- 1. 16/05/08 5:35 PM Lessons Learned Running a VC-backed Company
A Speech Presented to the OCRI Partnership Conference, May 15, 2008
By Brian HurleyCEO Purple Forge Corp. Brian Hurley is an
entrepreneurial leader with over 24 years of experience in building
strong teams, innovative products and international businesses.
Brian is currently CEO of Purple Forge which he founded in 2008. He
founded Liquid Computing in 2003 and as it's CEO raised over $44M
in venture financing, built a world-class team, delivered an award
winning product to market and won initial sales. Brian has built
and led numerous successful business teams in Nortel, Bell-Northern
Research and Microtel Pacific Research. Brian is the best-selling
author of quot;A Small Business Guide to Doing Big Business on the
Internetquot;. He is an active member of the local tech community
and is member of the OCRI Board of Directors and the Young
Presidents Organization. Brian graduated from Carleton University
with a Bachelor of Engineering.
2. Harry S. Truman once said It's what you learn after you know
it all thatcounts. Today I am going to tell you what I learned
after the Lead to Win courseprovided me what I needed to know
before embarking on myentrepreneurial career. So what did the Lead
to Win course provide me with back in 2002? The Lead to Win course
provided me with very practical experiences andrules of thumb
taught by experienced practitioners in each of the topicscovered.
The Lead to Win course provided me with my first network
ofentrepreneurial peers who I relied on for counsel, advice and a
shoulder tolean on. 2 3. The Lead to Win course provided me with an
introduction to the localOttawa services ecosystem, including
legal, financial, venture, marketingand advisors. My career as an
entrepreneur started when I founded Liquid Computing inJanuary
2003. As the CEO I successfully closed the first round of
venturecapital financing in May 2004. I raised over $44M in venture
financing andover $2M in various government programs support. We
delivered anaward-winning product to market in late 2006 and closed
the first sale inFebruary 2007 to the US Army. I left Liquid
Computing in 2008 to formPurple Forge which is currently at the
early stages. As an entrepreneur, I learned quickly in the early
days of launching LiquidComputing that the distinction between the
weekends and the weekdaysquickly became meaningless. The
entrepreneurial lifestyle is one of totalfocus and commitment. I
learned that being an entrepreneur meantenjoying what you were
doing. 3 4. As an entrepreneur, I learned quickly that the network
of people andservices that were available within a large
established company no longerexisted. However, I also learned that
it was possible to develop a networkof people who were able to
provide the same advice and guidance. As an entrepreneur, I learned
that there are many, many, many people whoare prepared to tell you
how bad your idea is. I learned that beingperseverant,
thick-skinned and optimistic were essential. Looking back, there
are several things that stand out as being critical tosuccessfully
launching a start-up. The basic requirements include a greatidea, a
large market and lead customers. However, the key enablers Iquickly
learned were family support, risk-sharing partners and
anoutstanding team. Family support is absolutely essential. As an
entrepreneur, I was going tobe a drain on the family resources. I
knew that I would need my wifessupport. When I first asked my wife
if she was supportive of me working to 4 5. start a company instead
of looking for a new job after Nortel, she asked mefor how long. I
told her 3 maybe 4 months to get financed the 4 monthsturned into
6, then into 12 and 16 months. Around the 6th month, my wife,while
still very supportive, would push newspapers in front of me and
saygee that job looks interesting what do you think?. Risk-sharing
partners are absolutely essential. As an entrepreneur, cash isking.
Pre-financing, important professional services such as legal
andfinancial are out of reach for an entrepreneur spending the
family savings.It was only through risk-sharing partners that I was
able to have access tothese services early on. Subsequent to
financing, I also benefited fromsuppliers who were willing to help
by offering things such as heavydiscounts, free samples, and
on-site inventory. All these risk-sharingpartnerships were done as
part of either an informal or formal commitmentto a longer-term
relationship where I would grow my business with them aswe grew to
the next stage of financing or sales. 5 6. An outstanding team is
absolutely essential. Early investment fromventure capital firms is
based as much on the team as the business. Post-financing, the
execution of the plan is all about the team. In particular, the
more ambitious the plan, the better the team required. Ilearned the
importance of holding the bar high and going after world-classteam
members for every position. It took more effort, it took longer,
and itwas hard to not settle but it was critical to building an
effective team. Ialso learned that having an experienced HR
professional such as MelMulligan on the team early was essential to
help recruit, manage andmaintain the team. Raising venture capital
is hard work and takes a lot of time away fromrunning the business
and working with customers. I learned that raisingventure capital
for a Canadian company was particularly hard and timeconsuming due
to the scarcity of capital in Canada, the challenges inhaving to
overcome the not in the US barrier when pitching to US venture 6 7.
