a day but again the AD market was crap in 2002 and 10k was still too small for ADs  and the ISP I had been running also crashed so I had a little extra time on my hands. We didn’t have any money so we didn’t spend any so we learned to get by without it.

You mentioned your ISP, so fark wasn’t your first business?

No, out of college I had been hired by the state of Kentucky as a database analyst for the personnel cabinet.  They had a consultant working and he had installed PC anywhere so he could log-in remotely but he had been using that to log-in at different times and make it look like he had been working.  I discovered that in 3 months he had written only 8 lines of code.  So needless to say he was fired and I finished the project in six months and then asked for a raise and they said no so I left and started a ISP with a friend.   He knew how to configure the servers and I had a credit card so we bought all the equipment on that.  That was a stupid thing to do. You read all the time about peole starting businesses using their credit cards which is stupid.  I was stupid for doing it.

I have heard you talk about the fact that start-ups should avoid venture capital?

Yes, In general you should avoid investors whenther they are uying 1% or 51% of your business you lose control the day you take the money.  Because of minority shareholder rights even the 1% holder can mess up your business.  VC’s are going to argue every point and every expenditure that you make.  A tech start-up can do a lot to scae-up without the need for investors.

Can you give me an example?

Build your audience.  You can slowly test the market, see if you can get users and build your audience so that when you raise money you have leverage. You can do a lot with little cash, We didn’t have cash so didn’t spend it and in fact we still operate the same way today.

Written by Richard Stump · Filed Under Blog, Startups, Venture Capital |  

KEF fund changes

July 8, 2008

Changes have been made to the Kentucky Enterprise fund. The KEF are state funds managed by KSTC to fund start-ups. Click here for the full overview but some of the best changes are a streamlined program, grants have been increased to 30K and the investment and convertible loan programs have been expanded. On the downside, funding was cut by the state to only $2 million for this fiscal year. Please communicate to your legislator the importance of programs like this to building a start-up culture in Kentucky.

Written by Richard Stump · Filed Under Blog, Venture Capital |  

Kentucky Green

June 24, 2008

I write this blog to highlight the interesting happenings in Kentucky entrepreneurship, especially the high tech side. Most people, both inside and outside the state, are not aware of the interesting companies and pockets of innovation in a state like Kentucky. One area, however, where I think the state has missed an opportunity is in alternative fuels and technology. Kentucky was well positioned to be a leader in this area. Kentucky is a state with an abundance of coal as well as some oil and natural gas. You might think this would be a negative but what it means is that we have a lot of engineering talent and market experience in the energy sector. The University of Kentucky has an applied energy research program focused on these very areas and a shared reserach agreement with Oak ridge national labs. However at the state level, we have focused on giving large subsidies to large companies like Peabody coal for coal gasification, clean coal and coal liquefaction. While these technologies may have a role to play, our dollars would have been better spent supporting startups and commercializing technologies on the cutting edge of green technology.
Some recent progress has been made. In addition to the state matching SBIR program, the state through KSTC has initiated a grant and investment program focused on green fuels. Alltech, a local biotech company focused on animal health, nutrition and performance received a $30 million grant from the DOE to develop a rural community Bio-refinery.

Written by Richard Stump · Filed Under Blog, Politics, Venture Capital |  

7 million in funding

June 20, 2008

Kentucky is the only state to match both SBIR phase 1 and phase 2 federal research grants.  SInce the program started in 2006, over 7 million in matching grants have been awarded to 31 companies.  The strength of this program is that with fewer strings attached to this money, a company can use it to scale the business side more efectively while research continues.  In fact the company I work with, Transposagen Bio is a recepient of a million dollar match of a phase 2 SBIR grant.  This has allowed us to scale much quicker than if we had the federal grant only.

Written by Richard Stump · Filed Under Blog, Venture Capital |  

LinkedIn gets its’ billion

June 18, 2008

In a previous post about LinkedIn, we talked about the difficulty LinkedIn was having in selling itself. Now They have their funding round and their billion valuation. The investors in this case must believe that the growth in social network use among adults and professionals which is expected to be strong over the next five years will benefit LinkedIn. I like linkedIn but am waiting for some stronger features especially around recommendations for the to really fulfill the promise of the professional social network.

Written by Richard Stump · Filed Under Blog, Venture Capital |  

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