Pinterest Was A Pivot From Mobile, With Funding in 2009

HelloTote was an iPhone app by Cold Brew Labs, the parent company of

I’m surprised that articles on Pinterest in Fortune and Business Week start the story with the launch of the beta launch in early 2010.  The story really starts in 2009 with a mobile app and seed funding.

The holding company for, Cold Brew Labs, was incorporated in 2008. One of the company’s first plans was to launch a mobile shopping app called HelloTote.  According to the SEC, Cold Brew Labs raised over $500,000 in July 2009 from investors.  I know this round included included the venture capital firm Firstmark.

HelloTote's Facebook group page, which has pictures of founders Paul Sciarra and Ben Silbermann, mentions using the app to save favorites.

According to its Facebook page, HelloTote was intended to be a “shopping catalog for the iPhone” where “you can browse items from dozens of retailers, save favorites, get sale notifications, and find nearby stores.”  The first version “…has women’s clothing, shoes, and accessories from stores like Nordstrom’s, Saks, Banana Republic, Shopbop, and J. Crew.”

Fortune must have been mistaken when they write that the Pinterest team was “hard up for cash” in January 2010, just 6 months after closing $500,000.  The small Cold Brew Labs team raised an additional $700,000 – $1,000,000 in November 2010, suggesting they were ran lean but never that close to bankruptcy.

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Is there a seed bubble?

Paul Kedrosky just claimed there is a super seed bubble. As I can count about 12 super seed funds in New York, many of which are new, I agree there is more money flowing in to super seed funds than in 2006-2008.  But to claim there is a bubble, you need to claim that the amount of money flowing in needs to be reduced.

There will be less super seed funds if it is not as rewarding as the investors hope.  Super seed funds make their returns on acquisitions and IPO’s of their investments.  That is when the investors and partners get capital back.  So, to assess the bubble, you have to see if the exits will be less than the investors are expecting.  Will the money that can come out in M&A and IPOs be enough to provide returns to the capital going in?

Lets say there are 25 super seed funds with $20 million to invest.
Say they aim to own 7.5% of companies when they exit in 7 years.
Say they want an average annual return of 12% across their fund.
So, can their surviving companies exit for:

[ 25 funds X  $20 million invested X ( (1 + 12% )^ 7 years ) ] / 7.5% ownership

= $15B.

Assuming the exits are over a 5 year period, that’s exits of $3B a year (i’m excluding the fact that some exits have liquidity challenges in the early years).

Given tech companies are sitting on lots of cash: Cisco has nearly $40 billion in cash reserves; Microsoft, $37 billion; and Apple, $23 billion. It seems possible these companies can get $3B from their coffers.  Add in 2 IPOs, and you’re there.

I would say that only the seed investors who partake in the homeruns will make it.  The $3B in annual exits will be driven by the YouTube, Google, AdMob, Zappos, and other large exits.  So, seed investors need to be in lots of deals to increase their chances of being in the few big winners.  But, overall, the super seed industry will survive!

I’ll be fixing the math/assumptions as I hear from y’all.

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Introducing the “Business Development Contest”

I’ve run business plan contests, been a finalist in business plan contests, and spent too much preparing for business plan contests. Given the choice, I would do it all again.   That said, I agree with Chris Dixon and Steve Blank that while contests are a good start, they are not great.  I’d like to preserve the quality discussed by Albert Wenger – that contests excite students – while at the same time making contests useful to those building a business.

Here are the negatives of business plan contests:  The business plan contest focuses on the resume of the team.  It suggests that market sizing and financial modeling are more important than learning from customers.  It suggests that you should follow a single plan.  It encourages you to spend time in Excel and Powerpoint, rather than getting outside the office.

Yet, there are many positive aspects of contests:

Contests Excite. On many college campuses, recruiters from big companies show up annually with trinkets in the Fall and job offers in the spring. They dangle pay checks. The business plan contest is just about the only exciting entrepreneurial event on campus. You get to hear about new ideas. See some classmates win a big check. Get some coverage in local papers. For a couple days, some students are actually talking about entrepreneurship

Contests Encourage. Though KartMe has reached the Finals of a couple contests, we’ve never won. That said, I met many entrepreneurs through the process who said “we lost too – and look at our company”. I got to hear stories about winners of contests who still had to meet with 50 investors before getting funding. Only by participating did I learn these war stories that give me encouragement.

Contests Connect. Through contests I’ve been able to meet classmates, entrepreneurs and investors who will be a part of my life for decades to come. Back in 2000 I met Geraldine Alias while she was running the business plan contest at Princeton and Anthony Marino when he was a judge. Both have generously lent helpful advice and connections throughout the years.

Contests Teach. Every contest includes a Q and A portion and also opportunities for judges to give feedback to teams. Through contests I learned to focus on things like the cost of customer acquisition, lifetime value of a customer, and business development pipeline. These metrics, which start-ups live and die by, are only cursorily passed over in business school and even most of the strategic and financial modeling I did before school as a Fortune 500 consultant and business analyst. Also, contests give you an opportunity to improve your presenting abilities – which are crucial for selling investors, customers and teammates.

