During this week’s One Million by One Million roundtable, we started with a discussion of our hot-off-the-press news: 1M/1M Announces Partnership With Persistent Systems; CrowdEngineering First Beneficiary. This partnership speaks to a core philosophy of the program where we encourage entrepreneurs to get as much customer validation as possible before raising too much money, use other people’s channels if you can get to them, don’t burn too much cash, and all that good fiscal conservative stuff. And, oh by the way, we also really like the idea of the 1M/1M entrepreneurs building valuation and negotiating leverage through these business development efforts, instead of signing off large chunks of their company in form of equity early on.
For a more elaborate explanation of the deal, please read my blog post 1M/1M: Alternative Financing For Startups Using A Sales Channel Partner. I have discussed at length why revenue sharing channel deals may serve as perfectly fine alternatives to raising equity (or even complements) because of their non-dilutive nature.
Also, an Incubation Radar profile on CrowdEngineering explains more about this very, very cool company doing crowdsourced customer support. Social CRM is becoming quite a trend, and CrowdEngineering really pushes the envelope on the subject.
And a few words about Persistent Systems, an outsourced software product development (OPD) company that is navigating its next phase of evolution are also warranted. Persistent is breaking out of the mould of labour arbitrage, and looking at new and exciting business models. My friend Tony Scott did an outstanding interview with Anand Deshpande, their CEO, recently, in which Anand discussed his vision for where he wants to take the OPD business.
As for the entrepreneur pitches, first up today was Ryan O’Donnell with LetsGiftIt, a social software application with which multiple people who want to pool a gift for someone can orchestrate the entire process online. My read on the business is that it needs to go to market in a B-to-B mode, expanding the scope of gift registries on major sites like Macy’s and Crate & Barrel. I suspect, Ryan is keener on building a consumer internet play, but my business experience says this would do better as an add-on residing on the sites of other retailers. It certainly will be a better way to bootstrap the company.
Then Jeff Bogensberger pitched SOCO Games, the maker of a Facebook game called Earth 2.0. The game has started getting some traction already, and has a good virality index. Jeff also described a compelling in-game offer based customer acquisition model that is proving quite effective for him. Jeff has managed to keep his burn rate very low thus far, and a slow and steady crafting of the business is working nicely. The majority of the discussion around this venture was around additional customer acquisition methods.
Next Andrew Cohen presented Brainscape, an educational platform using a flash card type concept to learn vocabulary, language, etc. Andrew has about 40,000 users for a GRE test prep vocabulary product, acquired largely through iTunes. He asked questions about what investors are looking for – more free users or fewer paying users? The answer to the question is neither. They are looking for a validated model for each of the following issues: scalable customer acquisition, freemium conversion rate, and a pricing model for the premium product. Note, I said, “validated”. Not just assumptions. I also advised Andrew to greatly tighten his product and go-to-market strategy. As it stands, it is all over the place.
Up last was Hicham Jorio discussing Safarclick, an online hotel sourcing data service focusing on the Middle East and North Africa region, and catering to major OTAs like Expedia. Hicham has already brought about 3,000 hotels from the MENA region, but another 30,000 remain to be harnessed. In addition, there are another 30-50 OTAs beyond the 30 he already services to recruit. The business is already profitable with $2.9M in revenue. Clearly, it can go much further, and Hicham is trying to decide whether he grows organically, or raises outside financing. He has interest from a Hedge Fund to invest in the company, and asked what I thought about that option. Well, I didn’t think much of it. I would never take investment in a startup from a Hedge Fund.