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The latest news on Startups from Business Insider

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    Joel Simkhai Grindr CEO

    Grindr, the location-based dating app for gay men, has hired banking firm Raine Group LLC to help find a buyer, Bloomberg reported Friday.

    Sources tell Bloomberg that "the sale process is early and no deal is assured." The same sources also don't know what Grindr's valuation could be in a sale.

    Joel Simkhai has bootstrapped Grindr since its 2009 founding. Grindr's location-based service charges users about $12 a month.

    Grindr claims to be the biggest male mobile social network in the world, with more than 5 million users in 192 countries. In Grindr's pitch documents, users are described as "affluent, tech-savvy men" who earn above the average household income, and have future travel plans, making them lucrative advertising targets.

    In August, a security glitch left Grindr users' locations vulnerable to third parties. Since then, Grindr has disabled distance display, a feature that shows how close you are to a potential match.

    If Grindr is looking to sell, one potential buyer could be IAC (InterActiveCorp), which owns the majority of the US online dating market through ownership in platforms like Tinder, OKCupid, and Match.com. 

    Here's Bloomberg's full story on Grindr's potential sale.

    SEE ALSO: How to join The League, a Tinder for elites, and who you'll find on it

    Join the conversation about this story »

    NOW WATCH: 5 awesome Google features you didn't know about


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    Nate Kohari

    If you launch a startup and sell it fast, by Silicon Valley standards, you've made it.

    But selling your company can actually be a miserable experience, warns Nate Kohari, who founded a company called AgileZen with his wife Niki, and sold it to Boulder-based Rally Software in 2010.

    He's been writing a series of posts that show the dark, painful side of being acquired.

    Kohari and Niki created AgileZen, an app for doing Kanban-style project management on the iPad. They were still the only two employees in 2010, with $70,000 of revenue under contract when Rally Software called, flew them to its Boulder, Colorado, headquarters. and offered to buy their company.

    "The payout was split between cash and a grant of stock up front, good compensation in terms of salary and two years of stay-pay bonuses for both of us, as well as stock options on a three-year vesting schedule," Kohari wrote.

    The money was decent. But what convinced them to sell was "we felt like we had no idea what the $%!* we were doing."

    Not thrilled with Boulder, they moved to Rally's Raleigh, North Carolina, outpost to work. "We felt like we made it."

    But things went wrong from there. 

    Kohari told Business Insider, "We really had hoped that joining Rally would put 'rocket fuel' behind what we were trying to do, but it often ended up feeling more like we were slogging through molasses.  No one, including us, could figure out exactly how we fit into their overall strategy."

    It was also a mistake to be working remotely instead of the mothership in Boulder, he said.

    "I made it just over two years before they decided to show me the door. My wife (and co-founder) Niki left the Zen team at that point, but stuck around awhile longer in a different role," he said.

    Kohari landed a job elsewhere and then he lucked out. Rally had a successful IPO in 2013 and their stock was finally liquid and worth enough money to let them quit their jobs and bankroll another startup. They're working on TaskTorch, but the details of the company are still under cover.

    Looking back, he says "I wouldn't say I regret selling the company. I learned quite a few things — many of them the hard way — that I would never have learned if we hadn't joined Rally."

    Still the story shows that a "nice fast exit" and "living happily ever" after aren't always the same thing.

    SEE ALSO: We tried Microsoft HoloLens: This is going to be much bigger than Google Glass

    Join the conversation about this story »

    NOW WATCH: Steve Jobs' biographer reveals the childhood moment that defined the Apple founder


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    kitchensurfing

    Want a home-cooked dinner, but don't want to make it yourself?

    Kitchensurfing has a solution to your problems.

    For $25 a person, Kitchensurfing brings a professional chef to your home, who will make you dinner and clean up the mess afterwards.

    Founded in 2012, Manhattan-based Kitchensurfing has raised $19.5 million from investors including Union Square Ventures, Spark Capital, BoxGroup, and Joanne Wilson.

    We were curious, so we decided to try Kitchensurfing for ourselves. 

    When you log into Kitchensurfing's website, you choose one of three main courses. Each day, Kitchensurfing offers one meal with a meat-based protein, one vegetarian meal, and one meal with fish. (We went with the vegetarian option). You also choose a one-hour time slot for your chef to come prepare your meal.



    The day of your meal, you'll receive a confirmation from Kitchensurfing, letting you know which chef is coming to cook for you.



    This is our chef, Chris. He told us he's been working for Kitchensurfing for three months, but that he also has his own catering business on the side.



    See the rest of the story at Business Insider

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    WattageAngelDeck page 008

    Securing funding from venture capitalists in Silicon Valley isn't easy.

    Just ask the founder of Wattage, a hardware startup that recently had to shut its doors.

    Wattage aimed to create highly customizable electronics, and the founder created a beautiful pitch deck to make the sell to investors.   

    However, despite the gorgeous design and countless iterations — it went through 60 revisions before finalization — investors didn't bite.







    See the rest of the story at Business Insider

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    mom and childSilicon Valley entrepreneurs have millions in funding to spend on startups and maybe tackle world problems. Based on what they're building though, it kinda looks like they just want their mom around.

    As Aziz Shamim overheard and posted on Twitter, "SF tech culture is focused on solving one problem: what is my mother no longer doing for me?"

    In honor of mother's day, we took a look at how some San Francisco-based startups are trying to fill the void of everything their moms used to do for them.

    (Dads, you rock too.)

    Mom, I don't want to clean my room!

    You don't have to do it yourself then. SF-startup Homejoy contracts out professional cleaners, if you're willing to pay its hourly rate, that is. Prices vary, but it can cost between $25-$35 hour depending on the person and what needs to be done.



    Mom, what's for dinner?

    That depends, honey, on who you want to order from. Local startups Sprig, SpoonRocket and Munchery will all deliver you meals on-demand for around $10. They're all made by chefs, so you can order things like mustard-glazed salmon, instead of just drinking Soylent.



    But mom, I wanted you to cook me dinner!

    Looks like you'll have to hire your own personal chef for the night from Kichit if you want someone to come cook the meals for you. 



    See the rest of the story at Business Insider

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    Unicorn Business Startup companies

    Billion-dollar companies used to be so rare, they developed a name for themselves: unicorns.

    Now these companies are increasingly common. According to The Wall Street Journal's "Billion-Dollar Club" list, 90 companies have billion-dollar valuations.

    And if Uber raises yet another round of financing — it is rumored to be raising between $1.5 billion and $2 billion— it stands to become the most valuable private tech company of all time, with a $50 billion valuation.

    The law firm Fenwick & West assessed 37 US-based private tech companies that raised money in the past year at a billion-dollar valuation. Of the companies it analyzed, the firm says one-fourth of financings were led by venture-capital firms; the rest were led by other investors (corporate investors, hedge funds, or mutual funds).

    The average valuation of the companies the firm analyzed was $4.4 billion, and the median was $1.6 billion.

    There was one thing all of the billion-dollar companies the firm analyzed had in common: In each case, investors demanded a liquidation preference, which, if the company gets sold, allows investors to cut the line and get paid before others, such as the company's founder or its executive team.

    It is a low-risk, high-reward arrangement for investors: They get paid whether a company is sold for a price lower or higher than the valuation at which the investment put money into the company.

