Bulldog Financial’s Bullblog

Houston Chronicle Moneymakers

I was interviewed by our local paper and it came out mostly accurate. I am not a “Venture Capitalist” in the strictest sense, but I am an Angel investor - otherwise the article was all me. I don’t think that I came across as too arrogant or too flippant but you be the judge:

Business
“I’ve come to learn that it’s much better to be really smart in one small niche, rather than be kind of smart in a lot.”
KEVIN FUJII: CHRONICLE

June 26, 2007, 8:16PM
Moneymakers
Five questions with Marc Nathan
Failures help this venture capitalist
By BRAD HEM
Copyright 2007 Houston Chronicle

In an era when technology startups are constantly trying to convince the masses that their new Web site, gadget or software is the next big thing, the first person they need to convince is often someone with money, someone who can invest a few hundred thousand or a few million to get them to the next step.

Someone like Marc Nathan.

After college Nathan went to work for Houston-based ClearWorks.net, providing high-speed Internet connectivity and on-demand video rental for neighborhoods and businesses.
When League City-based Eagle Broadband purchased ClearWorks in 2000 for $137.5 million in stock, Nathan got a “decent payday.”

Since then, he has become a venture capitalist, using his money and that of his friends to help make the dreams of inventors and innovators come true — and make more money.
Although some venture capitalists do only multimillion-dollar deals, Nathan’s firm is still growing, and he focuses on investing up to $500,000 in startups.

Nathan spoke with Houston Chronicle technology reporter Brad Hem about what gets his attention and what new CEOs should never say when they’re hitting up potential investors.
Q: How does someone become a venture capitalist?

A: The very best way to make a small fortune in the venture business is to start with a large fortune. I wasn’t that lucky. I don’t have a rich uncle. I really cut my teeth on doing small investments with many different investors into dot-com deals. I wasn’t particularly a dot-com player, but everything back then was a dot-com deal. I had been there and done that at such a young age. One of the investors on that deal who we were lucky enough to make a ton of money for asked me to look at another deal, and it cascaded from there. What I do is find businesses that need help, and I help them by finding investors that want to help them. I get intimately involved with the companies themselves and grow either their sales, their marketing, their PR, their investment profile, and then manage my personal friends who are the investors, making sure that what they bought is what they get.

Q: What’s hot now? What’s getting your attention, and on the flip side, what won’t you touch?

A: There’s a great deal of biotech in this town. That’s not for me. I’ve done a few biotech and life science deals, but they’ve never turned out all that great. I’ve come to learn that it’s much better to be really smart in one small niche, rather than be kind of smart in a lot. I’ve got one company here in Houston that I love called Podcast Ready. It’s obviously a podcast-oriented company in new media. I tend to focus on what’s called Web 2.0 and new media. Web 2.0 is a conglomeration of a lot of ideas. Essentially to me it means user-generated content on the Internet. I’ve sort of established myself here in Houston through pure dumb luck as sort of the expert to do those sorts of deals.

Q: You must get a lot of cold pitches. Do those turn into deals or are you more likely to seek a company out yourself?

A: I do both. Just today alone I had three separate pitches. I tend not to do deals with companies that pitch me cold. Most investors don’t for obvious reasons. What I tend to do is get pitches from trusted sources.

Q: How do you decide what’s worth investing in, what’s going to stick?
A: A lot of it is based on very extensive experience. Writing checks and having them lose — that’s what tells you what’s right and wrong. Those failures actually give you the experience to know what’s right and wrong. Listening to the same story this month of the same guy who gave you the same story last year that didn’t work makes you understand a little more about the world.
You never know if something’s going to be a true success until you get the checks written. All of them have potential to become tremendous successes. The other side is you never know which ones are failures until they declare bankruptcy. Out of 100 deals that you look at, you’re looking at getting involved with maybe 10 of them. If you get involved with 10 of them, you know that maybe one is going to be a home run that’s going to make up with nine either total losers or deals where you get your money back. We are looking for blockbuster deals.

Q: Are there red-flag words that companies say when they’re pitching you? What should pitchers never say?

A: No. 1 is ‘I don’t have any competition.’ When I hear that, my shutters go up. I put the note on the door that says closed for business. When somebody says that, it means two things: They don’t know who the competition truly is, or they don’t have any competition because nobody wants what they’ve got.

No. 2 red flag is you tell me your numbers are conservative. I automatically cut them in half anyway, so we could go around in circles. At the end of the day, don’t tell me anything. Just show me what you’ve got.

And No. 3 — and there are so many of them — but No. 3 is probably saying that you as a management team or CEO are going to be with the company for the life of the company. The opposite of that is telling me that your CEO is going to step aside when more talent comes on board.

brad.hem@chron.com

I’m going to send this link to entrepreneurs that risk falling into these investor pitch traps.

