Friday, January 30, 2015

Definitions of seed funding: a perspective beyond software

The inimitable Jason Calacanis has written a blog post called "Official Definitions of Seed, Series A, and Series B Rounds". I always enjoy Jason's posts and he holds a special place in my heart for declaring a war against angel groups that charge startups to pitch. But this "official" definition should really be the official definition of seed funding for software startups.

Jason says that in 2015 the stages are as follows
  • Pre-funding: You talk about your idea, you build a prototype & launch an MVP.
  • Seed Round: The funding necessary to get product traction.
  • A Round: The funding necessary to scale your product.
  • B Round: The funding necessary to get founder liquidity, build groovy headquarters, and make competitors give up (or not start in the first place). 
Yes, but ... if you're a regulated healthcare technology company you can't launch an MVP until regulators says so. If you're a certain type of science or engineering company, your pre-funding has to be grant capital from the Federal government. And many a STEM company is going to require at least A round funding before they can start any sort of sales.

Our venture fund, Long River Ventures, seed funded a company called Convergent Dental, making a product which we believe will replace the dentist drill. They sped through the prototype and regulatory process but their MVP came on the back of A Round funding. Now they're scaling with their B Round, delivering sales month after month but far away from any kind of founder liquidity that Jason says characterizes B Round.

I'm working with some truly special researchers coming out of the Center for Sustainable Materials Chemistry. Startups coming out of this center will owe their genesis to our tax dollars, through Federal government funding via the National Science Foundation. It would be brilliant if they could launch an MVP just based on this money and SBIR funding. But depending upon the particular spinout (and there are three so far and two in the works) it's going to take them an A round before they get any kind of product traction. With my colleagues at ecosVC, we're helping them move forward as fast as possible, teaching them techniques for market/research iteration but science can only be pushed so fast.

Finally, the science and engineering teams that are funded by VentureWell, the organization where I serve as Senior Advisor, for the most part can't follow Jason's trajectory. They are making engineered products, about half of them medical. These students are dedicated, passionate, work cheap, come from both big name and lesser known universities, and are determined to get their products into the hands of customers. But it's a disservice to them if we tell them they can always follow the easy paths of those who I like to refer to as their slacker peers such as Snapchat and their ilk. 

VentureWell also runs the NSF I-Corps program. Using Steve Blank's Lean Launchpad program, it helps NSF funded researchers learn the customer discovery process. It pushes them as hard as possible to get to an MVP as soon as possible. But again, science can only be pushed so hard and in some industries, where a bad MVP can actually kill people, not merely crash a web browser, the path is longer and harder.

Thursday, January 29, 2015

Louisville accelerator for agriculture companies

I spent the last four days in Louisville, Kentucky helping lead the last of three sessions of an agriculture technology accelerator. This is the sixth time I've been to Louisville to lead such a session and the fourth such program I've either led or co-led.

The accelerator was a program of Village Capital, an organization that has a truly unique approach to educating entrepreneurs and selecting companies for investment. It took place over three 4-day sessions (October, November, January). I also helped lead a similar program in Louisville in summer 2013. The organization for which I'm senior advisor, VentureWell, collaborated with Village Capital to teach the program. Four of our teams (from NSF I-Corps, which we manage, and from our E-Team grants program) were part of the cohort of ten. One of the ten was from Kentucky and the rest from around the country--Georgia, California, Washington, Arizona, Colorado etc.

The unique approach of Village Capital is to commit $100,000 to the cohort and have the cohort members themselves--the participating companies--choose which two companies, at the end of the cohort, best merit funding of $50,000 each. Each of the first two sessions, and at the beginning of the third session, there's a peer-ranking process completed. After the ranking is completed, peer companies have to articulate the reasons behind both the positive and negative scores they gave to their peers. This helps surface areas where the companies have to do better at explaining their business model, or areas where they simply need improvement. On the last day--in the case of this program, that was yesterday--the peer selection process becomes real, that is it results in the award of investment funds.

I'm more convinced than ever that this is a great driver for business acceleration. It produces a tremendous opportunity for iterative learning and challenges companies to understand how to think like an investor. Surprisingly, it also results in an incredibly collegial cohort rather than a "survivor-type" experience. Because the companies are adjacent but not competitive they can be of great value to each other. Sure they're competing for the final investment, but it's not enough money to drive them crazy, just enough to make them serious.

The companies in the cohort were as follows:

Agribotix: actionable intelligence for precision agriculture using drone derived scans of farmer fields.

Apitronics: site-located weather stations for more accurately and inexpensively monitoring diverse environmental factors – such as temperature, moisture, and humidity – within the microclimate of a farm field.

Farm-X: residential farm kits and larger scale farm monitoring and analytics.

FIn Gourmet: Kentucky grown wild-caught fish processed into surimi products.*

Growcentia (NSF I-Corps graduate). Natural plant growth stimulant result in bigger plants with smaller environmental impact through healthy soils

Iron Goat (VentureWell E-Team). Robotic hay harvester and pelletizer.

IUNU. Greenhouse lighting that is 30% more efficient than LEDs, with tunable light spectrum to improve plant growth.*

reNature (VentureWell E-Team). Super space and time efficient aerobic digester.

TekWear. Hands-free data capture and note-taking for farmers.

Wildsense (NSF I-Corps graduate). Wireless, underground water monitoring with a five year life--no digging up the sensors every year.

* These are the two peer selected companies but truly a tremendous and highly investable cohort overall.

If you're interested in seeing the companies, they'll be doing a fourth session in at UC Davis on February 20 and 21. Contact Candice at VilCap.