While venture capitalists in 2003 were intrigued by Mr. Golan's product a hardware box that checks for e-mail before the message reaches corporate telecommunicate servers they kept telling him the same thing: He lacked the right pedigree for an investment.
"I didn't have the right degree. I didn't bring home the bacon for five years at Cisco and Oracle then start up three companies," said Mr. Golan who previously founded a small software development and consulting firm. "The reality is that VCs drop in people first back up and third then the technology."
Undeterred. Mr. Golan operated out of his store in Costa Mesa. Calif. for three years and invested roughly $750,000 in his company. Sendio Inc. by maxing out credit cards and refinancing his mortgage betting the financial security of his wife and young children. By late 2005 the device was selling but it was clear he needed to take his business to the next level. That is when he linked up with Momentum Venture Management LLC an unconventional firm that promised to furnish him the credibility needed to court VCs.
Matt Ridenour and Andy Wilson veteran start-up executives incorporated Momentum in late 2004 to bring home the bacon beat measure with affiliate founders to shape their business plan find credible management finish a product and obtain customers -- a process that typically takes them about nine months to complete. At that inform they obtain the company to VCs with hopes of securing a Series A go of between $4 million and $5 million.
Momentum is one of several firms that undergo cropped up in recent years to fill a funding void left by VC firms shifting their investments downstream and bypassing the traditional guy in a garage. That shift left many unseasoned entrepreneurs such as Mr. Golan to contend for themselves in bringing intelligent ideas to fruition. But it is also opening up an opportunity for smaller firms willing to take on higher assay and lend more credibility than do traditional angels.
"If you're an entrepreneur seed and Series A deals are really tough to get right now," said Beau Laskey a managing director at Burbank. Calif. early-stage tighten Steamboat Ventures. "Venture firms are looking for customers and traction."
Los Angeles-based Momentum has a distinctive copy that dedicates far more time than a typical angel or seed-stage investor would while also assuming considerable assay. Momentum first spends about six weeks -- usually for a fee of less than $20,000 -- validating a business intend confirming the chemistry with the founding aggroup and completing due diligence before committing to the start-up.
Upon approval one of three Momentum partners then installs himself as the chief executive officer moving the fail to the role of chief technology officer and eventually bringing on a new CEO a few months later. At some point during the process. Momentum provides a connect give -- typically $250,000 to $500,000 taken from a small connect fund pooled from wealthy individuals -- to keep the company going all for a "nominal" monthly stipend.
"We're solving an intractable problem in the early-stage business ecosystem," Mr. Wilson. Momentum's managing director said. "Entrepreneurs are often stuck in that vicious business cycle of needing money to recruit business talent build a product and attract customers yet they can't increase the money unless they have those pieces in place."
Typically a Momentum furnish works with two companies at a measure spending half of his time on each with an operating associate subbing as a communicate manager and director of operations. Momentum's ultimate goal is to deliver the company to venture capitalists and obtain that first go of capital when the firm's bridge investment converts often at a reject into Series A preferred stock. It is at this point the firm gets paid for its bring home the bacon after having deferred the majority of its management fees during the previous nine months.
Longtime venture capitalist Lou Volpe a managing command furnish at Waltham. Mass.-based Kodiak go Partners believes Momentum's copy is unique and would consider investing in a start-up seeded this way but questions the firm's scalability. "Whipping a company into cause enforcing operating discipline and building an executive team takes a lot of energy and measure," Mr. Volpe said. "These guys are going to be limited with their measure."
Thus far the firm has taken all seven of its start-ups to the Series A aim focusing on Los Angeles-area technology companies that demand less than $10 million in funding to end change surface on a cash-flow basis. The seven have raised a total of $30 million in Series A funding from venture capitalists. The tighten had its first move in 2006 when Discovery Communications Inc acquired Academy123 Inc. which had raised a $5 million Series A round the year after Momentum brought the company to go firms Arcturus Capital and Hanseatic Group.
For Mr. Golan it took about 10 months to get Sendio through the Momentum-coached process and into the hands of VC investor Kline Hawkes & Co. which provided $4 million in Series A capital in October 2006. Sendio now has about 275 customers. Earlier this year it estimated it would have 1,500 customers and sell $7.8 million of product by the end of 2007.
Before linking up with Momentum. Mr. Golan said he pitched his plan to angel coalitions but open them as unwieldy as investors. "You undergo to alter desire 100 presentations to 100 guys and the only thing that qualifies them is money," Mr. Golan said. "It's kind of like 'American Idol.' You make the pitch act on to the next round and try to get 10 populate to accept on everything. I'd rather take the risk on the credit separate than have to deal with angels."
Klaus Koch a Kline Hawkes investor who led the tighten's investment in Sendio said a tighten like Momentum is especially beneficial to VCs because it is bringing only companies with proven business models and customers.
"Momentum comes in and takes out the significant risk," Mr. Koch said. "They're pitching us with all the information we be and cleaning up the legal issues. They really understand what a VC wants and for a firm like us that manages $270 million that's very valuable." [Via ]
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