Tag Archive: startups

A Startup to Help Build Startups

It’s an old story. College seniors head toward graduation, many with dreams to start their own businesses. Then reality hits, and they end up taking jobs in fields that promise a steady, low-risk paycheck. The startup option goes up in smoke.

That scenario bugged Dave Girouard. A little over a year ago, Girouard, who was then president of the enterprise unit at Google (GOOG), was talking with friends and family who saw that drama play out again and again. Grads with computer science degrees from top schools and a flair for Ruby programming have no trouble finding work they love. But for smart, creative seniors who don’t have those specializations and who carry big school debt and have risk-averse parents, any idea for a startup dies in its cradle.

Girouard had some personal experience here. It was a stretch for his family when he got into Dartmouth. “We could in no way afford it, but my father was adamant that I should do it no matter what,” he says. He graduated with the requisite “ton of debt,” which only rose when he went to grad school. When he got out, he took the most lucrative job he could find at Booz Allen Hamilton (BAH). As soon as he paid what he owed, he quit to join Apple (AAPL).

Debt and the decisions it drives are a problem for the students—obviously; who doesn’t want to follow his bliss? But it’s also an issue for society at large, which misses out on the job creation that can come from small businesses. It bothered Girouard that investment banks and law firms became the default destinations for grads who would have liked to strike out on their own. So he started talking to experts—economists, academics. He looked at government statistics. He looked at crowdfunding sources such as Kickstarter and Indiegogo. He decided he wanted to build a startup to help startups, so he resigned from Google in March and launched Upstart in April.

One of his findings is that it doesn’t necessarily take a fortune to help get someone started. Many of these kids couldn’t, without credit cards, put their hands on $30,000 if their lives depended on it, but if they could, it would be enough for them to rent office space, buy computers, hire some help, Girouard told me last month. And that at least gives them a shot.

The Redwood City (Calif.) company, now with eight employees—helps to match promising upperclassmen from select schools—including Rhode Island School of Design, Dartmouth, University of Michigan—with patrons who have money to invest and business experience to share. (Upstart just added Berkeley, Harvard, NYU, Stanford, and Yale to its roster.) Thirteen mentors signed up initially, including Frank Moss, professor at the MIT Media Lab and a longtime industry exec; and Andy Palmer, who co-founded Vertica Systems (HPQ) and VoltDB.

It should be noted that Girouard himself left a solid gig at Google—something his financial adviser counseled strongly against—to launch this effort with backing from Google Ventures, Kleiner Perkins Caufield & Byers, NEA, and Mark Cuban. Girouard was joined by Damon Whitsitt, another former Googler, and a few others. They wanted to find a way that investors would share in the entrepreneur’s upside but that would also limit the entrepreneur’s downside risk. If the startup doesn’t work out, the investors don’t recoup their investment, but the feeling is they have enough money and expertise to sustain the loss.

Again, the idea was to fund the person, not the startup, paying X amount for a certain percentage of that person’s income—regardless of its source—over 10 years.

In coming up with a plan, Girouard initially thought of some sort of auction: “Here’s Bill, who’ll graduate from Stanford with a computer science degree. What’s 3 percent of his income worth to you?” and have the investors bid it out. One problem was figuring out how much a given person’s earning potential would be over the period in question.

Right around then, Girouard heard about “a kid” in New York who was working on a way to forecast an individual’s earning potential over time. This was Paul Gu, one of the first class of Thiel Fellows. He had been a double computer science/economics major at Yale but left after three years to pursue his research. By the time Girouard reached him by phone, Gu had aggregated a couple of publicly available data sets to help in this task.

For more go to, http://www.businessweek.com/articles/2012-09-24/a-startup-to-help-build-startups

The Silent Partner: Boon or Bane?

The Silent Partner: Boon or Bane?
by Erin McDermott.

Psst. Is that silent partner you’re seeking really the best move for your small business?

When it comes to finding additional funding these days, it’s sometimes a tough road. As a result, people are looking at other avenues of capital, taking on all types of new partnerships, and even tapping into money through crowd-funding sites such as Kickstarter, Indiegogo, and AngelList.

