February 03, 2015

998 views

Fundraising: How Much?

Written by:   Bryan Healey

If there is one universal truth in all of technical entrepreneurship, it would surely be that your start-up will eventually need to seek investors. Technology is a unique industry; it is often remarkably easy and cheap to get a minimum-viable product developed and to attract some first adopters, but growth costs can quickly become outrageous as customer numbers zoom into the millions and development timelines become more aggressive and short. When the time comes to hunt down that seed round, it is important to consider exactly how much money you will need to succeed.

Humans are notoriously bad at appreciating the potential long-term consequences of two compared investment options, especially when faced with immediate monetary benefit. This lack of foresight is exactly why so many people will accept a slightly-lower monthly mortgage payment in return for tens (or even hundreds) of thousands of dollars in long-term additional expense. In light of this common struggle, I will always implore the young entrepreneur to ensure that they are raising only the money they need, and surrendering only equity that is commensurate with the raise.

Imagine you have a company with a $1M pre-money valuation that has the option of deciding between a seed round of $100K for 10% equity, or $200K for 20% equity. While that extra $100K might sound appealing, the founding team should keep in mind that 10% is a significant percentage of your company! Let us assume that this business is able to achieve significant growth, and eventually undergoes a Series A for $2.5M at a $10M pre-money valuation, and an acquisition for $100M; with dilution, the founding team would retain 60.75% in the first scenario and 54% in the second scenario. That is a difference of $6.75M!

Now, it is possible that the company did actually require $200K to prepare for growth. If so, the company should have happily taken the $200K and handled the lost equity. This isn't a parable in retaining your equity at all costs, but rather ensuring that you meet exactly your requirements to succeed and avoid greedily accepting more than is necessary. Do a thorough analysis of your strategy and your staffing needs, tally up your expected costs over the next 12-24 months, build in a reasonable buffer, and go into negotiations with a clear understanding of what you want.

The above hypothetical is, of course, extremely simple; real-life is always far more complex. Most companies will also have an Angel round, possibly a Series B (and maybe even a C or more), a pool of options for employees, and liquidation preferences. However, that doesn't change the fact that equity lost at the beginning can represent a tremendous amount of money at the end assuming an eventual liquidity event. The founding team would do well to try and make do with as little as would ensure success at each successive round and reap the financial benefits down the road.

January 22, 2015

1144 views

Women in Technology

Written by:   Bryan Healey

I have written on numerous occasions about the ongoing shortfall in quality technologists; unemployment in technology remains at staggering lows (just 2.7% as of Q1 2014), and can be downright comical in certain categories (such as the 1.1% for network architects). Companies in many notable tech hot-spots are having great difficulty filling open positions, which has caused salaries to be greatly pressured up (with Engineering and Computer Science graduates now boasting the highest starting salary of any degree program in the nation). The industry is now in desperate need of more engineers as the economy and job market continue to grow, and there has never been a better time to consider a career in technology; especially for women!

An element of the shortage that is quite notable is the significant lack of women in technology. According to CompTIA, women now account for only 24% of the total American technology workforce, and most alarmingly that figure is on a downward trend! The workforce has been generally and historically hostile to women, but technology has been particularly bad. A greater-than-average number of entrepreneurs and leaders in the field are men, and there is a statistically significant promotional and mentorship bias against women; furthermore, many young technology companies are renowned for their fraternity-like culture (staff parties, free alcohol, and an informal leadership style) that can be unfriendly to women. As said by Kieran Snyder, the CEO of Textio, "it's an industry where men far outnumber women, where the women who do stay are often pushed toward non-technical roles, and where the bro-grammer ethos creates a culture that is particularly hostile to mothers with young children. It's easy to see why so many women leave tech to do other things." For many years, the intensely-male culture of technology had been overlooked or underplayed, but fortunately the issue has begun to get meaningful attention in recent years thanks to the tireless efforts of people and organizations that seek to correct the imbalance.

The shortage of women in technology, however, extends beyond just the workplace, as only 12% of Computer Science degrees were awarded to women in 2011 (which is an all-time low, with the historical high being only 37.1% in 1984). This downward progression is also likely to continue, as pre-collegiate polling of students shows a continued downward trend of women interested in technology. A contributing factor to this trend is an ongoing cultural bias against the allure of technology; according to a 2005 study by the National Center for Women and Information Technology, young women consistently rank computer scientists as socially unfavorable and the profession as creatively uninteresting. Meanwhile, pre-collegiate computer science education does little to present technology as a creative opportunity, and there can be some cultural pressure, both in the home and in the school, for women to pursue more "womanly" professions.

