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Devver , maker of developer coding tools and TechStars 2008 graduate, announced last Monday that it would be shutting down after being active for nearly two years. News of a startup closing up shop is never a fun thing to hear about, but fortunately many lessons can be gleaned from the experiences of the entrepreneurs. Today, co-founder Ben Brinckerhoff provided just such lessons with an insightful blog on the Devver journey and why he and co-founder Dan Mayer are choosing to move on. Sponsor An unfortunate truth about startup culture is that a lot of the most valuable lessons are learned when entrepreneurs fail to heed them. Some notice their mistakes early on and can pivot their products and business toward a more successful future, but sometimes they don't realize their mistakes until its too late and there is nothing that can be done. This was the case with Brinckerhoff, Mayer and their startup, Devver, which they say failed to focus enough on one of the most important parts of building a startup: customer development. As Brinckerhoff points out in Monday's blog post, the company assumed they had found their minimum viable product (MVP), and as a result focused more on product development than listening to customers' needs. "You can teach a hacker business, but you can't make him or her get excited about it, which means it may not get the time or attention it deserves." - Ben Brinckerhoff "Our mistake at that point was to go 'heads down' and focus on building the accelerator while minimizing our contact with users and customers (after all, we knew how great it was and time spent talking to customers was time we could be hacking!)," writes Brinckerhoff. "We should have [been] asking, 'Is there an even simpler version of this product that we can deliver sooner to learn more about pricing, market size, and technical challenges?'." Both Brinckerhoff and his co-founder are "technical founders," which means their specialities are on the development side, not the business side. The only other person the pair hired to help out, a fellow software developer, also fits into the technical side of the startup. Brinckerhoff says this may have been one of the hurdles that led to the downfall of the company. "Looking back, it would have been to our advantage to have a third founder who really loved the business aspect of running a startup," writes Brinckerhoff. "Having solely technical founders is non-optimal. You can teach a hacker business, but you can't make him or her get excited about it, which means it may not get the time or attention it deserves." Brinckerhoff also adds that having a split team located in different states contributed to the company's struggles, but it seems to me it was more of a hassle than a reason for failure. Split teams are actually growing in popularity and probability for success, as we discussed earlier in the year with companies like Blank Label and chocri . Devver undoubtedly had issues with its split setup, but its likely that it didn't contribute toward its closing as significantly as the other errors. Regardless of this issue, its clear that the Devver team learned and shared some valuable lessons about the importance of customer development. As Steve Blank noted during his presentation at last week's Startup Lessons Learned conference, startups shouldn't be too eager to product management before customer development. Devver may have jumped the gun a bit in terms of over developing their product, so learn from their mistake and remember to develop your customers before throwing the kitchen sink at them. Discuss
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Learning From Failure: One Startup's Story of What Went Wrong
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Last week we discussed how no matter how intriguing your startup is to an investor, they may still decline to get involved or look further at your company simply because it's not a fit for them. While it is important to understand that different investors have different needs and motivations, it is equally important for both parties to know how to correctly take the next step and handle the rejection in the right way. Sponsor Foundry Group investor Brad Feld recently wrote an article for Entrepreneur Magazine in which he explains that when he turns down an email pitch, the worst thing the would be entrepreneur can do is ask for a referral. The interesting thing to note here is that Feld actually wrote about this very same topic on his blog back in 2007 , so obviously, it's still an issue he is seeing three years on. "In networking seminars, classes and sales conferences around the world, people are told some version of 'if you get rejected by someone, ask them for a referral'," writes Feld. "This has never worked for me when dating. (After being rejected, I don't recall saying, 'I know you aren't interested in me, but do you have any friends that are?') I've never really understood why people think this works in a business context." As Feld articulates in his posts on the matter, the venture capital community is a close-knit group that places a high amount of trust in one another; by asking an investor to refer you to another VC, you are effectively asking them to endorse you. "Good VCs are careful with introductions because they want to make sure both parties