gener8tor: The Gift That Keeps on Giving

It’s been a few years now since I wrote my first appreciation for the folks at gener8tor.  Back then, they had just launched, and yours truly was surprised (albeit very pleasantly) that they had gotten not just off the ground but had achieved some sort of seemingly stable orbit.  Which surprised a bunch of people, I think.  I know it surprised me.

Well, here we are in November 2017 and they have flown well beyond Madison and Milwaukee to places as far afield as Minnesota, Illinois and even my own neck of the woods up here in Packerland.  Recently, it was my good fortune that a scheduled speaker for a OpenBETA Lunch program in Oshkosh had a last minute scheduling conflict.  My good fortune in that I was offered an opportunity to substitute as the headliner for the event.

The Oshkosh event was a lot like my first time at gener8tor way back when in Milwaukee.  Quirky space, a roomful (well, ok, maybe a half-dozen plus) of raw but passionate and very early-in-the-process entrepreneurs.  Who asked good questions, and shared some good ideas.

What was most interesting about the event, for me, was in fact how it took me back to those early gener8tor classes, where the entrepreneurs were rawer than raw, and the ideas sketchier than sketchy.  And, in fact, what amazed me about gener8tor then – and caused me to write my initial blog about the program and team – was how over the couple of months after I saw that cohort of newbies the gener8tor folks had somehow worked some magic to turn them into that rarest of commodities hereabouts, fundable high impact entrepreneurs.  (And, yes, they all got funded.)

Since those times, gener8tor’s flagship program has expanded to new places and moved a bit downstream in terms of appealing to less raw, even semi-polished entrepreneurs (often hailing from well beyond Wisconsin).  And I’ll admit, I had (and to a limited extent still have) some doubts about whether they can sustain their success across multiple markets and with later stage entrepreneurs.  But the results continue to speak for themselves, and if we – that is those of us who are serious about growing the high impact entrepreneurship and investing community in our little corner of flyover country – are lucky gener8tor has a lot of fuel left in the tank.

All of that said, what really made my day at the OpenBETA event was seeing gener8tor staying true to its “rawest of the raw” roots, and doing it in the New North.  In Oshkosh even.  (They also have a new gBeta program in Green Bay.)   That means, I think, that it won’t be long until entrepreneurs and investors in Madison and Milwaukee start  realizing there are deals to be done in Wisconsin in places other than Madison (mostly) and Milwaukee.

And so congratulations to all of us in the high impact entrepreneurship and investing community across Wisconsin.  We are the lucky benefactors of the gener8tor program – the gift that keeps on giving.

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A Term Sheet is Not a Deal

First the good news. If you get a signed term sheet with a reputable angel or venture investor, there is a very good chance you will get a deal done. Unless, of course, you don’t.

Probably the most common element of every term sheet is the provision that states unequivocally that by signing the term sheet neither party is obligating itself to enter into an investment transaction, whether on the terms reflected in the term sheet or otherwise. Still, if the parties do reach agreement on a term sheet, there usually is a deal made, and usually on terms mostly consistent with the term sheet. That said, herewith a look at the most common reasons a “done term sheet” does not lead to a “done deal.”

