Cynthia Typaldos Interview_02

Part 2: Working with Investors and Employees in a Startup

SA: Let's talk a little more about your entrepreneurial history… Both of your startups, GolfWeb and RealCommunities, were acquired. Why the decision to get acquired vs. continuing to build it yourself?

CT: In the case of GolfWeb we truly had no choice. Our second round VC investor insisted as part of the deal that we bring in their hand-picked CEO. This CEO was not appropriate and ran the company into the ground. So the first round VC sold the company to Sportsline thru his buddy at another VC firm who was on their Board of Directors. All of common stock was squeezed from 22% to less than 4% because of liquidation preferences. What my co-founder and I didn't get, which was a great lesson to learn, is when you do a deal with the VCs you are back to being an employee. So you'd better make sure they are highly competent and ethical.

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SA: What about the RealCommunities-Mongoose Technology deal?

CT: We didn't have VCs then, but rather angel investors, which was actually a great experience. Nearly all of our 40 angel investors were solidly behind the company and a number of them were actively involved. But in the latter half of 2000 it was time to raise $3-$5M in addition to the $1.6M in angel funding and $1M in customer cash (for product). Unfortunately, that turned out to be the worst possible time to raise money. We met with lots of investors, mostly VCs (and despite my complaints, there are some good ones out there), but no one would invest in us. We didn't know at the time that they weren't making any investments at all.

So, in order to go to the next level we had to do some type of business deal that injected cash into the company. Since fund raising was not possible, we explored the acquisition route, which has worked out well, especially when you put it into the context of what happened to most companies over the last 18 months. Mongoose Technology is alive and well, has reasonable funding, and the RealCommunities products have continued to be designed and implemented. It was also very important to me as an entrepreneur who had persuaded outstanding people to join the company that they all had job offers from Mongoose Technology. No one was laid off as a result of the merger.

SA: 40 angels - how in the world did you find that many?

CT: They were at all different levels of investment, from $250K down to $5K. You need a big network to haul in so many angels. What was really gratifying is they helped us out with a bridge loan too.

SA: Some people think that having that many investors would be a nightmare to manage, but you made good use of them. How?

CT: First of all I communicated with them on a regular basis, at least every two months - when we were running out of money, every week or two weeks. That way they knew what was going on and how they could help us. Most of them were in the industry and had connections, professional skills, etc. that could be utilized. The only investor that turned out to be a problem was a person I did not know. He was brought in by the other investors. And actually 39 out of 40 being "good" investors is an excellent success rate. You have to expect problems whenever you are doing business. It's just a normal part of doing business.

SA: Any ideas how you could've avoided that one?

CT: You really can't. It's the same as when hiring employees. You will still make mistakes.

SA: Let's talk about that... What about building a startup team? I know you were very proud of the group you put together at RealCommunities. How do you make sure to hire the right people? And how do you develop them?

CT: Ideally though you have processes in place that allow quick identification and removal of these "mistakes". What's important in a startup team is that the people are passionate about what you are doing. So you look for that first. They may not have it when you first interview them because they were not previously aware of your brilliant idea! But there should be something that resonates with them that makes it clear they care about the space you are in.

Next, you have to have people who will respect your authority and vision. This is especially important for founders and CEOs who do not fit the traditional CEO mold (e.g., women, minorities, handicapped). There is nothing more disruptive in a start-up company than an employee who constantly challenges authority.

Next you need great attention to detail. There are ways to ferret this out but I won't go into them now. Never ever hire anyone as part of your early startup team whose attention to detail is not outstanding (or who you believe can be taught). Otherwise everyone else will be cleaning up after him/her and resenting it too. Of course, they have to be competent in their functional area too.

One last thing - they must not be risk averse. If they are hard to attract you actually don't want them. My worst mistakes were in hiring someone who I had to lure. They were trying to tell me something by being hard to get. These people may be absolutely fantastic in a stable corporation but quivering jello in a startup.