This week was TechCrunch Disrupt here in NY.  A lot of people point to this event as evidence that NY is real when it comes to the tech scene and the startup scene.  To be sure NY and some SV royalty were to be spotted around the 3 day event.  The sessions were interesting and insightful as one would expect.  There were plenty of entrepreneurs with good ideas drumming up interest.  It was pleasant.

This time around, however, I didn’t feel the electricity I had hoped for. Maybe it was the weather, which was crappy all three days.  Maybe it was my more seasoned (or perhaps jaded) perspective.  A couple years back I snuck into TechCrunch on a borrowed badge on the afternoon of the last day.  I remember being so excited.  I remember thinking how amazing all of these ideas are.  I walked out after only a couple hours pumped up for the coming year.  This year I didn’t feel that.  In short what I didn’t feel, I think, was ‘disruption’.

Look, there were cool companies in attendance this year.  There were smart entrepreneurs.  There were good ideas (by the way, I loved the gTar).  I just didn’t see anything that was going to change the world.  Maybe I wasn’t looking hard enough.  How hard do you have to look for an idea that is going to change the world – not very hard right?  It should be obvious.

One might argue that this is evidence that the current ‘boom cycle’ in venture cap is running it’s course.  We have parsed the eCommerce meets social for the __________ (pick a sector) into fine enough subsegments and now we are done until Web x.0 comes around. This argument is that essentially those truly innovative/disruptive ideas don’t come around very often. Maybe.

Or you might argue that lower barriers to entry for a startup have just watered down the disruption.  Literally, the venture side just needs to look through more hay to find the needle than they once did. If that is the case, fine.  It just means more startups that don’t get funded. Hopefully that’s not the case, although it may be.

I think entrepreneurs just need to be urged to think bigger.  The Howard Hughes among us need to be prodded to “shock the world”.  Let’s just take a second to think about the week that Elon Musk had.  (Quick summary: he is the co-founder of SpaceX, Tesla Motors and X.com, which later became Paypal.  Oh yeah, and he doesn’t turn 40 until next month.) This week one of his companies successfully docked the first commercial space craft at the international space station for a cargo delivery.  We are talking ‘create new industries, impact futures generations’ type big ideas.  This guy is thinking software, hardware, electric cars, rocket ship big.  This guy is thinking little boy who doesn’t know any better big.  He’s thinking BIG!

Okay, so we are not all Howard Hughes or Elon Musk or Tony Stark.  That doesn’t stop us from thinking bigger, from thinking different, from taking risk.  That doesn’t stop us from disrupting. Who knows, you may be an Elon Musk type and just not know it yet.

This morning I spent time ‘thinking bigger’ and I’ve formed a secret plan.  I’m not ready to come out of stealth just yet.  But some day you will know what it is – and I will point to this blog post as reasons when and why it happened. For me, it’s big.

So… bigger please!

Over the past couple years there have been a number of startup companies which I have consulted to, mentored, advised, etc.  As someone who is committing time to these companies, I always find it a drag if I have to proactively reach out to find out what is new with the company.

It’s not that I can’t be bothered – because I actually do reach out.  It’s more to do with 1) if a person is committing their time (and actually providing value), then management should do their best to maximize the value they are getting; 2) if the company is losing an opportunity to communicate with someone who is actually helping then they are absolutely missing an opportunity to communicate with others that may end up being customers, partners, investors, introducers or just plain interested.

Often times I will casually tell an entrepreneur to ‘keep me in the loop’.  Today I got an email from a (Brooklyn) company that did this request one better.  It started out “If you are receiving this weekly recap you have helped the team in someway and you have our thanks”.  Nice! It went on to say that this was the first weekly update of the companies progress which will range from (now) the time that the wireframe is completed until the company gets funding and starts to bring the business into steady state. The entrepreneur was quick to say that if the recipient doesn’t want these updates to create a spam filter or email him back.  Totally non-intrusive.

The update was broken up into the following sections:

• Quick summary
• Wins/achievements/cool stuff
• Concerns/risks/warnings
• Metrics (with a subset of 7 or 8 metrics)
• Top goals for the coming week
• Product
• Customer Acquisition
• Customer Engagement
• Financial and Budget
• Outstanding issues

What is this entrepreneur accomplishing with this email?  A lot.  He is keeping his team honest by driving transparency.  He is forcing himself to think, at least weekly, about where he has been and where he wants to go.  He is communicating tactically about his company’s progress.  He is communicating strategically by letting those interested know that he is thoughtful, thorough, engaged, hardworking, etc.  All of this will likely pay off as the company is being built.

From my perspective it is great.  It cuts down on repetitive individual communications.  It lets me incorporate the latest news on the company if I happen to mention them to another investor (which happens from time-to-time).  It helps me walk into any consulting or mentoring situations fully up to date. It inspires my confidence in the team.  It lets me make comments and suggestions on the fly that 1) could be helpful and 2) potentially before too much unproductive time or effort has been expended.

