Sheila Marcelo's Blog

Starting a Business: Bootstrapping versus Venture Capital, Part II

Previously, I suggested some pros and cons around bootstrapping when launching a business. An entrepreneur I recently talked to was considering getting seed funding from a venture capital (VC) firm, and I'd like to share some of those thoughts on how funding and involvement from a venture capital firm can add value to your business.

Many so-called "VC horror stories" occur when the entrepreneur and VC firm aren't explicit up front about expectations of the partnership. My strongest advice to entrepreneurs looking for VC or outside funding is to do as much research on their investors as those investors are doing on you. Be clear about what you want and don't want out of the partnership at the outset for the best results in the long term.

So, do VCs add value?

Many people know that venture capital funding can provide capital to expand your business quickly, additional contacts and networking to grow your business, and strategic advice based on experience with other startups. They also provide a stamp of approval on your business plan, the potential your business holds, and the strength of your team, adding legitimacy to your brand in its nascent stages. Approval from a VC confirms that you were able to convince a cynic. There is a lot of VC money out there and, while this isn’t a guarantee, some firms that are known to be very discerning prior to investing can be helpful in validating (or critiquing) your idea.

Are VC firms really "evil"?

I've heard some horror stories, but I also know plenty of entrepreneurs who've had great experiences taking VC money. Read on for my approach to developing a VC relationship, and deciding whether or not you want to enter into one:

• Focus on long-term relationships.
  I've met some great entrepreneurs who keep going back to the same VC firms even though they could afford to personally fund their subsequent businesses. These entrepreneurs view VC firms as long-term partners. And you would be surprised that pre-money valuations of these subsequent businesses funded by the same VC firms are often high--at that point, VC's are funding the person as a long-term investment over the business itself.

• Focus on the culture of your Board.
  Just as you would invest in developing the culture of your company, only take money from a VC you think would add not only monetary and strategic value, but who would also be great addition to the personal dynamics of your Board of Directors. As the CEO, one of your key responsibilities is managing the Board and you don't want it to take up all of your time. Another friend and fellow CEO told me, "I would have taken a slightly lower valuation for a better guy on my board rather than deal with the headache I have now. The board members have their egos getting in the way and they are pulling me in very different directions, thus resulting in paralysis for us." I've heard this story time and time again.

• Be up front about your expectations of the VC firm.
  If you are counting on your VC to attend every Board meeting, not read their Blackberry, and be responsive to each of your calls and emails, be sure to set expectations by telling them that up front. Or, if you are only counting on them from time-to-time and it's their business network that is most important to you, discuss that, too. Just be clear from the beginning about your expectations so there are limited surprises on both sides.

• Perform reference checks and due diligence on the VC firm, too.
  Remember you are assessing whether or not you want to enter into a relationship with them, too, and they certainly doing reference checks on you. Read their blog, visit their page on LinkedIn, check out their networks, and find as many articles on them or their past investments as you can. What is their track record like? Also, it's OK to ask for introductions to other CEO's and management team members they've worked with in the past and follow up with phone calls.

• "Don’t sweat the small stuff."
  One of my mentors once told me, "VCs are humans just like you and me. They have egos, moods, make mistakes, takes things personally, have insecurities, etc." It's hard to remember this sometimes, since we certainly have high expectations from our investors. It's especially hard if we enter the relationship with concerns that "VCs are evil."

• Passion for your mission and passion to make money.
  At the end of the day, you both need the VCs to put their faith in you. VCs have LPs they have a fiduciary obligation to and have to make a return on their money…so you still need to be focused on making them money.

• Be honest about the state of business and what you don't know.
  I've sat through some debates over whether or not a VC firm would invest in a company, and one of the key criteria is if the CEO appears honest and straightforward about what he/she doesn't know. VCs are there to help and they fear an entrepreneur or company that appears to "know everything" or may not be up front of their concerns, limitations, and challenges.

