Articles by Tim Berry

If They Ask You to Judge a Business Plan Competition, Say Yes

I’ve had the pleasure of judging several dozen real business pitches in the past six weeks. Some were pitches for angel investment at the Willamette Angel Conference, an angel group in Oregon. More to the point, others were for the University of Oregon New Venture Competition, the Rice University Business Plan Competition, and the University of Texas’ Venture Labs competition.

Rice Business Plan Competition 2013

The three business plan competitions I participated in were all MBA-level contests organized by the entrepreneurship-related faculties at the three schools. They all invited startups from dozens of different schools, including several from other countries.  Read more

Tim Berry , Founder, Palo Alto Software
May 7th, 2013

True Story: Why We Turned This Deal Down

This is about a deal my angel group turned down.

Tim Berry Good Investment Good Startups Venn Diagram

The software looks excellent. I wanted to use it immediately. There’s urgent and widespread market need. It’s obviously proprietary too. It’s a crowded noisy market, but it feels like this one has a real shot at it. Furthermore, the entrepreneur behind it is proven. The software grew out of the needs of a successful professional service business. There’s relatively low risk of failure.

So why did we turn it down? Read more

Tim Berry , Founder, Palo Alto Software
April 30th, 2013

The Right Way to Not Pay Yourself

Today I received an email asking me to clarify what I wrote last month in Why sweat equity often stinks. The person quoted the sentence in italics below and asked “what does that mean, exactly?” I’m including the whole point because the context helps:

Founders work for less than fair value and record the difference between actual pay and fair value as owed to founders, a liability on the balance sheet. This has the advantage of recording real expenses into the financials, so I like it. But founders asking for outside investment should expect to capitalize that and swallow the liability. You can’t use founders’ labor to justify the valuation ask, and then turn around and get it paid too. You know: cakes and eating? Read more

Tim Berry , Founder, Palo Alto Software
April 9th, 2013

How We Do the Due Diligence for Our Angel Investment Group

Bill Payne had an excellent post here a few weeks ago, Raising Your Hand as Due Diligence Lead for Angel Groups, which starts with a this:

Through Rob Wiltbank’s ground-breaking study in 2007, angels in groups learned that collective due diligence on new deals really pays off.  The 538 angels included in this study enjoyed 2.6X returns over the life of their investments.  However, for deals on which collective due diligence totally less than 20 hours, returns were only 1.1X.  But, deals on which angel put in over 40 hours of due diligence (the top quartile) returned 7.1X to angel investors.  Due diligence clearly makes a big difference for angel investors.

due diligence KendyTV photobucket

With this post I’d like to add some experience on what due diligence means for the angel group I’m a member of (the Willamette Angel Conference, in Oregon). I want to share what, when, and how we do it. I’m not suggesting that our way is the right way or better, but merely that it might be helpful to others.  Our group links the investment to an annual event organized by the local chamber of commerce. That gives us some community benefits, like the awareness that angel investment is available and happens in our community. It also ties us to an annual schedule.  Read more

Tim Berry , Founder, Palo Alto Software
March 26th, 2013

Why Sweat Equity Often Stinks

Somebody asked for standard boilerplate for sweat equity via the ask-me page on my website.

I am looking for a contract template which states an agreement for services in exchange for equity. I was hoping that you would have a template that you can share.

That’s not going to happen. Fundamental sweat equity is beautifully, blisteringly clear, and real. And needs no template or contract. And most other sweat equity is full of potential problems, misunderstandings, and disappointments.

Real sweat equity

Real sweat equity is solid. It doesn’t take documentation; it’s as basic as walking forward. You start your company, create something from nothing, grow it, and the sweat equity value is simple and obvious. For every company owned by its founder(s), sweat equity is a simple formula

valuation
-  compensation taken
—————————————————-
sweat equity

This is the way of the startup world, for the most part. Real life. Be careful, though, as you develop the business, not to underestimate real expenses and overstate profits by ignoring the fair value of the founder’s work. That messes up the analysis.  Read more

Tim Berry , Founder, Palo Alto Software
March 6th, 2013

Big Obvious Failure is Better Than Long Slow Lack of Success

Steve Blank has a good post today called Failure and Redemption, which he introduces with this:

Steve Blank, failure

We give abundant advice to founders about how to make startups succeed yet we offer few models about dealing with failure. So here’s mine.

Steve’s experience was Rocket Science Games, which raised $35 million and a cover story in Wired Magazine before failing. He writes about shock, denial, anger, blame, depression, acceptance, and, finally, insight.  Read more

Tim Berry , Founder, Palo Alto Software
February 26th, 2013