    From the survey:

    Investors in unicorn financings have significantly more downside protection than public company common stock investors. These protections are especially strong in the event of an acquisition. For example, CB Insights reported that the 10 highest valued unicorns had an aggregate valuation of $122 billion and an aggregate invested capital of $12 billion. Since 100% of the unicorn financings had a liquidation preference, valuations of these companies could fall on average by 90% before the unicorn investors would suffer a loss of their investment, and they could withstand an even greater decline if they had a senior liquidation preference over other series of preferred stock.

    Sometimes startups go public at lower valuations than the ones they were given during their private rounds of funding. Investors can protect against this with senior liquidation preference, which means they get paid before common investors and anyone who holds preferred stock in the company.

    Fenwick & West reports that investors do this just one-fifth of the time in unicorn companies. And only 16% of investors in these kinds of deals demand a minimum IPO price that is as high as the valuation they paid.

    Check out the full survey over at Fenwick & West's website.

    SEE ALSO: Which billion-dollar 'unicorn' startups are at most risk of dying? Here's what some data suggests ...

    Join the conversation about this story »

    NOW WATCH: 6 ways to master the iPhone calendar app


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    marc andreessen ben horowitz

    Marc Andreessen and Ben Horowitz run what is arguably the most famous venture capital firm in Silicon Valley. 

    Andreessen Horowitz has put its money behind some of the biggest names in tech, including Airbnb, Box, and Facebook.

    Its founders couldn't be more different: Ben Horowitz is a people person, and Marc Andreessen is the ideas guy. Naturally, this leads to occasional work-related conflicts.

    In a profile of Marc Andreessen in the New Yorker, Tad Friend tells a story about how, back in 1996, Horowitz accused Andreessen of telling a reporter about Netscape's new strategy prematurely.

    In response, Andreessen said that if the company failed, it'd be Horowitz's fault. “Next time do the f------ interview yourself. F--- you," Andreessen wrote.

    This kind of incendiary conflict could bring other friendships to a grinding halt. But a close friend of Andreessen told Friend in The New Yorker: "When he feels disrespected, Marc can cut you out of his life like a cancer. But Ben and Marc fight like cats and dogs, then forget about it."

    The relationship between the two founders is conflict-ridden, but it seems to be working: to date, Andreessen Horowitz has made 373 investments in 251 companies. The firm has had five of its portfolio companies IPO and 40 get acquired.

    From the New Yorker:

    Two years later, when Netscape was floundering and forty per cent of its employees left, Horowitz announced that he was staying no matter what. Andreessen had never trusted anyone before, but he began to consider it. Their teamwork at a16z is complementary: Horowitz is the people-person C.E.O., and Andreessen is the farsighted theorist, the chairman. Yet Horowitz noted that “Marc is much more sensitive than I am, actually. He’ll get upset about my body language—‘God damn it, Ben, you look like you’re going to throw up when I’m talking about this!’ ”

    You can check out the full New Yorker profile here.

    SEE ALSO: One thing you need to give investors if you want to have a billion-dollar startup

    Join the conversation about this story »

    NOW WATCH: 6 ways to master the iPhone calendar app


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    marc andreessen laura arrillaga andreessen mark zuckerberg

    Marc Andreessen, cofounder of Andreessen Horowitz, is one of the most famous and powerful venture capitalists in Silicon Valley.

    In 2006, he married Laura Arrillaga-Andreessen, daughter of real estate mogul John Arrillaga.

    Many credit Arrillaga with creating the modern Silicon Valley office landscape.

    According to a New Yorker profile of Andreessen, the prominent venture capitalist met his future wife at a New Year's Eve party hosted by an investor in eHarmony.

    They talked for six and a half hours, and the next day, he sent her a total of seventeen emails. 

    After asking her, "What's your ideal evening?" she replied, "Stay home, do e-mail, make an omelette, watch TV, take a bath, go to bed." 

    Before they went on their second date, Andreessen delivered a speech that sounds a lot like a pitch a startup founder might make to an investor.

    As Arrillaga-Andressen described it to the New Yorker, it was "a twenty-five-minute monologue on why we should go steady, with a full intellectual decision tree in anticipation of my own decision tree."

    Obviously it worked — the couple was married nine months later. They currently live in a modern, 9,000-square-foot home in Atherton, just a few minutes away from the Andreessen Horowitz offices.

    SEE ALSO: The founders of one of the most famous VC firms in the world 'fight like cats and dogs, then forget about it'

    Join the conversation about this story »

    NOW WATCH: BEN HOROWITZ: I Asked My Employees To Work 7 Days A Week For 6 Months And They Loved It


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    unicorns business table

    This is a grim fairy tale about a mythical company and its mythical founder. While I concocted this story, I did so by drawing upon my sixteen years of experience as a venture capitalist, plus the fourteen years I spent before that as an entrepreneur.  I’m going to use some pretty simple math and some pretty basic terms to create a really awful situation in the hopes that entrepreneurs reading this might avoid doing the same in the real world.

    As I’ve seen over many years and many deals, in all but the most glorious outcomes, terms will matter way more than valuations, and way more than whatever your cap table says.   And yet entrepreneurs – often with the encouragement of their stakeholders – optimize for the wrong things when they negotiate their financings.  

    This is my attempt to paint you a picture of why this is such a bad idea.  The situation I present is fake, but the outcome is remarkably similar to those I’ve witnessed.  Don’t let this happen to you.

    Let’s start with our entrepreneur, whom we’ll call Richard.  He’s founded a breakthrough company.  Let’s call it Pied Piper.

    Richard attracts Peter, a newly-wealthy budding angel investor, who agrees to put in $1 million as a note with a $5 million cap and a 20% discount.  

    With his $1 million, Richard builds a small team of people, rents an Eichler in Palo Alto, and gets to work.  Once he is able to demonstrate his product, he heads to Sand Hill Road.  He’s in a hot space in a hot market.  He nails his pitch, and the term sheets roll in.

    Because Richard is extremely sensitive to dilution (after all, he’s seen The Social Network) he wants the highest valuation possible.  (Early in my career, another venture capitalist called valuation ‘the grade at the top of the paper’ – and I’ve never forgotten that.)  The highest valuation, $40 million pre-money, comes from an emerging venture fund, let’s call them BreakThroughVest (BTV).  BTV is excited about this deal, but has ‘ownership requirements’ of at least 20%, so they insist that to support that valuation they need to invest $10 million. Plus, they want a senior liquidity preference of 1x to protect their downside since they feel the valuation is rich given the stage of the company.  

    Richard is thrilled with the valuation and the fresh capital for only 20% dilution.  The prior investor, Peter, is stoked that he is getting his $1 million investment converted into roughly 20% of this super hot company, and now with the validation of an external term sheet he can mark his position up to $10 million, a 10X!  This helps Peter validate his position as a savvy angel and solidify his syndicate following on AngelList.  

    Term sheet signed. Champagne popped.  A few weeks later, funds wired.

    With the $10 million, Richard rents space in SoMa on a seven-year lease, hires lots more people, and within a few months he is able to roll out the minimally viable product to test the market. Awash in the buzz of his fundraise, a feature in Re/code, and some early user traction, Pied Piper is perceived as the emerging leader in a nascent, winner-take-all market. While they are not yet monetizing their users, the adoption metrics are off the charts.  