Top 10 Investor Pitch No-No’s

I love this post since it seems so obvious to me, but that’s because I’ve dealt with these situations dozens of times.

Also I’ll add “We’re going to capture 1% of the market”.

We’re going for the second round of OpenCoffee Club at a new time & place:

OpenCoffee Club encourages informal networking among entrepreneurs and investors to help grow startup companies in the Houston area.

Friday, June 8, 2007
2:00 PM
Starbucks Uptown
1151 Uptown Park #12
Houston, Texas 77056

Optional RSVP:
Upcoming: http://upcoming.yahoo.com/event/195457/?ps=6
Meetup: http://smallbiz.meetup.com/57/calendar/5818119/

Homepage
http://houstonopencoffeeclub.ning.com/

I’m changing the venue to accommodate new and different attendees which I plan on doing each month until we collectively decide on the optimal time and place for most people. Email me or leave a comment to get on the email list.

I’ve already seen a few new faces that have RSVP’ed so I think that it will be another strong event for the Houston area startup community.

Richard Yoo has launched his Web 2.0 profile and information aggregator Natuba. I have a handful of invites left and if you leave a comment I’ll email one to you. The idea is that once you register, your username with various web properties like Twitter, LiveJournal, MySpace etc. and places them on a single page. As someone who writes content in a lot of places on the web - mostly in blog comments - I really like the idea of funneling all of the disparate data into one page.

Conceptually, I like this as a Web 2.0 play since it grabs info from different data silos and visualizes it in an intuitive way. I also like it as a way to repurpose content in order to increase linkbacks for Google PageRank, although this is not the primary function. Richard is a particularly bright guy and a great asset to the Houston startup community so I wish him and his team the best of luck.

If you’d like a private invitation to Natuba, I have a handful left - and I’m sure if I asked nicely, I could get a few more from Richard. I have to mention that it might be a little while until we hear from him considering his pending nuptials - Congrats!

I spent a couple of days in Toronto on business last week and I can tell you that it’s a really happening town, full of entrepreneurial energy. I was a little disoriented by the fact that our dollar and theirs have reached virtual parity - gone on the days of taking a 40% American discount on everything they sell. The only other disappointment was the fact that I missed the Mesh Conference due to my schedule, because it looked like it had a killer line up of speakers. One of them was Mark Dowds an Irishman living in Toronto who founded a co-working site called Indoor Playground. At the suggestion of my friend Robert Brackenridge I actually had my client drive me to the building in the hope that it would be open and I could see the setup - but it was a long shot and the door was locked at the time. It gives me a reason to go back however.

Since the fire alarm went off in my building at 4:30am I caught up and wrote a bunch of twitters to pass the time that I couldn’t go back to sleep. I’m really getting into twitter of late since I like knowing what people are doing - even if it’s just eating breakfast. I’m know that Jaiku is “better” technically with more features and less breakdowns, but I really like the community on twitter and I’ve made some good internet friends so far. Add me if you’d like at marc1919.

It’s been ten days since our first OpenCoffee Club and I’ve already had several follow up meetings with some of the attendees and one in particular - Tory Gattis (www.houstonstrategies.com) who earlier this month launched www.openteams.com that builds structured wiki’s for corporations. OpenCoffee Club once again proved to me that the Houston technology startup scene is very vibrant. Two other companies that I know, www.berggi.com and www.opmom.com have made their public launches within the last week or so. I’m also eagerly awaiting Richard Yoo’s (www.richardyoo.com/blog/) new company codenamed www.hushlabs.com coming out of stealth mode soon. My belief is that for every startup I know or hear about, there are three that are being worked on in complete isolation. I’m hoping that I can foster a relationship with Kurt Stoll at www.startuphouston.com to help get some of those companies out into the open where they can grow.

Thanks to the over 40 people that showed up, the inaugural Houston OpenCoffee Club was a resounding success. We had several Angel Investors, bona fide Venture Capitalists, business consultants and most importantly - entrepreneurs discussing various aspects of the startup life cycle. With no formal agenda, the conversations that I overheard ranged from “we’re looking for $X equity capital” to “We need a lawyer” to “I have this idea” - all met with enthusiastic repsonses and an exchange of business cards with the promise of further follow up. This was precisely the goal of OpenCoffee Club and to that end I think that there is demand for a second edition.

One thing that I was particularly pleased about the attendees were the handful of people there that I did not know who learned about the event second or third hand from the original emails I sent out two weeks prior. The fact that the idea became viral so quickly demonstrates that there is a pent up need for this kind of organization. I am very happy that I could help facilitate the event, although I can not take the credit for making it as big a hit as it was.

