Hiring a banker…

August 26, 2006

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…

August 18, 2006

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 start-ups and will be better suited to understand your legal needs at this early stage. As important, pick a firm with a flexible payment structure and don’t worry about hiring a firm in CA. That’s probably the only place you’ll find such a firm. Also, don’t forget about personality fit. You should make sure you like the attorney you will be working with and feel comfortable that he/she will be responsive to your needs. Once you get the information you need to satisfy these key points, make a decision quickly so you can move onto growing your business…

JT

We’ve been told that every start-up needs advisers. Especially since we’re young, a lot of people are saying that we need to form an advisory board with a few key people who would be able to provide sound business advice to us on a semi-regular basis. However, I don’t know exactly where to start. Seth and I have a decent network in financial services, but we were explicitly told to avoid putting friends or family members on the board because it detracts from our credibility. We’ll have to put our heads together and reach out to a bunch of people we’ve met so far through the process who have relevant experience to our business in technology, media, financial services and the like. I’m going to send out a bunch of emails and make a few phone calls to gauge interest. We’ll let you know how it goes…

JT

We have been using a law firm here in NY since we began in June that we got through a reference from our accountant. Our current attorney is a corporate lawyer who has helped us with things like incorporation and employment contracts with prospective employees. However, Seth and I agreed that we needed legal counsel that could also help us with legal documentation related to raising money, patents (IP), and general corporate law. I headed up the search last week by reaching out yet once again to my personal network and asking Seth to shoot an email to his fraternity list-serve from Cornell, which has an amazing number of lawyers/consultants/banker in its graduating ranks. We received a bunch of responses, both directly from attorneys at prospective firms and from individuals providing recommendations to certain law firms or attorneys they knew. One of my parents’ friends came up huge and recommended a firm on the east coast. Most of the firms were based out in CA, not a surprise since most start-ups are out there as well. I have calls set up with approximately 5 law firms over the next week or two and will let you know how it goes…

Bottom Line: Given I had no idea where to start, we were forced to be as resourceful as possible. My first piece of advice would be to be resourceful and use your friends and personal network to find the people/firms you need. Don’t use the internet. Personal relationships, it seems to us even at this point, are what makes the world go ’round and will probably lead to a better decision and less headaches. I’ll let you know if this our hypothesis turns out to be true…

JT

Recruiting a CTO…

August 1, 2006

Two months ago, Seth and I determined that we needed a full-time technologist with us at OnCard to help manage (and understand) all the technology-related issues from outsourcing. We began a two-month search for a CTO (chief technology officer), which was the most laborious and tedious process we’ve gone through so far (it’s only been two months). We thought it would be most cost effective to put out a job posting on Craig’s List (we couldn’t afford Monster which was almost $1,000). This was the first mistake we made in the process. For those out there who swear by Craig’s List, I apologize, but for those looking to recruit a corporate executive, I would advice you to look elsewhere.

The basic process went like this:
Post job description on Craig’s List (pay $70)
Wait a week
Get 70 resumes
Throw 40 in the garbage
Engage in phone interviews with 30 candidates
Pass on 20 of them for not being the “right fit”
Schedule in-person meetings with 10 remaining candidates
Pass on 8 of them for not being the “right fit”
Give offer to one candidate
Candidate required excessive comp package we couldn’t afford
Down to last candidate – gave offer
Candidate took offer at another firm that was “later stage”
Back to the drawing board…

Besides the fact that most candidates were completely under-qualified, the remainder were primarily IT consultants phishing for new business, not a full-time start-up position. So we were back to square-one and decided to hold off making a decision on hiring a full-time employee. We focused on soliciting proposals from third-party tech development firms who could “manage” it for us and keeping our eyes out for qualified CTO candidates through our growing personal network.

Bottom Line: Don’t use Craig List for recruiting anybody in a start-up. Your best bet is through your personal network. I would recommend LinkedIn (more on that later). If you don’t have a personal network (i.e. you’re just starting out, don’t have any personal relationships and have never heard of LinkedIn), look to outsource the responsibilities to a third-party firm (even if you get names off Google). Get a few quotes and references and then make a decision.

JT