Q: Why hate to love smart city startups?

A: We have a complicated relationship.

Let’s start at the top. I love smart city applications…

  • Why I fell in love #1: The technology is inspiring. Let’s think about inventions ranging from EV-charging streetlights to multi-purpose urban sensors. It’s insane what electrical, mechanical, civil engineers can do. Layer on the network layer, beautifully designed for each use case. And security? Software? UX? Wow.
  • Reason for loving smart city #2: Infrastructure is powerful but in need of a refresh. Walk around and see how the engineers and architects of the era have layered on the best technology of the day. Yes, there was a day when the now backed-up drainage system solved major flooding issues. But now, we complain that it isn’t better. Personal problems in Chicago? Potholes, crime alerts, delayed trains, trash cleanup, flooding, traffic, snow removal… smart city here we come.
  • Yes, I’ve fallen in love again for this reason #3: The installation is meaningful. Smart “home” lights are usually installed for convenience. Smart streetlights save energy, increase safety, and reduce maintenance cost. That impact is orders of magnitude greater. It’s smart.

…But I hate smart city startups

Traditionally, startups have led a wave of “disruption” in sleepy industries. Cities are in dire need of a refresh. I saw many startups attempting to tackle city problems in my previous role at an IoT company. I loved them all. In my current role as an investor, I hate(?) them all.

I have many assumptions about why startups can’t solve the smart city problem. Most come from observation and not empirical evidence. After thinking a lot about why I can’t find a smart city startup that I can get behind, I want to understand why that is.
 
Following this post, I’ll do a deep dive into each of the following assumptions. I’ll try to dig up available data and draw analogs from parallel industries. I’ll look at cities abroad to see what works there that’s a gate here. I hope to disprove each hypothesis or understand possible remediation strategies. We’ll see where it goes…
  • Problem #1: We don’t know what cities buy so we don’t know what to sell. Industrial buys platforms. Consumers buy products. Cities buy… pilots?
  • Problem #2: Infrastructure is expensive and sucks. To make cities smart, software is not enough. Cities need to replace or retrofit physical assets to become smart. Project financing too much for early stage companies to undertake. Hardware development and manufacturing at scale is unpredictable. (There’s a reason so many VCs invest in SaaS.)
  • Problem #3: Given the problems upgrading infrastructure, software takes longer. Let’s say I built a predictive maintenance app dependent on city sensors. I will have to wait for the city to deploy 1,000s of sensors before I have a full-scale data set. That could mean months or years before I ramp up past pilot stage.
  • Problem #4: Startups can’t get close enough to the customer and that counts. Relationships are difficult to build, cities are risk averse, and margin for error is low. So, startups need to align with trustworthy big co’s. But partnerships don’t work. At least, they don’t work fast enough.
  • Problem #5: There are too many stakeholders. This is a sales, deployment, maintenance, buy-in, PR, financing, and policy problem. Cities are not organizations with a user and a buyer. There are hundreds of thousands of users, dozens of stakeholders and more than a few buyers. Everywhere, there is a lack of knowledge problem.
  • And we haven’t even mentioned everything else. Public entities are difficult to sell into and generally slow adopters. Funding is tricky, regulation is challenging, technology policy is not defined.
I’ll start working down this list and hope that I’m proven wrong. If not proven wrong, I hope find some exceptions. As I create new posts, I’ll update links so this one serves as a table of contents.
 
If you have an opinion, access to data, or an example of a smart city startup that’s killing it, please let me know. You can reach me on twitter @jaydimonte or via email at jackie@hydeparkvp.com.

What do you think?

Q: Why should I bother sending investor update emails?

A: Because they can be effective

Let’s break it down.

Who do you send them to?

All high-potential investors. This includes new groups or current investors that are able to follow on or lead future rounds.

What do you send?

In the context of this piece, let’s assume that you’re sending one email to two distinct audiences. Current investors may appreciate more detailed information and are more likely to look for ways to be helpful. Potential investors skim for KPIs and interesting developments. It’s important to cater to both of these groups and make it easy for them to pull the data that they need quickly. After all, most investors are likely getting dozens of these.

How do you do it?

An organized and well formatted email goes a long way. Gmail can be challenging in this department – even if you’re composing in Outlook or anther editor, you should prepare for recipients using gmail (a majority of VCs do). I suggest copy and pasting in all tables and charts as images. You can also craft emails in Word or anther editor and paste the entire message into gmail before sending, which can make things like highlighting or emphasizing easier.

