All posts by Nate

Differentiating Preseed Future of Work Opportunities

At the preseed, pre-VC database phase, future of work themes seem to be on a continuing big trend. I’m seeing all manner of variety in recruiting, hiring, training, relevant interviewing at scale for everyone involved. How do they stand out when they all seem to have the same secret sauce? Certainly it does depend upon who they are chasing; which segments, what the spend is in the market, and use cases.

The entrepreneurs who are paying attention to the market problems in hiring and HR are trying to fill the gap in a way that makes sense to them, either through automation/technology, through recruiting, or education/mentoring.

The broader theme these entrepreneurs are chasing is in response to structural shifts in the workforce, and perhaps there is a cyclical element. Some of it certainly is pandemic-related, but other factors are in play. Many people have retired, recent uncertainty around H1B visas have to some extent stressed the candidate pipeline for work across the spectrum, and the workforce infrastructure at all levels (physical and tech) are short on support. Physicians, nurses, AI talent, biotech, restaurant workers, plumbers, you name it… Remote-work and services have come to the rescue in the interim, in some cases, but not all.

Inflation seems to be turning into a medium-term trend, which could influence a shift of incentives in the workforce. If we have a few more emergencies to put pressure on logistics, then prices could remain held artificially high for longer. Its effects can certainly feel long term to the everyday participants in an economy who suddenly have to deal with diminished buying power.

Long-term, people have been having fewer children and we’ve been relying on tech/immigration to fill in the gaps. Remote work has become normal. Some companies are trying to push for their employees to meet in person, but strictly in-person companies will not be cost competitive against those who continue to hire remote workers. Nor can they compete/provide the intangible benefits of working from home. Amidst all this, entrepreneurs are chasing an HR Tech wave with all manner of solutions. The tech can, it is believed, replace some of the work that was being done before.

For entrepreneurs to differentiate in a market where everyone is seemingly solving the same problem, without much thought/analysis, it can feel like execution/results is the bare standard objective metric that an investor should use. There are market forces at work that shape the opportunities, but predicting market direction can be difficult. Less objective, more gut-feeling-based, observations about the management team don’t necessarily solve the problem either. With deeper industry knowledge, it is easier for an investor to parse through the opportunities. Even with industry expertise, markets shift and it can still be difficult for an investor to stand in the shoes of the customer to determine what their actual needs are and how one solution is better than another, if the entrepreneur doesn’t know to begin with.

SWAN Venture Fund, the Third

During the first six months of 2021, forty-two investors and I came together to form our third fund (SWAN Venture Fund) on the premise that the earliest entrepreneurs still need funding in the Pacific NW at the pre-seed, angel, and seed stages.

We closed our funding on June 30th and while we were about halfway through our fundraising, we invested into two companies: Algenesis and Stack Moxie (Automaton). We received investments from some of the more active members of the the Seattle Angel community and some Family Offices.

For Fund 3, we are diversifying our investments into 10-15 companies from January 2021 through the end of 2023, with some reserve for follow-on investments. We are stage-focused, not industry-focused. We invest based upon the expertise of our team and investors, when entrepreneurs are a fit with us, and when we have reviewed and formed our own independent exit hypothesis for a company. An exit hypothesis means that we believe that the company has potential to scale to an acquisition or IPO where we can return the fund to our Limited Partners. Diversification for us means that we consider companies from different industries and different business models.

Like the last two funds, we are strictly investing in interesting opportunities in the United States and Canada, mostly in the the Pacific NW, but occasionally in the western American states and Canadian provinces. We do not invest outside of the US and Canada. We pay attention to traction and how entrepreneurs interact with us. We move faster than most angel groups, but still take our time to get to know the entrepreneurs we are considering in the PNW region. We expect that Entrepreneurs who are also in search of good investor partner will take the time they need as well.

SWAN 2 Portfolio

SWAN Venture Fund 2 has made its last investment in the last month of our investment period. Our second fund began investing in January 2018 and made 8 investments through the end of 2020. Six companies are based in the greater Seattle area and two are in based in British Columbia. Our goal for portfolio 2 was to diversify into PNW companies which we believed could return our fund.