    Unicorn Business Startup companies

    Pied Piper attracts the attention of a tech giant we’ll just call Hooli. Hooli’s consumer group wants access to Pied Piper’s data. With Hooli dollars behind Pied Piper, Pied Piper could inundate the market with consumer facing advertising to build their user base and upend competitors given the massive network effect of the product. Hooli approaches Richard with the idea of a large strategic round. In the deal, Hooli would invest $200 million for equity while in return the two companies would enter into a business development agreement on the side in which Pied Piper guarantees to spend that money in a massive consumer campaign on Hooli’s ad platform. They float the magic “B” valuation. Richard goes to sleep dreaming of rainbows and unicorns.

    Richard fantasizes about being named a member of the Unicorn Club by the press.  His employees calculate the huge paper gains on their options – they will all be instant millionaires – and since no one is more than ¼ vested, they are all highly motivated to stay in spite of long, long work hours.  BTV is thrilled with the 20x markup on Pied Piper, since they are about to hit their LPs up for a new fund.   The original investor, Peter, has achieved legendary status – his $1 million has turned into approximately $200 million on paper.  He’s on the YC VIP sneak preview list, he’s been offered a spot on Shark Tank, and Ashton just called to try to get into his next deal.

    Of course, that $200 million for 20% stake also comes in with a senior 1x liquidation preference in order for Hooli to create sufficient downside protection and thereby justify the $1 billion valuation to their board.  

    Richard, Peter and BTV all agree it is worth doing. With $200 million to spend on the most massive consumer-facing ad campaign in this sector’s history, the $1 billion valuation will seem low in retrospect.

    Except, it doesn’t end up happening that way.  

    The ads start running, but the conversion rate is low. Pied Piper shows Hooli the atrocious metrics and demands out of the advertising commitment, but Hooli won’t budge: Performance metrics were not pre-negotiated, and furthermore the ad group that recommended the investment did so in part to prop up their revenues with Pied Piper’s money ‘round-tripping’ into their coffers. The ad group is counting on that money to hit their annual numbers.  

    Pied Piper is forced to run the whole campaign, blowing through all $200 million.  The good news:  They increased their user base by 10x. The bad news: The resulting business model those users end up actually supporting equates to more of a ‘market valuation’ of $200 million. In more bad news, turns out Richard incorrectly estimated the cost of supporting those users, most of whom are taking advantage of the ‘free’ part of a freemium model.  Support costs skyrocket.  

    Word about the poor conversion leaks out.  The advertising stops when the money runs out. Growth slows to a trickle when the advertising stops. New investors sniff around, but with the preference overhang of $211 million, they are concerned about employees being buried under that structure and therefore being unmotivated to continue. They ask prior investors to recap, but the investors don’t want to give up their preferences: Pied Piper is now looking like it might be worth far less than the paper valuation, which means those preferences are very valuable as downside protection.  Furthermore, BTV is out raising their fund, and the last thing they want to do is write down their 10x markup on the Pied Piper investment.  

    The board is now super unhappy about the massive miscalculation of support costs, awful user conversion, gargantuan ad overspend, the lack of growth the company is experiencing, and the departure of a few key employees who’ve seen this movie before and have done the ‘overhang math’.  Richard as CEO is out of his element – the problems are huge and the company needs more money, which he is incapable of raising given his lack of experience navigating waters like these.  Unfortunately, it is the CEO’s job to fix problems and raise money, and if he can’t do it, someone else has to.  So the board (which now controls the company with 60% of the stock) votes to remove Richard as CEO.  They recruit an interim CEO (let’s call him George) to quickly take the helm.  George says he’ll take the job on two conditions:  One, that they create a 5% carve-out for him and the go-forward employees (he’s done the overhang math too) and two, that they extend the runway so he has time to either turn this thing around – or sell it.

    The company is not profitable and the current investors are tapped out.  “Let’s extend the runway using debt,” says BTV.  Maybe things will improve with time – or at least perhaps they can get their fund closed before they have to take the write down.

    They lean on their good friends at PierLast Venture Bank who cough up $15 million in debt, with a senior preference and a 2x guarantee. Onerous terms to be sure, but hard to get debt with a balance sheet like this. Unfortunately, Pied Piper is burning $2 million a month on office space, cloud services, customer support, and expensive employees who are needed to build the next generation of the product. Without support they’d have to shut down existing customers and revenue, yet without development of the new release that they hope will save the company, they will have nothing to sell. Since they can’t cut their way to glory, they have to simply hope they can grow into their valuation.

    Time ticks by while the company plods forward with very slow growth. Market pressures force them to lower prices, pushing profitability off.  A few key developers leave. Once again, they are facing the prospect of running out of money in 90 days. Current investors are worried.  Not only do they not have funds to put into the deal, but once payroll is missed they could be personally liable for the damage. Not good.  

    Luckily, WhiteKnight, a public company with a complementary product and plenty of cash, offers to buy Pied Piper. The offer is $250 million. It’s not a billion – but it’s still a big, impressive number. It’s not that easy to create a company worth a quarter billion real dollars to someone else.  That’s huge!

    The venture debt provider PierLast is very nervous about Pied Piper’s balance sheet and looks to the VCs to either guarantee the loan or get the sale done. They want their $30 million. Hooli is likewise pushing to sell, after all they are guaranteed the first $200 million of any proceeds, after repayment of 2x debt to PierLast, while the company would have to be worth over a billion for them to see any further upside given that they only own 20%. Their calculus is that this is about as unlikely as seeing a real unicorn given the state of the company.   BTV, who no longer has any capital left to invest from their original fund, has recently closed their shiny new $300 million fund, so they decide it is time to take their chips off the table. They vote to sell too, getting their $10 million back. Peter, while sad about the outcome, has developed a huge syndication following on AngelList and has recently benefitted from an early acquisition that netted him $3 million on a $250k investment. Can’t win them all, but he’s at peace.  Even Richard votes yes to the sale:  He still has a board seat but given the company’s lack of profitability and lack of any other sources of capital, turning down this deal would mean insolvency, missed payroll - and personal liability.  George (the interim CEO) and the key go-forward employees demand their $12.5 million carve-out.  Tack on more money for lawyers and ibankers, and…

    Oh wait, that’s more than $250 million.  Oops.

    Ergo, Richard ends up with nothing.

    So what can we learn from Richard’s grim fairy tale?

    Terms matter

    Liquidation preferences, participation, ratchets – even the very term preferred shares (they are called ‘preferred’ for a reason) are things every entrepreneur needs to understand. Most terms are there because venture capitalists have created them, and they have created them because over time they have learned that terms are valuable ways to recover capital in downside outcomes and improve their share of the returns in moderate outcomes – which more than half the deals they do in normal markets will turn out to be.

    There is nothing inherently evil about terms, they are a negotiation and part of standard procedure for high risk investing.  But, for you the entrepreneur to be surprised after the fact about what the terms entitle the venture firm to is just bad business – on your part.    

    Cap tables don’t tell the real story

    For any private company with different classes of stock, the capitalization table is not-at-all the full picture of who gets what in an outcome.  