firms, and the lack of deep networking connections into the US
ventureindustry that are essential to gaining access to the
decision makers. A start-up lives and dies by its customers. The
customers providereferences for potential new investors, help shape
the product, andultimately deliver the revenue to validate the
business model. I learnedthat start-up customers are the pretty
much the same as Release 1 Productcustomers for a large
multi-national company such as Nortel. It is all aboutfinding the
early adopters, developing a strong personal relationship basedon
openness and trust, and engaging as early as possible on the
firstrelease product and the big tent vision. I learned that
running a start-up involves a lot of explicit risk
management.Managing the risk of people how many and when, what
skills and where,and contractor or fulltime. Managing the risk of
technology where toinvent, where to re-use, and where to outsource.
Managing the risk ofmarket entry strategies what value proposition
and when, what marketsegments and when, what customers and when. 7
8. I learned that many risks can be mitigated but there are some
which requirean entrepreneur to place their bets. In particular, a
start-up usually onlyhas one chance to place a bet on key
technology; and changes in themarket relative to competitive
technologies or new technologies can have adramatic affect on
market entry strategies and success. I spent a lot of time
networking with peer entrepreneurs and start-up CEOsin Ottawa,
Toronto and Californias Silicon Valley. I would ask themquestions
about launching a business, raising money, and valley culture.
Iwould always ask them about boards of directors and advisors and
theirrelationship to their success. From these one-on-one, behind
closeddoors, peer-level discussions, I received the following
consistent commenton boards of directors You need to be very
careful what you tell them andyou have to manage them very
carefully. I heard this from everyoneexcept one CEO who said Your
board should help you build the business if they dont you should
fire them. 8 9. I thought this one CEOs inconsistent comment to be
very strange until Irealized that that entrepreneurial CEO had not
taken any venture capitalinto his company. From my peer CEOs and my
own experiences, I have learned that aventure-backed company faces
many challenges at the board level for theentrepreneur,
particularly as the company goes through multiple rounds
offinancing. A venture-backed companys board is almost entirely
populatedwith investors. The selection of these individuals is not
oriented towardsensuring that the company has a full set of
expertise around the boardtable, it is very much a potluck.
Investors sitting on a start-ups board oftenhave several other
companies and board seats in addition to their day jobsas VCs,
which means they tend to only have a very limited amount of
timeavailable for the company, and are not always available for
board meetingswhich can result in significant time being devoted to
revisiting of decisions,providing one-on-one updates and repeated
discussions. 9 10. I also learned that board dynamics in a
VC-backed company could becomplex, as all directors on a start-up
board are not created equal.Further, there are hidden dynamics at
work related to investor-to-investorrelationships, investor-company
to investor-company relationships, anddifferent investor agendas.
For a start-up that has taken venture capital, I have learned that
formal andinformal advisors are a very effective way to address
skill gaps in thecompany and at the board-level. In particular,
advisors can be used toprovide expert advice, serve as an objective
sounding-board on strategyand tactics, and assist with identifying
and recruiting key hires. Based on the many horror stories I have
heard over the last 6 years andmy personal experiences, I believe
that Liquid Computings board iscertainly above average in the
industry and I enjoyed working with them. 10 11. I spent a lot of
time in Silicon Valley California talking with peer CEOs,partners,
customers, investors and potential investors. I learned a greatdeal
about the differences between Silicon Valley California and
SiliconValley North. There is the obvious difference between the
availability ofventure capital between the two valleys, but there
are other key culturaldifferences as well. I asked an entrepreneur
I ran into at an investor Christmas party inCalifornia about how he
came to start his company. He was a long-timeCalifornia resident of
the valley his story was essentially I started my firstcompany it
failed. I started another company it failed. I started
anothercompany and after the investors brought in the third CEO I
left. Now Ihave started a new company.I found his cycle of starting
a company;failing and trying again to be typical of many
entrepreneurs I talked to inCalifornia. 11 12. I asked several
California investors about their perception of entrepreneurswho
have started a company and had the company fail. The
investorcomments were consistently that they valued entrepreneurs
who had triedand failed because of their experience. I asked
California entrepreneurs and investors how they networked
theycommented we knew each other when we were at Sun or HP or IBM
orOracle or Microsoft or we went to school together at Stanford or
Berkley,or we worked together at start-up X, Y or Z, and often a
combination of allthree. It was also clear from the discussions
