The Business Smart-Tools Conference

Seth and I were recently invited to present OnCard Marketing and our iBakeSale program at a conference in Stamford CT on May 15th. It is a very exciting event that is focused on bridging the gap between the business world and the tech world. There are going to be speakers on a variety of topics and a few key presenters (one of them is us). Our focus with iBakeSale.com is to connect the tech, non-profit and business worlds and fits well with the theme of the conference. We are very appreciate to Valorie Luther of Creative Concepts for giving us the opportunity to share iBakeSale with all the business, tech and non-profit executives in attendance. Check us out on their website by clicking here. You can check out the conference home page here. We look forward to sharing the experience with you all on May 15th.

JT

The benefits of benefits…

For other Entrepreneurs out there: Advice on benefits

I’ve been reading a lot of entrepreneurial blogs out there and found that the topic of “benefits” is rarely discussed. Most cubicle entrepreneurs, otherwise known as corporate employees, are used to a wide variety of benefits, ranging from health-care, disability, maternity leave to other forms of insurance. The larger your employer, the cheaper and larger variety of benefits you’ve probably received. This is likely to spoil just about any entrepreneur who is struggling to pay health-care insurance for a party of 1. The remainder of this post will hopefully address some concerns by cubicle entrepreneurs regarding the anticipated costs of these corporate benefits once they pull the plug and head off on their own.

The entrepreneurs best friend in the benefits world is the U.S. government. Their is a law called COBRA that entitles any corporate employee up to 18 months of continued health-care coverage once he/she leaves the company. The good news here is that you will get your same health-care coverage at a fraction of the price it would cost you to purchase on your own. For example, I worked for Citigroup before taking the plunge to start OnCard Marketing. I had United Health Care Choice Plan A insurance (whatever that means) and was paying these health-care costs pre-tax out of my paycheck.

When I left Citigroup, I had to fill out a COBRA form, which they provided to me, that entitled me to continue receiving my United Health Care Choice Plan A for up to 18 months. The catch here was that I would need to pay the full premium, whereas before, Citigroup was paying for part of it. In the end, I was able to continue my great health insurance at approximately $420 per month. Yes, that’s expensive, but there are many cheaper plans out there from other health-care providers (which was one of the best). At the most expensive end of things, a new entrepreneur leaving the corporate world probably spends about $470 per month, including health insurance and dental insurance (that’s if you had both beforehand).

The downsides of COBRA are timing and flexibility. First, it’s only good for 18 months, so you’d better have a plan B for obtaining coverage after that time. Maybe you have a wife who is a teacher or employed by somebody who would give you family coverage. Second, COBRA is not that flexible. Once you cancel your plan or part of your plan (dropping the dental coverage for example), you can’t re-add it. So make sure not to cancel the health-care coverage and be sure you don’t need dental if you decide to cancel. You’ll never get it back.

The upsides to COBRA are numerous. The first big perk I wasn’t aware of before leaving Citigroup was that Citigroup actually paid for my first 3 months of coverage ($470 per month) and split the second 3 months with me 50/50 ($470 per month). After month 6, I decided to drop my dental coverage and continue to pay $430 a month for health-care. While this is expensive, going without health-care coverage is a pretty stupid idea and I wouldn’t recommend it. Like I said, there are other cheaper provider out there that might run you $200-300 per month. But these are high-deductible plans that will cost you money every time you go to a doctor and are only useful if you end up in the hospital with a huge problem.

So COBRA takes care of you for 18 months. The only question is, what are you going to do after 18 months? There are a few options. You’re best bet is to obtain a high-deductible plan that will only pay for itself in the case of emergency. The problem you face is that nobody will want to give you health insurance as a party of 1 or 4 (if you have a family). It’s all about risk diversification for the insurance companies. They’ll make it much cheaper if you’re part of a group of 10,000 than if it’s just you. So, the sad reality is that if you are lucky enough to obtain health insurance after the 18 month COBRA is up, it will probably be really lousy. You may find that you are just “un-insurable” as a party of 1. Don’t be surprised. Health-care companies have figured out that if you’re one person looking for health-care coverage, you probably need it (which means huge loss for them).

Here are some good resources for COBRA and other healthcare providers.

http://cobrainsurance.com/information/
http://www.individual-health-plans.com/
http://www.dol.gov/ebsa/faqs/faq_consumer_cobra.html

I hope this helps those of you out there looking for answers on this topic.
JT

Choosing the right kind of business partner…

This is a follow-up post to a prior discussion on partnerships in The Beauty of Partnership

Choosing a business partner can be the most important decision you can make for your start-up, since it truly is a long-term relationship that is hard to get out of if things turn South. Many people say it’s like a marriage of sorts, and I would have to agree. You share the ups and downs and all the financial responsibilities and ownership with your business partner, and if you pick the wrong partner, it will be a rocky ride.

Seth and I have been working together since leaving Citigroup in June, and it’s been fun and tumultuous. In the midst, we attempted to bring on two additional partners (one at a time) and saw the negotiations deteriorate in final stages. We were incredibly disappointed with these developments, since we put a tremendous amount of time, energy, and money into making these deals happen. However, in retrospect, this was the best thing that could have happened for our business.

So why take the risk of bringing on another partner to help run the business? We took the risk because we thought that with another (and older) partner, we would be in a better position to raise money from outside investors, establish credibility with potential business partners, and have the guidance from somebody who had been through the start-up mill before, all leading to a higher valuation for our company. We thought that these benefits would outweigh the risks if we chose carefully.

So if you decide the risk is worth it, how do you choose such an individual? This answer is not simple. It’s hard to know if a good friend would make a good business partner. However, I believe you have the best chances of picking a good business partner if it’s somebody you already know and trust. But a business partner cannot be just any friend. This is not a friend who you used to get drunk or play sports with in college. It is a friend who has the same work ethic as you do. More importantly, this is a friend who has no qualms about telling you when you’ve messed up. This honesty and openness, critical in any business relationship, is often found in very close friendships; all the groundwork for a successful partnership already exists. This is why I believe that a close friend who meets these criteria has the potential to be a better business partner than anybody you might find elsewhere.

Bottom Line: Choose any partner carefully. You’re giving up a lot (equity/control), so make sure you’re getting a lot in return. If there is a pre-existing relationship, all the better. Make sure there is a sufficient level of trust, openness and honesty. It is also critical that all partners share the same vision for the company and a similar work ethic to help the company achieve its long-term goals. Without these critical aspects, the partnership will deteriorate more quickly than a Las Vegas Marriage. I do not claim to have the answer on this topic ans would to love to hear your feedback on this subject, so please feel free to share you comments and experiences.
JT

The benefit of free MBA labor…

Check out the first post on working with Cornell MBAs at Working with Cornell MBAs

The work we did with the Cornell MBAs during the fall semester went really well. Seth and I were very pleased with their work and their dedication to creating and administering the retail survey they created. They reached out to numerous Cornell (Johnson School of Management) MBA alumni and received some very interesting feedback and responses. It was very helpful in helping us re-evaluate our strategies to go after large retail merchants and gave us additional insights for what large retailers are looking for in a service/product like ours.

Based on our positive experience working with the MBAs up at Cornell, We have decided to apply again for a new project with a new team of MBAs for the spring semester. This past semester, we’ve engaged a couple MBAs to work with us on a research project that will survey various kinds of Internet advertisers and marketers to solicit feedback on what they are using and any interest they might have in trying out our service. They have been doing a great job so far, reaching out to many more internet merchants and marketers through the use of on-line press releases (you can view it at http://www.prleap.com/pr/71900/) and reaching out to various blogs and bloggers across cyberspace to post links to the survey. In only a short time-span, they’ve managed to get approximately 40 survey respondents!! We are hoping to see trends in the data that will support initiatives to build-out our advertising service and validation that merchants actually need something better and are willing to give us a try.