    In the above example, each of the three investors held 20% of the stock and Richard and crew held 40%, yet the outcome was vastly different because of those aforementioned pesky terms and preferences.  

    Before you close on any round, you should create a waterfall spreadsheet that shows what you and each other stakeholder would get in a range of exits – low, medium and high. What you will generally find is that, in high, everyone is happy.  In low, no one is happy, and in medium (which is where most deals settle) you can either be penniless or “life-changingly” compensated, depending on how much money you raised and what terms you agreed to.  It is simply foolish to sell part of the company you founded without understanding this fully.

    This is why it is so crazy to me that many entrepreneurs today are focused on valuation – the grade at the top of the paper. They are willingly trading terms for a high number. Before you do so, run the math on the range of outcomes over multiple term and valuation scenarios, so you fully understand the tradeoffs you are making.

    Venture capital is not free money. It’s debt. And then some

    People mistakenly think of an equity investment as ‘only’ equity dilution. After all, if you lose everything, your venture investor can’t come after you for your house like a bank lender could. However, most all venture transactions are done for preferred shares with a liquidation preference, which means all that venture money is guaranteed to be paid back first out of any proceeds before you get to make a dime. The more money you raise, the higher that ‘overhang’ becomes.  And interestingly, the higher the valuation, the higher the delta of value you need to create before the investor would rather hold on to the end instead of getting his or her money back (or a multiple thereof, as some terms dictate) in a premature sale if things are looking iffy.  And what company doesn’t go through iffy times? 

    Stacked preferences can create massive problems down the line

    This one is a hard to articulate in a blog post. Plus, I am a venture capitalist who on occasion puts said senior preferences in my term sheet. They exist for a reason – again often to do with the valuation and the risk/reward tradeoff the investor needs to make using the downside protection of a senior preference against the minimization of dilution the entrepreneur wants to achieve with a sky high valuation. They are not inherently bad.

    But regardless of why they are there, the more diversity of value and terms in each round, the more you will create a situation where your investors (who are almost always also your voting board members) will have very different return profiles on the same offer. In the above example (and again I apologize for simplified math but it is directionally accurate) Hooli is getting their $200 million back on a $250 million acquisition. They own only 20% because of the high valuation they paid. So for them to instead double their return, the company would have to go public for $2 billion!  This is a case of the bird in the hand being worth more than the two in the very distant bush.  

    Investors are portfolio managers: You are not

    You are betting usually 10 years of your life and all your available assets on your startup. Your investor is likely investing out of a fund where he or she will have 20-30 other positions. So in the simplest of terms, the outcome matters more to you than it does to them. As I noted above, when you have stacked preferences, each person at the table may be facing a vastly different outcome. But now layer onto that their fund or partner dynamics. Ever heard the expression, “lose the battle but win the war?”  I’ve seen behavior that would seem crazy, until one considers what is going on in the background. For example in the above, BTV is out raising a fund and depends on that 10X markup to validate their abilities as investors. Facing a write down, a fire sale – or an extension of runway using debt (and not incurring any accounting change) – which one do you think least impacts the most important thing they are doing right now?  For our angel Peter, whose star has risen with this legendary markup, what value is there to him of taking a $1 million loss right now instead of just leaving a walking dead company out there and on his books (although this company is not technically walking dead because, since it is not profitable, it is not walking. But I digress.)  

    Most reputable investors do not engage in this sort of optics, and many of us who have been through the dot com bust are actually rather aggressive with our write downs to accurately reflect a sense of true value in our portfolios.  Also, most investors who are also board members wear multiple hats and take their fiduciary responsibilities very seriously – I know I do. But, I bring up these behaviors because I’ve witnessed them more than once out there in the real world. As an entrepreneur, you should at least think through the motivations of others, both when you are structuring investments as well as when you are considering a sale. They will on occasion matter… a lot.

    What to do

    Now that I’ve scared you, let me reiterate that most investors I deal with are great, ethical people. If I didn’t think of venture capital money as good for entrepreneurs on the whole, I wouldn’t be a venture capitalist. But we VCs do a lot more deals than you entrepreneurs do, and you need to go into them with your eyes open to the downside consequences of the terms you agree to.  

    Here’s what I recommend:

    Focus on terms, not just valuation:  Understand how they work.  Read this book.  Use a lawyer that does tech venture financings for a living, not your uncle who is a divorce attorney, so you are getting the best advice. Don’t completely delegate this because you need to understand it yourself.

    Build a waterfall: Once you understand the terms being offered, build a waterfall spreadsheet so you can see exactly how each stakeholder will fare across the range of potential exit values (yes by stakeholder, not by class of stock: Investors often end up owning multiple classes, and likewise different people in the same class may have very different circumstances that will influence their behavior even in the same outcome.)

    Don’t do bad business deals just to get investment capital: I know, duh, right?   But I’ve seen otherwise brilliant entrepreneurs get entranced by these big number deals with big corporates, only to deeply regret them later when they cannot be unwound. My advice, separate the business development contract from the equity contract. Negotiate them individually. If the business development deal would not stand on its own merits, don’t do it.  

    Understand the motivations of others:  This can be quite tricky, but I believe you should at least think through what might be the motivation of the others around the table. Is that junior partner going to get passed over for promotion if he writes down this deal? Is that other firm fundraising right now? If you don’t know, ask. I always aim to be transparent with the entrepreneurs I work with about what my and DFJ’s goals and constraints are, independent of my role as a director.  

    And finally…

    Understand your own motivation: What are you doing this for? So you can see your face on the cover of Forbes? So you can have thousands of employees working for you? So you can be a member of the billion dollar Unicorn Club? Perhaps it is to do something you are personally excited about and in a reasonable amount of time, maybe take enough money off the table to live in a nice home, pay for your kid’s college and your retirement. I’m not saying one is more correct than the other, I’m just saying that your own goals will dictate whether you should even raise venture at all, how much to raise, and what to spend it on. If you raise $5 million and sell your company for $30 million, it will likely be a life-changing return for you. If you raise $30 million and then sell your company for $30 million, you’ll end up like Richard.  

    This post origionally appeared on Heidi Roizen's blog.

    Join the conversation about this story »

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    Slack CEO Stewart Butterfield

    In the same way that saying you went to Stanford holds a certain caché in Silicon Valley, having the right venture capital firm invest in your startup is important, too. 

    Entrepreneurs will sometimes accept 25% lower valuations if it means being associated with the right firm, according to Tad Friend, who profiled Marc Andreessen for the New Yorker

    Stewart Butterfield, cofounder and CEO of the billion-dollar business messaging startup Slack, told Friend that he thinks signing on a name-brand firm — like Andreessen Horowitz — is crucial for companies. 

    "It’s hard to overestimate how much the perception of the quality of the V.C. firm you’re with matters—the signal it sends to other V.C.s, to potential employees, to customers, to the tech press," Butterfield said. "It’s like where you went to college."

    Butterfield definitely believes in the magic of perception: He told Fortune earlier this year that Slack gunned for a higher valuation since "one billion is better than $800 million because it’s the psychological threshold for potential customers, employees, and the press."

    Last month, Slack raised $160 million at a hefty $2.8 billion valuation.

    The cofounder and CEO of payments app Stripe echoed Stewart's thoughts.