• Take money from more than just the VC firm.
  This is a basic rule of thumb I've heard from many seasoned entrepreneurs: Having more than one source of investment helps facilitate better decision-making.

• Lastly, try to get to know your "mother-in-law" and the other partners.
  There is a running joke that although you may marry (take money from) one VC partner, the leading managing partner in the firm is really your "mother-in-law" in the relationship. There are stories of VC partners that jump to different firms and thus a company may be left feeling abandoned by their champion. Also, for subsequent investments or future exits, developing a trust relationship with the entire firm is best for your champion VC to garner support for your company. And if you use this approach in developing the relationship with the firm in general and not just your investor and/or board member(s), it helps to partner with a firm that is well-run and where the partners get along (another point to find out in your reference checking!)

For more information on the basics of taking VC money, check out the following resources:

http://www.socaltech.com/Insights/Bowne_VentureCapital_Guidebook.pdf

http://blog.tomevslin.com/venture_capital/index.html

http://www.feld.com/blog/archives/venture_capital/

Cheers,

Sheila

Starting a Business: Bootstrapping versus Venture Capital, Part I

Last week, I met with an entrepreneur who had put together a business plan and had started to think about the question of funding. She posed the perennial financing question to me: “Should I consider seed money from a venture capital firm or should I bootstrap and do this on my own?" She was confused and wanted advice from a seasoned professional as a recent women’s entrepreneurial conference she attended held a panel discussion where everyone told the audience they should do it on their own and not depend on VCs. 

My response was, as it always is, "It depends and I'm not sure there is one rule of thumb for everyone.”

There really isn’t one solution for starting a company. It depends on your personal financial situation; your ultimate goals for your new company; and whether or not you are doing this for the first time and could benefit from strategic help and an extensive business network.

Benefits of Bootstrapping:

• You own most of the shares and thus benefit the most in a sale or IPO.

• You can prove out concept before even considering VC funding and you would likely get a higher valuation, and thus preserve more of your equity.

• If you are planning to build a business that is more “lifestyle”—no planned exit over the next 3 to 5 years with reliance on the value of equity, but rather a nice income-generating business— bootstrapping makes a lot of sense.  Some business plans that aim to generate less than $100M annual revenue after five years are also less likely attractive to VC firms. (Look out for a future blog post on what VC firms generally look for in an investment.)

• Bootstrapping makes you very disciplined with your spending and your business priorities. I have seen other companies raise too much money too fast and they end up making poor decisions for the company in the long term.

Downsides of Bootstrapping:

• Bootstrapping can be hard financially since you will likely not receive any income from the business for a while. To help the business grow, you want to reinvest the earnings.  Families with a partner that has a stable income or folks who have other sources of income may not need to worry about this.

• Scaling the business can be challenging. Raising VC money earlier on can help provide support for additional resources and marketing/sales to help the business grow more rapidly.

• Unless you’ve got a great network, it is hard to make the time to continue to expand your contacts while at the same time running your new business's day-to-day operations.

To be continued in my next post…

If you're an entrepreneur who has already struggled with these decisions, please feel free to add other pros and cons to bootstrapping and raising venture capital funding by leaving a comment!

Cheers,

Sheila

Health & Wellness for Ambitious Women

I always reinforce the importance of developing and maintaining long-term human relationships, both in business and personal life, to my friends and colleagues. It's so important to try and stay connected with the people, especially the women, who helped you become the person you are today (and will be tomorrow): our mothers, sisters, classmates, co-workers (present and past!), and friends.

When I recently became president of the alumnae association in the Western suburbs of Boston for my alma mater, Mount Holyoke College, the current members told me that the group needed a revival and help reconnecting. So, I decided that for my first event as president, I wanted to leverage my experiences at Care.com to organize an event all about health, wellness, networking, and helping women everywhere strive for a balanced life—just in time for the craziness of the holiday season.