There’s nothing better than hiring smart MBAs to do pro bono work for our business as we try to keep costs down and mitigate a lot of our market risks by doing our homework (surveys etc.). This is the essence of bootstrapping, and we’re getting pretty good at it. The MBAs are doing a great job, and we may even hire one of them to do paid consulting work for us in the future because she is doing such a great job on this project. All we can say is that we hope our hypotheses are proven true by the data we collect and that we can build an ad-serving technology that will appeal to the savvier marketers for online merchants. We’ll keep you posted…

JT

More advice on raising money - Legal…

I wanted to write a follow-up to a previous post detailing some lessons learned as we continue our capital-raising journey. The topic of the first post was focused on identifying potential investors and how to approach them. This follow-up is focused on the “how” of what documentation is needed to raise money once friends or family say they are willing to invest. The basic advice I had been given and will pass on is to make sure you document everything in writing. This does not mean writing down an IUO on a napkin at your favorite local diner. Don’t laugh, I’ve read many stories (some of them successful) of entrepreneurs documenting investments on a napkin. I wouldn’t recommend it though. For this, you need a lawyer, specifically a lawyer who is familiar with capital markets transactions, which is a fancy term for companies raising money.

A lawyer will be able to provide you with the right kind of documentation so you can raise money one of two ways, selling stock in your company (most common) or borrowing money as a loan from investors. There are even things in between where you can borrow money from investors and offer them the right to convert their loan into stock in your company in the future. This is called a convertible security, and it’s not as complicated as you think. Nonetheless, you need a legal expert who knows this stuff to give you the right document. Most of the wording is going to be the same no matter which lawyer gives you his template. So don’t try drafting these agreements yourself.

If you decide to sell stock in your company by selling shares to investors, the documentation will involve several pieces of documentation. That’s what the lawyer is for. The trick with selling shares in your company is that you need to figure out what each share is worth. This is a frustrating exercise and involves you determining how much you think your company is worth (i.e. $250,000, $1 million, $5 million). If your start-up is in the idea-phase, meaning you don’t have any revenues, this will be difficult. Many people will argue your business is not worth anything, and you will argue that your business is worth as much as the idea is worth (billions and billions). In the end, you will have to negotiate down to something reasonable (I will put up another post that discusses valuation).

If you need to raise money quickly and don’t want to spend the $10k it will probably cost for the legal work associated with raising equity, you’re best bet is a convertible note. As discussed before, this is a much simpler document and outlines how you will be borrowing money from investors and that their investment will convert into shares later on (most of the time it’s within 12 months) when the business is further along and people are more comfortable discussing how much the company is worth when you hopefully have revenues and cash-flow. The convertible note is a complex IOU which says that when the investor gives you the money, you sign the document that says the company promises to convert the loan into shares in your company. The best part of using a convertible is that the legal costs are minimal (doesn’t require any custom work) and you don’t need to set a valuation for the company, meaning you can raise money much more quickly because there’s no negotiations taking place. As far as choosing the right law firm and where to start, check out my other posts on the topic of searching for and hiring a law firm. If you’re curious who we’re using, it’s Perkins Coie out in Menlo Park CA. Shoot me an email and I’d be happy to make the introduction.

JT

Follow the yellow brick road…

We are almost done developing our technology and interface for iBakeSale, our first consumer rewards program. We have just engaged a PR firm to help us market the program to consumers through a variety of on-line and off-line publications (journals, magazines, newspapers etc.). Furthermore we have hired a few more part-time technology developers to work with our technology team to expedite our time-table for additional functionality we would like to build into our technology. Given our recent commitment to all these near-term expenditures, Seth and I have decided that we will probably need to go back out to existing and new investors for additional capital. Seth is beginning to draft an updated business plan and executive summary to reflect iBakeSale and some our updated strategies, and I have spent hours updating our financial forecast to reflect the same. While this process has been grueling so far, we can only hope that with the successful launch of iBakeSale and demonstration of consumer adoption and usage, we will be able to attract new investors who may have been on the fence up until this point. Let the games begin…

JT

Selecting a PR firm…

Read up on the first part of this process in Our Search for the Perfect PR Firm

So we’ve been going through this process of selecting a PR firm for a little over a month now. It’s been quite an experience and education. I’ve spoken with about 10 firms, solicited proposals from 6, and met in-person with 5 of them. Prices per month ranged anywhere from $5k to $10k (there were firms that I spoke to that charged $10-$15k per month but those were short conversations). The firms were primarily located in NYC and the surrounding area. One of the firms was located out in CA and was a personal referral from one of our valued advisory board members. The firms we met with varied in size, from two-man shops to 50+ professionals. The smaller firms are called boutiques and the larger ones are called agencies. I was advised to stay away from the agencies because chances were that we would get junior-level employees working on our account. This meant that since we were paying so little money in the grand scheme of things, it was only worth the time of a recent college grad. We decided to go with a smaller firm, where we would get the service and attention from more senior executives who had left the larger agencies out of their desire to work with smaller companies (probably only part of the story I’m guessing).

Anyway, we narrowed it down to two small firms, one in CT and the one in CA, and finally ended up hiring Libby Communications out in CA. One reason we decided to go with David Libby and team was because he is going to collaborate with a colleague of his, Dan Cohen, at Full Court Press Communications on our account to deliver the optimal level of PR expertise on both consumer marketing and technology (of which we are both). Their price was just right, although a large chunk of our budget, at $7k per month. We have a kick-off meeting with them on Wednesday to begin formulating our PR strategy. We expect work to begin May 1st.

Bottom Line: Pick a PR firm that is both reputable and has a track record (i.e. recognizable client list). If the firm was not personally recommended, make sure to get references from existing clients. Pick a firm that has experience in your field. Additionally, make sure the firm provides you with a staffing plan and basic strategy of how they would market you to the media. A staffing plan is simply an outline of who is going to work on your account. Make sure the firm understands your company and story. If they don’t get it, they won’t be able to pitch it correctly to the media, which means less press for your business. Most importantly, don’t overspend. Cash is important at this stage and you want to spend wisely. As in most circumstances, you get what you pay for. There are lots of firms out there who will take your money and give you terrible service. However, if you look hard enough, you will be able to find really good PR professionals who will do a good job for you anywhere between $6k and $8k a month.

JT

Follow-up meeting with magazine publisher

Seth and I went uptown today to meet with one of the large magazine publishers I had been speaking with about our rewards program and the opportunity to offer it to them and their subscribers to bolster loyalty and revenues. I had met with them a couple months ago after some phone calls when I presented the initial concept and business proposition to them. They seemed intrigued with what we were doing and wanted to set up another meeting in April. So we went back in to give them additional information on how the program would work for one of their larger magazine titles.

The weather was terrible and I made the mistake of taking a cab up 8th avenue. I thought I left plenty of time with 20 minutes to go 30 blocks in a cab. However, I arrived at my destination 45 minutes and $20 later. Like I said, a huge mistake. Seth was in another can and got to their offices only 10 minutes late. I told him to go up and start without me. Not the best way to kick things off. I was frustrated and upset that I was late to this meeting and apologized profusely to all parties involved upon my arrival. Anyway, we made a presentation to three senior executives in their marketing department and discussed the functionality we would provide for their program by showing them our own rewards program at iBakeSale.com. They seemed to be pleased with the hundreds of big name merchants we already had in the program. At the end of the meeting, we answered some specific questions they had about costs, payments etc. and left the meeting feeling pretty good about how it went, minus the fact we were 20 minutes late.

