A LOOK AT JANUARY'S MEETING

Simple Stories Will Help Finance the Dream

by Michael Gondek

MobileLime's Ajay Bam and Merrill Lynch's Tom Lewis exchange business cards as Bam's father looks on.
MobileLime's Ajay Bam and Merrill Lynch's Tom Lewis exchange business cards as Bam's father looks on.

Dreams are free. Success is not. The key to a successful venture is obtaining just the right amount of capital. Too little, and the young company will struggle with the challenges of continual under-capitalization. Too much, and the new venture will lose an edge that gives it an advantage over more established corporations.

Attendees of the January 10 WPI Venture Forum meeting enjoyed an engaging presentation from Tim Rowe, Founder & CEO of Cambridge Innovation Center. He argued that it is better to seek money from professional investors, as opposed to friends and family, for two reasons. First, if angel investors or venture capitalists, who evaluate businesses regularly, do not see the potential in a new business, then the business idea may not be fully formed yet. However, an entrepreneur's friend or relative may give that entrepreneur the benefit of the doubt - something that could prove costly in the end to the friend and to the relationship. Second, professional investors tend to understand the ups and downs of business better than nonprofessional investors do, and therefore may be better poised to withstand changes in circumstances. The primary circumstance that may change is the need for follow-on investment, and the restructurings that sometimes accompany that.

(from left) Babson Professor Joel Shulman, Cambridge Innovation Center's Tim Rowe, and Highland Capital Partners Associate John Burns critique the MobileLime case.
(from left) Babson Professor Joel Shulman, Cambridge Innovation Center's Tim Rowe, and Highland Capital Partners Associate John Burns critique the MobileLime case.

Rowe discussed a founder's desire to retain as much equity as possible, and addressed it as a potentially dangerous desire. He recounted his past experiences in turning down money because he believed the investment round he had secured was sufficient, only to wish later on that he had accepted the investment. He posed a striking question to the audience, "would you rather have a 10% chance at earning $40 million, or a 40% chance at earning $10 million?" By bringing in all of the funds that the business needs for its foreseeable and non-foreseeable future, and giving up more equity in exchange, the chances of success increase significantly. For most of us, that is a good tradeoff.

Rowe reiterated the importance of a successful 30-second pitch to investors, and focused on "Tim's 5 T's" of effective pitch delivery:

  • Trend - Build upon something that is familiar and comfortable to potential investors - the growing demand for security-related products as an example.
  • Twist - The business idea needs to have distinctive characteristics that capture the imagination, and make a meaningful difference economically.
  • Trillions - Investors are about making money, so the pitch should clearly emphasize how much money can be made.
  • Teflon - The business needs to be able to sustain high margins, despite competition.
  • Talent - Just because the business has a winning idea, doesn't mean that investors will believe YOU can win at it - you have to convince them that you have the right team.
Keynote speaker Tim Rowe of Cambridge Innovation Center takes audience questions.
Keynote speaker Tim Rowe of Cambridge Innovation Center takes audience questions.

The monthly "Spotlight on Entrepreneurs" featured three up and coming entrepreneurs giving their pitches (see summaries on page 7). Moderated by Norm Brust, the entrepreneurs were challenged to give their 60-second elevator pitch to the audience. All three presenters did their best to deliver their pitches, keeping in mind the "5 Ts" outlined by the keynote speaker just prior to their presentations. And with Norm Brust standing in the corner with his legendary stopwatch, all three presenters performed admirably.

Following the facilitated networking break, moderator Andy Goloboy kept the meeting moving along and introduced the case presenter, Ajay Bam, Founder and Director of Product & Services from MobileLime®. MobileLime uses cell phone messaging technology for card-less loyalty programs in retailers, as well as for making payments as a point of sale device. MobileLime to date has already attracted investment from venture capital firms including SeaPoint Ventures, Ignition Partners and Oak Investment Partners. Bam's presentation thus allowed the audience to see a later stage company, a company that already has a product, has customers, and has revenue - discuss future plans, and to raise questions with the panel on how to achieve those plans.

Tim Rowe, the keynote speaker, wanted the company to challenge its basic assumptions, look at more than just loyalty programs, and investigate alternative payment programs at point of sale. John Burns, Senior Associate at Highland Capital Partners, congratulated the company on narrowing its focus on its core product and market, and remarked that for the level of capital the company is seeking, it needs to answer the question of whether it can thrive as a standalone public company. And Dr. Joel Shulman, from Babson College, praised Bam and MobileLime for the growth that they have achieved with their partnerships, and urged the company to continue developing partnerships to maximize their capital infusion.

Michael Gondek is President & CEO of Subito Technologies, a leading provider of web-based employee scheduling solutions. He can be reached at mgondek@subitotech.com.