And oh, by the way, this is not bad practice for when an entrepreneur has a real board to update and answer to.

The point: if someone asks you to “keep them in the loop”, don’t miss out on the opportunity to do so.

p.s. thank you to the CEO of the “recap” for inspiring this blog post!

Ah yes… the glamorous life!  Meeting with new companies and putting capital to work.  Investments, press releases and Board meetings.  Cigars and Martini’s.  The super exciting job of a VC.

Except that… for most successful VCs… this high profile, in the spotlight part, makes up very little of the job.  Yes, I imagine there are some folks out there that will write an entrepreneur a check and then leave that person alone.  But to proceed this way presumes  an awful lot about the skills, experience and connections of folks that are typically on the front end of the youth and experience curves.  It is also probably the pathway to mediocre or poor investment returns.

For a good VC, maybe 25% (or maybe less) of the time is spent finding the investments.  The rest of the time is spent making them successful.

During this “other 75%” the VCs job is to:

1. Hold the CEO accountable for deadlines, plans, and deliverables.
2. Block or push for major events in the company’s life (future fundraises, acquisitions, selling the company etc.)
3. Provide great strategic advice
4. Help with recruiting senior executives or key hires.
5. Teach entrepreneurs about the nuts and bolts of the business, or processes as you scale

I often talk about a VC making sure that a company has achieved enough to merit the next funding round.  That might be completing a beta release or building customer traction or filling out the team with high quality hires.  As a capitalist, the VC wants to make sure that the next round of funding is at a higher value than the last one.  A CEO will want to achieve these things, and the VC will try to make sure that nothing slides.

Or what about a $40 million acquisition offer?  That might be a lot of money to a young entrepreneur.  But what if that is selling the company short of its potential. Putting these types of things into perspective based on experience is of real value to the management team of a portfolio company. At least it should be.

Maybe most important, especially for an early stage investment is the hard work of positioning, messaging and go-to-market.  The skill sets of building a tech product and of marketing that product are not the same.  A VC, sometime as a function of protecting an investment from failing, or sometimes as a function of fostering growth will spend time with his management teams to make sure they know, who to get to, how to get them and what to say once they get there. For many CEOs, this is the area that guidance is most needed and most welcomed.

This is roll up your sleeves type of work.  It’s not particularly glamorous.  I don’t expect that anyone is going to feel particularly bad for a VC who does this type of work.  So why am I telling you this?  Because you need to hold your VC accountable to that “Other 75%”.  You need to ask the right questions when you are finding your VC.  You need to make sure that you have found a person who cares that your company is going to be successful and does everything in their power to make that so.

At very least, if a VC is going to make you work that hard to get the money, you should make sure that she or he is willing to work that hard once she or he gives it to you.  If not, your company is only getting 25% of what it deserves.

Lately, I’ve had a number of companies tell me that the business plan is to simply convert users who access the product free at home, to paid customers at work.  In addition, the argument is that the fee being charged to companies is relatively low for the value and therefor these customers won’t mind paying.

I just don’t think this is a well conceived business model.

First, there are not a lot of success stories around converting people from free to paid – even for the most popular apps.  Rhapsody, a subscription music service has 800,000 users after 10 years.  Spotify’s customer conversion estimates range from 3% to 20%, and the company won’t say what the real number is.  Can anyone even think of another?  It tends to be very difficult to get people to pay for anything they have grown accustomed to receiving for free, even if there is perceived value from it.  At some point some company will crack this concept, but for now, it’s a tough sell to a VC.

Second, the idea that companies let rank-and-file employees make decisions on productivity applications is wrong.  The CIO has security, firewall and control issues as well as employee continuity rules to follow.  So while it might be easy to charge a SaaS app to your corporate credit card, once the technical folks are on to you don’t expect the gravy train to last.

Third, price is an issue with product adoption, but not the only issue.  Just because a corporate subscription only costs $250 per month, that doesn’t mean your boss is going to pony up.  It might make the best infographics the world has ever seen, but that doesn’t guarantee adoption at $250 or even $25.

So okay… maybe you will be the first to figure how this will really work in the real world, or maybe you won’t, but you still need funding.  Here’s what you need to do:

1. Decide on how the step by step process for conversion from free to paying happens
2. Be able to explain the process in nauseating detail to a VC when they ask
3. Find some market examples of successful conversion to follow and as proof points
4. Choose very conservative conversion rates
5. Make sure that your customer acquisition and conversion rates tie to your revenue forecast
6. Have a backup plan in case this doesn’t work

My final advice, tread lightly Jedi warriors.  And be prepared for me to tell you to go fly a kite!