Seth and I found a cafe near their offices to recap on the meeting and felt ok with how the presentation went. We were obviously pissed at ourselves for being late to the meeting and only hope that it won’t hurt us in the grand scheme of things. So far, our persistence and our unique value proposition seem to be working out pretty well for us. We just hope that it we come out on top at the end of this process when the publisher makes a decision between us and 4-5 other providers over the next month. We’ll keep you posted…

Bottom Line: Persistence and flexibility have stood us in good stead so far. Follow-up is crucial. Always find a way to engage in a conversation with your prospective customers. Built that relationship and follow-up frequently (no more than once a week). My goal is to be persistent but not annoying. A fine line to tread I know, but we’ll just have to see how it pans out…

JT

We’ve got merchants!!

So iBakeSale is in final stages of development (more on that in another post) and we’ve got approximately 300 merchants signed-up for our program. We are going to launch online only to start, since that will give us broader reach across the whole country via the web and not limit us to various locations with brick&mortar merchants. Reaching out to brick&mortar merchants will be further down the road. We’re very please with the traction we’ve gotten with some very large merchants. You can check out a list of some of our larger merchants at www.ibakesale.com. The program isn’t even complete yet, and once it’s launched (we’re hoping by end-of-month), we’ll be able to get some other large merchants who are on the fence until we have some initial consumer adoption. I can’t say I blame them. Stay tuned…

JT

Bootstrapping…

So it’s been about 9 months so far and things are moving well. We started raising money in February after sending our materials out beginning in December. After three months of raising money (not really pounding the pavement but loosely following up with individuals), we have raised $120,000. The good news is that we did not need the much greater sum of $500,000 we thought we would need to build out a working technology. We initially thought we would have to outsource our technology to India, which would have cost anywhere from $100,000 to $250,000. Instead, we lucked-out by getting an introduction to a team of incredible technology developers out in Bethlehem PA from one of our business contacts. This team is interested and willing to build the technology for us for much much less. We have arranged to compensate them with a combination of cash and equity in our budding venture. Plus, they are local and the communication between us is 150% better than it ever would have been trying to communicate with Mumbai at 3am.

Our major costs so far have been designing and building our website for our first rewards program, which we are calling iBakeSale (more on that later). Legal costs have been a huge chunk of change as well. The drafting of employment agreements for new hires etc. have been very expensive (and a waste of money in hind-sight). We have done a good job conserving cash on this front by hiring a great firm (Perkins Coie shout-out) in CA that is willing to defer most of our legal costs until we raise more money (more on picking a law firm and that process later). The difficulty that Seth and I face is that neither of us are technologists. Had this been the case, we would have saved even more money by doing it ourselves. But I guess that’s just the nature of the beast.

Bootstrapping is a commonly used phrase to explain how start-ups manage to accomplish a great deal with very little money. Some people think this is a myth. Others swear by it. Seth and I fit in the latter category. Entrepreneurs bootstrap for two main reasons. The first is that they can’t raise the necessary amount of money to hire key employees and pay a ton to get it done immediately (that’s us), and the second reason is that they don’t want to lose ownership of their company, even if they can raise the necessary funds, to investors who will want a majority of their business (us as well). Many times, it’s the second reason that overshadows the first. However, there are some businesses that simply cannot bootstrap. Those that require large capital investments for equipment and the like cannot afford to start a business on $100k. Other businesses that can bootstrap decide not to because they are worried about getting to market quickly and end up selling >50% of their business. However, for the tech start-up with founders working from home and hiring good part-time employees on equity compensation, bootstrapping can be a viable reality.

The good news is we still have 80% of our capital in our bank account. The bad news is that it will start going quickly as we start hiring more part-time tech developers to build more functionality for us (we’ll pay them by the hour). We also just hired a PR firm that will help us get our new program out there to our target market (more on marketing and PR in another post). In the end, we will be able to build and launch our first product to the market with what we have and use the snowballing success (god willing) to raise more money from existing and new investors as we move into the next phase of our business.

Bottom Line: We believe that bootstrapping, when possible, greatly increases the chances of success for a start-up, especially given the fact that 98% of all start-ups fail. Save cash whenever possible. When you have the choice of spending money or not, make sure that if the answer is yes, you understand exactly where the money is going and how that will allow you to increase the value of your business (building technology, a corporate website, marketing, sales, etc.). When the trade-off is unclear, save your cash. You’re going to need it when you least expect it. Bootstrapping can’t last forever. The goal of bootstrapping is to allow a business to build traction on a “shoe-string” (with little money) so that (1) investors are more willing to roll the dice on your business and (2) you won’t need to give up nearly as much of your business as you would if you went out to raise money day 1.

JT

A few thoughts on the captial-raising process…

Based on our experience over the past few months trying to raise money, we’ve learned a ton of things. I figured it would be helpful to share some of these thoughts with any budding entrepreneurs reading this blog for inspiration and advice…

Based on our short experience, if you’re a start-up looking for money, you’re best bet is to go to friends and family for seed capital. Any little bit helps. These are the people who have known you since you were born and want to see you succeed. They will want to help in any way they can (money or advice), hopefully. It is definitely awkward asking friends or family for money, especially if they do not have much of it.

Be careful who you take money from. Don’t take money from anybody who cannot afford to lose it. That may have come out poorly. But the point here is that you don’t want to take grandma’s last $5k or $10k and lose it if your venture fails. She’ll never forgive you and you’ll never forgive yourself. While it’s easy to take money from just about anybody willing to give it to you, try to be selective and take money from people you know who will not bust your chops on a daily or weekly basis. There are plenty of people out there who expect weekly updates and glossy annual reports for their $10,000.

It’s up to you whether you want to spend the time with investor relations (i.e. dealing with investors) or running/growing your business. This is not to say you should take the money and run. Entrepreneurs call this “Green Money” which basically refers to people writing you a check and not providing any additional value/advice/time/etc. “Smart Money” refers to investors who invest money and are committed to providing advice and help in any way they can. Obviously business angels with wide networks and lots of business experience may be better suited for this than your friends and family. However, you’d be surprised what kind of great advice can come from your family; just ask them.

Start-ups, like us, are forced to raise money from unlikely places. Most people think that start-ups simply to go a bank or to VCs for money. But this is just not true, simply because banks won’t make risky investments in businesses with no revenues and neither will VCs. VCs also want management with proven track records and will typically want to see customers and sales before they get interested. This means that you need to find money through three common channels, two of which are a terrible idea.

1) Loading up on credit card debt

2) Taking our home equity loans or a second mortgage (doesn’t work for you renters out there)

3) Going to friends and family for a loan / sell equity in your business

Out of the three listed above, numbers one and two are to be avoided at all costs. While this seems intuitive (of course, who wants to be in debt), many entrepreneurs don’t have a choice. They need cash and don’t have any family or friends with money. Taking on debt to start a business is like screwing yourself two-times if the business fails. If the venture fails (stats show failure rates at over 95%), then not only did you lose your own money and time you invested in the venture, but you’re now up to your eyeballs in debt and may never dig yourself out. Not a pretty picture…

The third option is the best, if it’s available. It is the most awkward of the three because it’s the only option that involves you asking for money. But trust me, get over it, and it will be the best decision you’ve ever made. Friends and family are the only people who will invest in your business (in you) at this point. If you take a little bit from a lot of people, you can spread the risk around and not have a terrible sense of guilt if you lose every last penny Aunt Jinny had in her IRA account. The key here is to communicate with your family about your business. Be excited and keep them in the loop. That way, it will not come out of left field if/when you ask them to invest. We started this whole business (OnCard Marketing) hoping that we would not have to ask friends/family for money. However, we realized quickly that was not possible. It was a very hard decision to make because we never wanted to be in a position where we had to look across the table at Grandma and Grandpa over the holidays and try to explain why their retirement savings went up in smoke with our venture.

