by Kris Tuttle on October 14, 2009
There’s been a major kerfuffle on the net led by some self-absorbed Valley types about what an outrage it is for groups of angel investors to charge companies who want to present their plans to them. Defenders of the practice argue that it’s a free market and companies can pay if they chose to. However many venture investors and related types have decided to rail against the practice and take the “outing” of it as some kind of cause. Pulling some facts together that may help entrepreneurs and start-up companies navigate a fund-raising process that is inscrutable would definitely help. Singling out “ante-up” angels is not nearly as valuable.
The fact is there have long been many trade groups and event planners that are “pay to play.” Some of the famous ones like Demo have charged fees that were high enough to attract attention. Many are far more mundane and charge mostly to defray the costs of organizing an event. For example there are some business development events held in the US for European companies that do an excellent job of helping them find potential business development partners. The fees are modest at $4-5K per company but the value proposition is there for anyone to decide if it makes sense for them.
Capital raising is notoriously difficult and if ante-up angels are praying on these poor start-up companies then shame on them. However expertise focused on a specific company situation is a scarce resource and figuring out a way to parcel it out is needed. Everyone wants it but few want to pay for it. Besides it’s been normal for advisors and gatekeepers to charge companies for their services. Sometimes on an contingency basis but none of them can afford to work for free. Companies need help with the process and unless they can manage to attract resources on their own that will invest the time, money and energy that they need there will need to be a fee paid to someone to help. Does your account do your taxes for free? Does a recruiter fill jobs and place candidates without a fee? Do industry research groups consult with you on your products, strategy and positioning for free? Generally speaking the rule of getting what you pay for holds. If there are cases where it doesn’t those businesses and/or models will simply die off.
Lately we’ve even seen companies begin to charge job applicants a small fee to apply for a job. Some people are upset about this too. However it’s a fact that employers need a way to screen candidates and the fee is small. Colleges have long charged application fees and we haven’t heard any complaints about it. These are poor students after all! There’s also something to be said for a price that seems fair. If Harvard starting charging $2000 for the application process there would be an understandable outcry.
Where do we stand on the ante-up angels? We’d advise companies against it. Paying someone to *hear* your story makes no sense. Paying to have them critique, propose or otherwise add some value makes total sense. If you need help we’d say it’s worth spending a small amount on getting the story down and obtaining some help with networking and introductions. Or just network yourself into finding a decent advisor you can trust to help you a bit through the process. That’s our 2c.
by Kris Tuttle on June 5, 2009
No it’s not a bizarre name for a Web 2.0 company or type of cloud computing infrastructure. But we have looked at this investment very carefully over the last few months and are thrilled to find something that offers strong potential returns but sits outside our very concentrated portfolio of technology investments.
Cachaça is sometimes referred to as the “tequila of Brazil” and may follow a similar pattern of adoption in the United States where new foreign spirits like tequila, gin, vodka and scotch have all come to dominate the shelf space behind American bars. (We are still partial to Bourbon and Rye but we know we are in the minority.)
Although huge volumes of cachaça are consumed in Brazil, very little is exported. This is changing not only due to the efforts of Beija but marketing powerhouse Bacardi has acquired a small local producer to popularize the liquor and the famous cocktail, the Caipirinha, globally. (Bacardi paid $20M for Leblon which was still in the early stages of development at the time.)
The founders of Beija know how important marketing and brand is to success in this market. They have developed and delivered an outstanding product in terms of quality and packaging, first in Boston and now in NYC. They have focused on the high end cocktail bars and “mixologists” who are eager early adopters of this new liquor and the number of refreshing and unique drinks cachaça provides.
Beija doesn’t have to be the worlds leading brand to offer attractive investment returns. The global liquor market is dominated by a number of large conglomerates like Brown-Forman (NYSE: BF.A, $49, $7B Cap), Fortune Brands (NYSE: FO, $36, $5.5B Cap), Diageo (NYSE: DEO, $54, $33B Cap), LVMH, and Bacardi among others. They will all end up having their own brands of cachaça as the market develops. Many will also have multiple positions with “super premium,” “premium” and “superior” labels to address the market opportunity.
Our assessment is that Beija has the right ingredients to make it in the market. The valuation parameters are in line with the stage of company development and potential valuations in this market are easy to calculate since they are largely driven by case volume.
Beija cachaça is poured at many (if not most) of the high end bars in Boston today and is rapidly spreading to many more in NYC this summer. It’s already the exclusive cachaça at NYC favorites like the Campbell Apartment in GCT and found in such hip places as Death & Co.
If you’re interested in learning more about Bejia please see the link and feel free to contact us if you’d like an introduction.
by Kris Tuttle on March 5, 2009
One of our first major advisory assignments was to help a small European enterprise software company figure out what to do about the U.S. market. They had a great deal of success in their home country and were ready to expand. By way of example we list out some of the steps along with the overall case study. (This work was conducted over the course of 2006.)