On Monday, November 5th, we held "Amazing Women Energized (AWE): An Evening of Women's Wellness" at the Care.com offices. About 75 women from all over the Greater Boston area (and from all different generations) attended, including a venerated panel of accomplished and inspiring women: Candy O'Terry, Magic 106.7 FM DJ and host of Exceptional Women; Brenda Stanton, founder of The Modern Woman's Toolkit and a Ladies Who Launch Incubator;  Nancy Clark, MS, RD, an internationally-recognized sports nutrition expert; and Terri Trespicio, Senior Editor at Body + Soul Magazine and a contributor on Martha Stewart Living Radio.

The panelists and audience members alike shared their thoughts on life, career, family, fitness, and general wellbeing—everything from childhood obesity to finding time for ourselves while juggling successful careers and the demands of personal life. Check out this great photo of our panel submitted by Claudia Kimsky, MHC '79: from left to right are Terri Trespicio, Me, Candy O'Terry, Brenda Stanton, and Nancy Clark. Read on for some of the night's key takeaways so that you, too, can find the inspiration and reassurance needed for a happy, healthy, and fulfilling season.

Food

Time to face facts, ladies: food is not the enemy. On Monday, we heard the gospel of guilt-free eating directly from the experts: it's about moderation, being realistic, and taking a holistic view of the 24-hour and 365-day cycles of nutrition and energy needs so you can live in and enjoy the moment.

Terri from Body + Soul had everyone laughing with her stories about being a chocoholic and curbing cravings / feeling well all winter long by keeping a hot beverage (tea or hot water with lemon) nearby at all times. Then she inspired us even more with her personal story about a near-death experience with sepsis, which taught her to live in the moment and strive to be happy more often for her loved ones.

You never know when your time is up, so be well for your friends and family. Don't insult Auntie Carol by passing on her scalloped potatoes or chocolate mousse this holiday season.

Fitness

Nancy Clark reminded us that it's not realistic to eat three large meals per day, or to torture yourself with activities you don't enjoy. Listen to your body and give it what it needs—not just when you're pregnant but all the time. Eat smaller, more regular meals: breakfast at 7, lunch at 11, second lunch at 3, and then dinner at 7 for fuel and energy all day long. And be sure to incorporate activity into your life versus exercise—find something you love to do and carve out time for it every week.

For Candy O'Terry, swimming is not only her exercise regimen but her therapy. As a former collegiate athlete and diving champion, she says the pool serves as her "me time" and the place where she can truly relax and get re-energized. She also teaches swimming classes in the summertime for her local youth program, which she finds nourishes her soul and gives her the energy to keep going in even the hardest of times career- or family-wise. Find your temple to activity and fitness will become something you look forward to, not loathe.

Giving

When it comes to giving, take a cue from Brenda Stanton and give back to yourself—not just during the holidays, but all year long. Whether it's simply taking a solitary hour each week to go to Starbucks and read a magazine or a book (of the non-work variety!) or meeting up with a friend, that time for re-energizing will make you a more interesting person you can be proud of sharing with friends and family. Brenda also suggests keeping a gratitude journal tracking 3 things every day that you're thankful for, so you can track the things and people that truly make you happy and help you live a joyful life.

When it comes to holiday giving of the gift kind, listen to Terri's advice and give your loved ones your time rather than a material object. Have dinner or coffee or an hour of shopping with a friend or relative so you can catch up on each other's lives than some trinket or piece of jewelry. You will both find it more treasured and memorable.

Home

Remember that your friends and family aren't judging you for your messy car or messy house. They love you and just want to spend time with you, and will forgive a little dirt or clutter—they may even find it reassuring.

Candy told a story about meeting with one of her son's counselors at her home and then offering her a ride home. Candy had been nervous to give the woman a ride at first since, although her house was clean, her car was a mess. Upon stepping into the car, the counselor remarked how reassuring and healthy it was for her son to be raised with a little messiness somewhere in his life. So hang up that vacuum cleaner and spend some time with your kids!