I posted a blog like this the other day.  This is about elements that I have been seeing in pitch decks that are driving me crazy.  This is a way to help entrepreneurs and get this off my chest.  This post is about the Total Addressable Market or TAM slide.

One of the focus areas of my firm RTP Ventures is Big Data and Analytics.  In more than a few pitch decks recently, the market slide includes the information:  IDC has pegged the big data market for technology and services at $16.9 billion by 2015, up from $3.2 billion in 2010, a CAGR of 39%.  Ask the entrepreneur, “What’s the size of the market you are going after?”  He or she will answer, “about $6.18 billion.” That is (($3.2*1.39)*1.39).

No it’s not!

First of all, that should be a hint to me that the market is overheating – when an entrepreneur doesn’t know or doesn’t care what the size of the market it is.  Second of all, please don’t insult me or waste my time trying to convince me that a single analytics algorithm that decides the sentiment of a twitter stream is cable of capturing $6.18 billion in revenue (if all other competition disappeared). It won’t, because your market is only a subset of the big data market for technology and services.

So entrepreneurs, here’s my advice… don’t just settle for an IDC or Gartner generated number.  Take the opportunity to impress.  Figure out your TAM, SAM and SOM for yourself.  Show a calculation.  Explain to me why the market is a significant subset of the ridiculously huge, but not fully relevant, number you wanted to show me. Prove to me that you have a more granular understanding than what IDC or Gartner has provided.

In order to help, here’s some info on TAM, SAM and SOM.

TAM: Total Available Market. This is the total revenue generated / amount spent (both internally and externally) on a specific segment of the market. This number is typically larger than the simple calculation of ‘total number of customers times Average Selling Price’ because of all the in-house, home grown solutions that get counted.  Again, using analytics as an example, companies like Google or Facebook or Twitter spend a lot on this but are not paying an outside vendor or selling this as a product.

SAM: Serviceable Available Market. This is the subsegment of the market that a product actually reaches.  This is the number that a VC really wants to know. In our analytics example, this is the size of the market for an analytics algorithm that decides the sentiment of a twitter stream.  IDC doesn’t produce this, the entrepreneur does.

SOM: Serviceable Obtainable Market.  This is the realistic market share that can be obtained by a company given the competition, countries, sales/distribution channels and other market influences.  In other words this is the SAM time whatever percent of market share you think you can justify.

Reasoning this through… if IDC says the big data market for technology and services is $6.18 billion, the market analysis slide should start with that number and then haircut it  for just algorithm software… let’s say a third.  The TAM in this instance is about $2.06 billion.  And let’s say the sentiment analysis piece of the market is 25%.  The SAM is $520 million.  That number should be on the slide.  And let’s say there are 10 competitors of which this company has a definable competitive edge, so a 15% market share at the beginning is reasonable.  The SOM is $80 million.  That number should be on the slide.

Yes, $80 million is not as big as $6.2 billion, but at least the VC will believe the entrepreneur.  In addition there are plenty of VCs that will invest in a $520 million market with an initial chance to reaching $80 million with only one product.

Take a cue from Direct TV.  Do a good TAM calc and the VC will have a better chance of believing it.  If the VC believes it, she/he may have an easier time agreeing that a two person company can somehow take the business from $360,000 top line this year to $16 million in two years without hiring anyone or raising more money.  And if she/he is  nodding their head on that, they just might invest at a good valuation.  The lesson: do a good TAM slide and get a high valuation.

It’s a little early in my venture career to become jaded, but I have seen a couple of things that merely from repetition have started to get under my skin.  So think of this blog as not only my insight, but also a form of therapy for me.

My biggest pet peeve recently is listening to an entrepreneur say, “We are not worried about a business model, we just want to build some cool technology and we will figure out how to monetize it later.”

99 percent of the time that is wrong.  Not every cool thing is monetizable.  Some cool things might be, but assuming any particular one cool thing is, could be a huge waste of time an energy.

Here’s how I would assess the possibility of success:

1. Does the technology in question provide real value?  Is it something that once people get it in their hands, they don’t know how they lived without it.  Perfect example: smart phone.  If someone took away my smart phone, I would be genuinely pissed off. On the other hand if you took away my snowboard trail map app, I would probably be able to survive through the day.
2. Is there a market and is it big enough? There are an awful lot of solutions chasing problems.  Sometimes a piece of technology finds a problem, sometimes it doesn’t.  If the entrepreneur doesn’t know if there is a market, I sure don’t want to waste the energy trying to figure it out.  And even if there is a market, if it not a suitably big market, it is not worth the investment.  So if this ‘cool technology’ is going after the ‘fart noise’ market, chances are it’s not a big enough TAM to generate interest.
3. Can the market be penetrated in a way that people can accept?  If I have to jump through hoops to adopt this technology, chances are I won’t do it.  If I have to rip and replace old technology, chance are I won’t do it.  If I have to learn a drastically new behavior, chances are I won’t do it.  If the app is in the cloud – okay.  If it is easily downloadable – okay.  If it is not time consuming – okay.