  1. The investor can’t build a syndicate sufficient to close the deal out. As they teach you in entrepreneurship boot camp, getting a deal done is first about finding a lead investor. Someone credible who can put a stake in the ground and then help the entrepreneur close a syndicate around that stake. If your lead investor is a top tier fund, or even a second tier fund committed to invest 75% or more of the minimum closing amount, chances are somewhere between no-brainer (top tier fund) and highly likely (second tier fund) that you will get the deal done. On the other hand, if your lead investor is an anonymous angel committed to take only 35% of the minimum-closing amount, don’t hold your breath. The take home point here: your chances of turning a term sheet into a deal are pretty closely tied to the market credibility and relative capital commitment of the investor that signed the term sheet.
  2. Deal due diligence uncovers a major issue that either can’t be suitably resolved, or reflects badly on the entrepreneur’s competence. All-too-common issues that come up in due diligence include IP ownership issues (e.g. important IP was developed without appropriate work-for-hire or assignment documentation) and capitalization table issues (e.g. equity distribution is not well-documented; potential claims for significant equity outside of the cap table turn up; previous investors were unaccredited, or paid too high a price). The take home point here is get your due diligence ducks lined up (and shot, if they need shooting) before you sign the term sheet. Investors – good ones, at least – don’t like surprises, particularly when they suggest a careless, clueless or deceptive entrepreneur.
  3. In the rush to get the term sheet done, one of the parties punted on an important issue, figuring that she could take care of it in the fine print of the closing documents. For example, I once saw an investor leave the question of subjecting some of the founder’s stock to vesting for the closing documents. The very fact that the investor thought avoiding the issue at the term sheet stage was a good idea shows what a bad idea it was. A simple lesson: if an issue is material to either party, deal with it in the term sheet. It may kill the deal, but it will save a lot of time, distraction, energy and expense.
  4. The entrepreneur and the investor discover, under the pressure of getting the deal done, that they do not work very well together; or one or both of them loses confidence in the integrity of the other. Closing an early stage deal can put a lot of pressure on an entrepreneur (less so an experienced investor, who does a lot more deals). Pressure can bring out the best in a good entrepreneur. And the worst in a bad entrepreneur. Just as bad investors turn off good entrepreneurs, so bad entrepreneurs turn off good investors. Not that you can’t be an aggressive, take no prisoners entrepreneur and succeed, if that’s your style. But whatever your style, wear it well.
  5. Internal events at the investor’s shop derail the process. Say, for example, the partner leading your deal moves to another firm, or gets hit by a bus. Stuff happens, and when it does, deals often die. Being good is not enough in the high impact entrepreneurship world. You’ve got to be lucky too. Or at least not unlucky.
  6. A major external event shocks the market generally or the particular segment of the market the deal is in. Remember 9/11? I do. And so do several entrepreneurs I know who were trying to close deals at the time. More failed than succeeded. I’ve also seen deals blow up based on a shock to a particular market segment, as for example diagnostic deals in the aftermath of a major patent ruling that basically gutted the IP protection upon which the bulk of diagnostics companies were built. The take home lesson here: after you get the term sheet signed, close your deal with all deliberate speed. And stay lucky.

When an entrepreneur tells me they have a lead investor on board, my first reaction is to ask some questions. Who is it? Have they signed a term sheet? How much are they committing? How confident are you that all of your due diligence ducks are lined up? If the answers to these questions are satisfying, I’ll mentally note that the deal in question will most likely happen. Unless it doesn’t.

Jones: Hard truth about angel investing

Paul Jones, co-chair of Venture Best, the venture capital practice group at Michael Best, has been selected as a regular contributor of OnRamp Labs, a Milwaukee Journal Sentinel blog covering start-ups and other Wisconsin technology news. Paul’s most recently contributed piece, “Jones: Hard truths about angel investing” can be found under their Business Tab in the Business Blog section: Click here to view his latest blog.

A short excerpt can be found below:

“Angel investing is a critical part of the high impact startup world, particularly outside of the big venture capital centers. A good portion of Wisconsin startup success stories achieved liftoff with critical assistance from angel investors and their capital.

But what about the angel investors themselves? How does angel investing work for them?

Well, you don’t have to look very hard to find blogs, books and speakers extolling the virtues of angel investing for the angels. And a lot of them make a pretty good case that the angel investing community makes a nice profit for its efforts. A good case, but also a misleading case.”

Click here to read more.

Montana’s Robust Startup Scene

Paul Jones, co-chair of Venture Best, the venture capital practice group at Michael Best, has been selected as a regular contributor of OnRamp Labs, a Milwaukee Journal Sentinel blog covering start-ups and other Wisconsin technology news. Paul’s most recently contributed piece, “Montana’s Robust Startup Scene” can be found under their Business Tab in the Business Blog section: Click here to view his latest blog.

