Outsourced Expertise

In past years, a bold vision from a dynamic entrepreneur was often enough to launch a successful company. Increasingly, however, we are finding that the best entrepreneurs are those who seek advice, listen carefully, and learn from these lessons. By being flexible, they are better able to adapt to changing external factors in order to achieve success.

I recently asked Mitch Kapor (founder of Lotus, one of the fastest firms in history to achieve $1 billion in revenues, and an active seed investor) how the needs of the entrepreneur have changed in the past 10 years. He responded:

“Entrepreneurs today can benefit from a wider range services than have been traditionally provided by venture capital investors. Building a robust organization requires multi-disciplinary skills, and it is difficult to impossible for a small start-up to address internally all of the needs in finance, human resources, marketing, and other disciplines. Entrepreneurs therefore can benefit from the use of outsourced expertise in key disciplines as they are building the organization.”

To bring this “outsourced expertise” to their organization, entrepreneurs are increasingly turning to high value added investors.

Sometimes A Dollar is Not a Dollar

During the Internet Bubble, companies were often funded without any in-depth critique, without the tough questions being asked – Silicon Valley is full of stories of checks being written after a ten-minute elevator pitch. In the 1990’s, angel investors filled the financing gap left by larger venture investors who had moved on to later investment stages. Yet it became increasingly clear that ‘angel’ money was not enough – entrepreneurs need investors willing and able to ask the tough questions and get involved in the difficult work that faces all startup companies. In fact, money invested without high value-added experience may leave a start-up company rudderless. Entrepreneurs should reach out to smart investors because they need access to these resources, not just money. Smart investors can provide a variety of value added resources, including financial resources and strategic advice for alliances, product development, sales and marketing. Increasingly, entrepreneurs must look for investors with specific skills, energy, resources and experience that can be leveraged for their business.

High Value Added Investors

More often than not, we are finding that our tough questions are yielding tough answers; in other words, there is increased analytic complexity in times of uncertainty and change. For example, we believe that much of the value of automating business processes in large enterprises has been achieved. Now, with the proliferation of data and the low cost of storage, we believe that there are growing opportunities for software that performs highly sophisticated optimization and collaboration functions.

Liquid Engines, Inc., which has built a Strategic Tax Optimization System for Fortune 50 companies, is a good example of a company that is building sophisticated optimization software. Catamount Ventures, an early investor in Liquid Engines, has worked closely with the company across the many organizational disciplines that challenge entrepreneurs, including recruiting, financial planning and budgeting, business model development, market segmentation, and sales and pricing strategy. In addition, Catamount worked closely with the company to prepare and execute their follow-on fundraising strategy. Liquid Engines successfully sought additional high value added investors, adding Charles River Ventures and Advanced Technology Ventures to the company in a subsequent round of financing. Liquid Engines is also a good example of how simplistic notions of “first mover advantage” have fallen by the wayside, replaced by the need for tangible intellectual capital.

According to a recent study, the common characteristics of top high-growth technology firms are: an exceptional founding team and core engineering team; a discontinuous technology innovation; the ability to acquire blue-chip customers; strategic alliances that give a ‘unfair’ competitive advantage; smart investors; and a focus on a high growth market. Although Liquid Engines is still a young company, it is a good example of a company that has successfully sought out investors with the specific skills, energy, resources and experience that they can leverage for their business. More than ever, we believe that with the right support, now is a great time to create lasting, value added corporations that can change the world.

The Tao of Entrepreneurship

Finally, we note that entrepreneurship is not easy. In fact, it is a remarkable and challenging ride - one moment, you are on top of the world and changing the way things are done, and the next moment you are down in the dumps because of a missed key milestone – that requires a steady hand and an even keel. Smart, experienced investors help entrepreneurs buffer the swings that occur from down times to up times. It is critical for an entrepreneur not to ride these giant waves. Keeping an even keel helps the entrepreneur to avoid losing focus through exhaustion and imbalance -- and good advisers will be that steadying force.

Conclusion

We sense that the pace is changing. We are seeing more business plans then ever before! Entrepreneurs rely on hope, tenacity, drive, focus and creativity. The creative process in entrepreneurship is much like that of an artist: a painter puts the first brush strokes on a blank canvas as an entrepreneur initially expresses their vision in a new business plan. As a musician practices endlessly to develop the perfect pitch, a visionary businessperson fine-tunes their strategy. It is this creative process that, when well expressed and implemented, drives economic growth. Many of the best artists worked within schools, had teams and mentorship relationships: Cubists like Picasso & Braque, the Impressionists, Minimalists, etc. The power of creativity in the technology world is not dead; in fact it is alive and thriving. Catamount Ventures is seeking creative entrepreneurs with whom we can team to build lasting, sustainable technology companies.

-Jed Smith