A VC in Vacationland

SEC Form D Filings

So Uncle Henry has written the $250K check to launch your company, in return for 25% ownership.

Great news.  You can now start assembling a small team to write that code and find the first customers.

But wait.  Don't forget to file your Form D with the SEC.  Under Regulation D--Rules Governing the Limited Offer and Sale of Securities Without Registration Under the Securities Act of 1933, an issuer offering or selling securities shall file with the SEC five copies of a notice on Form D (17CFR239.500) no later than fifteen days after the first sale of securities.

You will be in violation of SEC regulations if you ignore this simple filing.  It is not worth having problems later when you go to raise your first round with the VC's who will ask to look at all your legal documents and be upset that you did not follow the rules.

Companies seeking to operate in the stealth mode should be aware that a lot of company information, including a business description will be published in EDGAR, so be prepared for modest exposure unless you structure your financing to avoid filing Form D.

You can do it yourself or have your lawyer file the form.  Either way, be sure to do it if you are issuing Founder's Shares to Uncle Henry in return for his cash.

Managing your Company for Your Customers

Successful start ups often attract major customers, so called innovation buyers, who end up getting an inordinate amount of time and attention from the entrepreneurs and employees.  Innovation buyers are leading-edge companies who want to have all the latest technology to manage their operations. These buyers seek out start ups with interesting solutions, assign staff to evaluate the solutions, run pilots and sometimes buy the software. 

Some of this is very good time spent by the start up--deciding what new features and functionality are needed.  And some of the time is wasted going down paths that favor only the big customer. Often, start ups can lose sight of their business plan, spend way too many resources satisfying a key customer and not getting key market benefits as a result.  Others are very clever in manipulating the big customer to do lots of things for them in return for the special favors given to the customer.

I often get the question about large clients and how to best manage them.  My response is that you need to manage your company to success while meeting their needs. These buyers are critical to your success.  But not at the expense of the rest of your customers, or following your business plan.

Here are a few thoughts on how to manage large customers for your benefit as well as theirs:

1. Avoid agreeing to new features to close a sale--This is a common tactic used by innovation buyers on start-ups, asking for additional features as part of the contract. Offer instead to add the feature to your development schedule, request that the customer help design the feature and control the process.  
2. Get promotional opportunities specified in the contract--Having a large customer do webinars, presentations and white papers to inform future customers how your solution is saving them money and increasing revenue, for example, is a great way to get some payback for any special additions or features. However, you need to clearly specify what you expect up front in the contract as customers are not as likely to support you after the deal is signed if exact requirements are not spelled out in detail.
3. Remember that most buyers don't want or need exotic bells and whistles-- Even though the innovation buyers push you down the "fancy feature" path, the majority of your sales will be to less sophisticated clients who just want software which is easy to use and produces stated results. Make sure that your development plan recognizes the features and functionality that will best serve the majority of your customers going forward.

Innovation buyers can provides lots of benefits and many headaches for a start up.  Make sure you and your team are ready to work with the large customers without endangering your long-term success.

Blueprint to a Billion and Tuned In

I have been a fan of Blueprint to a Billion by David G. Thomson since the book was published.  Executives in most of my portfolio companies have read the book and applied many of the principles.  No billion dollar exits yet for Dave, but there's always hope.  There have been a number of knock-off books since, but none that really improved on the original.  Until Tuned In by Craig, Stull, Phil Myers and David Scott, that is.

Many of you probably know the basic premises of BTB, as its known in the entrepreneurial world.  Create a breakthrough value proposition, go after high-growth markets, get marquee customers, leverage alliances, master exponential returns, adopt inside-outside leadership, and find good board members summarizes the lessons nicely. Easy to say and miserably hard to implement.

That's where Tuned In comes in. Creating and sustaining a breakthrough value proposition is the first "essential" in BTB and the one most companies find the most difficult to accomplish.  Tuned In lays out a six step, "Tuned In" process which an entrepreneur can follow to achieve Essential #1 in the BTB world.  Find unresolved problems, understand buyer persona's, quantify the business case, create breakthrough experiences, articulate powerful ideas, and establish authentic connections are the basic messages.  Not a lot of new ideas here, but a nice, detailed path the help the entrepreneur get their arms around task #1 in a start up--pursuing the right idea. More information on how to apply the process in an innovative manner is needed.  Some of the text rehashes old ways of doing business, rather than how to participate in the next revolution.  For example, thoughts on how small business people could take advantage of the emerging mobile web would make the book more useful. But I quibble too much.

Like all good business books, the Tuned In authors use a number of relevant case studies to make their points. These are often the highlight of the chapters as they describe what works and what doesn't in executing the process.  I particularly liked the thoughts around crafting "elevator pitches" in Chapter 8, focusing on articulating powerful ideas in simple terms, the Achilles heal of many entrepreneurs.

Buy both if you have not read them and make that six hour flight to San Francisco a little more productive.