It will be very important for the long-term growth of the industry that more effort is given to bringing women into the fold. An overly homogenized culture can be crushing to an innovation-centered industry, and the positive impact of workplace diversity is well documented. Furthermore, the number of technology roles that need filling will only continue to increase, and avoiding outsourcing will require a significantly expanded workforce. Fortunately, organizations such as Women in Technology and the National Center for Women and Information Technology are working hard to improve technical education and professional opportunities for women. When the COO of Facebook, Sheryl Sandberg, released her book "Lean In" in 2013, the volume on the national conversation was effectively turned up. I can only hope that we see those education and professional statistics reverse in the coming years; technology (and society) are depending on it!

References

- http://media.dice.com/wp-content/uploads/2014/04/2014-Q1-Tech-Trends-Link.pdf
- http://www.infoworld.com/article/2608556/it-jobs/tech-unemployment-stays-down--and-demand-for-consultants-soars.html
- http://www.forbes.com/sites/susanadams/2013/04/15/college-degrees-with-the-highest-starting-salaries-3/
- http://www.forbes.com/sites/leoking/2014/03/08/women-in-technology-a-brightening-outlook/
- http://www.washingtonpost.com/blogs/on-leadership/wp/2015/01/20/the-women-who-make-it-in-tech/
- http://www.cra.org/uploads/documents/resources/taulbee/CS_Degree_and_Enrollment_Trends_2010-11.pdf
- http://www.nytimes.com/2007/04/17/science/17comp.html

January 15, 2015

1099 views

Government and Innovation

Written by:   Bryan Healey

Under the governance of the former (and late) Boston mayor, Thomas Menino, the city underwent a sustained expansion and fundamental culture shift over the course of several decades. As I have chronicled elsewhere, there was a time when Boston found itself suffering through the peak of a protracted slump; despite still being an academic powerhouse, the city population in the early 1980's had dramatically decreased from previous highs in the 1950's; crime was rampant, unemployment was nearing all-time highs, and housing vacancies hovered around 10%.

Menino took control of the city in 1993, and during his 21 year tenure as mayor he initiated or supported a number of critical programs that would slowly resurrect the once-industrial city and return it to world-class status. Today, it is widely recognized as one of the most economically and technologically powerful cities in the country, and one of the top destinations for new entrepreneurial growth. One of the mayor's key initiatives that had a direct and tangible impact on this reputation renewal was a 2010 proposal to create a massive innovation district on 1,000 acres of mostly-unused property on the South Boston waterfront.

This initiative represented the first officially recognized innovation district in the United States, and is today a shining example of the potential power of good governance. In the four years since first being proposed, the Innovation District of South Boston has become the fastest growing region of the city. Previously a floundering neighborhood, the seaport region is now host to the largest business accelerator in the world (MassChallenge), the first-ever public innovation space (District Hall), and a revolutionary micro-housing space (Factory 63); the innovation district is responsible for over 5,000 new jobs, including over 200 companies that were first incorporated with an address in the district. Innovation centers and co-working spaces abound, and dozens of new skyscrapers, both office and residential, have been built or are being built; coffee shops, trendy restaurants, book stores, and shopping venues have invaded; and there is no sign that the rapid pace of growth will come to an end anytime soon.

While government overreach is something that should always be guarded against, the work of Menino and the city of Boston should stand as an example of what government is capable of when it is honest, direct, and focused in it's effort to promote economic growth. There is now no limit to what Boston will be able to achieve, and other cities should take note and follow it's lead.

January 12, 2015

1127 views

Design is Everything

Written by:   Bryan Healey

The first portable media player to be released commercially was developed in 1996 by AT&T. It was called the FlashPAC, and it played a proprietary media format called Perceptual Audio Coding. Just one year later, the first MP3 player hit the market from a company called SaeHan, vastly expanding the digital listening options of the consumer (as MP3 is an open format). In the years the followed, many dozens of media players flooded the market and everyone waited for the digital music era to arrive. Some of these players were big and expensive, while others were simple and cheap; whatever the consumer needed the consumer would have, it would seem, with one notable exception: great design and usability. As a child of that era, I vividly remember the awful execution of even the best devices; they were menu-filled, confusing, and ugly. The only metric that was ever advanced was capacity, and the digital era never blossomed as expected.

Then came, nearly four years later: the iPod.