    Two big names — Andreessen Horowitz and Sequoia Capital — participated in Stripe's seed round of funding, which "was a signal that was not lost on the banks we wanted to work with" when the startup was ready for its Series A, Patrick Collison says.

    Stripe ended up landing a $100 million valuation even though it hadn't launched yet. 

    Read the rest of The New Yorker profile here. 

     

    SEE ALSO: How a quirky 28-year-old plowed through $150 million and almost destroyed his startup

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    NOW WATCH: Here's how much you have to buy to make Amazon Prime worth it


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    marc andreessen

    Marc Andreessen, the cofounder of Andreessen Horowitz, is one of the most powerful Silicon Valley venture capitalists.

    He's invested in some of the most well-known Internet companies in the world, including Facebook, Foursquare, and Pinterest.

    And despite warnings from investors  like Benchmark partner Bill Gurley — who, incidentally, Marc Andreessen "can't stand"— about the tech bubble and excessive Silicon Valley optimism, Marc Andreessen says he isn't concerned about another tech bubble mirroring that of the late 1990s.

    In a New Yorker profile, Andreessen says the burst tech bubble of 2000 was an isolated incident, referring to companies like the now-dead Webvan as "ghost stories," which still scare investors to this day.

    “The argument in favor of concern is cyclical. The counterargument is that stuff works now," he says.

    "In 2000, you had fifty million people on the Internet, and the number of smartphones was zero. Today, you have three billion Internet users and two billion smartphones. It’s Pong versus Nintendo. It’s Carlota Perez’s argument that technology is adopted on an S curve: the installation phase, the crash—because the technology isn’t ready yet—and then the deployment phase, when technology gets adopted by everyone and the real money gets made.” 

    However, he said on Twitter recently that startups' burn rates are too high. “Nobody will want to buy your cash-incinerating startup. There will be no Plan B. VAPORIZE," he tweeted.

    In addition, he doesn't always necessarily think it's wise to raise too much capital at one time. From the New Yorker:

     

    In one pitch meeting where a portfolio company sought a billion-dollar growth round, Andreessen raised his arms overhead and made an explosive sound to warn of what can happen when your valuation vastly exceeds your revenues: “Thanks for playing—game over!” The company went on to secure its round, with only a token contribution from a16z. Andreessen later said that, as in an increasing number of deals, growth investors had paid one round ahead of progress—paid in other words, for the results they hoped to see in the following round. Though the company’s lofty valuation buoyed a16z’s portfolio, his body language suggested that buying at such valuations was maybe not smart—“but, as long as they’re sophisticated investors, it’s not our job to moralize on whether they’re overpaying.” 

     

    You can check out the full New Yorker profile here.

    SEE ALSO: Marc Andreessen on rival venture capitalist Bill Gurley: 'I can’t stand him'

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    NOW WATCH: Silicon Valley Darling Tristan Walker: This Advice From Ben Horowitz Made All The Difference In My Success


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    Y Combinator President Sam Altman

    It helps to have more than just a great idea to get into Silicon Valley-based startup incubator Y Combinator these days. It's also about who you know.

    A new blog post from Y Combinator's president Sam Altman made it official that having a recommendation from an alum could give your application a leg up:

    "If you've worked at a YC company, and get a good recommendation from the founder of that company, we'll give your YC application extra consideration," Altman wrote. "References are very helpful in any decision about who to work with—there’s so much value in understanding how someone performs and improves over years on a job."

    Altman says that while a recommendation from a YC company is helpful, it's important to remember it's hardly a requirement.

    "You certainly don’t need to do this, of course," Altman wrote. "Most of the founders we fund are totally unknown to any YC partner and have never worked at a YC company.  The fact that we are willing to look at people totally unknown to us is key to why we do well, and not something we'll ever stop doing."

    Of course, that means you need to find out which companies are YC-alums and try to get in the door. Altman recommended applying through TripleByte, which connects job seekers only with Y Combinator companies.

    SEE ALSO: How an 'Uber for the oceans' wants to change marine shipping

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    NOW WATCH: Kids settle the debate and tell us which is better: an Apple or Samsung phone


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    laurel and wolf

    Los Angeles may be a few hundred miles south of Silicon Valley, but it's a hub brimming with up-and-coming tech startups.

    We've compiled a list of 25 of the hottest startups in the Los Angeles area. To do so, we spoke with investors, employees, journalists, and active members of the city's tech scene.

    Though our list includes some big names, it also features young startups, some of which you may not have heard of yet. 

    Acorns is an app that automatically invests your spare change for you.

    What it is: When you download Acorns, you link up your credit or debit card to the app. Every time you use your card to make a purchase, Acorns rounds the amount up to the next dollar and invests the change from that purchase into a diversified portfolio of index funds.

    The app, which was founded in 2012, is perfect for beginning investors because it doesn't require much knowledge of investing, and it charges you only a dollar a month if your account has a balance of less than $5,000.

    Founders: Jeff and Walter Cruttenden

    Funding:$32 million from e.ventures, Greycroft Partners, Great Oaks Venture Capital, Math Venture Partners, Garland Capital Group, Sound Ventures, Jacobs Asset Management, Groundswell Investments, Steelpoint Capital Partners, and Cruttenden Partners



    The Black Tux is an online-only tux rental site.

    What it is: The Black Tux, founded in 2012, is the first online-only tux rental service; it does it all, from suit design to production to rental logistics. When you decide to rent, The Black Tux sends you measuring tape and instructions on how and where to measure.

    Your measurements are used to perfectly tailor your tux, which arrives in the mail one week before your event. Total rental cost averages around $150 — far cheaper for better quality than many other tux rental services and without the commitment of buying a nice tux.

    Founders: Andrew Blackmon, Patrick Coyne

    Funding: $15 million from The Raine Group, Menlo Ventures, First Round, BoxGroup, RRE Ventures, Crosscut Ventures, Founder Collective, and Lerer Hippeau Ventures



    BloomNation is an online marketplace for florists to promote and sell their arrangements.

    What it is: With BloomNation, florists can upload pictures of their own arrangements (so they don't have to rely on stock photos) and enable potential customers around the US to discover and buy them.

    It's an easier and more customizable and reliable way to buy and sell flowers. Founded in 2011, BloomNation also helps florists with their online sales, from building websites to point-of-sale systems, e-marketing, and social media.

    Founders: Farbod Shoraka, Gregg Weisstein, and David Daneshgar

    Funding: $7.2 million from CrunchFund, Mucker Capital, Chicago Ventures, Spark Capital, Chris Dixon, A Capital Partners L.P., and Andreessen Horowitz



    See the rest of the story at Business Insider

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    Joanna Shields

    Tech City UK, an organisation which helps tech startups in London, had its government funding cut after its Chair Baroness Joanna Shields fell out with part of the government, Techworld reports.

    Baroness Shields, who previously ran Google and Facebook's presences in Europe, is Prime Minister David Cameron's Digital Advisor. She also serves as chair of Tech City UK, which works to support the UK tech sector.

    Techworld's report claims that a "rift" between Shields and UK Trade & Investment (UKTI), the part of the government that looks after Tech City UK, led to a cut in funding for the organisation. UKTI had been providing Tech City UK with an annual budget of £2 million. However, Tech City UK denies that it has seen its funding cut, saying in a statement to Business Insider that "Baroness Shields and Tech City UK have an excellent relationship with UKTI."