Bottom Line: Try to raise money from friends and family before going the riskier route of taking on debt (credit cards, mortgages etc.). Don’t accept money from people who can’t afford to lose it. It would be ideal to have two investors put in $25k (fewer investors putting in more money). However, most people don’t have rich relatives. If this is the case, spread the risk around to many investors and have them invest an amount they are comfortable with. Anything more will create a world of headaches in case things go south with your venture. I will follow-up with another post on the legal side of fundraising and a run-down of the legal documentation you should have when you raise money.

JT

We’re not pre-revenue anymore!!!

We received a check in the mail today for $15.50 from one of our merchant partners for a couple purchases one of our beta testers made through our iBakeSale program last month. The good news is that we now have a “top line” (i.e. revenues). The bad part is that it takes about 30 days to receive payment for our ad services. I only hope that the check clears when I deposit it into tour bank account. In other good news, this modest payment proves that our technology actually works and that we can track consumer purchases at our merchants and credit their reward accounts with the cash-back rebates. A definite plus, since we’ve been telling people about this program for about two months now.

JT

Now presenting iBakeSale.com…

Seth and I have been debating for awhile now about the pros and cons of using the OnCard Marketing name for our consumer program. We’ve debated everything from OnCard Marketing, OnCard Rewards to OnCard Community. We settled initially for OnCard Community and even created a logo based off of the OnCard Marketing logo (see www.oncardmarketing.com). We were using that logo on the initial site design for about two weeks and were even able to sell merchants into joining our program under the OnCard Community name. However, we got to thinking about our consumer brand and decided that it was not a good idea to use OnCard anything. The main reason is that we don’t own the URL for OnCard. An Australian credit card company owns the website address for www.oncard.com, which is a huge bummer for us. Luckily, we already have the trademark for OnCard in the U.S. and they don’t have any presence outside of China and Australia.

Nonetheless, we are stuck in a dilemma where if we call the rewards program OnCard Community, consumers (with their very short attention spans) will shorten the name to OnCard, and then if we get lucky and people actually tell all their friends about OnCard, people will end up on the wrong website confused as to how they were told to sign up with a company based out of China. So, we decided that it would be best to keep the OnCard Marketing name for merchants and create a uniquely branded name (and logo) for our first rewards program, one that reflects the focus on grass-roots fundraising and community giving. I spent hours on GoDaddy.com pouring over hundreds of domain names, emailing lists upon lists of possible names to Seth. Most of them I have to admit, were garbage. But out of all that rubbish, iBakeSale was born.

We like it because it is fun and conveys a sense of community, fundraising, grass-roots organizations, and alludes specifically to a common community fundraising activity (i.e. the bakesale) that we are looking to replace with a more tech-friendly way to shop and save for organizations near and dear to our consumers’ hearts. This could include school PTAs, religious organizations, little league and other sports teams, extracurricular school activities, as well as small to medium size charities looking to increase their fundraising efforts, for free. We are currently knee-deep in tech development and should hopefully be done by end of April for the general public. We will begin testing it on a small scale this weekend. Will keep you updated as we near launch of the program…

JT

Building our network with LinkedIn…

When we started OnCard Marketing a few months ago, Seth and I were fresh out of Citigroup with a list of contacts that consisted mostly of friends and fellow financial services professionals. We absolutely had scarce few people we knew in media, advertising, non-profits, publishing, PR, law, accounting, etc. However, we realized very quickly how important networking was to reach the right people we would need to help grow our business. One of my friends suggested LinkedIn to me back in July. I had never heard of it but quickly found out that it was a rapidly growing professional social network or people in business spanning lots of different industries. It was free to sign up, so Seth and I joined the network. We started building our network with friends who were already using LinkedIn and gradually expanded it to business contacts and then even to prospective business partners, new recruits, vendors, etc. It has absolutely been an invaluable tool for us as we constantly look to expand our network and bring the best talent to our company that can help us grow. I have to believe most entrepreneurs would have to agree.

Bottom Line: If you’re just starting out as an entrepreneur, joining LinkedIn is a must. It’s free and will help you get in touch with many people who can help your business. You can sign-up at http://www.linkedin.com

JT

Selling merchant clients…

So Seth and I are starting to sell merchants on the merits of our first consumer rewards program, iBakeSale, which is currently under development. There are so many. We’ve created lists upon lists of merchants that we want in the program. Given our target demographic is mainly women, many of whom are moms, we focused our attention on female-focused merchants. The good news is that we are starting to get some interest. It will probably be a tough sell, given our program is not functional yet, but we are hopeful that the whole pay-per-sale thing will entice merchants to participate given it is practically risk-free. They only pay us when we generate sales for them. Who wouldn’t like that?!?! Well, Seth will be heading up this initiative because there is technology integration that needs to happen with each merchant and will have an impact on operations. Given Seth has headed up operations and technology, he’s going to head this up to make sure that the processes we develop right now will be sufficient to scale with the business as we get more consumers spending through our site. In business, as in cooking, too many cooks in the kitchen spoil the broth… I will continue to reach out to media companies and charity organizations to pitch our white-labeled rewards programs to them. More updates later…

JT

Executive recruiting, take 2 continued

Read the first two parts of this story at Executive Recruiting, part 2 and Executive Recruiting, part 2 continued

So we’ve been working with Mr. Banker for about 5 months by now. It started out pretty well. We had a bunch of great strategy talks on where we should take the business. We also met a bunch of Mr. Banker’s wealthy friends who made start-up investments to discuss our business and get some feedback on our investor presentation. Unfortunately, this was the extent of Mr. Banker helping us raise money. We had about three of these such meetings and received some decent feedback on the materials. It felt a lot like giving your 10th grade English paper to 3 different teachers. We received 3 different answers on what was important and what was not, etc. The changes were mostly to the financial forecast, since they felt that our numbers were too high, not ridiculous, just unrealistic.

In between business and strategy meetings, we’ve been working with our lawyers in CA to finish the contract with Mr. Banker. This has been quite an ordeal, since our lawyer out there has been sick, traveling and out of the office on-and-off for about 3 months. Needless to say, I was very frustrated with the turnaround on our changes to the agreement. There’s been a lot of back-and-forth, and quite a large legal bill. I hope they will allow us to defer the charges until we actually raise some money.

Over the past month especially, Seth and I have grown a bit concerned with the direction the contract has been heading. We’re trying to compromise on many issues but feel we’re just not reaching agreement on many things. About two weeks ago, Seth and I had a long talk about this and spoke at length with a few of our advisers. While we felt that it would benefit us to have some “gray hair” on the team for credibility, it was becoming increasingly frustrating to get things done. We felt that Mr. Banker was pulling us in different (i.e. the wrong) directions and that many of these distractions were actually slowing us down from pursuing our vision for OnCard Marketing. There were obviously many other reasons that Seth and I discussed but I won’t share them here. In the end, we couldn’t come to terms that we thought were reasonable and fair (i.e. in our best interest), and the way these negotiations were going just didn’t seem right.