Lastly, one of our audience members chimed in that she used to obsess over having a clean house, until she started spending time in her backyard. Her coworkers started to ask how she found the time for gardening, and she said, "Simple. I stopped cleaning my house!" And she felt true happiness and joy because of it.

Too often in these harried times—especially in the weeks and months surrounding the holidays—we, as women, tend to strive for perfection and wind up with guilt-ridden burnout. Have a wonderful holiday season this year both personally and professionally by keeping this valuable, from-the-battlefield advice in mind instead.

Cheers,
Sheila

Nick Beim's Other 'Endeavor'

As an entrepreneur myself, I certainly understand the endless challenges one encounters when trying to start his or her own business. But I can’t imagine how hard it must be for high-impact entrepreneurs—whose businesses have potential for enormous growth—to reach that potential in countries where technology, knowledge, and capital are limited. That’s why I wanted to tell you about Endeavor, a company served by one of Care.com’s own investors, Nick Beim of Matrix Partners. It’s a nonprofit organization that operates in eight developing countries, reaching out to local markets in these nations and giving their high—growth potential entrepreneurs the resources they need to succeed. Nick serves on Endeavor’s global board of directors, and his experience in international work—he previously served on a task force at the U.S. Agency for International Development—has clearly helped to make Endeavor the world-changing organization it is today. Read more about Nick Beim and Endeavor. The article highlights an Argentinean computer-systems security company that, thanks to Endeavor, has been growing by 100% a year for the last four years.

Please check out www.Endeavor.org to learn more about Endeavor, a great company that Nick, and many others, have already helped to make so successful.

Getting "Back on the Career Track" with Carol Fishman Cohen

I recently had the pleasure of interviewing Carol Fishman Cohen, a fellow Harvard Business School graduate and co-author of the popular book Back on the Career Track, which helps women re-enter their professions—or find a new one—after taking time off to be a mom. Women (more so than men) are finding it harder than ever to juggle career, family, and relationships, so I asked Carol to share her thoughts on the state of women in the business world.

Here are some highlights from our interview:

- - -

SLM: A recent New York Times article examined the trend of what they called the "Opt-Out Revolution"—educated and high-powered career women leaving work for their families—saying that many women "opt out" of the workplace even when they have the opportunity to be successful.

Do you feel the language used about this issue seems to convey a sense of negativity, as if the term "opt out" is a euphemism for "quit" and "success" can only be measured in financial or business terms?

Carol: I don't get too hung up on this terminology. Vivian Steir Rabin (HBS '86), my co-author of Back on the Career Track, and I decided that the term "relaunch," which is how we describe the process of resuming a career after a hiatus, sounded much more positive and active, as opposed to on-ramping, or opting-in, which sounded like it was something that happened to you rather than a process you were controlling.

The idea that women "opt out" even when they have the opportunity to be successful ignores that the decision to go on career break after building a career is quite complex and can be triggered by a number of unique circumstances.

SLM: As a fellow HBS graduate, I was surprised by another recent study revealing that a low percentage of women MBAs are still in the workforce 10 to 20 years after receiving their degrees. How did you react to these findings?

Carol: Since I was one of those HBS grads out of the workforce, I was less surprised and more interested in how this population could be served. Vivian felt the same way. When we relaunched our careers in 2000 and 2001, respectively, we felt alone and without a game plan. One of the main reasons we wrote Back on the Career Track was so other women wouldn't have to feel this way. We've also noticed a surge of interest among colleges and universities in creating and updating programs for their alums on career break, including placement. The trend is toward more activity in the relaunch arena, not less. So I’m very excited about that.

SLM: Work/life balance has definitely been a hot topic these days. At past business panels on the subject, you have advised women not to spend too much time away from work if they eventually want to balance career and family. Would you give that same advice today?