Special Thanks go to Saul Klein in London for coming up and executing the original idea, Jason Mendelson in Boulder for walking me through what to expect (he was remarkably accurate after his first two in Colorado), Robert Brackenridge of the Houston Technology Center for promoting it to the people he thought would get the most out of it and of course to business leaders and my personal friends and associates: Paul Campbell, Andrew Clark, Richard Scruggs, Jeff Williams, Leo Womack.

About mid-way through the event, roughly 30 people still going strong

Another shot of the crowd

Tony Huang, founder of www.techxans.com Speaking with Robert Brackenridge

Reid Pennebaker of RPVentures

Billy Buchsbaum of 1790 Capital

Russell Holliman, Founder of www.podcastready.com and Robert Brackenridge

Jeff Willams of Mainspring Capital Partners speaking with Co-Founders of MindOH.com

I’ve come to realize that I haven’t posted in months, but leave it to the always brilliant Paul Graham to pull me out of semi-retirement. Not that I always agree with him. His latest post is about how angel investors are the seeds that create startup hubs is absolutely spot on. The fact that entrepreneurs are the likeliest sources of angel funding for new ventures, proves the old addage, “Success breeds Success”. The real issue that most budding start up companies have in terms of funding is where to find these sources.

I’ve spent a significant amount of my time getting involved with various organizations around Houston that helped foster the local start up community. In my recent internet travels (e.g. blog reading), I discovered an idea that I think has the best chance of putting entrepreneurs with early stage investors in a casual setting called OpenCoffeeClub. In a word, it’s a meetup - an informal time and location for like-minded people to get together. It was founded in London by Saul Klein and recently brought to our shores by Jason Mendelson and Brad Feld in Boulder who run an outstanding blog called AsktheVC among other things like running an early stage VC firm. These guys clearly “get it”. They have realized that social aspects of finding and funding companies (especially Web 2.0 companies) are an important factor in the new landscape of internet companies.

Based on their good example, I’m initiating OpenCoffee Club Houston at 8am on Friday May 4 2007 at CoCo’s Crepes and Coffee near the Houston Technology Center. I think that we’ll have a decent turnout and I’m very curious about the crowd that it attracts. I hope to make this a recurring event as I think that it will increase both investor education for startups and dealflow for investors over time. This will be sort of a standing mini-unconference in that the agenda will be set by the attendees at that time.

Wish us luck and pictures and a debrief to follow.

Any one in the Web 2.0 space knows that MySpace is the bewilderingly ugly site that gets more traffic and press coverage than any other site out there with the exception of YouTube, though they are often mentioned in the same sentence. 100 million pages and $580m purchase by a second-tier internet (and first-tier media conglomerate) player set the tone for every other Web 2.0 company out there.

Most people would agree that the deal was a one time phenomenon, but the same can be said of Yahoo!’s orginal IPO, before Google came on the scene. I’m seeing a trend in Web 2.0 portal companies that are targeting various vertical niches, now that the broad “teen” category has been completely conquered by MySpace.

The shorthand for this is “MySpace for X”. The best examples I’ve seen are social networking sites targeting mothers (MomSpace if you will) like www.minti.com, www.clubmom.com (a Web 1.0 rebrand), www.mommybuzz.com, www.mayasmom.com and my Houston hometown favorite, the pre-lauch www.opmom.com. They all have several features in common, but each has their own ‘voice’, much like certain department stores sell the same items, but you feel differently when you go to one over the other.

I think that the vertical niche social network is here to stay, but not strictly as a stand alone sites. Based on people’s differing interests and self-identities, coupled with RSS feeds and widgets more social networks will be portable to other aggregation-based homepages. This is not a bad thing but it means that these niche communities have to stay relevant through personal engagement, not site “bling”.

I don’t hide the fact that I think Paul Graham’s insight about startups is second to none. I’ve been one of his cult members for quite a while - long enough for me to covet a new Prius. Unfortunately, I have to take a major exception to one specific part of his most recent post. He lumps Houston in with cities that have “start up activity too small to measure.” I can tell you that this is categorically incorrect. I can go into the litany of the Houston Technology Center’s clients or the companies that have presented to the Rice Alliance or why Houston has the most entrepreneurially minded business community in the world. But that is not going to make his statement any less true from an outsiders perspective.  Since we’re not on either coast it means that Techcrunch and the WSJ don’t have the access to cover the companies that are here on a regular basis. Sometimes we’ll get an occasional Wired blog post, but it’s not the same as being able to go to the parties at night on a whim. The best local coverage we have is a radio program/podcast that I highly recommend from Russ Capper and John Beddow called The Business Makers.

I get to see emerging technology start ups based here every single day. Surely I make it my business to interact with them, but there are still a lot of them out there that I don’t know. Houston still tends to see more Energy (now alternative energy) and BioTech (devices more than pharmaceuticals) than consumer-facing Web 2.0 software deals, but I can assure you that we have more than our fair share that are struggling to raise themselves out of our swampy little backwater, that happens to be the fourth largest city in the US.