My Favorite Smart Phone Business Apps

(A press request)

First, it is impossible for me to separate my business and personal apps very well. Since the smart phone (currently an iPhone and iPad in my case) is an ideal vehicle to integrate personal and business, the apps tend to get used in multiple ways. My top 5 are:

  1. Kindle. The Amazon kindle app on the iPad and iPhone is my absolute favorite. I use it every day to read while on the elliptical trainer at the club.
  2. Netflix. The fact that you can now watch movies that stream live to your device is both amazing and breakthrough.
  3. WorldCard. This amazing app lets you use the camera on your phone to capture a business card and then transfer it to your Outlook contacts. Once someone hands you a card, you now have it available immediately.
  4. Skype. If you travel outside the US, it is no surprise how expensive it is to make calls on your cell phone back to the US. With Skype (and a good headset; mine is the Plantronics Discovery 975), coupled with the Skype $2.95/mo calling plan and a wifi hotspot, you can call anywhere in the US for free.
  5. Red Laser or Amazon. You are in a store and see an item you want to buy (yes, even business items). Are you getting a good price? Now just scan the barcode and voila, you know what you can buy that product for online and go ahead and either purchase it from the store or online.

Success! What happens now?

I am often asked: “my company has achieved its initial goal of getting to $1M in revenue and being cash flow positive. What now?”

In order to grow to be a $10M revenue company, we need to scale up sales and marketing, add new product lines, etc. We therefore need to raise $5M in the business and will need to raise if from institutional investors. When I project forward my cap table, I realize that I would be much better selling on the promise of where we are, if we can sell for a reasonable amount. The alternative: spending the next six months talking to investors instead of growing my business.

So what is a “reasonable amount?” Most businesses in this state (if they have been reasonably capital efficient) will have raised about $1M or so and have a post-money valuation of less than $5M. Therefore, even at a sale price of $5M, the investors could make 2x, if there is a 1x liquidation preference, and the entrepreneur will make $3M. The investors would get a 3x return if the company sold for $10M (if there is a 1x liquidation preference). At a sale of $20M, the return is spectacular.

But how does this happen?

One major problem is that is it exceedingly difficult to sell small companies to large acquirers. When I was at Microsoft and Bill still approved all acquisitions, regardless of size, he once chastised me for doing a $3M acquisition of a UW spinout tech company. “It’s just as much work as a larger one and your time is too valuable. Do bigger deals.” That was true then and even more true now with increased government regulations and widespread use of open-source software in the products that small companies sell (which causes enhanced scrutiny of the code base for any infractions).

But even more importantly, small companies that are angel-backed and therefore “capital efficient” (meaning run very cheaply!), don’t tend to build the same infrastructure that a company with more capital would build. This is what makes them such attractive angel deals. But it is also one of the root causes of what makes them difficult to acquire.

The typical first-time successful startup CEO will build a great product, get their initial customers on board, and build marketing and sales to sell that product. This is very different than marketing and selling a company.

Selling a company to a large acquirer necessitates several other factors:

  • A vision about the company’s importance to the acquirer that clearly shows where the initial product leads;
  • A coherent and believable business plan that clearly shows the impact of the acquisition on the acquirer, as well as the costs;
  • Clean legal and financial docs, prepared by experienced and believable people, so that the acquirer won’t have to spend six months in due diligence;
  • Well-documented IP and code, that allows for rapid due diligence;
  • A well-honed understanding for the acquisition process, its key touch points, timing, and sensitivities.

Generally, these things can be provided by the company management team, board, or paid advisors. But in small, thinly capitalized companies, they are missing more often than they are present.

Therefore, selling a small, but valuable, angel-backed company seems akin to selling a beautiful home by placing a “for sale by owner” sign in the yard and hoping people will decided to call and make an attractive offer.

Aprimo – what a wonderful year-end surprise

I was the founding managing partner for Frazier Technology Ventures (http://www.fraziertechnology.com/), which unfortunately was founded in May 2000, possibly the worst time for starting a new venture fund. Up until last week, the fund’s performance was in the middle of the pack (and therefore did not come close to returning capital). This was a financial, professional, and personal disappointment for me.

After more than 10 years, the fund had only one surviving company that was still private and alive, Aprimo (http://www.aprimo.com/), an integrated marketing software company. The founder and CEO, Bill Godfrey, started with a vision that marketing professionals needed a strong and consistent platform that supported their needs and aspired to fill that need. He was supported by good investors, who shared that vision and stood by the company in the lean times as well as the flush ones. The FTV board member, my partner, Gary Gigot, had consistently forecasted that Aprimo was creating a new category, would dominate that category, and therefore would be a very valuable company.

And then on December 22nd, Teradata announced that it would acquire Aprimo for “approximately $525 million” (http://www.aprimo.com/TD/). The transaction is expected to close sometime in 1Q2011. Well done Bill and the Aprimo team! This is a spectacular outcome for Aprimo, Bill, and the investors, as well as for Teradata.

And this acquisition wraps up Frazier Technology Ventures I on a high note, placing FTV I in the top quartile of its peers in that vintage. For all of my friends that invested in my fund, I am thrilled that your faith in me turned out OK.