The portfolio for SWAN Venture Fund 2:

Cloudneeti – Our second fund invested into the company in January 2020. Cloudneeti provided an automated cloud security configuration tool for the enterprise. They were acquired by ZScalar in April 2020.

Curvafix – an FDA-approved medical device company that manufactures and sells a minimally invasive pelvic implants to secure fractured and broken pelvis. In 2019, our second fund participated in a Medical Device follow-on opportunity on an investment made by our first fund. By the end of 2020, Curvafix had reached milestones to land $10.75M in series B funding

Defined.ai – Our second fund participated in a follow-on opportunity on an investment made by our first fund. They are aiming to be the “github for AI.” We invested in December 2018. By the end of 2020, their realized annual revenues grew from a healthy 7 figures in 2018 to 10x that number in 2020 (8 figures). They closed their $50.5M Series B in May 2020.

Niricson – In an age where our infrastructure (bridges and dams) is getting older, and in an age where most infrastructure inspections are still manual, Niricson is a British Columbia enterprise SaaS company that is using AI, drones, and sensor data to assist infrastructure owners in evaluating the health of their assets more effectively.

Opticyte – Opticyte is a medical device company that is building a better blood oximetry device. Their device helps to capture critical real-time patient cellular oxygen data to help minimize the leading causes of organ failure, including sepsis.

SiDx – A parallel medical diagnostics company. The company’s silicon photonics chip uses over 60 sensors to determine blood-type and to sense blood-borne diseases, in a few minutes, all at the same time.

SST Wireless – An Industrial Internet of things sensor company based in BC, Canada. They manufacture and sell rugged sensors to industrial manufacturing companies to handle high temperature, high pressure, and caustic environments commonly found in industrial settings.

TransformativeMED – An enterprise B2B software company in the
Health IT space. They are integrating with physicians existing EHR
systems and improving the physician’s workflow and decision-making experience.

Nine Pitch Deck Mistakes Entrepreneurs Make

Here are nine mistakes that an entrepreneur can make when presenting their pitch.

  1. A deck for reading and sharing should not be used when giving an oral presentation. The former will require a lot of words to explain your company. In the latter, too many words will distract from what you’re saying. Stick to 3 bullet points, size 30 font, about 30 seconds per slide if you’re restricted to giving a 5–10 minute pitch in person. If you have an hour, use the pitch as a means to bring everyone up to speed on your company, then leave the rest of the time for Q&A.
  2. Don’t focus too much on the technology or product. Maintain balance. It is important to communicate the different aspects of your business so that investors can understand the value in what you’re doing. The product is just one part of it.
  3. Don’t ask for an NDA at the start of the conversation. If there are technical aspects of what you are doing that are unpatented, don’t go over the specifics until due diligence. See point #2 above.
  4. Present in person if you can. Phone calls and web calls can be OK, but many investors will want to meet in person before they write check. They want to get to know you.
  5. The team is 50% of the investment outcome, or more. Don’t just gloss over the slide. Answer the question on why this is the team to make it happen.
  6. If you say you need money to build product to get the customer, then you’ll know it can work, you’re going about things the wrong way. It is better to interview a decent representative sample of customers, wireframe it for them, go back for feedback, and adjust your idea based upon their responses. It is better to have decent evidence that something will work than to assume it will work, even if you do come from the industry.
  7. Really think about your market. Not the market from a study where it says $X was spent last year. The math is: how much do you charge for your product. Multiply that by how many customers there are. That is your market. Is it growing? How much? Why is this an opportunity now?
  8. Oftentimes, the financial slide is a hockey stick. This slide is expected. Don’t describe the numbers as “conservative.” Many investors will cut any number you put up there in half. And entrepreneurs need to know their numbers; they need to understand the assumptions behind the numbers. Your financials should reflect your operational assumptions. They should reflect goals and milestones you plan to achieve with investor dollars. And, if you’re really looked into it, you’ll be using your most realistic numbers, instead of your optimistic or conservative trajectories.
  9. Demonstrate a can-do attitude. Demonstrate that you can learn from your market, from your investors. Demonstrate that you’ll be a good steward of their money.