About two weeks ago, we put a contract in front of Mr. Banker that Seth and I (and our lawyers) were comfortable with, one that gave us adequate protection in case things ever went south with Mr. Banker. We realized that it was a reversal from previous drafts of the contract. However, neither Seth nor I were comfortable with this deal. We were about to give up just way too much for what we felt was a huge potential headache. In short, we had a change of heart. Things transpired over the past 5 months that just made us uncomfortable with the original deal, and we weren’t going to settle. We sent the revised contract to Mr. Banker about two weeks ago, and he wrote back two days later with a lot of interesting language and emotions. I won’t disclose the contents, but feel free to use your imagination. Seth responded with what we thought was an “olive branch” email, and we haven’t heard from him since. Seth and I are still upset with how things ended, but like everything else, we believe it’s for the best. Despite our initial amazement at how fast things sizzled out, we are happy that we did not make a huge mistake by signing that deal. We think that it will be the best for us, the company, and our shareholders. In just the past week, we realize how much faster we are moving again with all the things that need to get done. We’ll just keep rolling with the punches…

Bottom Line: Don’t sign a deal if it doesn’t feel right. We got caught up in the excitement of signing our first deal and didn’t step back to think about the repercussions of what we were signing until the last minute. If you are the founders of your company, keep it that way. Don’t give away equity or kudos too easily. We thought it would be a good trade-off for what we were getting but realized in the end we should have had more faith in ourselves to run the company. Make sure you get advice from advisers and lawyers before signing any deal that involves giving equity away in your business. If you have a good idea, people will try to convince you to give them a piece. Like one of our advisers told us, you can’t take equity back once you’ve given it out…

JT

Collecting investor checks…

So we’ve started collecting investor checks this week after two months of following up with prospective investors with our business plan and legal documents. This is a grueling process. Our first investor was actually a family member and our second was a family friend of my parents. There are a couple other checks from family members in the mail we should received shortly. We are so happy that they have put their trust and confidence in us to protect their investment. We will do everything we can no to let them down! As corporate treasurer, book-keeper, and CFO (among other less glamorous titles), I deposited the checks into our Citibusiness bank account proudly and am excited to see our account balances shoot up when we get our bank statement at the end of this month.

Raising money is the least fun activity we’ve had to go through. I’ve been leading the charge on this, given my background in investment banking and general understand of the legal documentation and financing jargon. It is definitely humbling to ask the people around you to invest in your new business. At this point, I realize they are investing in us; my contacts are investing in me, and Seth’s are investing in him. I guess this is what I’m hearing about VCs investing in the management teams of start-ups. It’s just because there’s nothing else to invest in at this point. However, friends and family know me personally and are much more likely (hopefully!) to put their faith and their money in me and our company. I can tell already that it will be challenging to convince complete strangers (VCs and Angels) to take a ride on our stock until we can show them business progress as a grounds for making an investment. We’ll just have to keep pounding the pavement…

JT

Our search for the perfect PR firm…

Seth and I have been discussing our marketing plan for OnCard Marketing and iBakeSale over the next few months. After talking with friends, advisers, and other entrepreneurs, we’ve come to the conclusion that we should look into PR (public relations) as a way to get the word out there about our first consumer rewards program, iBakeSale (currently in final stages of development). We simply cannot afford more expensive marketing and advertising options given our tight budget and bootstrapping mentality. With PR, we can hope to manage our finances with a monthly retainer fee and with enough guidance, formulate a PR strategy that will get us press in various consumer publications, both on-line and off-line, to tell consumers about iBakeSale and encourage them to sign up for the program.

Similar to our predicament when beginning our search for a law firm a few months back, I found ourselves without a list of contacts in the PR field. So it was back to being resourceful, contacting other entrepreneurs who had used PR firms in the past and using a website called O’Dwyers, which is a huge listing of PR firms by concentration (i.e. tech, health care, industrial, consumer packaged goods, etc.). I sent about 20 emails out to the cold contacts and to the warm contacts provided to me by my fellow entrepreneurs. I have already received 10 responses back and have phone calls scheduled with 7 for next week. I’m hoping to wrap this up in the next 4 weeks, solicit proposals, meet the firms in-person with Seth, and then make a decision with Seth and move on to the next project. I’ll let you know how it goes…

Bottom Line: As far as I’ve heard, there is no better option than PR as a primary marketing strategy for a start-up. If most start-ups are like ours (which I assume is the case), they don’t have the money for direct mail, internet marketing and the like. You need to be resourceful and get the word out cheaply. PR will hopefully take care of that for us. Use referrals from other friends/entrepreneurs who have worked with specific PR firms in the past. A personal referral can go a long way. O’Dwyers is also a great resource in case you don’t know where to start. Ideally, you want to meet with 3-5 firms, get proposals and see what their proposed budget is. For an early stage company, expect to spend anywhere from $6k to $10k per month. I know it seems like a lot, but it’s a lot cheaper than the alternatives, and some well-funded start-ups spend over $20k per month on PR. But hey, you’ve got to start somewhere. More on how to select a PR firm in a follow-up post…

JT

The beauty of partnership…

Seth and I have been working together for some time now on OnCard. The one thing I realize is how much I appreciate having a partner with whom to share the experience (and all the work). I realize how much work there is to do to launch a new business, ranging from sales, marketing, technology, operations, finance, book-keeping, legal, PR, vendor relationships, etc. The list goes on. This is a lot of stuff for one person to do. Starting a business from scratch is hard enough for two people. I can only imagine the pain that would be required to start a business like ours from scratch with only one person. There are companies out there that are started by one person, but I have to imagine that doesn’t last for long. As in our situation, Seth and I have different skill sets, and I am hard-pressed to believe that one entrepreneur has both the time and abilities to handle all these critical responsibilities.

I think that partnerships can be a double-edged sword. Having partners means that you need to share decision making responsibilities, which is not normally desirable for some entrepreneurs. Many business owners like to be the one in control, but that is neither optimal or feasible for most start-ups.

If our situation, Seth and I always talked about going into business together. We are close friends from college and have always gotten along well. However, people warned that going into business with a friend would mean the end of that friendship. Luckily for us, that does not seem to be the case. It has actually worked out very well for us, because we have that long-standing friendship. We both feel that if only one of us had started this business, it would have been incredibly isolating and lonely, and we wouldn’t have had the support structure to get through the hard-times. Also, having a good friend to share the experience with has made it all the more fun and rewarding.

Some people say that they’d rather struggle alone than risk bringing on the wrong kind of partner. I agree with that rationale to a point. However, if you bring on the right partner, I believe you increase the chances of success for your start-up exponentially, or at least that is what Seth and I hope is the case with our start-up.

In fact, things have worked out so well so far that we are considering bringing on an additional (third) partner to help run the company. This will be a trickier decision because we will not have the pre-existing level of trust that goes with knowing this guy from college. This will be a challenge and will require some good advice by others who we know have been through this process before. We’ll just have to let you know how it plays out…

JT

Meeting with investors

So we sent the business plans out to approximately 20 people in the mail before the holidays. Most of the potential investors are friends and family, which will hopefully invest “love-money” in our company. I’ve also spoken with and are beginning to speak with business angels and VCs about our business. They seem intrigued with the idea and have complimented us on how thoughtful we’ve been with our strategy and planning. Like everybody else, they want to see execution, which we’ll hopefully be able to show them by the spring. At this point, I think that convincing an early-stage VC to invest in us is futile. Barring the fact that they would probably want 51% of our business for $250,000 (not going to happen), they are probably not that excited about investing in a start-up with a couple of young guys only a few years out of undergrad. I can understand this but am disappointed nonetheless. I always thought that VCs invest in start-ups, but that seems not to be the case, unless you define start-up as 10 employees, management with gray hair, and $1,000,000 in revenues.