    The funding cut reportedly forced Tech City UK to seek funding from sources other than the government. PwC, KPMG and Jones Lang LaSalle are thought to be new backers of Tech City. But it has also secured funding from Innovate UK, a public body that provides grants aimed at helping British businesses.

    Tech City UK has seen a wave of negative press recently. Techworld reported that it had struggled to hand out its allocation of special Visas to tech employees coming into the UK from abroad, only managing to grant seven instead of its allocation of 200. And multiple London technology companies spoke out against Tech City UK in a Financial Times article that was critical of the organisation.

    Here's Tech City UK's full statement about the rumoured cut in funding:

    The points made in this article are wholly inaccurate and not based on fact. Tech City UK receives public funding from the Department for Business, Innovation and Skills, via Innovate UK and has done since Jan 2014. The funding for 2015-2016 is £2.2 million and covers Tech City UK’s programmes, policy informing and championing work. In addition to this, government is funding TechCity UK with £2m for the new TechNorth programme in 2015-16.

    Prior to January 2014, when the Tech City Investment Organisation became Tech City UK, funding was provided by UKTI.

    Baroness Shields and Tech City UK have an excellent relationship with UKTI, as demonstrated by the recent collaboration around the launch of HQ-UK and an ongoing range of programmes to promote the UK’s technology ecosystem.

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    NOW WATCH: Apple sneaked in an annoying new feature in its latest iPhone iOS update — but there's also an upside


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    Hungryroot Founders

    In 2012, Ben McKean sold his restaurant technology company, Savored, to Groupon.

    Savored let customers get discounts on meals at high-end restaurants by going on off nights, or get a last-minute table on the weekend for a premium.

    After the acquisition, McKean says he realized that Savored provided "a great outcome but it lacked the real deep emotional customer response."

    There was one particular conversation he had that made him realize the importance of food as an emotional opportunity.

    "I was sitting down with this woman, she must have been in her 80s," he says. "She was running a restaurant in the West Village. She was teary eyed, telling me how Savored had kept her restaurant in business, and how her restaurant was the last passion of her life."

    McKean was then committed to finding "a product that has that emotional reaction deep in the essence of the product. I don't think you can get that more than you can in food," he says. 

    For the past year, McKean has been working on his new food company, Hungryroot. Along with his cofounders — one of whom competed on Top Chef Masters a couple years ago— McKean wants to provide prepared, healthy, delicious meals to customers.

    And on Tuesday, Hungryroot announced it's raised $2 million in funding from Lerer Hippeau Ventures, Crosslink Capital, Brooklyn Bridge Ventures, and KarpReilly to make that happen.

    When you order from Hungryroot, you get a packaged meal the next day that consists of 70 to 80% vegetables and 20% protein. The base ingredient is vegetable noodles — made from sweet potatoes, radishes, beets, zucchinis, and more — paired with a creative sauce, and served with an optional protein side.

    Hungryroot is not serving "your standard chicken and broccoli or salmon and teriyaki," McKean says. "We really feel like there's this new food category emerging, and vegetable noodles is part of this larger category of meals." Some of the meals Hungryroot serves include beet noodles with savory thai sesame sauce and rutabaga noodles with roasted mushroom pistou.

    hungryrootThe company launched last month, and sold 10,000 meals out of its Long Island City, Queens, offices in April, where it has 25 employees handling production. Selling 10,000 meals was "certainly above our expectations and our investor expectations," McKean says. Right now, Hungryroot ships its meals only to customers east of the Mississippi.

    But McKean is looking to expand to the west coast later this year, which would allow Hungryroot to ship its meals nationally. He's also looking to increase the number of offerings Hungryroot has available, including launching into new food categories, like veggie burgers.

    Instead of competing with companies like Blue Apron or Seamless, which respectively tackle the grocery and restaurant delivery markets, McKean says he's more interested in taking on the packaged food segment — the frozen meals you see in your grocery store.

    hungryrootUsing a technology called "modified atmosphere packaging," Hungryroot's meals have a shelf life of 14 days. "We're able to offer a fresh option in a category that's essentially defined by frozen options sold in grocery stores," he says.

    McKean is most excited about turning vegetables from an obligation to something people love to eat. "If you're able to successfully change the perception of vegetables from something you should eat into something you really look forward to eating, it's such an emotional response," he says. "We're very excited to see that happening."

    SEE ALSO: Teens are going crazy for YouNow, a livestreaming app with 100 million monthly user sessions

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    wunwun feature1

    New York City-based delivery startup WunWun is looking for a buyer, but a source with knowledge of the discussions tells Business Insider that it hasn't yet signed a deal with the on-demand home service Alfred, as TechCrunch reported last night. Several buyers are being considered.

    WunWun, which launched in 2013, had an unusual business model for an on-demand delivery startup: Its deliveries were completely free. Instead of paying a fee, like with competitors Instacart of Postmates, users would simply pay for the cost of the item they ordered. 

    WunWun would make money by partnering with merchants, who could pay to have their products appear when users searched for something they wanted to order. 

    "Our business model is sort of like magic and not a secret," CEO Lee Hnetinka told Business Insider last year. "It's very much like Google. When you type into Google 'Yankee hat' it brings up organic results and people can bid on it to show their result."

    For example, WunWun had a partnership with Best Buy, which paid a small marketing fee to have its electronics delivered by WunWun to customers in an hour or less.   

    Based on WunWun's impending sale, the model didn't pan out how the company expected.

    It's an extremely competitive time for on-demand delivery. Besides startups like Postmates, Instacart, and WunWun, big players like Google, with Shopping Express, and Amazon, with AmazonFresh and Prime Now, are also experimenting with same-day delivery. 

    Business Insider reached out to both WunWun and Alfred for comment and will update if we hear back. Alfred has raised $12.5 million and won TechCrunch Disrupt, the site's startup contest, last fall. 

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    taylor swift diet coke

    Coca-Cola has been around for 130 years. Coca-Cola has a market cap of $179 billion. Coca-Cola has 129,000 employees. And Coca-Cola is very, very good at what it does. 

    But making the soda is only part of the story. Getting the fizzy stuff into stores and restaurants all over the globe requires a massive supply chain of shipment, bottling, stocking, and staffing — not to mention sales and marketing. 

    Each of those are giant, sometimes independent, businesses related to the Coca-Cola empire.

    And at a time when little startups are disrupting big businesses left and right, Coke knows that it cannot afford to ignore technology, says Coca-Cola VP of Innovation and Entrepreneurship David Butler.

    Enter the Coca Cola Founders "platform," the soda giant's startup accelerator program, where startup founders are given seed funding, matched with the resources they need to solve Coke's "billion-dollar challenges," and hopefully grow into self-sustaining businesses of their own. And no, they don't all have to be in the soda business.

    coca cola founders

    Right now, there are 11 startups in the program, half of whom are looking to raise venture capital rounds (of those 11 startups, only two currently have female founders).

    Coca-Cola Founders is actually the third version of a corporate initiative to come up with new ways of doing business. The first initiative failed because it was just a bunch of executives and managers in a boardroom, trying to come up with innovative startup ideas, Butler says. 

    "The room was filled with managers, not explorers," he says. 

