ecofrenzy: what’s good in green

I’d like to dedicate this post to my father’s intrepid new business venture.  On January1st, 2009, Bob Vaccaro will open Yoga By Donation in small-town Portsmouth, New Hampshire.  My father has taught yoga for over 15 years now, most recently owning and operating Ocean Spirit Yoga in the same space, and has muttered his intent of launching a pay-what-you-can yoga studio consistently over time, so it is with great pride that I get to see him bring his dream to fruition. For years he has fine-tuned his yoga teaching style to welcome and accommodate all levels of physical ability, and this new studio will continue on that trend by welcoming people of all levels of financial ability as well.

The concept is simple: the studio offers 20 something yoga classes a week, all without set fees.  So anyone can come and pay whatever they are comfortable with based on their unique financial situation, or nothing at all.  Dad will teach about half of the classes and he has invited a handful of other teachers to join him.  Donations will cover $2000/month of set overhead studio fees and the rest will be divided amongst the teachers per class taught.  If there is no surplus of donations, my father will cover the cost and teachers will not be paid.  From a yoga teacher’s perspective, this sounds a bit risky.  Yet every teacher he invited agreed to join him in this venture, and even seemed eager to do so. A few days before the studio was set to open I accompanied my father to the health food store under his studio, where employees had seen the sign announcing the new studio concept. “Bob, we’ll be there on Friday! We’re so excited,” they told him. They had never been to his yoga class before, and clearly the fees were the barrier.

I followed my father to Brown University, and with any luck I may follow him to Harvard Business School as well.  My father gave up his explicit business career when I was a baby in favor of a yogic lifestyle.  I remember chuckling when the HBS alumni magazine included a profile of my father’s yoga classes amongst its other atypical alumni stories. It’s a delight for me to see him create an interesting business model with this generous yoga outreach endeavor.

My father’s studio is the only donation-based yoga studio in New England as far as he’s aware. But in California’s Bay Area, New York City, and other urban centers, donation based yoga classes abound. And in other industries, donations are a way of life, such as colleges and non-profits, which rely on the generosity of their supporters to varying degrees. Wikipedia is a donation-based success story, raising $1.5 million in 2006 donations, nearly 4 times as much as was raised in 2005. Donation-based business has worked for online music sales as well. Radiohead, for example, launched a “donation-only” album online which was a huge success: “In terms of digital income, we’ve made more money out of this record than out of all the other Radiohead albums put together, forever” Thom Yorke said.

In any case, I’m hoping my father’s generosity will catch on, so if you have friends in the New Hampshire seacoast area, please spread the word.

Lastly, I’m curious about your opinions. What do you think? Have you seen donation-based business ventures succeed? If so, what needs to be in place to ensure success? What do you think of the Yoga by Donation business model in particular?

[Extended version originally posted to JustMeans]

Venture capital funding is capable of super-charging innovation, financing high-potential start-ups at their most risky stage. Of course there are clear pros and cons to seeking venture funding. How do you know if the venture capital (VC) route is the right one? What does it take to raise VC funding for your start-up? Especially today, raising money is not an easy feat, nor is venture funding always the best answer. I had lunch with J-F Gauthier, founder and managing partner of VC Negotiators to get answers to these and related questions. In 1995, at the start of his successful career, Gauthier ranked #1 negotiator out of 810 in his Harvard Negotiation program. Since then he has worked many angles of the business world, as CEO, consultant, banker and more. Today, he works with entrepreneurs to raise money and negotiate favorable terms with VCs. Gauthier contends that unless you are an experienced financier and negotiator, all entrepreneurs can benefit from guidance when seeking funding. He shared with me some guidelines that can ease the process.

Echoing a sentiment I’ve heard from many, including Wired’s Daniel Roth, Gauthier posits that while there are very tough times ahead for all businesses, now can be a good time for a business to get started and for innovation to happen. Start-ups who “make it through (the recession) will be rewarded with reduced competition. Starting a business now is smart if you can survive through the recession as there will be funding available in a year and a half or so and little competition.”

Things to consider as you determine your funding needs

1) Are you sure you want VC funding?

Only a few businesses fit the VC profile by nature. And the reverse is also true: getting venture capital fundamentally changes the nature of your business. VCs fund companies that are aiming for explosive growth, i.e. have a real chance to achieve $100M in revenue within 3 to 5 years. They gain a certain degree of control of the business that some find undesirable. Entrepreneurs should ask themselves if they really want this: “Is my company shooting to be a billion dollar business?” and “Do I want VCs as my business partners?” Gauthier explained. “The VC becomes your husband or wife. Are you sure you want to get married?” Ironically, the average length of a venture capital relationship is longer than the average marriage in California.