That’s it.  Common sense.  Is there value? Is there a market? Can it be delivered?  And coolness… nowhere to be found.

Expect more recent peeves in the near future.

When one builds a community there tends to be a backbone of individuals that help keep it together. I just met Micah Kotch. He’s the Director of Incubator Initiatives for NYU Poly. He’s likely to be a popular guy for fledgling tech companies looking to locate in Brooklyn.

For those who don’t know, NYU Poly has started an incubator in DUMBO. The New York City Economic Development Corporation provided a $250,000 grant and Polytechnic Institute of New York University (NYU-Poly) the leased the incubator space for 3 years from Two Trees Management (at a discounted rate).

The application process opened up recently and the expectation is that companies will start moving into the space in early February. The incubator has more than 30 dedicated workstations and an equal number of flexible access workstations priced at what a startup can afford. Micah’s view is that there is room for somewhere between 15 and 20 companies.

An incubator is different than an accelerator in the ways the name would suggest. An accelerator kind of jump-starts a startup with connections, experts, funding introductions, etc all provided by a high-powered group of folks associated with the organizations founders.

An incubator is essentially high quality infrastructure in an environment conducive to startups and some programming that could be useful to young companies. Not to say that Micah will not help startups with resources, mentors and introductions to potentially get access to capital. He will. An incubator is not as much of a gambit (there is no demo day) and as a result, things are left much more in the hands of the entrepreneur.

As I was talking to Micah about the space he said, “there’s a great kind electricity around startups, and we want to create an environment that feeds that sense of excitement about the difference they can make.” The incubator is located at 20 Jay Street on the 3rd Floor. If your company is interested, fill out an app here: http://www.poly.edu/business/incubators/apply.

One of the things that New York has over Boston or Silicon Valley, and you’ll hear me talk about this a lot is proximity. It is all right here – companies, customers, infrastructure and capital are almost all within walking distance if not a short subway trip. So, to me it makes perfect sense that an incubator should be started in DUMBO. That’s where there is a community of companies like Etsy, Carrot Creative, Huge, Brooklyn Digital Foundry, Big Spaceship and Loosecubes (to name just a random few) are to provide blueprints for success.

If you are a New York based startup and you do not know whom Charlie O’Donnell is then you need to pay better attention. Charlie has a laundry list of contributions to the New York startup community.

Until very recently Charlie was a Principal at First Round Capital, working on very early stage investments. As of today (1/17/12), Charlie launched his own fund called Brooklyn Bridge Ventures – Brooklyn’s First Venture Capital Fund. It is an early stage fund focused on seed investments in predominantly technology companies. The most exciting thing about it (to me) is that it is based in Brooklyn. Is it Brooklyn exclusive? No. That might be a little too much to ask at this stage.  The target geography is the Greater Brooklyn Area – which include New York City and the surrounding area. It is Brooklyn based and one of the goals of the fund is to foster the Brooklyn startup community.

Proximity. Proximity. Proximity. If you are an entrepreneur, your life is made easier when everything is within reach. Talent, customers and capital are what help grow a business. So to be able to say that all that exits here (particularly a VC) is fantastic.

A bit about Charlie… his startup experience includes nextNY, New York’s largest independent innovation community group, and he was the Co-Founder & CEO of Path 101, an innovative startup in the career guidance and recruiting space, which raised half a million dollars.

Besides First Round Capital, Charlie spent time at the venerable Union Square Ventures. There, he was part of the original investment team, along with the partners of that firm, Fred Wilson and Brad Burnham where he participated in sourcing and diligence activities for investments in early stage web services companies, including investments in del.icio.us, Etsy, Bug Labs, Oddcast, and Indeed.com.

Charlie also teaches entrepreneurship at Fordham University and can be found blogging at www.thisisgoingtobebig.com a blog all entrepreneurs should read. He also Tweets at @ceonyc and @brooklynbridgev.

Charlie’s accolades include being voted one of the 100 Most Influential People in New York Technology the last three consecutive years by Alley Insider.

As I spoke to Charlie about his fund, he said, “It’s all falling into place in Brooklyn. It’s a place that is really growing in an interesting and diverse way. It’s a place that fits my personality. And I really want to be there.”

Conventional thinking is that Charlie’s first fund will top out at between $9 and $10 million, of which a chunk is already raised and available to be put to work. Getting a hold of Charlie is pretty easy, but if you are a startup don’t be surprised if he gets a hold of you first. Here’s a link to his website: www.brooklynbridgeventures.com. And here’s a copy of this morning’s press release: PDF.

Congratulations Charlie! Welcome to the neighborhood.