There are several business angels (wealthy businessmen) who have read our plan and are interested. There is a possibility that any one of them would invest up to $250k, but that’s a slim risk. The tough part here is that most of these guys are full-time executives and are very busy with their everyday life. Following up with them to discuss a side investment is time-consuming and difficult. But then again, nobody said raising money was easy… It will probably require months of follow-up and proof of execution (a working technology) to convince any of these guys to jump in. We’ll just have to keep you posted.

JT

Raising capital…

So we’ve been at it for almost 6 months now and have been able to accomplish a ton of stuff on a very limited budget. So far, Seth and I have contributed our own money to the business and have created the corporation, built a fancy corporate website and an interactive product demo. The remainder of the budget is going towards technology maintenance costs, travel costs and the like. However, we both agree that we need to raise outside capital to build our first consumer rewards program website and have enough money for more inevitable legal costs and some initial marketing initiatives that will help us get the word out about our consumer rewards program.

Seth had been slaving away on a business plan and executive summary, and I have built a detailed financial forecast to go with it. These are the basics any investor will want to see, although most won’t believe the financials. Anyway, we are beginning to reach out to people within our personal network of friends and family to see if there is any interest. We sent out the investor materials in the mail to avoid having soft-copies of our confidential materials floating around in cyberspace. Realizing that Christmas is rapidly approaching, we do not expect people to devote much time to reading our plan. However, we want to get the materials out there so we can follow-up after the break.

At this point, we have also reached out to a few venture capitalists through our personal networks. We even went up to Boston to meet with one of them in July. They seemed to think that our idea was pretty unique but very “hard to execute.” The takeaway was that we were just too early stage for them, since we just had a good idea and a detailed business plan. Given we were also young and did not have a “track-record,” it was highly unlikely that they were going to roll the dice on us at this point. The funny thing is that they left it open-ended and said that they would be interested in seeing how we progressed. That was probably the best we could have expected to hear. We realized that we probably went to chat with this VC prematurely. We ran the risk of hurting our chances to raise money from them given we lacked any credibility whatsoever and were just pitching them a grand vision.

So the business plans are going out this week and we’ll follow-up to see if there’s any interest in our company after the holidays. I’ll keep you all posted.

Bottom Line: For you entrepreneurs out there, my couple pieces of advice on beginning a fundraising process is to make sure you have a well-written business plan and some semblance of financials and not to reach out to VCs too early (if at all). Investors want to see that you’ve done your research and have put together a thoughtful presentation. They want to know how big the financial opportunity is and will want to look at financial statements (usually an income statement will suffice - use the internet to learn more about this if you don’t know what an income statement is). The second piece of advice is not to go to VCs prematurely (so don’t worry if you don’t know any). They will generally not fund a company with just a good idea and will look to get as much information from you as possible (even more dangerous if you actually have a good idea). The common feedback will be that they are interested in monitoring your progress and to keep them in the loop. This process is time consuming as is, so I would recommend that you (the entrepreneur) spend time focusing on your business and raising money from more likely sources, which I will discuss in a follow-up post.

JT

OnCard Marketing website complete!!!

We’re finally done with the our corporate website at www.oncardmarketing.com. It’s been quite a grind, but our designer and programmer have done a great job and really created a website and demo that we are extremely proud of. We can only believe that it will give us more credibility with investors and business partners. The demo was the hardest part, integrating some “dummy” functionality so that a user can click through it as though they are using it, even though it really doesn’t work (i.e. information is not being stored anywhere - no back-end database yet). It is quite comprehensive and we will begin showcasing this as our vision for the business, technology that we hope to begin developing over the next few months after we raise some more money…

Bottom Line: The one thing that this project has taught us is that it is critical that we to be crystal clear with what we expect. Although we thought we were clear with our extensive document that outlined exactly what we thought we wanted, things inevitably changed over the course of the project. I have to imagine that this is natural, to add some additional things and remove other as you see the site take form. The key here is to maintain crystal clear communication with your designer and programmer. We probably could have done a better job at this, and our designer and programmer could have pushed back a bit more when they felt that we were asking for too much. This was our first major development project, and as we’ve found, things always got pushed back, delayed, etc. I have no idea why this happened, but just be prepared. If you do one thing, don’t promise to show anything to anybody until it is complete (or near-complete). There are a ton of things that can delay the project and then you’ll be risk ruining the credibility you were hoping to build with your new corporate website/demo. We managed to salvage this credibility by showcasing only parts of the site that were working, but this is not advisable…

JT

More bites from magazine publishers…

I’ve been following up with the hundreds of ad sales folks at these various magazine publishers. I’m sure by this point I am beginning to annoy a few people. But I guess that’s the fine line I need to walk when trying to sell a new service nobody’s ever heard of to busy people who need to forward my emails to the correct people in different division. Well, I am continuing to get a few more bites from these big magazine publishers. Just a couple days ago, I received an email from a senior consumer marketing executive at Hearst Magazines who is interested in hearing more about what we’re offering and wants to set up a call for after Thanksgiving. I also received an email from some new business development folks at Conde Nast, who also want to set something up for after vacation. I think they’re from Golf Digest, which would be pretty cool.

On another front, a friend of mine from Cornell who works in marketing has a close friend who works at Meredith Corp, one of the large magazine publishers I’m trying to get in touch with. She is going to put me in touch with this gentleman to talk more about our business and how we are hoping to work with Meredith. Hopefully, something will pan out from that conversation. Again, all this (everything it seems) will pick up after Thanksgiving so I’ll let you know how it goes in a couple of weeks…

Bottom Line: For entrepreneurs trying to network into large corporations, be patient. I’m not a patient person, and this process is very humbling and is teaching me to take one day at a time. As I’m finding, the sales process is neither easy nor quick. The two things that have helped me get any traction are resourcefulness and persistence. And that’s what I would recommend. I have no idea if it will pan out, but initial signs are showing that resourcefulness and persistence will give you the best chances of success.

JT

Following-up with the magazine publishers…

So it’s been a few months since I’ve updated you on how things have been going with the magazine publishers. I ended up meeting with Stuff Magazine the first week in August. They thought it was a great idea (to provide pay-per-sale advertising technology to their advertisers) but didn’t really see any interest from the higher-ups in the organization. They encouraged us to spend some ($90k) money on advertising with them and then they would consider a partnership. We decided to pass on this one for now but I’ll make sure to follow-up with a few of the higher-ups in the coming months to see if there is further interest once we’ve built some technology to show them.