Whatever you do, don’t end up with an email that looks like this:

 

It’s scary to read and I won’t even attempt it. Contrast this to another email I have received (I removed charts and tables for an apples to apples comparison):

 

Among other things, notice the quick intro and bullets at the top of the email. This is extremely helpful in giving readers a good idea of recent progress and other updates, and a preview of what’s to come in the remainder of the email. Also notice the use of formatting to break the email into consumable chunks.

There are many other posts out there on what data to include so I won’t go in detail (OpenView, Update My VC by RRE Ventures, and even Huffington Post have helpful templates).

When? How often?

Weekly is way too much. You want to stay top of mind but also how meaningful progress between updates (Trigger the “Woah! They’ve got $2M ARR already?!” reactions and not the “Seriously, they’re still at $2M? “). Somewhere between monthly and quarterly is a safe bet. Keeping a regular cadence locks it in.

Where?

No matter how progressive they are, VC’s can’t easily copy and paste or refer back to Snapchat stories. LinkedIn has no formatting. Tweetstorms can get annoying. So I guess stick with email. Although I wonder how Slack could turn out.

Why?

So this is the meat of it. The top three reasons

3. Impose the mere-exposure effect. People like things that they see over and over again. As long as your updates are generally positive, show progress and personality, I’m going to start to like you. I’m going to feel like I know you. To be honest, I don’t know how much this influences investment decisions, but when I get updates on the reg, I do want to help those folks. Which brings me to my next point:

2. Ask for help. Current investors want to help you. Future investors appreciate the clarity and transparency. Its a good judge of maturity and how good or bad things are. Oh and last but not least, you should get some offers to help (which is the real goal).

1. Prompt the, “want to meet?” emails. Whether it’s reminding VCs that you’re around and plugging away, that you’ve just hit their “strike zone” or typical metrics thresholds, or that you’re about to start raising, you want the “RE: Startup Update – January 1, 2020” to be something like this, “Great to hear things are going well, I’d love to get a chance to hear more. Friday?”

P.S. Sending off-schedule action emails

Since these update emails serve many purposes – to inform, ask for help, give credit, motivate folks, etc. – key messages can get lost in the noise. Occasionally, you may want to send event-based emails, such as those asking for help (e.g. key hires, specific customer intros, to announce an event) or celebrating a big win.

P.P.S. Sending one-off emails

There’s a 90% chance you’ll hear no response from mass emails. There’s a 99% chance I’ll respond to personal emails (e.g. “Hi Jackie – wanted to update you. See below”). It’s a trade-off between time and potential return (and be aware of mail-merge failures).

What results have you experienced with investor communications?

Q: How does a first pitch to a VC end?

A: With a “No” or “$$$!”

(and everything in between)

I’ve had a few entrepreneurs ask me how quickly we decide to move forward working with a company. Do we huddle up after every meeting to discuss? Do we check companies off on the Monday meeting? Is it more of an individual thing or a group process? (More on that later.) Essentially, all of these questions drive at understanding what happens after that 30-60 min. first meeting.

There are a range of options. I’ve bucketed them into a few categories based on my experience, ranging from worst (lowest likelihood for an investment) to best (expect the term sheet this month). In most cases, whoever you’re meeting will identify next steps during the meeting. If they don’t, you should ask.

“No.”

Full stop. Comes when your company is not within our focus (product, industry, market, technology, stage – too late, geography, etc.) or we may have invested in a competitor.

When you receive this answer, you should figure out why. If it’s cut and dry, for example, you’re a biotech company pitching a software VC, move on and focus on investors that are a better fit. If there is something else the investors are seeing, for example, a broken business model, try to flush it out. Its very low risk (the VC has already said no) and you may be able to identify other risks, learn about new opportunities, intros to other investors, and so forth.

“No, but just for now.”

This is a legitimate answer if you are either too early for the VC or you are not fundraising at the time of the conversation.

You can tell if the VC is interested if they ask for your investor updates (mildly interested), that you reconnect when you begin fundraising (more interested), or to put an update meeting on the calendar in 3-6 months, even if you’re not planning a raise (really interested).

Make sure to follow up on these actions. The more data points you have on how the VC acts, and the VC has on how you perform, the better.

“Let me get back to you after we discuss on Monday.”

Some say this is a cop out for not being able to say “no” in person. In other cases, the person you’re meeting with just might not be sure what the next step should be. For example, if I’m meet with a marketing company am just not sure of how interesting their product is, I’m going to consult with one of the partners that knows the ins-and-outs of marketing tech. If he’s interested, we’ll set up another meeting to get him up to speed. If he’s not, I’ll take his word for it.

