What Can You Learn from the $1B sale of Instagram? Not Much…

Go Ahead- Make My Day!

Startup entrepreneurs look at the sale of Instagram with a combination of admiration and envy that inspires countless sleepless nights of furious app coding across the country.  It only seems natural to take a break from polishing your hockey-stick excel file at 2am to think about all you can learn from Instagram.

So what can you learn from the Instagram exit?  Pretty much nothing.

But if you look hard enough, you can overfit the data and pick up a lesson that will bankrupt your baby company.

There are a lot of bits split on any startup outlier, but most of the lessons are subject to the Texas sharpshooter fallacy.  My favorite lesson is “Instagram Didn’t Worry About Making Money.”

The story goes: entrepreneurs have to focus, and you can’t make a great product and sell it at the same time.  It’s too much to do.  So if you want to make it really big like Instragram, focus on making an awesome product, and the money will follow.

Boy is that a bad piece of advice!  Most entrepreneurs I meet are product-centric people, who if left alone, would prefer to be left alone to perfect their product, and rest easy with overly optimistic assumptions on what people will pay for it.  It’s only by getting a MVP out there in front of customers that you can get the experience to push the product to where it needs to be to sustain a healthy company.

That piece of advice alone should inspire every startup entrepreneur to pick up “Thinking Fast and Slow,” or “Fooled by Randomness.”

The important detail that I take from Instagram is that even outliers pivot.  They started out as a Foursquare-like app, but then changed their minds.

Mark Fasciano

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Canrock Ventures Receives $4.5 million from State Grant

Thanks to the Small Business Jobs Act signed into law by President Obama in September 2010,  Empire State Development announced that its board of directors approved over $25 million in grants to six venture capital firms in the State of New York from its Innovate NY program. We are pleased to share that Canrock Ventures is among the firms given grants to invest in early-stage funding of small businesses. The firm received the second highest grant of $4.5 million. Founded in 2010, we specialize in technology centric start-ups and to date have invested more than $11 million in over 15 portfolio companies including Karma411, LoadnVote, General Sentiment, and CooCoo to name a few. The state believes Canrock, and the other venture capital firms will help create more jobs for small business owners and we are optimistic as well as we have recently been expanding.

Empire State Development’s President, CEO & Commissioner Kenneth Adams said, “As small businesses grow, so grows New York’s economy. This fund will help attract tens of millions of dollars in new investment for innovative entrepreneurs to grow their businesses and create over 2,200 new jobs. With investment opportunities across every region and in our core industries, we are demonstrating once again that New York is open for business and investing in small businesses to spur job creation.”

2012 promises to be big year a Canrock, stay tuned for more news and portfolio additions.

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Choose Your Corporate Culture

Many companies Canrock invests in are start up or near start up.  The beauty of that is they can choose their unique corporate culture.  Corporate culture is what helps people make decisions when the boss is not there.  Corporate culture is the habits that the company has.

For me, Culture includes such things as:

1 – Work ethic.  What hours do we work.  How hard do we work when we work.

2 – Frugality.  Do we buy new or used?  Do we fly coach or drive.

3 – Sense of urgency.  Do we respond quickly both internally and externally.

4 – Promoting from within or do we hire outside.  Or perhaps some combination.

5 – Learning.  Do we invest in training and learning.  Is it valued?

6 – formality.  Do we dress in jeans or suits.

7 – corporate habits – like weekly reports, annual performance reviews etc.

There are reasons why any culture can work or be poor.  The key to to make the deliberate decision.  Once culture sets in, it is very difficult to change.

I read an interesting book – Culture Connection – How Developing a Winning Culture Will Give Your Organization A Competitive Advantage by Marty Parker.

It reinforces everything I know about culture while at the same time challenging me to consider what other things in culture might be important.   Parker believes (as do I) that culture starts at the top.  Leadership is key.

It contains a number of tactics on how to reinforce culture.

The book give specific examples that we all can learn from from 10 great companies.

Parker makes a compelling case for the connection between good culture and good company performance.