I’ve also followed up on the 200+ emails I’ve sent out to the advertising execs at dozens of magazines. Needless to say, most still haven’t bothered to respond, although I have received about a dozen bites from publishers ranging from Hearst, Conde Nast, and Time Inc. The problem now is that my email needs to travel from Ad Sales to the right person in marketing. Many times, these two groups don’t talk, and as I’m finding out, don’t really have any reason to help one another. The sales people who responded to my emails so far understood my predicament and were willing to put themselves out and help me network to the right people in the organization. I realized through this process that I needed to contact people in marketing or circulation, not ad sales. The salespeople were busy selling ads, which I wasn’t buying. The problem was that I didn’t have any way of contacting the marketing people directly. I’m just going to have to rely on this internal referral process and cross my fingers. I’ll let you know if I get any interest…

JT

Working with Cornell MBAs…

About two months ago, Seth and I were talking about how we might find some help doing market research in the retail industry for our advertising service. We have this great idea for an ad-serving technology and want to make sure it has some receptiveness in the market by some of our target consumers. We decided to shoot an email to our Cornell network to see if anybody knows of a class in the MBA program (Johnson School of Management) that might be willing to help us (a start-up) do some work. I received an email back about a month ago from one of the professors in the MBA program that runs a consulting class for students who want to work with companies of varying sizes. She asked me to submit a form with a brief description of our business and the proposed project. I submitted the form about two weeks ago and received an email this week saying that two MBAs have chosen our company to work with and perform some market research to support out hypothesis that retailers are going to be interested in our advertising service. We are going to start working with them this week. We’re very excited about the opportunity to work with some very smart MBA students and validate some of our preliminary assumptions about our service we are hoping to build. We’ll keep you posted…

JT

Executive recruiting, take 2 continued

Check out the beginning of this story at Executive Recruiting, take 2

We extended the offer to Mr. Banker for him to join us as a third partner and founder. He was a big surprised given we had really gotten in touch with him as a banker to help us raise money. However, we explained the issues we had with the old agreement and how this offer was meant to capture all the upside of bringing him on-board without any of the legal mess. He was excited at the prospect of joining us as an entrepreneur and accepted the offer on the spot. We all agreed that the terms of the agreement would have to be worked out, but that we would take care of that over the next few months. We began discussing all the exciting partnership ideas we had in the hopper. We also spoke a bit about compensation, and Mr. Banker expressed interest in being an equal third, meaning he wanted the opportunity to earn into a full 1/3 of the founder’s equity. While we thought this was pretty rich, we realized we were not giving him a 1/3 outright. He would have to earn it over a period of time. If things didn’t “work out” before the end of his contract (probably 3 years), he would not get the remainder of his equity. We thought this was a pretty good compromise and a price worth paying to get a guy on-board who would hopefully grow the business exponentially. Seth and I agreed that it was better to have less of something big (if not something at all) than to have half of nothing.

Mr. Banker was excited to get right down to our business plan and fully understand what our vision was for the company. He also wanted to fully understand the financial model I had built and how we planned on making money. He admitted that as a partner, we was excited to get his hands dirty and learn the “nitty-gritty,” something that neither he, nor any other banker, typically did when working with a “client” to raise money. He admitted that a banker typically makes the introductions and understands the business on a high-level, leaving it to the entrepreneurs to answer the hard questions from investors. Seth and I left that meeting very optimistic. We liked Mr. Banker a lot and thought that the new partnership relationship was going to be much more beneficial for OnCard and force Mr. Banker to work harder than he would have if he were just our banker. We’ll see how this pans out…

JT

Executive recruiting, take 2…

View our first journey down the recruiting road in prior posts Executive Recruiting, part 1 and Executive Recruiting, part 1 continued

So we decided to pass on hiring a banker. It was a pretty frustrating past couple of weeks, but I gained a huge education from this process. I passed it all onto Seth, who was in the loop every step of the way. After much discussion over the past week, Seth and I have decided that hiring a banker was a terrible idea. Instead, we are entertaining the idea of making Mr. Banker an offer to come on-board as a third partner. Given his 20+ experience in venture capital, investment banking, technology and financial services, we think he could probably add much more value as a team member, without all the contractual hurdles we were facing with the consulting agreement. We think that the new business relationship we are proposing will be much cleaner and will hopefully align all of our interests much more closely.

We actually began working with Mr. Banker this week under the pretense that we will get a deal done and come to terms with an agreement. We have another meeting with him in a couple days and will make the offer then. We hope that this move will bring the much-needed credibility and execution experience to our company. However, unlike before with Mr. Texas, we are going to structure this as a three-way partnership. We will ask him to buy his stock, much the same way that Seth and I have by investing our own money. We know this is for real if he commits his own money to the venture. The big difference is that we will offer him about 20% of the company over the time, say 3 years, that he stays with the company. We think this is very fair, but will just have to tell you how it goes…

JT

Do we need a banker? part 2

Get up to speed on the story before reading our first post on Hiring a Banker

So I met with Mr. Banker about two weeks ago at this point to discuss our capital needs and how he might be able to help us raise some money. Given I understood and spoke the banking jargon, Seth and I decided that I would manage this process until we were ready to make a decision, upon which time Seth and I would decide together on the right path to take. I had never dealt with a start-up banker/consultant before, so this was a real education. The basics for how this works is that these bankers typically work alone and help start-ups or small companies with a variety of financial advice, such as M&A (i.e. selling their company), raising money, and general business development (i.e. finding partnerships), among other internal finance processes. Some will even offer to stand-in as CFO (chief financial officer) to ensure that the financial processes are in place and that the accounting is being done properly. Mr. Banker offered his services on all these levels.

I thought this was a great idea and asked him for a draft agreement so we could share it with our lawyers and get a general sense for how the economics (i.e. payment to him) would work.He sent me the paper work a day after we met (about a week ago), and I went through it with a fine-toothed comb. In short, I didn’t like the fee structure and thought it was going to be very expensive. There were fees for everything, but Mr. Banker mentioned that most of the compensation would be for stock in our company so that he can “share in the upside.” Seth and I liked this part because if he did a good job raising money for us on a good valuation (more on that in another post), he would also benefit from our stock being worth more. However, I come from a world of finance where clients paid bankers significantly less for a private placement. Although the size of our deal would be much lower, I did not feel comfortable paying 60% more than I was used to at a big investment bank.

I sent the agreement back and forth with Mr. Banker, making edits to the language and negotiating the terms.After working on this for two weeks, I was comfortable with the agreement and thought it provided us with adequate protections and fair fees. But then again, I’m not a lawyer. To be sure, I sent the agreement to our lawyer for final review and waited a couple days for him to get back to me.So he came back to me yesterday with a ton of notes and a lot of issues with the agreement. In short, he said that it was very unfriendly to the company and thought that we should not sign this agreement under any circumstances. He believed so strongly that we not sign the agreement that he was going to draft a letter to us stating his advice so that his view was documented should we go ahead and sign it anyway. I assured him that we were absolutely going to follow his sound legal advice. I spoke with Mr. Banker and told him that we could not sign the agreement. I told him that Seth and I would need to speak about this and would get back to him with an alternative next week. So I’m pretty sure that we are not going to hire a banker at this point, but I’ll let you know how this goes…

Bottom Line: Be very careful when hiring a banker to help you raise money. Don’t sign anything before having a corporate contract lawyer review it. This could be your uncle, cousin, brother, or the lawyer you hired because you don’t have anybody in your family who would do it for free. It doesn’t matter. Remember, that your signature is binding, and signing anything without fully understand it (especially in business) could be a huge mistake. Look for other sources of money first before hiring a banker, since other sources will probably be free and a banker will charge you a big fee for what he’s doing. If you decide to hire a banker, make sure the contract is completely performance-based. This means that he gets nothing if he can’t raise money, form partnerships, etc. This creates ultimate accountability for the baker. If the banker you’re talking with doesn’t like that, don’t hire him. Remember, hiring a banker does not mean that he will have your best interest in mind. He wants to raise you money so that he gets his fee. It doesn’t matter how much of your business he needs to sell to do it. So make sure you understand how much of your business you’re giving away when you’re banker brings you interested investors wanting to put in money. Everything comes at a price…

JT

Starting to build our website…

So Seth and I had a couple conversations with this web designer and really like her. She’s creative and has designed some pretty amazing websites. We decided to hire her and her programmer to design our site. Seth and I have have worked tirelessly on a schema for the site we want, complete with layout, page flow, graphics, and text. We’re handing it over to her as our road-map/blueprint for what we want. She’s going to put together some preliminary designs so that we can review, tweak, and then have her programmer start actually building the site. We’ve already purchased the URL at www.oncardmarketing.com a while back when we incorporated (highly recommended), so I need to hand over the info to the website programmer who will make sure that things are working smoothly on the actual site as the project moves along.

