Wealth of Experience
The truism that it's who you know that really counts becomes even more true if your company is trying to hunt down venture capital in a recession. A strong track record doesn't hurt, either. The founders of Nexage are proof: Relationships and reputation helped the Wellesley, Mass.-based mobile advertising optimization startup secure $4 million in venture funding in mid-July.
Spurred in part by the cash infusion, the company expects to see revenues top $10 million next year, says company CEO Dev Gandhi. He and company chairman Mike Baker found VCs so receptive during their six-month funding search that they had their pick among several possible suitors. The ace card that drove their popularity: Baker had spent six years as founder and CEO of another mobile ad startup, Enpocket, which Nokia bought for an undisclosed sum in 2007.
The two VC firms the Nexage execs decided were the best fit are Toronto-based BlackBerry Partners Fund and startup-focused GrandBanks Capital, based near Boston. (Despite its name, the BlackBerry fund is not a corporate VC firm owned by device maker Research In Motion; instead, RIM is an investor in the independent Blackberry fund that includes Thomson Reuters and Royal Bank of Canada.)
Funded by an Angel
Successful angel funding deals are about balance. Startups often push for sky-high valuations, while gun-shy investors insist on majority control. Too often, talks break down over terms. Noah Goodhart, co-managing member of WGI Group, a New York City seed fund, says five terms should be included in every angel term sheet:
1. Executive compensation. What happens if the cash dries up--will the founder take his lumps along with the investors?
2. Liquidation preference. Angels often ask for the right to recoup their capital plus a specified return before the founders or any other shareholders receive their proceeds, Goodhart says. This protects the investor if the company liquidates.
3. Board of directors. In early stage companies, the board should include one founder, one investor and one independent agreeable to both sides, Goodhart says.
4. Milestones. These could be a product launch date, the hiring of key executives or the achievement of certain financial benchmarks.
5. Participation rights. The angels will want the right to invest in future funding rounds. "This term helps ensure that angel investors will continue to stay active and involved," Goodhart says. -Rosalind Resnick
"We look at the mobile ad marketplace as having huge potential," Golden says. "And we found them the most credible player--ey'd been in there longer, and had accomplished a lot with little resources."
Also impressive to Golden was that Nexage had signed up major customers, including CBS and Internet video company Divx, despite a shoestring budget--ey'd lasted two and a half years on $2.5 million in angel funds raised when the company launched.
The startup compared favorably with competitors: most were expanding into mobile ad management from other business lines, where Nexage offered core expertise in the field.
For Gandhi, the chance to tap mobile market-leader RIM's expertise through the BlackBerry fund made it an ideal partner.
"BlackBerry was the most strategically aligned possible partner," says Gandhi. "Being the leader in the sector, they understand what's happening in the smartphone industry and understand what we're doing for mobile browsing."