Carol: I made that comment at one conference back in 2003 when I was just beginning my research for [Back on the Career Track.] Fundamentally, I still believe that staying connected to your previous professional life or developing a new one is the best way to avoid becoming completely "professionally disconnected"—as so many of us do during our career breaks. But I think you can be creative about how you do that. You can do volunteer work in your field, you can attend the occasional professional conference, you can keep up with some reading in your field, or you can use the time away from work to personally reflect about whether you were on the right career path to begin with. But Vivian and I are also realistic, Vivian has 5 kids and I have 4, and there were long periods during our career breaks when we were completely overwhelmed with our mothering responsibilities and there was no way we could have [kept our toes] in the water professionally. Everyone's situation is different.

SLM: You've been a speaker at many conferences and workshops for women in business. What are the most common questions and concerns you hear from women who want to relaunch their careers?

Carol: Women are concerned about true "readiness."  How do they know they are really ready to relaunch their careers? We have the Relaunch Readiness Quiz on our web site, and in our book to help break apart all the issues wrapped up in the "should I return to work" question and enable women to get a readiness score for each category.

Also, women are concerned about confidence building, how to figure out what they really want to do and how to network. We spend a whole chapter on confidence building in Back on the Career Track, providing a "Job Building Blocks" framework for analyzing how your interests and skills have changed or not changed during the time you are on career break and building a new career path for yourself as a result. We also look at networking in terms of "Contact Pools": People from your Past, People from your Present, and People from your Future, and discuss how to focus on utilizing each group.

We also trumpet the success stories, because we believe women are relaunching careers all the time and no one knows about it. When moms at home hear about how other moms relaunched careers, they become inspired to do so themselves. Equally as important, when employers hear how other employers have successfully tapped the pool of talent on career break, they then have a successful employer model to emulate.

SLM: Men don't seem to have the types of conversations like the one we're having right now, about themselves and their careers—why is that? Or, more importantly, what do you think that means?

Carol: I think men in the younger generations X and Y are having more of these conversations than I know men in my generation did. I also think younger Baby Boomer women were among the first to take career breaks and now want to return in greater numbers. So when these women announce their intentions to their husbands the husbands may be very progressive guys but feel maxed out with their own work schedules. It's tougher for them to figure out how they will integrate additional family responsibilities into their schedules. I think the conversations couples have at different life stages are always evolving. And men are becoming more active participants in this conversation than they ever were in the past.

SLM: After all is said and done, how do you feel about the work/life balance that you have achieved? Do you feel satisfied?

Carol: Right now I am very happy with how my work meshes with the rest of my life, but it took a long time for me to get to this point. I think that's pretty typical for those on the relaunch track. [Vivian and I] tell relaunchers to focus on the WHAT—what it is they want to do?—and not the where or the how, because work can take place in a range of logistical configurations that shift over time.

Interview with Allison O'Kelly, CEO of Mom Corps

I recently spoke with Allison O'Kelly, founder and CEO of Mom Corps—a business that helps place experienced professionals in the workforce while providing them the flexibility they need to raise their families. I asked Allison to share her experiences as an entrepreneur and asked her for her advice to other women who also want to find that successful balance between work and family.

Here are some highlights from our interview:

- - - - - - - -

SLM: Why did you start Mom Corps?

Allison: I started doing some contract work. I ended up getting so much work that I couldn't do it all myself, so I asked some of my friends if they wanted some. My friends were saying, "Where are you getting all this great work from?" And my clients were saying, "Where are you finding all these great people?" (About a year and a half later), I re-branded and said, let's call this Mom Corps. Let's open this up not just to my friends and not just for accounting, but to all of the different types of professional women out there who are looking for flexible opportunities, and the companies who are looking for them.

SLM: How do you balance career and family?

Allison: It was never, for me, about not working full time—it was about the flexibility. I have an au pair, so I have full time child care. I still operate my business out of my home. I have completely finished my basement as an office, so I have the opportunity to go upstairs when I want to, say hello (to my family), give hugs and kisses, and then go back to work.

SLM: In your mind, what is the future like for moms in the workplace?