2) If so, invest in thorough research and preparation
Gauthier notes that the biggest problem entrepreneurs face in obtaining funding is lack of experience and insight into what VCs are looking for. Entrepreneurs are a rare breed of individuals who are often highly confident in their skills, and for good reason. However, excellent entrepreneurs are rarely excellent at raising VC financing. Negotiating skills aside, it can be hard to even get your foot in the door; Bill Burnham posted a helpful list of steps to getting a meeting with a VC.

3) Determine your goal and objectives, and how you’re going to get there
This starts with the need your idea solves and your solution to it, but also with your vision, strategy and operational plan. And only once these fundamentals are in place should you define whether you need funding, how much, and as importantly, from whom.

4) Understand what a VC firm is looking for
Educate yourself on what VCs are looking for and how your vision meets their criteria. Gauthier describes a fundamental rift between an entrepreneur and a venture capitalist that interferes with smooth dealings: “The biggest problem is that entrepreneurs don’t know what VCs really want. Even if they pour lots of hours into their presentation, it’s usually not quite what the VCs are looking for. This is because what an entrepreneur cares about is not what will get the VC excited about the idea, so it’s hard for an entrepreneur to speak to a VC. Venture capital firms are excited about an idea only if it has a huge market potential and there is a pretty clear path to making a lot of money with it. Meanwhile an entrepreneur is passionate about the idea itself and all the technical details, and believes, often blindly, that it inevitably means it will make a lot of money…without having a realistic path to get there.” In most cases, to get venture capital, you must convince the VC that your business fits a big need in the market that many people are ready to pay lots of money for, or millions of people will be ready to pay some money for.

5) Emotions are critical
The reality is that “If you can’t excite a VC in first 5 minutes of your presentation, they will most likely never invest” Gauthier explained to me. According to Gauthier, entrepreneurs tend to be left brained and expect business and technical details to create excitement. They neglect the good old emotions that come from an enthusiastic voice, a few big points, and a short, exciting “story.” Venture capitalists are often leaders, ex-bankers and sometimes ex-CEOs – heavy on soft skills and less analytical than you would think. Their desire to invest starts (or dies) with a gut feeling, then they analyze.

6) Seek input from people with first-hand VC experience
Entrepreneurs think they can excel at everything, including fundraising and negotiating, but Gauthier explains that this is rarely the reality. You’ll want to ask for help, which is best coming from an ex-CEO who has raised a Series A with venture capital firms (not from just any founder or executive of a VC-backed company, nor from a CFO since they are almost always hired after a first round). Raising Series B is not nearly as hard since you then have a CFO plus your own VCs working with you (hopefully!).

7) Don’t lose hope, but learn from initial conversations
VC’s don’t give feedback, Gauthier points out, so entrepreneurs don’t get the chance to learn from their mistakes. You will need resiliency to deal with hearing ‘no’. After a handful of ‘no’s’ you may consider that either your business is not a good match for the type of VCs you are approaching and/or consider re-tooling your pitch to speak more quickly and clearly to the VC’s interests.

Landing VC funding may not be the best growth plan for your business, but if it is, make sure you’re prepared to speak the VC’s language and don’t be afraid to ask for help.

[Originally posted to TriplePundit]

While I want to “give back to the community”, I don’t always feel that volunteers are as helpful as they might be, either because their efforts are not coordinated, their strengths are not leveraged, they’re difficult to corral, and so on.  I think volunteering is important and effective in many ways, I just think volunteers’ efforts may not be as impactful as they could be, based on first hand experience as well as hearsay.

All of these preconceptions were blown away this weekend, when I volunteered for a few hours at Alemany Farm in San Francisco.  Not only did I feel my small team had a palpable impact, we were overcompensated for our efforts with bundles of freshly harvested veggies at the end of the day.  I will most definitely be returning, and I write this to recommend that everyone passing through San Francisco volunteer at Alemany Farm.

Why?

