We are currently going through this process at Pixily and one of the questions we have asked CEOs is how are investors reacting in this economy. Even the most pessimistic projections are being invalidated because of the economy and if an investor understands it and supports the entrepreneur, then that is an investor for the long term.

The other questions we are asking is:

1. What is the day-day working relationship with the investor? How engaged are they? How often do they want you to engage them and what reasons?
2. Investors want you to be transparent and share information with them, especially if things go wrong. How do they respond to it.
3. Do they provide strategic advise? Are they insistent that you follow them or leave it to the judgment of the leadership team to implement them?
4. If there were other investors, what are the differences among them?
5. Do they facilitate meetings between all the management teams of their portfolio companies to share knowledge, contacts, customers, ideas and expertise?

the CEOs of Investor's portfolio companies is how are the investors reacting considering everything that you projected whe

Since this post refers to my 10-minute pitch, I felt it only makes sense to share the extend of preparation.

To get to a 10-minute pitch took me a number of practices. It started with a 30-40 minute pitch and the more I presented, the more I learned what investors cared about what they would like to see in the first presentation: the high level subjects and their specifics. With each presentation, the details went into the appendix and the strategy with 1 to 3 tactics were left in the slides. Even though I have presented over 50 times, I still review the slides before a presentation. It helps me get in the zone, get the message down and complete the presentation in 10 minutes.

Since the details are in the appendix, you can always bring them up when an investor wants to dig deeper into a topic.

You bring up a very important aspect behind this book, Healy. I happened to be one of those students who was in his class and went through the whole process this book describes in more detail. It is one of the best entrepreneurial classes I enjoyed while at Wharton. In fact, our idea was one of the four companies to have made it to the last round - no, Pixily is not one of them.

I think there are at least two factors making it easy for business publishers to charge for their content:

1. What is the competition for that content?
In the consumer space, there is a lot of competition for the same content. In fact, I think any magazine or news paper that you find on a newsstand has competition. Customers have plenty of choice and price is dictated by the market - margins are thin making the business very vulnerable to external factors. There are of course exceptions like WSJ and that is why they are still able to charge for their print and online content. Consumer Reports is another example but again that is something we will have to wait and see how it survives Yelp/Amazon reviews and more.

2. What is the business model?
If the publisher derives majority of its revenues from advertising then they are definitely more vulnerable. If they are giving away free or almost free subscriptions to increase customer base then they are the first ones to go with the moving of content online. Classic examples include Business 2.0 magazine, InfoWorld and few others. They gave away subscriptions to increase their readership and then turned around and charged advertisers high rates.

If on the other hand, the publisher charged huge subscription fees then they will survive the online content push. A subscriber who is paying high fees is paying for the content and not the delivery mechanism. In fact, they may prefer getting it online Vs. offline since this makes for easy access, note taking, archiving and sharing. Examples include Harvard Business Review, McKinsey Journal, and New England Medical Journal.

Of course, there are few that might have figured out to balance advertising and subscriber fees. They could be niche magazines or have a huge brand following - wired and real simple come to mind. But again, it remains to be seen.

You did it! Welcome aboard! Congratulations and most of all Good Luck!

Healy,

VCs are not actually excluded from the program completely. They are excluded from the Phase I of the program. A SBIR firm can get VC funding and still continue to qualify for further SBIR grants. On the other hand, VC backed companies cannot apply for any of the phases.

Prasad

Healy,

Having gone through the SBIR application process last year for Pixily, I know a little bit about the process and the award criteria.

I see your point on how VCs could be better users of tax payer money than a small business. But I feel the reason the SBIR was created was to help individuals and small businesses innovate, whereas VCs are more about commercialization.

The SBIR's main objective is in promoting fundamental discoveries that have a broad impact on the community. It is more about innovation (at least in Phase I of SBIR) and less about commercialization. Only in Phase II, one needs to commercialize.

The other criteria is that the applicant should not have been already funded externally. But once they receive the grant, they can raise external money and in fact SBIR matches the external funds up to a point. This is true with both the phases (Phase 1: $100K and Phase 2: $500K and matching of I think $50K in phase 1 and $500K in phase 2). That means a VC can invest in a SBIR funded company.

Being an entrepreneur, I feel that VCs should not have access to Phase I of SBIR - for the following reasons:

1. If VCs are allowed, the playing field will be tilted heavily towards VC-backed companies. VCs and their portfolio teams have access to great talent and will put together very winning applications thereby putting a non-VC backed small business at a great disadvantage.

2. There are at least 5M small businesses in the US and a number of them come up with innovations that have a great impact on the society. All they need is time and some capital to build prototypes and test them out without the pressures of a professional investor. SBIR gives $100K and 6 months in Phase 1 and if you achieve defined milestones, you can apply for Phase II. As the inventors of the light bulb would say, it takes a lot of passion, perseverance and many tries before you perfect an invention for large scale commercialization. I am not sure VCs would give the innovator the same amount of time, capital and resources.

3. My last point is even more important. $100K goes a long way for a small business as opposed to a VC backed company. If the VC truly believes in the idea, then finding $100K is a non-issue. For a small business on the other hand, especially in this economic climate, that $100K could make or break the idea.

If you don't have the money to sponsor or buy an expensive booth, you can rent a conference room next to the conference (it works best if it is in a hotel) and conduct demonstrations all day long. Hotel management may even setup signs for you that lead to the conference room. You can have your employees network and invite VCs, and potential Customers and partners.

We did something similar for $300 (as opposed $5000) in a conference last September and I had some major partners stop by to see a demonstration of the product. Shortly after that, we signed a partnership agreement with Xerox/Visioneer and landing some follow-up meetings with other high-profile partners.

Needless to say that the conference organizer was not very happy. Small price to pay for high ROI.

Mark,

Thank you for answering my question in your post. I have to agree with Mark Z. on the benefits of SaaS over upfront licensing fees. For a company to be truly successful, you should not only be able to close the initial sale but should also care about upgrade licenses and maintenance fees. This all goes to how useful your product is and how sticky it is.

I think with SaaS models, you gather useful and timely customer intelligence everyday which you can then use to evolve the product and better target the product. In the early years of any company, you really do not know your target customer and every useful nugget of market information comes very handy. In the licensed model, it is possible to implement customer usage data but it is not going to be as rich and detailed as in the SaaS model.

The other comment about churn depends more on how sticky your product is and the average lifetime. The more the customer uses your product. the more it is integral to their business processes and the more information they accumulate, the harder it is to switch. If a product is successful in achieving these, then the customer acquisition cost will be paid for quickly. With a SaaS model, it is much easier I believe to do this than in a software licensing model.

Are you suggesting that all SaaS businesses are capital intensive? Are you referring to the money spent on R&D or licensing technology? What if a company builds all or most of the technology in-house and licenses only pay-as-you-go technology similar to using the Amazon cloud on the hardware front?

Prasad Thammineni
CEO, Pixily