Traditionally, silent partners have been the go-to investors, often family and sometimes friends, who pump in funding but also agree to stay out of day-to-day operations. They get a share of the profits and—unless there is a limited partnership agreement that rules out liabilities—risk taking a hit if an enterprise runs into trouble. Their presence is no secret to people familiar with a company, and often they are prized for their industry contacts or standing in a community.

So why choose to remain silent? There can be several reasons. For some investors, it’s a way to avoid the unwanted entreaties of others who also are seeking capital. Others might use a silent partnership to keep quiet about the extent of their business portfolios or to stay one step removed from a venture that they don’t want to be publicly identified as backing.

So, is this silence really golden for a small-business owner?

PQ_SilentPartners.jpgWhat you don’t get for your money

Mitchell D. Weiss doesn’t see much value in the proposition. He’s a longtime financial-services executive and entrepreneur who now teaches finance at the University of Hartford and is the author of Life Happens: A Practical Guide to Personal Finance from College to Career. To him, owners who recruit the strong, silent type of partners are missing a critical opportunity to gain knowledge from others who know the stakes and have years of experience and connections that are priceless for an entrepreneur.

“I wouldn’t want money from people who aren’t going to help me. I want someone who isn’t just a checkbook, but someone who’s in a position to mentor me and offer advice,” Weiss explains. “What’s more important for entrepreneurs is to seek out people who can give you good feedback. Not someone who hasn’t made a payroll, or can’t relate because they’ve never faced the pressure of running a business.”

Weiss himself has been there with business relationships both silent and not so silent. He recalls dealing with a principal at one of his early ventures who declared that he “likes his partners limited” and made clear that he wanted little advice from others, even while seeking investors. “That’s also known as ‘Give me the money and shut up,’” Weiss says now, laughing. “In the end, I learned a lot of good things and a lot of lessons about what not to do.”

Jaine Lucas also sees many entrepreneurs missing the boat.

“One of the issues with crowd-funding is you get the money, but not the advice, coaching, and mentoring you’d receive from angels, VCs, or others who might financially back your company,” says Lucas, an entrepreneur, former Fortune 50 marketing executive and now executive director of the Innovation & Entrepreneurship Institute at Temple University’s Fox School of Business in Philadelphia. “Most entrepreneurs will tell you that access to coaching and other people’s networks are just as important, if not more so, than the money.”

There’s always an exception

But Lucas does see the value of silence with one often-tapped group of investors: friends and family.

“They are often too involved emotionally and cannot see things objectively,” she says. “I see these things all of the time with our younger entrepreneurs who have very little access to capital other than credit cards and friends and family, so they take money from Mom and Dad. The problem is, to Mom and Dad, this promising entrepreneur is still their baby—and they don’t know anything! I see so many family relationships really impaired by money—and money has a way of blowing things up.”

One way to avoid that conflict Lucas says, is to make sure terms are clearly outlined well before any funds are invested, including whether the friend or family member will have any right to input in the venture. “Sadly, it isn’t treated as seriously as it should, and agreements need to be put in place before any money exchanges hands,” she says.

Today, most investments come with an extra two cents

“I see [silent partners] as something that’s becoming a thing of the past,” says David Luk, the 33-year-old chief executive of Quewey, a startup online network of experts that facilitates business expertise via free question-and-answer platforms and paid phone-consulting sessions. As people become more sophisticated about investing, Luk says they should feel the urge to provide advice so they can contribute added value to their investment.

“If you asked me to go out and search, in this early funding round, for investors who want to be silent, I think it would be hard to find that. And frankly, I don’t want that,” Luk says. “If I have a choice between an investor who has a willingness and ability to help versus someone who prefers to stay silent and on the sidelines, I’d rather have the person who can add value and not just the capital. We’re a startup and it seems like a waste of a potential resource.”

Often, it’s elusive resources like experience that are most important for growing small companies—and sorely needed at crucial turning points—such as getting down to the business of suing that new capital wisely and making money for all of your investors, silent or not.

Weiss says he’s seen entrepreneurs get an overzealous sense of “We’ve got it!” when funding does arrive. “Investors want that money back, and want their investment to grow—you’re just renting it,” Weiss points out. “It doesn’t just come with a lipstick kiss on the bottom of a Hallmark card.”