The big thing that we want in our site is a pretty complete demo of the service we’re hoping to sell to merchants. It’s complicated, but Seth and I have a good idea of what we want it to look like. I just hope that our design team can make it look as good as we envision it. We’ll keep you posted…

Bottom Line: When choosing a web design firm, pick somebody who has a large portfolio of sites that vary in look and feel. This shows that the designer has versatility (good thing), meaning that you’re more likely to get a site that is as original as possible. Also, if the designer has a personal relationship with somebody you know (i.e. they’ve done good work for somebody you trust), all the better. With designers, you don’t really need referrals. Their work speaks for itself. If you like the websites they’ve designed, and they’re willing to do it for the right price (don’t spend over $100/hr), then go for it. This is your corporate identity, so don’t skimp. If the site looks like crap, you’ll lose credibility, so spend the little extra to make it sharp.

JT

Picking a board of advisors… continued

Read up on how the process began in Picking a board of advisors…

Out of about 12 phone calls made to prospective board members, only about half accepted, with the others claiming that they had other obligations inside and outside of work that would preclude them from providing informal advice to a start-up every few months. Obviously, I didn’t buy into it. But I’ve been told not to take anything personally in business.

Out of the 6 respondents who accepted, we have close relationships with 4; the other two we’ve never met in-person but were referred to us by close contacts. We decided to ask two Cornell professors to advise us. Seth maintains close relationships with his professors from when he was in school and keeps in touch with them on a regular basis. This is a logical choice, since one of them teaches entrepreneurship and the other is a leading technology professor in the computer science department. One (our favorite Texan) comes from marketing/advertising, and the other three come from financial services, one payments consultant, and two commercial banking and credit card experts. So now we have a board. I don’t think we’ll have any fancy meetings. But I feel much better that we have a network of older executives who can provide useful insights and advice to us in times of need (of which I imagine there will be many). I should also mention that we have received interest from 3 individuals who unfortunately could not have a formal relationship with our company (i.e. be listed on our website) due to conflicts with their corporate employers. Instead, they have pledged to help us in any way they can on an informal basis. I’m sure that will be plenty of advice.

Bottom Line: Every start-up should have a board of advisers. A board of advisers is not the same as a board of directors. Most start-ups don’t need to go through the legal hassle and paperwork to create and elect members to a board of directors. A board of advisers is much more informal (usually does not require compensation or paperwork) and gives you two of the big benefits of a board of directors. The first is credibility. Having older, successful and experienced people associated with your company will only help as you try to build your own credibility as an entrepreneur. Second, surrounding yourself with this crowd will give you a support group of qualified (hopefully) individuals to whom you can turn for advice when you need it.

JT

We need a website!

Seth and I have been talking a lot recently about building a corporate website for OnCard Marketing. We realize we need to have a web presence (since we ARE a technology company) and having an informational site would be the first step towards enhanced credibility. Once again, we find ourselves trying to do something neither of us have ever done before, building a website that is. I started pinging my contacts with emails trying to see if anybody know a web designer. At this point, I just need an education and don’t care how great the person it. We’ll evaluate that once we have some names. I’m calling a bunch of web designers I found using google adwords (great resource for finding stuff you need). The problem is I don’t know any of them and the price they’re charging is pretty steep (too steep for us).

Seth has a friend a few years older from his fraternity at Cornell who has a friend in graphic design. We checked out her work yesterday and are actually very impressed with some of the work she has done on websites. I’m so happy we finally found somebody who knows something about web design!! I’ll reach out to her and have a couple conversations about the project, our company, and the site we are hoping to build. I’ll let you know where this goes…

JT

Hiring a banker…

We’re now in August, and Seth and I began talking about raising money from outside investors. We had begun conversations with potential technology vendors to outsource technology development to India or eastern Europe. It was going to cost anywhere from $150k to $250k depending on how complicated we wanted our technology to be. There was also another chunk of change for development costs associated with implementing our registered card program with a different third party vendor. This would enable us to allow consumers to register any/all existing credit/debit cards with us and get the rebates/discounts from our merchants directly on their card when they shop in brick & mortar stores. Other costs that we saw on the horizon were some key employee hires, paying us a little bit to cover rent, some travel costs, and maybe even office space if we could swing it.

So last week, we thought it was necessary to try to raise some money (about $500k), depending on whether or not we could create enough interest among investors.One of our advisers told us that it might make sense to hire an investment banker to help us raise money, since they have relationships with wealthy angel investors and VCs. I thought that wasn’t a bad idea and went out on yet another search, this time for a banker (at least just to test the waters and gain another education). Given I had come from investment banking, I was pretty familiar with the process of private placements (raising money for private companies from private investors), and found it interesting how I was not in the client’s seat on the opposite side of the table this time around. I reached out to a few of my old friends at Citigroup and found out that their private placement group would not work with anybody raising less than $25 million (obviously not us). I also got in touch with a few smaller investment banks that would not work with us unless we raised at least $15 million (again not us).

So I was advised to search for a banker/consultant with ties to the venture community who was not employed by a investment bank.Last week I put out a few calls to some of these individuals. The names came to me from a variety of sources. I once again tapped my personal network and sent out feelers to friends, colleagues, and business contacts to ask if anybody knew such a banker. One of the individuals at a technology outsource firm I had been speaking with suggested a friend of his who works with small companies. One of our advisers recommended a friend who used to work in banking and now runs his own consulting practice. A third referral was from a distant family member who had just wrapped up a round of capital for his own start-up in Boston and had a person up there he had spoken to. I reached out to all three and received two call-backs. I have a meeting with the NY-based banker next week. I’ll let you know how it goes…

JT

Selecting a law firm…

To catch up on the law firm search process, check out the initial post at Searching for a Law Firm…

So it’s been a few weeks since we started our search for a law firm. I’ve spoken with 5 firms and received a ton of useful information (and glossy promo materials). In the end, there were two big differences in the firms (1) location and (2) billing practices. The first thing I noticed was that 4 out of 5 were based in California and the remaining firm was based out of D.C. I was not that excited about working with a firm three hours behind but realized that it was not the end of the world. All the firms I spoke with were reputable and had a division that was exclusively focused on “emerging companies” (i.e. start-ups). Moreover, I thought it would be good to branch out from the east coast and begin building recognition for our business on the West coast, since those law firms have their own relationships with West coast investors and potential partners.

The second observation was that the law firms in CA offer a pretty appealing billing structure, where they are willing to defer all legal costs associated with raising money (shareholder documents, stock certificates etc.) until we raise substantial funds to cover those costs. I really liked that, but then again, who wouldn’t? For a start-up looking to conserve cash, postponing payments means available funds to grow the business. In general, I found that this was a CA thing, maybe a dot-com phenomenon that has carried over to present day. Maybe it’s just a cultural difference between CA and NY/D.C. Either way, we made our decision based on the two factors mentioned above and the simple fact that we just felt that there was more of a “fit” with the lawyer who would be handling our account at this firm.

Bottom Line: If you’re choosing a law firm for your start-up, speak to a minimum of 3 and look for a full-service firm that can do all sorts of legal work for your venture as the business grows. Make sure you pick a firm with an “emerging companies” practice because that means that they work with