A short excerpt can be found below:

“Folks at the Kauffman Foundation – one of the more credible of the various organizations that track entrepreneurship activities across America – recently ranked the various states in terms of the strength of their entrepreneurial sectors. As gener8tor’s Joe Kirgues wryly noted, “at least Wisconsin finished in the top 50.” Which is to say, 50th.

I must say I am not a huge fan of these kinds of rankings. Frankly any ranking of this sort that doesn’t have Northern California at the top of the list is more than a little suspect. Still, by chance I happened to be in Missoula Montana last week, working with several startups at Montana Technology Enterprise Center, or MonTEC, the University of Montana’s technology accelerator. That Montana. The Montana that Kauffman put at the top of its list of states ranked by the strength of their entrepreneurial sectors.

In a lot of ways, Montana is a lot like Wisconsin, only more so. It is hard to get to. The climate is challenging. Not a lot of people live there. And there are no big cities (in fact, there are no cities as “big” as Green Bay). There is just one institutional venture capital investor. It’s fair to say, I think, that Montana’s challenges, in terms of building a high impact entrepreneurship sector, are even more formidable than those facing Wisconsin.”

Click here to read more.

Look Before You Leap

Paul Jones, co-chair of Venture Best, the venture capital practice group at Michael Best, has been selected as a regular contributor of OnRamp Labs, a Milwaukee Journal Sentinel blog covering start-ups and other Wisconsin technology news. Paul’s most recently contributed piece, “Look Before You Leap” can be found under their Business Tab in the Business Blog section: Click here to view his latest blog.

A short excerpt can be found below:

Being a high impact entrepreneur is kind of like being a sports star: everybody wants to be one; almost no one credits how much work is involved.

The time “in the spotlight” is like the shining tip of the iceberg: most of the actual work is below the surface, where the environment is mostly cold and dark.

My object here is not to discourage anyone from making the jump to high impact entrepreneurship: we need as many folks at the top of the funnel as we can get. Rather it is more of a “look before you leap” message.

Click here to read more.

Freedom is Just Another Word for Nothing Left to Lose — sung by Janis Joplin, “Me & Bobby McGee”

Paul Jones, co-chair of Venture Best, the venture capital practice group at Michael Best, has been selected as a regular contributor of OnRamp Labs, a Milwaukee Journal Sentinel blog covering start-ups and other Wisconsin technology news. Paul’s most recently contributed piece, “Freedom is Just Another Word for Nothing Left to Lose – sung by Janis Joplin, “Me & Bobby McGee” can be found under their Business Tab in the Business Blog section: Click here to view his latest blog.

A short excerpt can be found below:

High impact entrepreneurs come to the arena with a wide range of handicaps their bigger, established competitors largely don’t face.

Startups are notoriously short of capital, talent and time. They typically compete with better-armed, established businesses with ample capital and human resources, and substantial brand equity. It is a wonder, to me, that even a small portion of startups succeed.

But they do. And so you have to ask how. How can small, undercapitalized startups with nothing but ideas and small overmatched teams, in the space of a few short years, not just compete in, but win sizeable markets. They must, it seems to me, have some advantages; some assets that, when properly deployed, more than make up for their obvious liabilities. What are those assets?

Click here to read more.

Startup Valuation on the Back of an Envelope

Paul Jones, co-chair of Venture Best, the venture capital practice group at Michael Best, has been selected as a regular contributor of OnRamp Labs, a Milwaukee Journal Sentinel blog covering start-ups and other Wisconsin technology news. Paul’s most recently contributed piece, “Startup Valuation on the Back of an Envelope” can be found under their Business Tab in the Business Blog section: Click here to view his latest blog.

A short excerpt can be found below:

“Over the years, I’ve developed a deck of slides and some related spreadsheets walking through how venture investors think about valuing startups.

I’ve given the talk to dozens of audiences mostly consisting of entrepreneurs and angel investors. It usually takes about an hour. Recently, I was asked to cover the subject in about ten minutes. Honestly, my first thought was that it couldn’t be done.

But then, as most entrepreneurs discover early on, necessity proved the mother of invention. So, if you are looking for the basics – just the bottom line, actually – on startup valuation here it is.”

Click here to read more.