Feel good impact: The farm is nuzzled between the highway and a hundred odd units of affordable housing, a former unofficial dump, which was taken up by community a gardening organization, S.L.U.G., in the 1970’s.  Today it is under new management, but with continued community goals.  Much of the produce is sold at a deeply discounted Bayview farmer’s market, some is delivered to senior citizens free of charge, and the rest is given to volunteers and workers as compensation for their hard work.  So at a high level the farm’s cause is noble and it’s impact important.  But at the day to day level, each volunteer is really needed and utilized.  I showed up with 2 companions, knowing next to nothing about gardening and with a little guidance, we prepared 2 large beds for the winter (which involved agitating the soil, sowing cover crop, covering it with fresh compost and then sealing it off with a layer of fabric to protect the seeds from the birds), weeded a native plant bed, and harvested some sort of lettuce.  And that was in just about 3 hours.

Sunshine and fresh air: We all need to get outside sometimes.  I spend way too much time cooped up indoors, so it was nice to enjoy the fresh air for an extended period of time.

Light exercise: Farming doesn’t need to be a high impact workout (although it can be), but it is a great way to get the blood flowing.

Good eats: When I showed up on the premises I had no idea I would walk away with a week’s worth of delicious local-as-can-be veggies.  At the end of each work day, Alemany farm volunteers and staff harvest a number of crops for enjoyment by all present.  I came home with 2 different kinds of cabbage, carrots, kale, swiss chard, green beans, broccoli, some sort of lettuce and oregano.

When: Volunteer workdays are held from 12-5pm every 1st and 3rd Sunday of the month, and all the Saturdays in-between.

Where: 700 Alemany Boulevard, San Francisco CA

The story of Andy Funk left me impressed, amazed, envious and motivated. I think it will do the same for you. Funk moved to the US from Germany at the age of 19. Just six years later, without a formal college education, he had founded and sold 3 companies, and then became the youngest founding member of a venture capital firm in the country. His firm, Funk Ventures, is also one of the leaders in a new category of VCs that maximize social and environmental impact as well as financial return in its investments.

I reached out to Funk to understand more about his VC work, and found his back story equally compelling. Funk was born into a wealthy family in Germany. His family owns and runs Funk Gruppe, the largest privately-held and non-American owned insurance brokerage company in Europe; and as the oldest son, Funk was slated to take over the reins. This did not appeal to Funk whatsoever and he instead shipped off to the US. Funk cited that “[the family business] was already perfect – I am an innovator and a creator,” so he had no passion for running it. After a 2-month long cross-country motorcycle adventure, he landed in Santa Monica and decided to stay. It was there that he started building his first company, Microdyme, a technology company focused on vector-based online animation, and began living on his credit cards. “I never thought about the fact that I would have to pay these cards back,” he commented. By 21, Funk faced almost $250,000 of debt. “I was building my business but it barely made any money for the first few years… As an entrepreneur you have to be willing to fall on your face and get back up.” Luckily his first company took off, and as he puts it “I got a little bored, and felt the need to start more companies [Daily F1 and Helping.org]. I didn’t enjoy being CEO and had too much energy to focus on just one company at the same time, so I decided to build several. After exiting out of the companies, I was wondering how I could apply my passion for building companies but without the need to run each venture as CEO, and it dawned on me I would have to go into venture capital.”

Funk got a taste for socially conscious investing with his 3rd company, Helping.org, which allowed Americans to donate to any charity using a credit card or e-check. Funk noticed that non-profits often use a disproportional amount of their money on fundraising, which is an unsustainable model, so to change that, Funk’s company streamlined that process. Helping.org was sold to AOL in 1999 and later renamed to Network For Good. Funk noted, “Helping.org made me realize that it must be possible to make money and do social good at the same time.” So, in 2000, at age 24, and just a few months after the market crash, Funk founded Funk Ventures, a VC firm with an exclusive social and environmental focus. Funk never formally attended university – instead he poured over Harvard business school text books in his free time. However, he notes that “the best way to learn how to invest is to actually invest. Venture capitalism can’t be taught in school. This business is just as much about relationships as it is about money, and even more so about how much value you can add to your portfolio companies.”

Funk receives well over a thousand business plans each year and will take on 3 to 5 new deals annually, ranging in size from $.5M to $5M. When making investment decisions, Funk’s team of 7 looks at dozens of metrics, including the quality of the team and board, scalability, market growth, whether intellectual property is protectable, and the overall fit with the firm’s investment philosophy. That said, Funk pointed out that “80% of it comes down to the people and how we feel about the core management team. Is this a team I trust and believe in?” Some of the portfolio companies include Prolacta Bioscience, a medical technology firm that uses breast milk to nurture premature babies, and Cyber-Rain, makers of a smart sprinkler control unit which senses weather conditions and waters lawns accordingly, preventing over-watering and saving consumers 30-70% on their monthly water bill while conserving a vital resource.

