News At Canrock


One of our partners, Jim Estill, spoke at Tedx. The following is a video or his presentation.





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Venture funds like Canrock invest in companies but we also need to have those companies sell to crystalize gains. So one of the goals for venture funds is to have exits. One of our investments, Incentivibe sold to Rebellion Media. This was definitely an early exit. Our hold time on this investment was less than a year. Thanks to the entrepreneurs, Adeel and Abdul who executed well on their plan and had a successful exit!

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One of our investee companies – SEO Pledge continues to impress us. Their business is getting people on the first page of Google or in the case of bad search results, getting bad results off the first page.

One thing we like about them is they are synergistic with almost every company we invest in. We do not control our companies but we suggest they talk to each other and offer “family pricing”.

SEO Pledge also manages a number of their own properties. Since much of SEO Pledge’s time is billed to clients, one best practice in consulting firms is to fill any extra time with product development. In this case they manage properties. One property they manage is How to Get Rid of Stuff.

This site is about how to get rid of anything. Most traffic is search traffic so first page Google is key. The source of revenue for the site is advertising so this experience also helps SEO Pledge.

For example. The site has articles on How to get rid of indigestion or bloating. Or how to get rid of allergies (seems a lot of people have this issue).

People also arrive here when they Google how to get rid of pests. For example – how to get rid of mites or how to get rid of moths.

And there are lots of articles about the household. Like how to get rid of tree stumps or how to get rid of musty smell in carpet.

And then there are the just plain funny topics like how to get rid of Christmas cards or friends (as if you can have too many friends).

With SEO Pledge, we like the synergy. We like the business acumen.

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How to Pitch a VC

We get pitched so often, I thought I would simplify the “how”.

We want to know:

1 – What do you do? If it takes more than a sentence, it is to complicated for our simple minds.
2 – How will you accomplish it?
3 – Who is going to pay for what you do (not as in selling the company – as in customers). How much will they pay? Why?
4 – How many people might want your solution?

One of the sample companies in our portfolio, Karma411, would pitch like this:

1 – We allow charities and nonprofits use social media to raise more money.
2 – We do this by allowing users to simply and easily build a web presence and tie to their Twitter, Facebook and Linkedin accounts and those of the individuals doing the fundraising.
3 – Charities will pay a setup charge and a monthly fee because using Karma411 tools allow them to raise more money more easily than any other way.  There is a built in ROI.  The revenue depends on the amount raised but approximately $500/month.
4 – There are 1.5 million charities in the US.   Karma411 can be highly successful on less than 1% of those.

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These simple steps remind me of a great little book – The Magic Question – A Simple Question Every Leader Dreams of Answering.

It starts with 6 chapters with 6 other important questions:

  • What is really important? (I am an advocate of asking this daily – defining this is one of the keys to success)
  • How am I doing?
  • How is the team doing?
  • Do you care?
  • What difference do we make?
  • Are you worth following?
  • And then the magic question.  How can I help?
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Bridging Valuation Gaps with Liquidation Preferences

Entrepreneurs often approach a VC or angel with “my company is worth $3,000,000”.  They want investment based on that valuation. Sometimes they will even try to ask for that valuation if they have little (like less than $1M/yr) revenue if you can believe that.

The VC is looking for a 10 X return on their investment.  This is the return that is needed on this type investment.

So in the case of a $3M pre money valuation, if $1M new funds are invested then the post money value is $4M so simple math, the company needs to exit for $40,000,000 for the angel to make their 10X return.

So where is the disconnect?  Usually it is because the entrepreneur thinks that exit is no problem and the angel or VC disagrees.  It is a bit more complex than that because most VCs will use some sort of probability table to determine the likely valuation.  EG 50% chance of losing everything, 10% of $10M, 10% of $40M and 30% of $100M and coming up with a weighted average.  But that is another story.

So how can valuation gaps be bridged?  The easiest way is with a liquidation preference.   Simply give the angel some multiple of their money when the exit is low.  For example, if the entrepreneur thinks their company can sell for $40M in the example above.  What if it only sells for $10M and the angel put their money in at a $3M pre.  The angel would own 25% of the company so get $2.5M or 2.5 times their money.  Not what they need for this class of money.

By adding a sliding liquidation preference, this can be dealt with.  EG – if the exit is less than $20M, the angel gets perhaps 5 times their investment  plus their prorate return.  So in the case of a $10M exit, the VC would get $5M plus 25% of the remaining 5 or $1.25M for a total of $6.25M.  Still only 6.25 times their money but in a poor exit, this seems fair.  And the founder/previous investors would get $3.75M.  Still – likely fair.

And of course, I have dramatically simplified (there would be other preferences from $20-40M) it but that is the gist of it.

Liquidation preferences do not impact founder (or previous investor) returns if the exit is high – or at least not in a meaningful way.  Where they “hurt” is when the exit valuation is low.  Of course if the exit value is low, they it is confirming that it was fair for the preference to be in place.

If a founder believes they have the next big thing, they will certainly agree to this sort of formula.

Noam Wasserman teaches a class called “Founder’s Dilemmas” at Harvard Business School.  His book by the same title is worth reading.

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The Next Generation of Business on Long Island

Recently, Mark Fasciano, managing director of Canrock Ventures, was interviewed for a Newsday article about Thought Box. Opened in late September, Thought Box is a 1,100 square foot space housed on the top floor of a former bank building in Hicksville. Filled with clusters of tables and white boards, this collaborative area is an entrepreneurial-friendly environment meant to encourage creativity and out-of-the-box thinking.

The $30-million project is aimed at improving the life spans of technology startups by having them work together in a collaborative environment and be advised by seasoned entrepreneurs.

“There are no offices, no cubicles,” Said Fasciano. “Casual interactions are absolutely crucial…people are helping each other to build their companies.”

Fasciano hopes to expand Thought Box by opening a second incubator, and have more established technology companies move into a vacant office building next door.

Tal Edilberg, chief executive of Intrigma Inc., has plans to move his operations to Thought Box from the Long Island High Technology Incubator st Stony Brook University. Edilberg stated that Fasciano “understands that Long Island needs a technology hub, a place where people with no money but great ideas can get help to build a business.”

Click here to read the full article!

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Thought Box Featured in Newsday

Recently, Mark Fasciano, managing director of Canrock Ventures, was interviewed for a Newsday article about Thought Box. Opened in late September, Thought Box is a 1,100 square foot space housed on the top floor of a former bank building in Hicksville. Filled with clusters of tables and white boards, this collaborative area is an entrepreneurial-friendly environment meant to encourage creativity and out-of-the-box thinking.

The $30-million project is aimed at improving the life spans of technology startups by having them work together in a collaborative environment and be advised by seasoned entrepreneurs.

“There are no offices, no cubicles,” Said Fasciano. “Casual interactions are absolutely crucial…people are helping each other to build their companies.”

Fasciano hopes to expand Thought Box by opening a second incubator, and have more established technology companies move into a vacant office building next door.

Tal Edilberg, chief executive of Intrigma Inc., has plans to move his operations to Thought Box from the Long Island High Technology Incubator st Stony Brook University. Edilberg stated that Fasciano “understands that Long Island needs a technology  hub, a place where people with no money but great ideas can get help to build a business.”

Click here to read the full article!

Read more