view the introduction as valuable," says Feld. And just as entrepreneurs need to know how to take rejection, VCs need to know how to dole out that rejection. Feld was originally prompted to write on the subject back in 2007 when Fred Wilson wrote a piece titled, " Saying No ." According to Wilson, honestly is the best practice when it comes to turning down pitches. "I've tried every way to say no and my belief is the truth, no holds barred, is the best approach," writes Wilson. "If you don't think the entrepreneur can run the business, tell them that. If you think the market is too small, tell them that. If you think the competition is too tough, tell them that." Not all VCs take the time to respond to every single one of the hundreds of pitches they receive on a monthly basis, but for those who do, they should try to inject as much honesty into their reply as possible. For the entrepreneurs on the other side of the table, take your rejection for what it is, and don't push back for a referral. Remember to not take rejection personally, the whole "It's not you, it's me" mantra is actually true in some investor rejections. And don't forget to look on the bright side of rejection , as Bijan Sabet suggests. Sabet says that had he not been turned down for his first job application, he may not have found himself where he his today, both professionally with becoming an investor, and personally with meeting his wife. Discuss
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Dealing with Rejection: Entrepreneurs are from Venus, VCs are from Mars
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Eric Ries, the driving force behind the lean startup movement , announced Sunday on his blog Lessons Learned the creation of two scholarships for lean startups to attend upcoming conferences. A lean startup is one that takes advantage of various techniques and technologies to produce a product at minimal cost, while continually revising and iterating based on customer feedback. Sponsor The newly announced scholarships will provide lean startups with the opportunity to attend the Startup Lessons Learned conference in mid-April and the Web 2.0 Expo in early May. The Startup Lessons Learned conference is a pet project of Ries', and is sponsored by the company he helped co-found, IMVU. "This conference will be the first of its kind: an opportunity to have a conversation about the future of the lean startup movement," writes Ries on his blog. "We want everyone who can contribute to that conversation to be there, regardless of their ability to pay." Ries has also distributed discount codes for the conference to leaders of various Lean Startup Meetup groups. Those attending the event will have the opportunity to learn from an impressive list of speakers, including Steve Blank, Dave McClure, Damon Horowitz and Max Ventilla of Aardvark, and even Clara Shih, whose book The Facebook Era was mentioned in our Weekend Reading series. The second scholarship provides access to the Web 2.0 expo and to its Lean Startup Intensive , which Ries agreed to organize with the promise of the scholarship opportunity. Applications for the two scholarships are open until April 12 and April 15, respectively. Lean startups have been growing in popularity as startups learn to become more independent and to make more from less, especially in these rough economic and tepid venture capital times. It only makes sense that Ries would organize these scholarships since most lean startups that would benefit from attending these events might see them as unnecessary costs. If your startup is looking to run on a low burn, applying for these scholarships is a great idea for the opportunity to learn from and network with other entrepreneurs with lean experience. Discuss
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Dean of Lean Eric Ries Announces Scholarships for Lean Startups
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Being a resident of the Phoenix area, which is a significant distance from Silicon Valley, I wasn't able to attend the Demo Day show-and-tell pitch-fest at the end of Y Combinator (YC), but luckily, other reporters were there and have been slowly releasing stories about the companies and the event. Peter Kafka of All Things Digital published a video interview Thursday with YC co-founder Paul Graham from Demo Day in which he provides some interesting insights into how the investment community is rebounding and possibly how incubators are beginning to have influence on the larger VC firms. Sponsor This group of YC grads included 26 companies, of which 20-25% Graham would expect statistically to go on to receive Series A funding. However, this number could potentially be higher with this newest class as Graham has seen a drastic change in the attitudes of the investors. "Judging by the reactions of investors, the recessions seems to be over," Graham said in his interview with Kafka. "I don't think we've ever had a batch that had so much investor interest so early as this one." As Graham points out, some of the companies had spoken with or secured angel funding well before demo day - another surprise, he says. An interesting opinion he shared in his interview included the idea that it is hard to place a statistical number on how many companies emerge from YC to become "successful" businesses. Who defines what "successful" is? Graham