TandemNSI’s Venture Advisors are an eclectic bunch of entrepreneurs, marketers and investors. When we were invited to Mach37 last week to provide advice to the companies currently going through their accelerator program, we were excited to support their efforts to facilitate the creation of next generation cyber-security companies.
The Mach37 model provides a twelve week accelerator program which companies apply to participate in. The companies we met last week were chosen from 60+ applications and are less than a month away from the culmination of the program: Demo Day. TandemNSI Venture Advisors offered the lucky six an opportunity to practice their investor/product presentations in a realistic setting that was intended to be less intimidating than the investor presentations they are all preparing for.
TandemNSI Venture Advisors provided advice on specific elements of each presentation but a few broad take-aways emerged. We were impressed with the credentials, enthusiasm and devotion of the six companies: iAspire, Virgil Security, FireDrillMe, Syncurity Networks, SecureDB, BiJoTi.
- Balance Target Market Opportunity – investors want to know that the market opportunity for your product or service is broad, but they also want to know where you are going to begin. Developing your operations takes time and is always harder than you think. Investors expect you to take a bite at the apple that you can actually chew while you are developing your experience base. Don’t fall into the trap of trying to address multiple market segments out of the gate.
- Illustrate the transaction – investors expect to get a clear picture of how the sales transaction works – and it needs to be drop-dead simple. Who buys the product? Why do they need it? What are your costs? How/when do you get paid?
- 100 Day Plan – Companies should have a plan that outlines how you will be spending your time getting the company established. Investors won’t be interested in all the details – but they will want to know
- that you know what needs to be done
- that you know how long it will take
- the level of revenue expected as a result of this plan.
Create a simplified version of this plan for investors
- Clarify Control/Responsibilities – Investors will want to know who is in charge. Often companies assemble a great team of people but it has to be clear that team members understand their roles and have been properly allocated. Similarly, businesses that rely on reseller relationships will need to be prepared to address why not owning the ultimate customer is the right choice. Make sure to clarify the roles those involved in the sales channel.
- Exit Strategy – Investors will evaluate your business on whether it is aligned against your exist strategy. Eliminate any noise from the business plan
- Fast Five Roundup – John Casey provided his list of the five early stage valuation drivers at the debrief session at the end of the day:
- Market: How big? How Proven?
- Intellectual Property: Differentiated? Proprietary? Protected?
- Product Ready: Prototype? Pilot? Better yet — paid pilot?
- Paying Customers: History? Evidence? Revenue model?
- Team: Great team assembled? Key roles filled?
Recently we met with a company that we’ll call Company X. For confidentiality reasons, we won’t reveal their name, but this particular company embodies the classic case study of a non-traditional performer trying to find an appropriate way to work with a government organization. It is such a classic example, we feel compelled to publish a few tips for our readers:
- Find a Mentor – If you are developing technology that gets the attention of an agency PM and are not working inside of a standard relationship that has clear IP rules, you definitely want someone with experience to mentor you through the discussions. Government program managers are trying to get things to help the government with its mission – and may unintentionally provide you with advice that compromises your IP ownership. Understand that they are constrained in what they can ask you to do without a contract, and since they are mission focused they may attempt to be creative and suggest unconventional ways of working together, but they don’t always know what’s best for you and your company when making those suggestions. In the case of Company X, they were advised to tuck under a prime contractor. Of course that introduces yet another party with their own agenda. Young, eager non-traditional performers don’t want to be perceived as difficult, but they also may not have the experience to know when they might be at risk. As the saying goes, you need to pick and choose your battles, and that is exactly what a Mentor can help you with. The best Mentors can speak from direct experience having been through the same or similar discussions. Networking at Tandem events is, of course, a great place to find an appropriate mentor/advisor to help open doors. Arlington County also has resources through its Biz Launch program where you could find a mentor with government contracting experience.