The problem with this response is that, as an entrepreneur, you probably don’t exactly know where you stand. The upside is that you should only wait a week for a clear answer.

“Are you free next week?”

Great outcome. This means the VC would like to give more of their team the opportunity to meet with you and hear your story.

The (small) downside? Another 30-60 min. that could end with any of the options already outlined.

Tip for the next meeting: if there are new people in attendance, start from the top, but accelerate the pace. It’s likely that they’ve been briefed or read notes from the first meeting, but no one tells your story like you do.

And… very rarely… “We’re in.”

Note: this never comes from an associate and never with companies later than seed stage.

In it’s most basic form…

Aside from everything else that’s going on in that first pitch meeting, you’re trying to figure out where you stand so you can minimize the time you spend on VCs that aren’t going to invest and maximize your potential with the VCs that may. If it’s going to be a “no,” get there quickly, but try to get the most value out of the interaction – be it introductions, feedback, or advice. Then, follow up, keep folks updated, and see if those “maybes” can be nurtured into “yeses.”

What else should VCs be doing to make the process less painful, more transparent? 

Q: How do you find (source) companies?

A: Sometimes you have to get creative. Most times? Its just knowing where to look and being disciplined.

Sourcing is either inbound or outbound. Inbound deal flow takes a while to establish but can be incredibly powerful. Outbound sourcing takes constant attention and effort. I’ll explain.

Inbound deal flow is when entrepreneurs either approach you directly or someone in your network introduces or refers them to you.

Any company that comes to us at Hyde Park VP will be looked at. However, the method may determine the priority and urgency of analysis and response. For example, we likely will set up a meeting with a company that one of our LP’s (the folks that invest in our fund) introduces us to fast than one that contacts us through our website. Additionally, if another VC, entrepreneur, or contact in the industry let’s us know about a company, we’ll move quickly. (Now, all things considered, setting up an inbound deal flow machines take a lot of time and curated activities. I’ve been lucky to join Hyde Park and take advantage of an already strong and growing brand.)

So what does this mean?

For entrepreneurs – Find a way to get a warm intro. Look on LinkedIn, go to strategic events, you know the drill. But, if you can’t, just brute force your way into a meeting. Once you’re in the meeting, everyone is on the same footing. If you’ve got a great company, how you got the meeting won’t matter and in some cases, it could reflect highly (e.g. your sales capabilities).  

For VCs or those interviewing – see who you know that isn’t necessarily in everyone else’s network and find out which companies they know or track. For example, I still keep up with my former colleagues at an IoT company. Some of them look at startups from a corp dev perspective and some from a partnership or ecosystem perspective. They could know about companies that haven’t hit us yet, because we’re coming at “sourcing” from a different perspective.

Outbound sourcing is when VCs find a company and contact the CEO directly. Many time, its via email. 

First off, there are the “easy” ways of finding companies, especially as you move to later stage startups. There’s a much bigger track record and backlog of press, funding announcements, social media blasts for later stage companies. So these methods?

  • Funding announcements – Term Sheet, StrictlyVC, Crunchbase, Pitchbook, Inside VC, FinSMEs, CBInsights, VC Tech Daily, and the list goes on. Many daily newsletters include both funding announcements and news on tech (an even longer list)
  • Awards lists – Mostly centered around communities (geographies) and are either locally published lists of “best office” or “greatest place to work” or they’re actual awards events
  • Startup databases – AngelList, Crunchbase, F6S, CBInsights, Pitchbook (see some overlap?)  attempt to include most, if not all, startups

Keeping on top of these sources requires some rigor, but is usually table stakes for most VCs that engage in outbound sourcing or are simply staying on top of what’s going on in the industry.

Then, there are the other, more laborious and manual methods of trying to find early-stage companies that aren’t necessarily hitting the popular channels. Looking at new hire announcements, reading online reviews, scouring local news twitter feeds. Much more relevant for seed and early A companies.

And the meaning?

For entrepreneurs – the local press-stuff matters. Not necessarily for evaluating your company, but for finding you. Obviously, can also be helpful in attracting talent or providing reference for customers.

For VCs or those interviewing – look local and see what you can find that isn’t getting picked up in VCs normal sourcing methods. Job postings, new office openings, small business or technology grants, tech transfer at universities, etc. During my interview at Hyde Park VP, I used local newspapers in smaller startup ecosystems as a way to find new companies.

And then there’s the other stuff… accelerators, demo days, mentoring, having “boots on ground” that fall somewhere in the middle.

It’s all grey area anyway, right?

 

Where else should we be looking?