In 2001, Apple Computer was a shell of it's current (and former) self. In October, the month of the iPod release, AAPL was trading at near $15 per share and had barely avoiding bankruptcy just a few years prior. Steve Jobs had only just returned to the beliegered company four years earlier, and very few people thought much of the once great tech titan. The iPod, on release, was not even the most powerful MP3 player on the market; it did not have the most storage space, was by no means the smallest option, and it was available for use only on the Macintosh. Initially, as you might expect, sales were slow; but they quickly started to build steam as the consumer realized that there was one thing it had that none of the competition had: brilliant design and a seamless experience.

Apple did not invent the MP3 player; in fact, it did not even perfect the concept. What it did was perfect the usability of one such device. The iPod had none of the horrendous menu-driven systems of it's competitors, was easy to hold and handle, and offered a breathlessly simple tool for adding music to the device (called iTunes). When the device came to Windows in 2002, sales began to skyrocket. By July of 2005, analysts estimated that the iPod held a remarkable 74% of the total market share of all portable music playing devices, and had created nearly $3 billion in total sales. What once was a fractured market filled with potential and disappointment is now just about the sole property of Apple.

How did they do it?

One word: Design.

Design is everything. Software engineers loath to admit it, but design and usability is absolutely critical to the success of any consumer product. It doesn't matter how advanced or powerful a product is if the consumer doesn't like it or want to use it; and consumers have proven time and time again that they like, above all else, a well-designed, easy to use product. The consumer doesn't care about Megahertz or RAM or storage space; they don't care about pixels or palettes or power. The consumer cares only about the abstract and the obvious; "it can fit 1,000 songs" proved infinitely more powerful than "5 Gigabytes of space." And, even more important, the consumer has proven that they are willing to pay top-dollar for what they really like.

The iPod has never been the most powerful MP3 player on the market, even today. You can today buy a different device with more storage space, more power, and more battery life than any available iPod for half the price; and yet, so few choose to do so. We are willing and happy to spend twice the money on a less powerful and less capable device because by doing so we will know, confidently, that the iPod will deliver an unfrustrating, clean, and seamless experience that will deliver exactly what we need and nothing more. After so many years of brilliant design, Apple has now gained the unquestioning trust and loyalty of the public and a market share that is nearly $1 trillion!

And so, as you set out to change the world with your brilliant idea, make sure you remember to put the consumer first. Don't save design for last, or even the middle; give it the attention it deserves and put it front-and-center. You will be happy that you did when the consumer is raving about your wonderful work.

December 19, 2014

1011 views

A Case for Innovation

Written by:   Bryan Healey

Consider the case of Boston...

Always a powerhouse of higher education, political influence, and high finance, yet there was a time not long ago when the city found itself mired in struggle. Between 1950 and 1980 there came a startling decline in population (from an impressive 801,444 in 1950 to a meager 562,994 in 1980). Affluent families that had long occupied the revolutionary city began to move into the suburbs. The city saw a rapid rise in crime, and those who remained had trouble finding work as the industrial economy of the northeast started to decline and die. By 1980, only 10% of the remaining population held a college degree, housing vacancies were near 10%, and the median income was steadily dropping.

And then the city began to reinvent itself.

Leveraging the already strong collegiate system, the city shed it's industrial image and invested heavily in promoting an innovation economy, using all the forces of public and private opportunity. Thanks to years of patient effort and long-term vision, Boston has now become an international economic and innovation champion, boasting a 36% collegiate graduation rate, and an astounding 2.7% unemployment rate. There are almost no housing vacancies left in the city. The population has rebounded and expanded, and construction has increased exponentially, with dozens of new skyscrapers appearing throughout the city.

Boston is now a technological mecca, and the newest member of the Holy Five; the other four locations are Silicon Valley, San Francisco, Austin, and New York City. Venture capital abounds, and new companies are appearing every day. The celebrated Innovation District, the crown jewel of Mayor Menino, now occupies a thousand acres of previously decrepit waterfront property in South Boston and has continued the tradition of innovation investment. This area has provided the city with an amazing 5,000 new jobs and over 200 new companies in just four years of existence, and estimates now expect a further 4,000 new jobs in just 2015!

What all this boils down to is: Innovation is king!

Over the next year, I will be compiling research and information to outline and chronicle this amazing turnaround in Boston from the dark days of the 1980's. The result of this research effort will be the book, "A Case for Innovation: The Boston Resurrection." The transformation of this historic city should stand as a beacon of potential to the rest of the nation, and similar models of economic renovation should be pursued wherever the unfortunate decline of heavy industry has left a painful mark. Boston is a city for the new age, and we should know it well!