From the book: “Culture does not change because we desire it to change.  Culture changes when the organization is transformed; the culture reflects the realities of the people working together every day”  Frances Hasselbein
 
As I ran an increasingly large business (I started at 0 and ended at $2B in sales), I viewed my job as not making the decisions but rather coaching on culture.  If I made all the decisions, I would be the bottleneck of the company.

Start up is the easiest time to set culture.
 
Jim Estill

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What Do VCs look for in Investments?

All VCs are different so asking what VCs look like in an investment is a bit like asking what do men like in a woman.

It helps us if people looking for funding fit our criteria so it is good for me to write a bit here in the hopes of saving us some time (I am a time management guy).  At Canrock, we only invest in early stage technology companies – no games, no biotech and no sin business (porn, gambling, tobacco etc).  Once past that, we look for businesses to be sound in the following 3 areas:

1 – Business.  CFO.  Can they do the accounting.  How will they make money?  What are the margins?  etc.

2 – Technology.  How tough will it be to implement and support.  How is the CTO role covered.

3 – Sales and marketing.  How tough will it be to sell the product?  How expensive to market.

We then look for scalability.  Is it probable that the business can be scaled easily?  Can it be made into a replicable model?

We look for an entrepreneur we can get along with.  Someone who is coachable but still thinks for themselves and takes responsibility.  We look for integrity, realism, work ethic, intelligence and the ability to grow with the business.

We look for businesses that have synergies with other businesses that we have invested in because that way we can add much more value than just $.

In the end, it is a very subtle process.  Lots of tick boxes but lots of subjectivity also.

A real example – American Health Journal.  The site a series of doctor interviews (a few thousand of them) that were first done for PBS.  Because they were done for PBS, the quality is high on the video.  There still needs a lot of work on the editorial since Google can only see words and not video (or even know the quality of the video).

It is  model we understand – ad supported monetized sites because we have interests in several of them.  We know if the traffic happens, the revenue follows. And Canrock is doing the CFO function so we know the beans will be properly counted.

Technically, it is easy for us to not only understand, we contracted to one of our investee companies – Karma411 to do the actual programming.

Selling and marketing on ad supported sites is simple and formulaic if you use normal ad networks.  Adding direct sales later is easy.

So it passed the first 3 tests.

It is highly synergistic with another site we invested in called How to get rid of stuff that gets millions of unique visitors.  Much of the content on that site is light medical so it ties in with AHJ.  EG – We have a page How to Get Rid of Crohn’s Disease and videos on Crohn’s on AHJ so we can move traffic from one to the other.  It is not a perfect synergy though since the quality of content is higher on one site than the other.

It is synergistic with our SEO company – SEO Pledge since much of what needs to be done is to be found on internet searches.  SEO Pledge is involved with content creation and AHJ needs a lot of content – so another synergy.

We can add a lot more than just money to this company.

So we invested and continue to invest heavily.

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LoadnVote the next YouTube?

A first for Canrock Ventures as LoadnVote joins the portfolio.

Jonathan Doman, 22, Maxx Yellin, 21, and Matthew Waxman, 23, all of Dix Hills and lifelong friends spoke with Newsday about the company they founded. They came up with an idea after watching “American Idol” and brought their concept to Mark Fasciano, a leading venture capitalist on Long Island as managing director of Jericho-based Canrock Ventures. Essentially the site runs contests in numerous categories ranging from Best Long Island Singer to caption contests like What is Jeremy Lin is Thinking? Anyone can engage by trying to win with their own content or by voting on their favorites.

“The typical person doesn’t have the resources to train for an appearance on “American Idol,” said Doman. “This is a very simple way” for an aspiring performer to get some notice. “You perform [on LoadnVote] for a short period of time, maybe a few minutes. That could be your 15 minutes of fame” or lead to something more. Doman was a history major at the University of Maryland in College Park; Yellin is studying finance and sports management at the University of Florida in Gainesville; and Waxman majored in accounting at the University at Buffalo.

What makes this different than other portfolio companies? As Fasciano told Newsday “They weren’t looking for money.” They just wanted to start and grow the business. Canrock supplied them with the use of its office and technical help but little cash. Canrock has never before helped grow a company inside its offices. “We are looking at this as a long-term prospect of developing these young people,” Fasciano said.

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