Step one: Is there a meeting of the minds? For an advisory assignment to be meaningful and a good value (no matter how much or how little it costs) there has to be a good relationship in place. This generally means that leads come by way of referrals. Trust and integrity are the foundation of any relationship and may take too long to build from scratch. The first discussion or two can happen via the phone or online but subsequent to that a physical meeting is required.
Step two: Did both sides meet expectations? For the advisor the company and the CEO have to be something they can be enthusiastic about helping. In this case the company has a very powerful and unique enterprise software solution and a CEO who is brilliant but also secure enough to know that he doesn’t know everything and is eager to learn. Similarly the advisor has to demonstrate a depth of knowledge and apparent ability that is consistent with the recommendation of the referral. If these views are mutual the stage is set.
Step three: Can the advisor add meaningful value? In some cases the foundation is there but what the company needs is outside the scope of what an external advisor can deliver. Some cases it might be a limit of the advisor (we don’t know much about improving semiconductor device yields in old fabs for example…) and in others a major industry shift and/or management turmoil has left a company in very bad shape. In the latter case an advisor might be able to provide some advice on the potential workout options but it’s not the type of value add we seek out. In this case the company had little knowledge of the U.S. enterprise software market (one of our strengths) and while their marketing materials were in the English language, they didn’t exactly play to the American style. It was clear that what the company needed, and what we could provide were a perfect fit.
Step four: The swag. Although it can happen earlier it is at this point that a small moment of truth has to occur where the client and the advisor touch on what this is going to cost and if there is budget for it. This is also a moment to see how you both respond to a little serious mutual discussion. So this is a critical test of your ability to work together on more than one level. Our services are not inexpensive but we divide them into phases and tie them to milestones so that the costs and benefits are matched and measured. Our goal is to add the maximum value that the company needs and then let the company move on. In this case there was a substantial amount of work so it was easy to create a Phase I with a number of activities and deliverables. We do an estimate of how much time is involved and then just put a price on it. We don’t track hours or phone calls or how many times we thought about the company while we were doing something else. As a rule of thumb any prospective client should figure that a phase I is likely to cost $10-20K and last from one to three months.
Step five: The company visit. Typically the writing and approval of the formal contract takes a week or two. During this time it’s a good time to have the company visit. There are lots of ways to approach this financially but we generally like to meet in the middle which for us means that the company pays for the trip and we donate the day without any consulting fees. Obviously both sides only want to do this when they are pretty sure that an engagement is forthcoming. This is the day for the advisor to meet the other members of the management team, potentially the board and begin to get some of their initial work organized. This is a fun day and it should feel great. If it doesn’t both sides should reevaluate.
Step six: Doing the work. The first phase of this project was very active. The first thing we did was set up a large number of meetings for the CEO to talk to potential customers, investors, industry experts and even facilities providers. During the trip we used all the non-meeting time to actively build the US marketing message and the business development plan that would be presented to the Board of Directors. In this case our efforts focused on:
- What do potential customer environments look like and how ready are they to invest in this technology? Basically an anecdotal analysis of how market readiness.
- How does the message resonate with U.S. prospects, potential investors and partners? This is valuable input in terms of how much tweaking the positioning will need and what direction our initial steps should go in.
- What’s would our U.S. operation look like? What budget figures should be used in building the board presentation? This is the operational piece needed for the board to decide if it makes sense to make the investment in developing the U.S. market.
In this case we finished up the first phase and got a green light to proceed by the board. We’ll save the next two phases for future updates here.
by Kris Tuttle on July 8, 2008
Board members have a broad range of usefulness and value. Even good ones limit their time and attention to attending several meetings a year in person or by phone to chime in on key issues facing a company.
Most companies are well-served to have the benefit of additional experience present during these boardroom discussions. However most companies could benefit much more if board members would invest some additional time and effort behind helping the company accomplish some specific goals.
Our process typically involves projects that may take anywhere from three to twelve months to implement and then make them part of an advisory role with the company. For example it may be time to expand the company into a new geographic market. How should it be done? What will the costs be? What are the likely results and impact on the company? Other examples range from finding new capital for expansion, delineating company positioning and potential M&A partner, expanding business development to refining sales and marketing messages.
Being an active advisor means working on these objectives with company management and presenting results and next steps to the rest of the team and board of directors. Because we have an extensive network of experts across multiple areas of technology, market development, management and finance we can bring the right level of resources to the task only when required.
By adding actions and concrete plans to opinions and comments we feel we can provide a much more valuable resource to a busy CEO and board than by being just another voice to be heard.
