Funding Feeding Frenzy – Part 5

VERBATIM by Loop Lonagan – Investor and man about town,

as told to John Jonelis

Loop Lonagan here. I’m gonna go full circle at dis Funding Feeding Frenzy.

No, I ain’t drunk—well maybe I am by now—but what I mean is, I’m goin’ back to the start o’ this event. After all that stuff I already talked about, I’m finally gettin’ ‘round to the first speaker at the FFF—Palette App—the company that won last time.

Like I said, I seen the pitch before. I also seen them at BNC Venture Capital and later at their corporate offices. Research. A guy’s gotta check stuff out fer himself.  Anyhow, here I am at the FFF in the Chopin Theater to hear what he has to say.  And as it turns out, I’m very glad I to be here.

The speaker is Jerry Freeman, founder of Palette App, and the guy’s real smart. He’s doin’ his pitch fer us as a demo—to break the ice before all the poor slobs face the judges.

So I’m sittin’ here next to Jay Kinzie, a colleague o’ mine from Mastermind Advisory Board in this cushy seat in the Chopin Theater. Rong Mayhem ain’t gonna wheel up behind me and start yellin’ like he did at that car barn they held this thing at last time. And the noisy crowd is banished to the trough downstairs.

That means I’m free. Free to concentrate on findin’ the companies I wanna follow up on. But first comes Jerry Freeman. He starts by giving his own pitch. I know it by heart so I’ll paraphrase:

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Da Pitch

Palette App helps architects and designers do their job better, faster, cheaper. (Jerry doesn’t actually say better, faster, cheaper, but that’s what it amounts to.)

They take away them old-fashioned sample binders that designers and architects been blowin’ their money on for 150 years. They hand ‘em this beautiful digital palette. It’s easier to put together, better organized and more efficient to use. You can make changes fer free! That’s a big deal in this industry.

It saves a designer about 30 business days a year. That’s alotta man hours. And that kinda time’s worth a few bucks. The digital palette’s better for the client too. That’s why I been excited ‘bout this company right from the first.

The software usta be just on iPad ‘cause that’s what designers and them kinda people use. But now it’s on Android too. There’s a version for architectural design schools, which turns out to be a big deal. You can read all about it at https://chicagoventuremagazine.com/2012/07/16/150-years-of-waste-meets-technology/

The company is up-and-running and generating revenue. They already got 35,000 products loaded in their system. They got multiple profit centers. They make money whenever a designer orders a sample. And they make money through subscriptions.

Far as capital goes, they already raised $700K and the first round is gonna close pretty quick. 70% of that came from the last FFF. You can read about that at https://chicagoventuremagazine.com/2012/11/23/shark-tank-meets-the-apprentice/

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Da Interview

So after his sample pitch which I kinda butchered—but hey—how ya gonna spoil something as good as that? Anyhow, Jerry sits down with David Culver and does an interview about what it’s like to run a startup. This is good stuff and I learn something.

Raising Money

This seems to be the biggest question on ever’body’s minds. Jerry says, keep pitching at every event you can ‘cause it’s the best way to get connections to lotsa investors. Raising money is a full time job. As CEO, raising capital turns out to be his #1 job.

Then there’s cold calling. You start by pitching on the phone to some junior-level gatekeeper. Then to the next one up, then the next. Then maybe you gets a face-to-face with a decision-maker, fly way out somewheres and run up the old expense account.

All that takes months. Then maybe you get a commitment. Whoa—the money ain’t in the bank yet, fella. Gotta go thru due diligence. Paperwork. It takes six months to get the check, if it comes at all. People drop out. Meanwhile, how you gonna pay yer staff? So you gotta watch yer cash flow real close.

So he says to keep entertaining small investors till the big checks come through—just to pay the bills. The little guys come through quicker.

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Crowd Funding

Let’s talk about the new self-directed IRA. Lotsa baby boomers got millions stashed in their IRAs. All those add up fast. There’s five trillion in investment dollars hidden away in these accounts. That’s right—I said five TRILLION dollars—almost a third as big as the national debt! It dwarfs private capital. Blows it away! And deals like that close in thirty days—not six months like with VCs and Angels.

This is a form o’ crowd funding. Usta be only charities raised money that way. Now there’s brand-new laws that open it up to investors. So far it’s only for accredited types—people with a million bucks plus. That’s gonna change but the government is draggin’ its toes—nothin’ new about that.

So fer now, friends ‘n’ family ‘n’ Kick Starter is still the best way for small cash, then

millionairs with self-directed IRAs. Pretty soon we might see the dam burst on crowdfunding and money’ll flow all over the place.

Jerry gives 7 more tips on how to run a startup:

7 Tips

1. “The shorter your pitch, the better,” says Jerry. If you think yer gonna get through it in eight minutes, cut it back ‘cause it’ll always take longer. “Practice 21 times,” he says, “so you’re not nervous.”
2. “Simplify. If you’ve got twenty ideas, narrow it down to three,” he says. When Steve Jobs came back to Apple, he cut down their product line to about five. Now they’re huge.
3. “Challenge is important.” He asks himself why he ain’t tripling his users every month. You gotta find creative ways to reach that target.
4. “The dot bomb era is over.” Start raising revenue ASAP. That helps attract investors way better than flashing yer goofy projections on PowerPoint. “When you can say, We already started generating revenue, it puts you in a different pile from the rest.”
5. “Crank up sales fast because sales sell. Get to risk mitigation ASAP.” That’s important ‘cause investors is more risk-averse than dey ever was before. And the banks ain’t lending. Actual sales sounds a lot less risky.
6. “Keep your people motivated.” Use every success to get your people rejuvenated. Tell ‘em stories from the road. Celebrate small successes.
7. An entrepreneur is somebody who goes from failure to failure to failure without getting discouraged.” It’s good to come from a sales background so yer already used to rejection. “If you’re a wallflower, get over it,” he says. Then David Culver follows that with, “The fortune is in the follow-up.”

Gotta Go

I gotta catch a cab to another meeting, so after plenty o’ good food ‘n’ drink, I say g’bye to the FFF kinda early. Two guys tag along to share the ride. One’s an investment banker, the other a VC.

And wouldn’t you know it—I trip on another pothole, right there on the sidewalk. Now my suit’s slashed in both knees. Neither o’ these guys helps me up like the bums did.

And when I drop ‘em off, neither offers to share the cab fare.

Happy New Year to all o’ youse out there.  Cheers from da merry land of Shark Tank Meets the Apprentice.  Ω

NOTE TO JOHN – I seen your articles on a buncha sites.  One o’ dem usta be a real good tech jounal run by the Huffington Post.  It went through a buncha changes.  Now it’s runnin’ third-rate soft porn right along with da articles.  Don’t know what’s with that but thought you’d wanna know.

NOTE TO LOOP – Thanks for the heads-up.  I’ll check it out and maybe put a stop to it.

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Continue to WHAT’S GOOD?

Go back to Part 1

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Da Contacts

Palette App – www.paletteapp.com

Funding Feeding Frenzy – www.facebook.com/FundingFeedingFrenzy

The Chopin Theater – www.chopintheatre.com/event.php?id=2275&pageId=soon

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Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link . This is not investment advice. We do not guarantee accuracy. It’s not our fault if you lose money.

.Copyright © 2013 John Jonelis – All Rights Reserved

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