Contests Legitimize. Every investor says they think independently. At the same time, investors talk to each other and look at trends in the market. Doing well in a contest provides a stamp of approval, or simply expose you to individuals who can provide that stamp of approval.

To improve, contests should focus on development of a business.   The contest should encourage students to identify risks, execute tests, and refine.  As Steve Blank suggests, judging should focus more on what students have done to develop their idea, and less on market sizing and cash flow analysis.  To participate, contestants should have:

  1. Developed a business idea
  2. Identified major risks to their business (e.g., customer adoption, customer acquisition cost, technology development)
  3. Implemented cheap tests to assess those risks (e.g., built an alpha, tried to sell an LOI)
  4. Assessed results
  5. Iterated the business idea and repeated steps 1-4

The winner will have proven the ability to learn the most and make the best changes cheaply and quickly.  Judges will score:

  • Did the contestant identify and test the biggest risks to the success of the business?
  • Did the contestant execute tests that produced measurable, actionable results?
  • Did the team make appropriate changes and conduct new tests?
  • Is the team substantially closer to having a viable business model?

While participating in contests, I wish I could have focused more on testing, learning and refining, instead of top down market sizing or building a cash flow statement.  It would have been a lot more useful to the success of the business, and more similar to what I do today.

What do you think?  Should business plan contests evolve to focus more on business creation?

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Raising Angel Funds in NYC: 5 Lessons Learned

About halfway through KartMe‘s angel raise, I took a second to jot down some lessons learned.  This post originally appeared on’s blog. Without further ado, here are the lessons:

1. Angels want to see you making measurable progress.  To get to the next level, you’re going to need to show measurable results.  Whether it’s revenue per customer, user growth, or a viral coefficent, something measurable is required to either raise money or pay your bills. Start measuring something now.  It could be retention, content creation, unique visitors, bounce rates, something.  Should you get investors, they’ll be following progress in monthly updates…which will mostly include numbers.  So start measuring, and start showing improvements to investors.  Investors know your ideas are going to change, and all they’re going to have to judge success on is numbers, so you might as well start executing and improving based on more than just your gut.  A big mistake I made was showing investors new “designs”, thinking that qualified as measurable progress.  No one cared. In fact, they just wondered why the designs weren’t live and doubted my ability to execute quickly. To summarize, get to know angels a few months before you want to raise funds, and start showing measurable improvements.

2. Angels like simple ideas.  Investors are busy.  Angels are even busier as investing is often a side project for them.  They’re not all going to sign up for your product.  They’re not all going to read your business plan.  Give them a simple explanation that they can remember and explain to their colleagues, spouse and child.  When I explain KartMe now, it’s:  we help people share lists and we monetize with commissions.

3. Angels like teams.  Ideally, your team with have 2 technical co founders and one business person.  It seemed that every investor had a story about a technical person who became unintereseted in the company, leaving the business person floundering.  They like to see long standing relationships between teammates located in the same location, so flight is unlikely.  They like to see that the business person can “attract talent”.  They like the idea of 3 people working until midnight for what amounts to a very low hourly cash wage.

4. Angels are sophisticated investors. Nearly all angels I spoke to throughout the process knew everything I’d learned in business school about fundraising.  They all wanted price protections, participation opportunities, “caps” on convertible notes, etc.  Once you get beyond friends, family, and supportive entrepreneurs, assumes angels willl know more than you about investment terms.  The investors committed to KartMe have probably done over 100 deals as angels, VCs, and private equity investors.  They’ve gone through every term in our agreement, thinking about good and bad outcomes. They thought to set aside funds in case things go bad (and they can buy more of KartMe at a discounted price) or good (and they can preserve their share).  With the new  angel funds, like Founders Collective and IA Capital Partners, I’d assume the sophistication of angels is ever increasing.

5. Closing takes momentum, which you can generate. There were at least 5 different “mini-events” I’ve used during the last couple weeks to get commitments.  A PR hit let to an investor putting an offer a on the table.  One party putting an offer on the tabe gave me something to get another party in.  One resume of an investor got another investor excited.  One parties cash in the bank account helped me get another party to commit.  Getting over half the money I wanted committed enabled me to get another party to commit.  As you approach your fundraise, try to have as many exciting, momentum generating events as you can ready.

Fundraising has been a great experience.  I’ve been able to refine the marketing pitch and have a better sense of what metrics matter.  These are just 5 of the many lessons learned.  More about the experience of raising capital is coming.  Stay in the loop by following KartMe on Twitter.


Kart:   Best Startup Reading – Articles

Blog:  Pitching without PowerPoint: 8 Tips for a First Meeting

Page: The Best of 2,000 Karts

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