- Find a Co-Founder – Creating a product is hard. Creating a company is even harder. Working with a government organization outside conventional programs like SBIR is really, really hard – especially when you are doing it alone. When navigating this playing field, a co-founder with complementary skills can provide the sounding board that you need to make decisions given your unique set of circumstances. Co-founders can be brought in with very different roles. They can be full partners or they can be very lightly engaged with little to no day-to-day involvement, all the while providing a tremendous benefit as a sounding board for your specific set of circumstances. Just taking a look at a resource like https://www.cofounderslab.com/ will provide you with an idea of the different structures of co-founder relationships.
- Make sure to protect your IP – NDAs, IP assignment agreements and Non Competes are three of the most common Intellectual Property (IP) agreement types you will run into. It is critical that you understand your own IP, i.e. what you are building equity in, versus the IP that you are building for someone else. If you are employed by another company, all of your IP may be owned by them, so be careful. This is a great place to lean on your mentor, who will probably know when it’s time to engage an IP attorney. Despite taking precautions with standard documents outlining ownership of IP, unintended consequences can result when money starts changing hands and/or business relationships start to be formed. PMs and potential partners expect good business people to ask questions about the structure of business relationships and ownership issues, so be respectful but do not be bashful. After all, your IP is the core of your business. Have these conversations early, and be clear. Even though these may be uncomfortable conversations, having them early and being as clear and transparent as possible with put you in a position of strength, resulting in the best possible outcome for you and your company.
- Understand the end game – What are you trying to sell, and to whom are you trying to sell it? PMs are often functioning as brokers for new technologies that solve problems for someone else in their agency. While the PM may have the best of intentions, they can not fully appreciate the problem or needs of the end user. Getting to know the end user and developing true empathy around their use case is essential in order to build a successful program. Knowing who the influencers are, and involving them in constructive ways will be a major catalyst in building a successful program. As with so many other areas of your business, having a great mentor at your side will help facilitate this process. Mentors will often know the right forums to use for meeting influencers, which smart people to contact when gaining information, and what type of materials you will need to make a great first impression. Clarification of your own business goals also becomes very relevant during this process. For example: Do you want to sell your IP or keep it, and what type of role you expect to play in the resulting organization? A common phrase used around Government contracting and sales is Outcome Oriented. While it is generally referring to outcomes for the agencies you are working with, it is critical to keep in mind the Outcomes you want for your business so you don’t get pulled into making a decision that seems good right now, but in the long run will end up boxing you into a corner.
This week Tandem NSI’s Venture Advisor John Casey and Managing Director Jonathan Aberman met with Mnemolytics co-founders Eric Kaprowski and Jeff Schott to provide guidance on business expansion. Eric and Jeff’s backgrounds in government technology and business have led them to creating sophisticated algorithms which normalize and analyze independent streams of data. Their “value add” is to layer in observation and trending functionality across seemingly unrelated behaviors to support new decision making. Given the big data movement, it’s clear that both consumer and business markets provide countless applications for this type of technology and there are several companies – all of which are west-coast based – who are already starting down this path. Mnemolytics is unique because their algorithms apply different types of learning to draw sophisticated conclusions that can save time and money, change behaviors, identify problems or prevent disaster.
Questions brought to TandemNSI’s Venture Advisors
- Given the huge opportunity and limited resources, where do we focus?
- What level of readiness does the product need to be in to attract investors?
- Does grant funding inhibit a company’s ability to attract investors?
- Is the opportunity greater for an enterprise product, consumer product, BTB product, etc?
- Their current inflection point in the product development cycle requires that decisions be made about funding. What should guide those decisions?
TandemNSI Venture Advisor Imperative
- Look at the west coast companies who are already dabbling in this space and determine what market opportunities exist. Start talking to potential customers to gauge whether the product is a nice-to-have, or a need-to-have product. Any business readiness programs advises that emerging companies talk with 10+ prospects per week in order to validate a product idea. Investors will want to see this type of due diligence as well. Programs such as i-Corps provide infusions of $50k but typically require an affiliation with a university, providing interesting resourcing opportunities for companies who are resource constrained.