The 10 Best Slides For a Better Pitch Deck

Investors like a good story, and a good story has a familiar format. The closest you can get is to structure your deck into a familiar story format. Before you worry about the deck, you’ll need to gather some information together. Once you have it, organize it based on the structure below. Put the story together before you put the slides together. It is better to talk it through with some investor or entrepreneur friends you might know. Then, when you feel that you have the story down, put the deck together in the following structure:

  1. Investment Thesis. You will need to understand why you’re doing what you are doing. What is your passion? Why are you the person to make it happen? How long can you work for free if you need to? Will you be willing to stick around?
  2. Customer Problem. You’ll need to understand your customer problem, from personal interactions with your potential customers.
  3. Solution the Customer is paying you for. You’ll need to understand that the customer, from interviews, appreciates the solution you are proposing and is paying for it (the solution), or is willing to pay for it.
  4. Why now? Why is this an opportunity now? Why hasn’t this been done before. If so, why didn’t it work out? What has changed in the market today? Why isn’t this an opportunity in a few years?
  5. Market. Understand the total addressable market. Approach your market question from the top and bottom. Ultimately, multiply the number of customers who would actually pay for it if they just gave you the time to sell them on the idea, multiply that number by your price. that is the market you should start with. You should understand the assumptions you are making about this and know why it could be smaller (total serviceable market). Is it growing?
  6. What does your competitive landscape look like? More importantly, you need to think about your problem-solution set and along those characteristics, how do you differentiate? Who are the players? Do you have intellectual property?
  7. Product. Often, entrepreneurs will demonstrate their product at this point. In practice, this could be a few snapshots, and you can walk through a use case that your customers have already highlighted for you. You do want to make sure this use case represents the market you identified earlier.
  8. Business Model. How do you make money? How do you market and sell this? Are you making money in licensing? Are you making widgets at a certain cost? Are you distributing? Are you selling through channels? How do the economics work for everyone in the value chain? Does it scale?
  9. Team. Why are you best suited, as a team, to make this happen? How long have you known one another. Who is full time vs. part time. Who are the key team members here? Where do you plan to grow? Do you have a board of directors?
  10. Financials. How are your operational assumptions baked into your financial projections. How much have you realized this year? How much is in the pipeline? How can you reach the targets you’ve set for yourself and are you making reasonable assumptions. Why is this the most likely scenario?

In addition, be prepared to discuss the terms of your raise and how you plan to invest the capital to reach your milestones.

a call for friendly conversation

I look forward to getting on the phone, having lots of coffee with some of you, or randomly meeting you in the hallways of day-time startup events.

For those of you who are just getting into the spirit of fundraising for the first time, it is a good idea to reach out through your networks to accredited investors and get referred into various angel groups in the PNW. If you’re not sure where to start, reach out to me. I’ve spoken with a lot of entrepreneurs to help navigate the investor ecosystem and I do occasionally refer companies to other players (VC’s and Angels) and they refer companies for SWAN Venture Fund. I prefer to refer companies in a way that doesn’t bruise the ego of the entrepreneur too much and doesn’t obligate a VC into a phone call they don’t have time for: I will typically have a call or coffee with VC’s and go over a list of companies I’m looking at. If they state interest in a company, I send over contact information and they reach out directly. They do the same for me.

A knowledge gap that is a source of great frustration for entrepreneurs and investors is knowing which market you can sell equity in; entrepreneurs just won’t know until they talk with a few investors and ask for advice:

  1. If you’re raising angel money, don’t use VC numbers/terms for valuation and fundraising; it will chill interest quickly. VC’s and angels use the same language but have different economic expectations and different risk tolerance levels. Google the “halo report” for valuation metrics.
  2. If you’re raising from VC’s and you’ve managed to get a meeting or conversation, get a sense for what metrics they are looking for first before you get into the pitch. This conversation is better spent with an associate. Sometimes you can tell from their investment behavior – check out Crunchbase for that. Don’t assume, but you can get clues from any press you find. Get on their radar “early”; everyone likes to be in the conversation early.
  3. Don’t lose focus from your customers, your product, your market, your business, your team. Fundraising is important, but should not be all encompassing.