that many of thosebusinesses and universities have large, active
alumni organizations. Reflecting back on all those discussions, I
believe that the key culturaldifferences between Ottawa and
Californias Silicon Valley are that -entrepreneurship is viewed as
a career path; failure is valued andexpected; and the entrepreneurs
network of people is orders of magnitudelarger in geographical
reach and size. 12 13. I also learned during my discussions with
California entrepreneurs that wehave some advantages that
California entrepreneurs envy. In particular,they were envious of
our government programs such as SRED and IRAP. For Liquid
Computing, the IRAP program was an essential factor thatenabled me
to close Liquids Series A round of financing which brought inour
first US investor. The IRAP grant allowed us to demonstrate
keyelements of the underlying technologies which let us do a
slam-dunk on thetechnology due diligence for the new US investor. I
have found theSRED and IRAP program staff to be among the most
professional anddedicated government services people I have met. In
the case of IRAP,the relationship went beyond financial to include
introductions to otherrelevant entrepreneurs and technologies. I
learned that while there iseffort involved in submitting for the
IRAP and SRED programs, the effortwas well worth it from a
financial and a relationship perspective. 13 14. Looking forward,
what can we do to help entrepreneurs and createeconomic growth for
Ottawa, Ontario and Canada? I believe that existing programs like
SRED which are tied to R&Dexpenditures, and IRAP, which is tied
to developing technologicalcapabilities; are two legs of the stool
required to advance Canadianinternational competitiveness and
economic growth. The third and missing leg of the stool is a
program that helps makeinvestment in Canada more attractive,
encourages entrepreneurism, andhelps Canadian companies remain
Canadian. One idea for such a program would be to match some or all
equityinvestments in new Canadian companies from entrepreneurs,
angels andventure capitalists. This program would have three key
advantages itwould let private industry make the investment
decision with skin in thegame, it does not dilute Canadian company
ownership and therefore 14 15. increases the likelihood the company
will remain Canadian, and reducesthe not in the US barrier since
money talks. Our governments at the federal, provincial and
municipal levels could alsohelp by making it easier for start-up
companies to sell to them andconsequently establish early sales and
reference-able accounts.Earlysales are an essential factor in
start-ups ability to sell to large organizationsand to secure
follow-on venture financing. Today for example, it is very
difficult for a start-up to sell into the CanadianFederal
government. The US government by comparison is much moresmall
business friendly, with special programs to get small businesses
intothe government supply chain and facilitate purchases. Our
network and associated ecosystem will never match that of the US
orCalifornia. This means we need to be more efficient and
pro-active ingrowing, strengthening and leveraging what we have. 15
16. Organizations such as OCRI are essential to help get local
businesses andentrepreneurs coupled into ecosystems outside of
Ottawa. Initiatives such as the Talent First Network are essential
to help developnew networks and associated ecosystems for emerging
marketopportunities such as open source software. Networking groups
such as The Ottawa Network are essential to help bringtogether
aspiring entrepreneurs with like-minded peers, and with the
localservices ecosystem. In the US the entrepreneurial career path
and associated motivation isingrained as part of the American
Dream. In Canada, entrepreneurialwealth creation is almost shunned.
Our universities are an essential part of our ecosystem that we
need tomore actively support and develop. 16 17. Our universities
are the vehicles for training and orientating studentstowards
pursuing entrepreneurial career paths. Our universities are also a
relatively untapped means to sustain networksamong entrepreneurs in
the same manner as the US university alumninetworks --- providing
skills, relationships and opportunities. I would like to leave you
with three key messages today: First - if you want to try and fund
your company with venture capital - go inwith your eyes open. When
you take venture capital you face significantchallenges in finding
capital in the current environment and if you aresuccessful in
securing venture financing you will be giving up control ofyour
company and taking on significant challenges that go beyond
thealready significant challenges that come with simply building
your business. 17 18. Second - we can help shape a better future
for ourselves in Ottawa wehave the necessary ingredients. We need
to work together private,academic and government -- and leverage
what we have. And third, I believe that the Lead to Win program was
one of the mosteconomically impactful events to have occurred in
Ottawa in a longtime. Ibelieve that we should learn not just from
the experiences of the speakerstoday, but from the Lead to Win
program itself. In closing, I would like to extend my personal
thanks and appreciation toTony Bailetti and the Lead to Win
trainers for their efforts. I would like tothank Tony for
organizing todays session, and I would like to thank you foryour
time. I look forward to taking your questions during the Q&A
period.THEEND 18