- Study the problems that NSA is trying to solve and determine if your technology can help with any of those problems. Companies are much more likely to score a conversation with decision makers at NSA if they further the agency’s agenda.
- Funding: Tandem’s advisers were aware of companies who have successfully straddled simultaneous funding through grant programs and from investors. This takes clarity and appropriate management of expectations but eventually a path becomes obvious. Applying for grants can be an effective way to accelerate product development and is not an automatic deterrent for investors. Investors will only become interested if the company has effectively targeted a market segment and has the appropriate subject matter expertise to penetrate that market.
- Product Development: Given the countless applications for such technology, it will be helpful to have a real-world example that solves a potentially local problem. Tandem advisers suggested using publicly available data from organizations such as DC Public Schools or data that Federal Agencies are eagerly now making available to develop a prototype that can be used in prospect calls. Tandem’s VA advisers agreed to provide contacts that would facilitate the acquisition of data sets.
- General: Typically the people who are quick to reach out to early-stage organizations are those who have their own agenda. The people who will be most useful to Mnemolytics won’t be easy to reach so continuous networking is required. Attending data events at 1776 and networking at TandemNSI events is a great place to spend time this summer. A great book to be familiar with is The Startup Owners Manual: The Step-by-Step Guide to Building a Great Company by Steve Blank.
TandemNSI’s advisors agreed to meet with Mnemolytics in the fall once they have done further development.
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Background: We met recently with Databuoy; a Virginia-based company that received a Small Business Tech Transfer (STTR) grant from the Small Business Innovation and Research (SBIR) program. The company is working to make an impact in the security sensors market. The Databuoy team was prepared with an introductory slide presentation, which included an overview of the company, their team, their technology, and costs for implementation of their technology. TandemNSI Venture Advisors (VA’s) met with Databuoy’s team to brainstorm ideas about how to commercialize their technology, what path to take to market, and what financing options made sense. A series of follow-up sessions were scheduled with the Databuoy team based on agreed-upon needs and priorities.
Questions Brought to TandemNSI Venture Advisors:
- What are the advantages of focusing on the government market vs. the commercial market?
- What are the best strategies for entering the commercial market?
- How to prioritize customer segments and market opportunities?
- Does it make sense to penetrate civilian government markets or look for a very different approach?
- What financing strategies should be considered?
- What haven’t we thought of?
TandemNSI Venture Advisor Imperative:
- Markets: Databuoy thought about several uses for the technology in the government and commercial markets. The next logical step involves a combination of soul-searching, leveraging all the contacts the company has available to it, and conducting strategic customer discovery. Advice was provided around the best point of entry for each market segment, processes to use when doing customer discovery, and programs such as iCorps that might be able to help.
- Product: The TandemNSI Venture Advisors suggested that non-governmental markets would require the same level of precision required by their current clients. A lengthy discussion was held debating the product requirements necessary when selling to institutional buyers for large sums of money vs. commercial venues whose goals and budgets will be different. Advice was provided about what product specifications to consider testing for each type of prospect.
- Investing: Databuoy was coached on how to “boil down” the information they should include in an investor presentation. Sample decks were provided and discussion focused on how investors can also influence prospective market segments and dictate short-term and long-term company priorities.
TandemNSI Venture Advisors are continuing to work with the team to explore potential business models utilizing Databuoy’s technology. We also will help with narrowing Databuoy’s commercial strategic focus further and with communicating more effectively how they see the opportunity and the best path for achieving commercial success.
“TandemNSI advisors absorbed the specifics of our technology and our business experience through dynamic discussions that enabled productive advice that was tailored to our circumstances. As technology developers coming from the Government contracting world, we were less comfortable with trying the commercial markets. The advisors are helping us find a solid approach to getting to the commercial space.” —Kathleen Griggs, President, Databuoy LLC
Disclaimer: TandemNSI’s Venture Advisor program does not disclose any information that the participating company does not want published.