“There are a lot of sharks and it’s easy to be labeled poorly,” Funk noted, keenly aware of the poor reputation that VCs have acquired. “But venture capital is still the backbone of our economy. The riskiest period of finance is the first 3 years…you have to be open to failure.” Despite Funk’s risk-taking, his portfolio is doing exceptionally well. Out of ~15 portfolio companies, several have sold or gone public while all but one of his current companies are on the path to success. Compare this to common VC experience, wherein of 10 investments 2 will be home runs, 4 or 5 will break even, and the rest will fail. Perhaps there is more than a little wisdom in a model that allows all stakeholders to win. “With some exceptions, I actually find for-profit companies more effective than non-profits. A for profit company can bring about the same social and environmental returns as a non-profit, the difference is that the entrepreneur and the employees are still incentivized with potential profits which encourages them to produce a better product or service, a scenario which benefits both the consumer and the shareholders. Ultimately, everyone wins, which to me seems like the most sustainable way to do business.”

[Originally posted to TriplePundit]

At first glance, Huddler.com may seem to be just another social networking site, but I would contend that this is not the case.  Huddler is a well thought-out, elegantly integrated “social commerce” community platform for user-generated content, reviews, discussion forums, Wikis , videos and more.  I had a chance to sit down with Dan Gill, CEO and co-founder of the new site.  Dan and his brother founded Huddler on a cross-country trip in March 2007 as an advanced “old school discussion forum” that empowers knowledgeable, passionate, maven-types to share ideas and communicate with one another and the online community.   Their goal is to improve the user interface and make online content broadly available for distribution, “because my mom couldn’t use [a typical discussion forum] if her life depended on it.”

The platform was built flexible enough to engage any interest group, but Huddler has devoted most of its time and energy thus far to their Green Home Huddle, where users discuss sustainable products and lifestyle tips.   Dan explains that this is where “opportunity meets interest” for the Huddler team.   And with so many new products flooding the green space, Dan realized that building a space for those most knowledgeable about the topics to easily share their opinions and ideas would be an invaluable resource for people.  Because “ultimately what’s important is the educational aspect and distributing that information as broadly as we can.”  Dan cites that people prefer peer opinion and peer review over expert opinion and expert review six to one.  “We don’t have experts on the site. We have you, and your friends, and people like you.”

Huddler is a product focused review site.  Dan refers to related sites along a spectrum ranging from comparison shopping sites like shopping.com or Yahoo shopping, sites that make money for each purchase and guide users to the point of sale as fast as possible, on one end, to discussion forums where experts give opinions, but limited functionality leads to hard to find information, on the other end.   Huddler is right in the middle – providing and organizing in depth consumer education on focused topics, but stopping short of allowing purchases on the site.  Layer on top of that a set of capabilities that bestow users with profiles which display their Wikis edited, products reviewed, forum posts, etc, and which complements Facebook nicely.

“Don’t ever let anyone tell you that building something from nothing is easy, because it is most assuredly not,” Dan warned me.  He and his brother bootstrapped the company at the start, not paying themselves for 14 months.   Earlier this year they took on some angel investment from five different investors.  One mistake Dan made in getting the company started was ignoring the advice he heard on so many occasions – to release early and release often.  “We’re too much perfectionists to listen to that advice. We wouldn’t. We wanted to have a polished product ready to go.”

Like many start-ups, Dan has not spent a dollar on marketing – it’s all been by word of mouth to date. Huddler invests in search engine optimization to “insure that the all mighty Google can find our pages.”   One way that Huddler engages users is through their Action Team (or A-Team) which puts exciting new green products “in the hands of really passionate people” and solicits reviews and commentary from them.

On the topic of usership statistics, Dan noted they get about 150,000 unique visitors a month, but they are nowhere near satisfied.  Dan believes 5 million visitors per month is completely achievable in the coming years and is excited by that vision.  That would mean there are “five million out there using the resource we created and learning something from it and being able to make better sustainable decisions as a result of this distribution platform that we created…The real potential for impact is very exciting.”

Click here to listen to the audio or read the full transcript of our interview.

[Originally posted to JustMeans]