    The second version brought entrepreneurs on board as internal employees, tasked with solving hard problems. But without equity in their own startups a motivating factor (the startups were part of Coca-Cola), the founders just weren't hungry enough, and results were mixed, Butler says. 

    And so, late last year, Coca-Cola Founders was formed in its current incarnation. The internal startups, like Wonolo, were spun off into their own independent companies, with Coke keeping a share.  

    coca-cola founders pageButler insists on calling the current iteration of Coca-Cola Founders a "platform," not an "accelerator." Similar to traditional startup accelerators such as Y Combinators and 500 Startups, Coca-Cola Founders offers funding and a network of fellow founders.

    But unlike traditional accelerators, Coca-Cola is in it for the long haul, Butler says. There's no limit on how many startups can enroll, or how long they get to stay in the program, or how much money they could theoretically receive, so long as the founders keep plugging away at these big platforms.

    In fact, it's called the "Founders Program" because Coke is looking more for proven entrepreneurs (the program currently includes one Y Combinator alum, Butler says) than for slick pitch decks or catchy names. The rest comes in time. 

    Coca-Cola headquartersCoca-Cola generally takes a 20% equity stake in the startups.

    And given that these startups are selected because their big ideas could help Coke's business, entering the program effectively means potentially landing a first big customer.

    Take, for example, Winnin, a Brazil-based, Coke-backed video app that lets users "battle" videos against each other, voting on which one is better.

    No marketing person at Coca-Cola headquarters would ever have thought of this, and even if it did, making it a Coke product would have ensured that people were turned off.

    But now, Coke has a stake in an autonomous  app that's helping it reach a crucial younger demographic. 

    "We need teen engagement in our brands or we're done," Butler says. 

    When Winnin recently wanted to get a celebrity involved in making and voting on videos, Butler's team got to work connecting them with a heavyweight: pop singer Taylor Swift, who's currently a celebrity spokesperson for Diet Coke in North America.

    That conversation hasn't happened just yet, but still — corporate synergy in action. 

    On a less glamorous side of the business, Coke-based startup Wonolo has helped address the problem of stores running out of its soda. 

    By riding with Coke delivery trucks, going out with maintenance repairmen, and visiting with Coke-partnered hotels and restaurants, Wonolo discovered that stores often still have Coke in stock but lack humans to physically move the product. 

    Wonolo now focuses on providing on-demand temporary workers for business. It was designed to solve a Coke problem, but it can be used by anybody. 

    "We wouldn't have gone down this route" if not for Coke, says Wonolo co-founder AJ Brustein says. 

    In the end, by connecting founders to capital and resources, there could be a few more unicorn startups in the world, or so Coca-Cola hopes. 

     

    SEE ALSO: Just because it's worth $1 billion doesn't mean it's a unicorn, says VC who lived through the last bubble

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    five app mateusz mach

    Like a lot of Polish 17-year-olds, Mateusz Mach is into hip-hop.

    "It is something I identify with," Mach says.

    Unlike a lot of Polish 17-year-olds, he decided to turn his appreciation into an app business. After six months of work, he released Five, a messaging app for Android, iPhone, and Apple Watch that lets you and your friends throw one another custom hand signs, like the kind rappers throw.

    It's meant to be quick, easy, and above all, fun. Mach says his friends use the app to tell one another how far away they are, using a commonly accepted translation for each hand signal. You can even send your custom signs via Facebook Messenger.

    "It's faster than typing," Mach says.

    It's a little bit like Yo.

    "We are better than Yo," Mach says. "Definitely better than Yo."

    17 MachMach and a team of two other contract coders spent the past six months working on Five, with the funding coming from a local investor for whom Mach had done some work before. His previous app, Sagepark.pl, which is currently down, had 10,000 users at its peak, Mach says.

    The thing is that this silly app is finding some real-world use, according to the feedback Mach is getting from his users. On the Apple Watch, using hand signals lets you convey more meaning without an onlooker being able to guess what you're saying.

    And perhaps more important, it's a really great engine for communicating in International Sign Language (ISL). Mach says he has heard from deaf users who are using it to quickly communicate in a way that makes sense to them.

    To that end, Mach is working on building in an ISL dictionary into the Five app, to quickly select words and their equivalents. If that works out, Mach isn't ruling out the possibility of making Five into a more complete ISL translator.

    For now, Mach is splitting his time between working on Five and his time studying at an International Baccalaureate (IB) school — when I spoke to him, he was staying up late in his dorm.

    In the future, Mach is taking Five on the road, preparing to show it off to customers and investors at the coming Bitspiration Festival in Warsaw, Poland.

    He knows he wants a career in technology, and he certainly wouldn't mind if Five is the engine that gets him there.

    "That might be cool, yeah," Mach says. "If only I can get money."

    SEE ALSO: Jeb Bush says the Apple Watch shows how we can eliminate Obamacare

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    I spent the last week gliding around San Francisco in the now infamous“Suitsy,” an adult-sized pajama onesie disguised as a full business suit. At bars and in meetings, no one seemed to notice anything amiss. But, perhaps, I thought, this was because San Francisco is the home of weird attire and my colleagues were just unfazed.

    So I found the only place in the Bay Area were most people were guaranteed to be wearing suits: a Republican convention.

    Suitsy

    Last weekend, the liberty-loving tech organization, Lincoln Labs, held a rally for presidential hopeful Sen. Rand Paul. There were suits oozing out the front door waiting to get a selfie with the libertarian icon. I blended right in.

    Indeed, one dressed-down hip conservative asked me why I chose to join the other square stiffs wearing formal attire, “This is Silicon Valley — what are you doing?” he chuckled.

    It was at this point that I unzipped my onesie suit and revealed the comfy glory of what I was actually wearing. Gasps of disbelief echoed around me as if Criss Angel had just made a statue of Ronald Reagan appear out of thin air. “Whaaa?! No way!”

    The consensus was clear: Everyone thought I was wearing a traditional suit.


    Last fall, a crowdfunding campaign to create the Suitsy became an instant meme; the Suitsy was a totem for everything that people loved and loathed about Silicon Valley. "Good Morning America"praised its quirky bohemian ingenuity while GQ hailed it as an omen for the end times.

    For six months after the press went nuts, its creator, Jesse Herzog and Silicon Valley-based retailer Betabrand, have been heads down turning the concept piece into a reality. I managed to get my hands on the first production run and tested it out in the real world.

    Below is the first hands-on review of the Suitsy and, below that, is a data-driven analysis of how our economy got to a point where it’s acceptable for grown men to wear pajamas at work.

    suitsy business one piece suit

    To be sure, without the twin Silicon Valley powers of internet crowdfunding and casual tech-office attire, Herzog never would have never been more than faint blip on the fashion radar.

    The question I had in reviewing the Suitsy was whether it’s just a gimmick or a legit substitute for men’s office attire. As with all things at The Ferenstein Wire, we tested this quantitatively.

    A suit comfortable enough to sleep in

    Suitsy

    For four days I barely took the Suitsy off  —  and never wanted to. I worked out, went grocery shopping, held business meetings, and went out drinking at a bar in it. As a blogger who spends most of my workday in pajamas anyways, it was like wearing my normal attire all day long.