There is a lot going on. Stay focused. Build something that changes the world for your customers, for the better. Stay caffeinated this fall!

Startup Fundraising this Summer Season 2018

Summer season is upon startup land in the PNW. Investors will dwindle away to vacation up until July 4th, then it will be difficult to close funding from formal Angel groups and VC’s until after labor day in September.

Don’t panic! SWAN Venture Fund will be considering companies for investment over the summer.

As you may know, we closed our second angel fund in April this year of 2018 and we’re searching the Pacific Northwest for the right companies to invest in.

 

SWAN Venture Fund, part two

This April 2018, thirty-five investors and I came together to form the second SWAN Venture Fund on the premise that entrepreneurs still need funding in the Pacific NW. That hasn’t changed much since my last announcement for our first fund.

For Fund 2, we are diversifying our investments into 9-10 companies. We are stage-focused, not industry-focused. We invest based upon the expertise of our team, when entrepreneurs are a fit with us, and when we have reviewed and formed our own independent exit hypothesis for a company. Diversification for us means that we consider companies from different industries and different business models.

We like to find interesting opportunities in unexpected places. We pay attention to traction and how entrepreneurs interact with us. We move faster than most angel groups in the region and do a better job of due diligence. We know that the quality of the relationships we have with our entrepreneurs comes from our process; we make better investments as a result, but we say “no” more. When we do say no, it is often because of fit or something doesn’t quite meet our strategy.

There are more opportunities to find capital in the Pacific Northwest since 2015. Few if any are investing purely in Pacific Northwest seed-stage companies like we are, and fewer are investing as broadly as we are.

 

 

 

 

SWAN Venture Fund 1 Portfolio companies

SWAN Venture Fund 1 has made its last investment in the last month of our investment period. We began funding companies in August 2015 and have made 9 investments: Seven companies are based in the greater Seattle Area and two are in California. We’ve looked at Portland and Vancouver BC companies. Our goal for portfolio 1 was to diversify into 9 companies which we believed could return our fund.

The portfolio for SWAN Venture Fund 1:

Accrualify – A one-stop application solution for efficient procure-to-pay management.

Curvafix – they are an emerging medical device company based in the Seattle area. They are developing a novel solution for an unmet need in orthopedic trauma.

Defined.ai – they offer an intelligent data infrastructure for AI that provides high-quality training data to help machine learning oriented products reach market quicker and with better quality. It offers efficient data workflows that enable data scientists to collect, synthesize, enrich and structure training data by combining human intelligence and machine learning capabilities to accelerate enterprise AI initiatives.

Heroclip – they offer a specialty outdoor consumer product, which they launched with overwhelming support from Kickstarter and Indiegogo backers, Heroclip is now at retailers like Brookstone and Ace Hardware Stores and has been touted by numerous media outlets.

Utrip – they are a free travel planning technology company that bring together the best in artificial intelligence and human experience, making it easy for travelers to quickly create their perfect trip. They increase engagement, loyalty and conversion rates by providing a white labeled offering of the Utrip platform to hospitality brands, cruise lines, points of interest, airlines, and Destination Marketing Organizations.

Sharkbite Games – Founded in 2016, Sharkbite Games is focused on delivering “Best in class” gaming experiences, regardless of the platform. I can attest to that. Their game Beswitched, is an addictive and free switching game available on the Google Play store and on the Apple store.

ShotTek –  is a group of passionate innovators with a love for basketball. They have designed a device that helps even the most hopeless free-throwers develop their technique. Truly a better experience for kids, coaches and athletes.

OmniM2M (acquired by TraqIQ) – an internet of things company selling connected software and hardware solutions to enterprise clients.

Synergy Tech Startup Contest, Panel

I sat on panel of judges today with John Sechrest, Nat Burgess, Taylor Soper, Joe Wallin, and Jeff Bianco. We heard pitches from six startup companies:

Trenzi won the contest and Latchel won 2nd place.

A comment about beauty contests: “losing” one doesn’t mean your business is a bad business. Your customers determine that for you.