Allison: I think it's going to be a night and day difference, (like) when you talk about women in the 60s versus women in the 80s. We're going to have such a huge shortage in our workforce as all these Baby Boomers retire, and companies are going to need to find ways to be creative to get the people they need. This is such an obvious opportunity to get people who are educated and talented and ready to work. (Companies) just need to be able to change the way that their traditional roles are set up within their organization to get access to these people.

SLM: What is the future of female entrepreneurs?

Allison:I think the sky's the limit. I think women now have realized that you can't "have it all," that you need to have some sort of balance and figure out different, creative ways to manage your career and your life—and make them both work. The companies are going to change to get access to the talent. And in the meantime, women are figuring out that we can go out and just do it ourselves and make it work for us.

SLM: How important is it for working moms to find care?

Allison: I think that care is critical for women who want to either get back into or remain in the workforce. If you don't have that part of your life figured out, it almost makes the other part of it impossible.

SLM: What advice would you give to female entrepreneurs?

Allison: You need to be really, really passionate about what you're doing, because it's very hard and very tiring, and it feels like it takes forever to get anything done when you're launching a new venture. However, if you're passionate about it, and that can carry you, the rewards are just endless.

- - - - - - - -

Allison's advice is so timely—not only for female entrepreneurs, but also for working women who are trying to improve their careers. It is so true that while the corporate world struggles to keep up with an ever-changing workforce, there's no reason why women in business should wait for the solutions to come to them. As Allison said, women should just get out there and make it happen—be the change that you want to see in the marketplace. I couldn't agree more. Nobody knows your ambition, drive, and talent the way you do. Let your passion for business create momentum.

Cheers,

Sheila

Presenting to Investors

A few people have asked me recently about the appropriate format for a business plan when presenting to an investor, especially a venture capital firm. My advice is to avoid long Word documents in book form. I would develop a 15-20 page PowerPoint deck and leave it at that. In my brief stint at Matrix Partners and in meeting with other companies introduced to me by other venture capital firms, I learned that investors tend to go through many company presentations and they prefer brevity. Any questions they may have will be raised naturally in the conversation. And if you can communicate what your business is about in very few slides, then your business will often be perceived as clear and simple to understand.

The outline I'd use would include the following:

• Overview
• Team
• Value Proposition
• Market
• Business Model & Comps
• Target Market
• Competition
• Product Roadmap
• Marketing Plan
• Financial Plan - Format is basic P&L (revenue and big bucket operational expenses) with Operations Metrics (will vary by business)
• Financing

Hope that helps.

Cheers,

Sheila

Women and the Web

Last week, I was out in San Francisco interviewing with Charlene Li, a principal analyst with Forrester Research, about my newest endeavor: Care.com. Charlene is an expert on social computing (blogs, RSS, podcasting, and social networking), and is currently co-authoring a book with another Forrester analyst, Josh Bernoff, to be published sometime next year. She examines the ways in which new technology will affect how companies communicate with consumers, so you can imagine how excited I was to get her feedback on my new online service!

I met Charlene years ago when she was based in Forrester's Cambridge offices. A mutual friend introduced us, since we were both women in high tech, with kids, and we both went to the same B-school. It was nice to catch up with Charlene after all this time. She told me about a site called BlogHer and suggested that I go check it out. BlogHer.org is a website that brings together women bloggers from all across the Internet--and across a wide range of topics--to "pursue exposure, education, and community. I highly recommend this organization to any female Internet entrepreneur, and encourage you to attend their conference in Chicago, held at the end of July this year. I know I’ll definitely be there. So, thanks for the recommendation, Charlene!

Charlene also told me that I’m the 10^th female CEO she’s met in her career at Forrester. This gives me even more reason to ensure that Care.com is successful (a mission to help women find a life more balanced by providing them with simple, easy access to child care, elder care, pet care, tutoring and all sorts of other services to help solve their ever changing care needs) and to write this blog. I want to see more female entrepreneurs succeed, especially in the Web 2.0 space. Over the next few weeks I’ll be interviewing some incredible women whose success stories are an inspiration, so check back often!

Cheers,
Sheila