says that historically, 70% of YC companies have raised additional funding since leaving the program, or have not needed to because they managed to become profitable without additional help. But how does Graham truly gauge success for the entrepreneurs? "The founders end up rich, basically. That's the definition," he says. The other interesting quote Graham gave during his brief interview sparked an interesting thought in my mind about the state of the start-up and investment community as a whole. When Kafka suggested that angel investors tend to get squeezed how by more powerful VC firms that flood companies with cash in future rounds of funding, Graham replied that firms would be foolish to attempt this with YC startups. To paraphrase, Graham basically said, "The firms wouldn't dare squeeze out the angels on YC companies because that would mean they would be squeezing us too, and that wouldn't be wise if they wanted to continue to have access to our alumni." What this got me thinking about is how the growing popularity of incubator programs like Y Combinator and TechStars is affecting the venture capital community. Are firms less likely to squeeze out angel investors from these kinds of companies because the incubators continually graduate companies with high potential? Is Graham saying that if the VCs want continued access to the best startups around that they had better play nice with the angels? If so, is this good or bad for the startup community? If this is really having a significant impact on how VC firms approach these companies, then it surely benefits the angel investors, but do the startups ultimately gain anything from it? I wonder if there has been a case of VC firms deciding not to invest in a YC company because they would rather be able to have more control over term negotiations. I would think that a VC firm would be more interested in the opportunity to work with high-potential companies than in a power struggle in the board room, but I could be wrong. Or I could just be over analyzing a simple quote. Photo by Flickr user pragdave . Discuss
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Are Incubators and Angels Gaining Leverage On Larger VC Firms?
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Silicon Valley angel investor Mike Maples Jr., known for his early investments in Digg and Twitter , announced recently that his firm Maples Investments has rebranded as FLOODGATE in an effort to fulfill his experiment of becoming a "super angel" firm. The term "super angel" mostly speaks for itself: instead of carefully picking a few select companies to invest in each year, super angels broadly place more money in a larger number of early-stage startups. Sponsor By making the shift from Maples Investments to FLOODGATE, Maples is jumping into the super angel game with both feet in attempts to take the firm to "the next level." He hopes that the creation of FLOODGATE will "address a big gap in venture capital" between seed level angel investments and larger rounds from traditional VC firms. According to the newly rebranded homepage, the super angel strategy is a response the growing number of startups, the falling number of IPOs, and the rising level of VC investments - all of which make finding early-stage funding more difficult. Additionally, the site offers that super angel investments can provide more exit options. "If a business raises a small amount of initial capital, then exceeds its early milestones and decides to swing for the fences, it can then raise a larger sum at a higher price, while preserving ownership," the site says. "If the business is not ready for rapid growth, it preserves the option for an exit at around $50 million, while still delivering a high return for investors. This dual-track model is less available to companies that raise large amounts of money early." Are we witnessing the birth of a new branch of venture capital? It is interesting to consider the gap that Maples is attempting to fill; smaller individual seed level angel investments at one end, and the hundreds of millions of dollars that VC firms have been known to invest at times. It certainly seems that there is an opportunity for endowed individuals to invest at a higher level than a typical angel would, but at the same time there are smaller VC firms that focus smaller investments on young companies. Can super angels sit in the space between angels and firms that target smaller amounts at early-stage startups? Will more of the larger firms begin to invest smaller amounts instead of waiting for the companies worthy of a nine-figure investment? Will angels start investing more of their own money closer to super angel levels? Is FLOODGATE's method of casting a wide net in hopes of catching one or big fish a wise choice? Will their approach put pressure on other angels to invest more or at a higher level? It is unclear what, if anything, will happen, but what is clear is that FLOODGATE plans to push more money into the early-stage startup market, which is great news for the entrepreneurs out there looking for funding. Let us know how you feel about the idea of super angels and their effects on the VC industry in the comments below. Discuss
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"Super Angel" Firm Maples Investments Rebrands as FLOODGATE
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