In the Washington Post’s latest Business Rx Chat, Elana Fine was joined by special guest Kevin Lenane from video indexing company Veenome. Together, they gave real-time advice on all things entrepreneurship. A few of the questions from the chat are featured below.
Q: Veenome exists solely to be acquired, having never made a profit. What do you think of the practice today of creating companies knowing full well you have a three year window to be bought out or shuttered?
Kevin Lenane: Nice aggressive opening statement! However your information is inaccurate as Veenome is a b2b company – and our KPI (key performance indicator), so to speak, is revenue. We do not exist solely to be acquired and in fact have been turning revenue for almost 9 months. At some point this summer we will turn profitable and be well into the 6 figure revenue range per month.
But on to your actual question. I think the practice of building a company solely to be acquired is tough because an acquisition is based on a moment. Yahoo bought Tumblr, but it’s not as if the founder of Tumblr had this 5 year plan and Yahoo was at the end of it. I would say that if you are keeping a specific acquisition in mind as you create a company and raise money, you drastically raise your odds of running out of money because you haven’t built a business that can last. It’s basically been built to end in a single point and a million things happen outside of your control in between the point of start and that point perceived that make this outcome super-unlikely.
Elana Fine: I’m going to go with Kevin on this one — I think the “watched pot doesn’t boil” cliché applies here. If you spend all your time thinking about the acquisition, you won’t ever grow a customer base or create value for the acquirer. That being said, there are some technology companies where once the technology is built, it doesn’t make sense to scale a larger manufacturing and sales organization and the founders might look to exit before they even start to build a business.
Q: I am considering crowdfunding my new startup. Any risks?
Elana Fine: I’d be interested to hear Kevin’s thoughts on this; crowdfunding comes up a lot on these chats. It has pros: great access to larger pool of capital, visibility for your startup, etc. However, it will be interesting to see how the baton passes when startups go to raise follow on capital. It often gets hard to chase down investors, etc. and companies might end up with complex cap tables that are less appealing to VC investors. You could also end up with unsophisticated investors who don’t understand the inherent risks of early stage investors.
Kevin Lenane: I think crowdfunding works really well for hardware startups right now. If you want to demonstrate traction on product sales before a product is built, there is no better way to do it than Kickstarter. I think generally crowdfunding like Crowdfunder.com is really exciting too, but those platforms aren’t fully laid out yet. If I were a software entrepreneur and wanted to use crowdfunding, I’d consider using it as soon as the first platforms launch before the bad actors get on there. The risks are basically uneducated investors feeling like they’ve been “burned” and not understanding the incredible riskiness of the startup investment market.
Q: As someone who is so connected to the startup scene, you must have insight into recently launched startups. What are some of your favorite up and coming startups? What do you look for?
Kevin Lenane: There are a few new ones that I love:
Atlas Wristband – it’s like Fitbit for every other exercise besides walking. The prototype is pretty incredible and can tell you how many pushups you are doing or how you swing a golf club. A group of recent Hopkins engineers built it and are raising seed now. TrackMaven – Allen Gannett’s new company that helps track competitors. Both are answering such a clear need.
Q: I met an investor who was interested in my product. We’ve had three meetings since my initial pitch, but I can’t seem to get him to commit. What are some tactics I can use for “closing the deal” with investors?
Elana Fine: Sometimes investors feel bad about saying “no.” I can’t really explain this phenomenon, must be how they get the “angel” title. Think of this like a sales process — at some point you need to ask for an answer. If there is hesitation, find out what information the investor still needs to know or if they want to wait for additional milestones. Don’t spend too much time unless they give you some specific metrics for follow up. It is like that movie “He’s Just Not That Into You.” If they don’t call, e-mail, tweet back then the timing/fit is probably not right.
Kevin Lenane: I’d also say if you think you will probably get a no — don’t pursue the discussion any further. An investor is more likely to come back after six months of waiting then reverse their no. Use your intuition and if you think it’s a no after five unanswered e-mails, wait it out and swing back when you have more traction.
In an added twist, Elana Fine turned to Kevin Lenane asking some questions about being an entrepreneur and running a startup. Here are a few of the questions Elana asked Kevin.
Q: Kevin, what has been most surprising about running your own startup? What was harder than you expected? – Elana Fine
Kevin Lenane: I’m surprised at the impact that being a founder has had on my energy and attention. If you are really in it for the long haul, you can’t put your business away when you get home, go on vacation, go on a bike ride, etc. It’s always in a lobe somewhere – and this effect on your energy is pretty major. If you believe in what you are doing, though, it is tolerable. I honestly can’t imagine pursuing a startup that I didn’t believe in – I think the psychological impact of that would be very severe.
Q: I noticed from your background that you have worked with startups before. What did you learn from your previous startups that applied to launching Veenome? – Elana Fine
Kevin Lenane: The biggest takeaway from the last startup was on the business development side. At PointAbout we were constantly the smaller company/vendor working with the very large company. The sales cycle is pretty long for larger organizations and I’ve trained myself to keep a seemingly overwhelming amount of prospects on the burner since we never know when one is going to hook. At any one time you really only have to truly focus on a few and just keep others warm. It seems obvious, but I think startups get overly focused on one or a few big dollar clients and this can spell doom if you are b2b with a long sales cycle. You simply run out of whatever cash you’ve raised.
Q: You mentioned that you were surprised how much mental bandwidth your startup takes. How have you found early employees that are equally passionate about the business? How do you get them to be thinking about it all the time? – Elana Fine
Kevin Lenane: I’m not sure you can find anyone that thinks about it quite as much as the founder, but I think you basically interview carefully and make it worth their while in the long term by giving them plenty (whole number integers) of equity and be successful. Grow the value of those options you give to your employees over time and they will have extreme interest in long term success.
Elana Fine (@elanafine) was appointed Managing Director of the Dingman Center in July 2012, after joining the team in 2010 as Director of Venture Investments. As Managing Director, Elana’s primary focus is leading the Dingman Center in support of its mission of fostering a community of entrepreneurs. Key responsibilities include oversight of our student venture incubator, Dingman Center Angels investor network, business competitions, and technology commercialization efforts as well developing key partnerships on campus and throughout the DC region. Elana earned an MBA in Finance and Accounting from the University of Chicago’s Booth School of Business in 2002, and earned a BS in Finance, from the University of Maryland, College Park, in 1997.
Kevin Lenane (@kevinlenane) is the CEO of Veenome and has helped lead the video indexing company to over 50M video views indexed/month. The company won the Paley Center’s “Next Big Thing,” BB&T Entrepreneur Invitational 2012, and was named one of the three hottest startups of SXSW2012 by CNET. Veenome raised 1.4M in seed capital with investors from Google, Tesla, Chegg, and EcosystemVC. VA. Lenane’s previous experience includes product management and business development at Socialize/Appmakr/PointAbout, NAVTEQ and Nokia. He is a veteran of three acquisitions and was legal key in 2011 PointAbout acquisition.