June 2009
Cruel Summer?
Starting up a business during the lazy, hazy days of summer may have unexpected advantages
Summertime and entrepreneurship seem to go hand in hand for kids. After all, the quieter days of summer vacation are an ideal time to try to make some money by selling lemonade, mowing yards, or babysitting.
However, for adults, the myth that summer offers a poor climate to launch a start-up looms large. After all, it is widely rumored that VCs all vacation in August, bringing deals to a complete halt. Or that it's nearly impossible to get necessary groups together for meetings because inevitably someone is away. Or that it's just harder to get phone calls returned, as people have downshifted into a slower gear during those months.
While some of those challenges are certainly real some VCs and entrepreneurs say that it can actually be a great time to get it started. Wharton 1997 undergraduate alumnus, WEP lecturer and managing director of Susquehanna Growth Equity Amir Goldman says, "June and July are very busy for deal activity, especially this year when the first half of the year was basically shut down and there were almost no transactions, acquisitions or investments. There is this pent-up demand to fund companies and put money to work and we will see a lot of activity this summer."
However, he notes that it is true that August is slower in the VC world. "When thinking about fundraising as a four or five month process, entrepreneurs should plan to start in May or June, take a break in August through Labor Day, and then they will be off to the races. It's not a reason not to start in the summer, but they should build that into their planning," he says.
1999 Wharton MBA alumnus John Tedesco, who launched both PayMyBills.com and Contigo over summer months, points out that the slowness of summer actually facilitates conversations with VCs and other influential people who might provide feedback ons or sit on advisory boards. It may actually be easier to get past traditional gatekeepers in the summer and find people feeling positive and willing to help out. By getting on VCs' radars in the summer, he says, you can then spend the next few quarters executing your plan, building confidence, and proving your business model.
Tedesco recalls that his first experience with launching PayMyBills.com in the summer of 1999 was like "drinking from a fire hose." He says, "We were at ground zero in terms of the Internet and over the next three months we closed on $5 million in financing, had a team of close to 30 people, and had launched our service by the end of August. It was unique to have so much momentum leading into the summer and probably a once-in-a-lifetime type of summer because it was the height of the dot.com bubble and a crazy time for everyone."
Tedesco, now president and CEO of Contigo, which develops and manages a location-based services platform for asset-tracking, fleet management and personal safety applications says that starting up his current venture in 2002 was more akin to a dripping faucet. "The world moves at a slower pace than you want in the summer and you need to have patience and money in your savings account to hold you over. And you don't have the same support network that people have in traditional jobs because you may be working from home. Every day can be long, so you need a group of people around you who understand what you are going through," he says. "Work with your cofounders for emotional support." Tedesco's work did eventually pay off and he raised seed funding of $100,000 in December 2002 and another $1 million the following year.
Alex Campbell, who graduated from Wharton's undergraduate program in 1998 and launched VibesMedia a few days later in Chicago with a friend from high school, agrees that it may take longer for phone calls to get returned or contracts to be negotiated in the summer when people are away on vacations. However, he says that he couldn't afford to focus on the drawbacks of summer. "When we launched, it was get out there and go time. We needed to get some revenue coming in the door as our first priority. We needed to eat! It didn't matter that it was summer--we would have started right away regardless of the month."
He adds, "We always heard that every VC goes on vacation for the month of August, but they seem to work while on vacation. So if you get that excuse and you aren't getting through in August then it's probably not because they are on vacation." Campbell, now CEO of VibesMedia, which provides mobile marketing applications and services, notes that they closed on their first round of funding, $15 million, from Fidelity Ventures last September.
Wharton MBA alumnus Neel Premkumar, who founded Creative Hub during the summer after his first year at Wharton through the Venture Initiation Program (VIP), says that the "business school summer" is a great time to try to launch because of the low risk level. He explains that students can always change their minds and apply for traditional jobs later. However, the launch worked for Premkumar, who spent the summer talking to potential customers, seeking feedback on his business, and raising money from family and a few angel investors.
By the time he graduated, his business, an outsourced creative services shop developing Web, print, and graphic work, was already set in motion with a team of people and funding.
However, Premkumar says looking back now, he would have waited to raise money until after graduation. "The more money you raise, the more equity you give up. Our investors are happy, and we kept them in the loop, but my current business model has the potential to raise a lot more money than the original model. It would have been nice to have waited to raise money after graduation and started fresh," he says.
Other benefits of starting up in the summer, adds Campbell, include free help from students looking for internships and plenty of apartments to rent if moving to a new city. "If you are waiting to start a company because you think the summer will be bad then you seriously need to reconsider whether this is something you want to do. In the grand scheme of challenges, the summer should end up low on the list."
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Posted June 2009