    Were it not for occasional glances in retail-shop windows, I would have thought I was at home in sweatpants.

    Indeed, it’s just as comfortable to sleep in. Compared to the night before sleeping in sweatpants, my deep sleep actually improved about 3% while in the Suitsy (as measured by the Basis band health tracker).

    Suitsy

    This isn’t to say that the Suitsy improved my sleep; but it certainly didn’t keep me from a restful slumber.

    Does it look like a regular suit?

    For style, the Suitsy is no match for an expensive tailored ensemble, especially for folks who like to don the latest seasonal colors. But that’s like comparing the top speed of a Ford Mustang to a Prius, when all you really want is a car to pick up milk at the grocery store. The Suitsy is meant to satisfy the bare minimum requirements, not make a statement.

    So long as it can pass undetected as just another neck-strangling suit, the Suitsy has achieved its goal. As an avid data geek who worries about an entirely subjective evaluation, I decided to test the Suitsy’s style prowess as scientifically as I could.

    I compared professional photos of me in my normal suit to the Suitsy, and conducted a small poll online (using Survey Monkey and and sample of U.S.-based Amazon Turks). Respondents were asked, “Which suit do you like better”  —  no other details were provided.

    My normal suit won the poll, of course, but the Suitsy managed an admirable showing, with 20% of respondents preferring the disguised adult onesie (full details here).

    Suitsy

    At the end of my trial, the Suitsy definitely proved its worth in both style and comfort. It won’t make you look like the sharpest trendsetter at the negotiating table. But if you’re like me, and wear a business suit once or twice a year, the Suitsy is more than a sufficient substitute.

    Creative class fashion

    Suitsy

    The Suitsy is no one-hit wonder; it’s part of a long line of comfort-first clothing items successfully crowdfunded through the Silicon Valley clothing startup Betabrand. Rather than rely on a few expert designers to predict next season’s fashion trends, Betabrand’s audience votes on prototypes through a Kickstarter-like platform.

    If enough consumers commit to preordering a pair of pants or a onesie business suit, a batch gets sent to the factory for mass production. “When we develop products, we try to connect them to Web communities and let them do the talking,” explains Betabrand cofounder, Chris Lindland.

    Betabrand’s avid early consumers were mostly bi-coastal professionals who wanted pants that could withstand a bicycle commute to the office. When Betabrand offered up the “Bike To Work Pant” for crowdfunding, the blogosphere exploded. “Something like a thousand unique sites point at our pants and we sold batch after batch.”

    Mark Zuckerberg’s famous hoodie-wearing habit become the inspiration for Betabrand’s next viral sensation: a hoodie with business suit-like stripes.

    Betabrand dress sweatpants

    Indeed, Lindland’s early vision for Betabrand was “fashion for the Creative Class, ” referring to the growing legion of geeks turned highly skilled professionals first identified by University of Toronto Professor Richard Florida. The Creative Class are “educated, early adopters who are professionally connected to the Web and tend to have larger-than-average social reach,” explains Lindland.

    So while Facebook’s engineers can lallygag into work in a pizza-stained hoodie, most creative class workers aren’t lucky enough to have a billionaire CEO that wears T-shirts to press events; many are the lone data scientist or designer sandwiched in between Burberry-clad sales reps.

    Crowdfunding is the collective action glue that helps creative class workers around the country band together and fund clothing that feels like pajamas, but are indistinguishable from regular work attire.

    For now, Betabrand is a relatively small tech startup that gets substantial media play through stunts that get its overly connected audience excited. The Suitsy officially debuted at the company’s self-titled “Silicon Valley Fashion Week,” which made headlines this week for drones that flew shiny pants down the catwalk.

    It’s no surprise then that Betabrand’s penchant for silly trolling stunts needling the traditional fashion establishment make it an easy target for critics. But behind the silliness Herzog says that the fashion industry itself won’t recognize the next generation of fashion, especially from folks who don’t share their values.

    “I love a good fashion magazine on a flight. But they’re kind of like the Bible. If you read it literally, you’re not doing it right. They are a great way to learn about what is generally acceptable, and traditions in attire, but something like a Suitsy from a nobody in fashion, that is counterculture to everything they’ve espoused,” he argues.

    Herzog is aware of his critics, but eyes a sea change in the culture that will propel the idea of pajama-like clothes into the mainstream of work attire. “When J. Crew says sweat pants are now a fashion item,” he concludes, “that apparently is not the end of fashion.”

    The Ferenstein Wire is a syndicated news service. For inquiries, email the editor at greg at greg ferenstein dot com.

    SEE ALSO: WOODY ALLEN: I've 'regretted every second' since signing with Amazon

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    Global Challenge Cup Winners

    Over the past week, 1776, a startup incubator focused on public good brought startups from 16 cities in 11 countries to Washington D.C. to compete in its annual Challenge Festival.

    The week-long startup competition focused on four areas of public innovation: education, energy & sustainability, health, and transportation.

    Unlike other well-known incubators and seed funds, 1776 solely funds startups that are focused on making a major impact in heavily regulated industries. 

    At the Challenge Festival, startups like as BaseTrace, which "uses DNA-based tracers to track where industrial fluids are going in large, complex environments" and Reliefwatch, a cloud-based system that uses smartphone technology to track inventory and diseases for healthcare organizations in the developing world, battled it out on stage for a grand prize of $150,000 in investment

    Twiga Fruits, a Kenya-based startup that builds fair and sustainable distribution systems to export fresh fruit without going through a middleman took the top prize.

    The company aims to treat farmers fairly while helping to distribute their goods to the widest network. Twiga Fruits is currently Kenya's leading exporter of bananas, pineapples and avocados

    Challenge Cup

    “Over the past six months, we’ve traveled the globe to find the world’s most promising startups working to develop innovative solutions to fundamental challenges in education, energy & sustainability, health, and cities & transportation,” says Donna Harris, co-founder of 1776. 

    “After going against stiff competition throughout the Challenge Cup, Twiga Fruits emerged tonight as this year’s most promising, problem-solving startup, and we look forward to helping them innovate and improve the Transportation & Cities industry for years to come.”

    Challenge CupAlong with fresh funding, Twiga Fruits and other finalists will receive the "swat team" of support from mentors, government officials, and institutional market partners that 2-year-old 1776 has become known for. 

    Here are a few of the other finalists:

    • Cognotion identifies talent, delivers functional utilization of knowledge, and decreases employee churn rate by using gaming and video tools to teach entry level millennials about personal finance.
    • Handsfree Learning helps students, teachers, and institutions learn and teach hands-on technical skills by applying a range of hardware and software solutions to expand possibilities in subjects like dentistry, medicine, culinary arts, fine arts, cosmetology, and lab sciences. 
    • LearnLux creates online learning tools to teach people personal finance and allows companies to empower their employees to become financially autonomous by giving them the skills and knowledge they need to make the best financial decisions.  
    • Radiator Labs uses a unique patent-pending product offering to improve radiator’s heating efficiencies and turn them into smartphone-controlled climate systems.
    • Unima is a biotechnology startup that developed a fast and low-cost diagnostics technology for global health data collection and analytics in real time. 
    • EverCharge has created a proprietary device and service for drivers of electric vehicles who park in common-area garages, enabling users to charge their vehicles at their convenience.

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