SOMETHING YOU MAY NOT ALREADY KNOW
Said says that the information that’s really important for a business plan is what helps somebody else understand the gist of your business: your market, why your customers would be interested, why would they want to pay what you think they would pay. What is not useful is having a lot of pro forma information where stuff could be true or not be true about any company. A good business plan is more likely to be four, five, six or seven pages as opposed to forty or fifty pages.
ROB: This is Rob Hassett for btobmagazine.com, and today I’m going to be interviewing Said Mohammadioun who is the managing partner of Tech Operators, LLC. Tech Operators, LLC is a venture capital firm. Said, good morning.
SAID: Good morning, Rob. How are you?
ROB: I’m doing good. How are you doing?
SAID: Very well, thank you.
ROB: Now Said, I know that you were previously an entrepreneur. You were the CEO and founder of Samna Corporation which developed one of the best word processing packages for the personal computer. You ended up selling out to Lotus, right?
SAID: That’s correct.
ROB: Right, and you also were the CEO of Syncrologic, right?
SAID: That’s correct.
ROB: And that helped sync phone data on phones that were on the Verizon service to computers, right?
SAID: That’s right. We provided a service through Verizon to sync your calendar, contacts, and e-mail, so if you had a e-mail capable phone, other than Blackberry, and you wanted to have your e-mails pushed to you, that was through our service.
ROB: And you sold that company to Nokia?
SAID: Eventually, we combined with a company called Telesync and then sold the whole thing to Nokia.
ROB: Said, who are the other partners of Tech Operators?
SAID: My partners are Dave Gould, a former CEO of Witness Systems, Tom Newnan, a former CEO of Internet Security Systems, and Glenn McGonnigle, a former CEO of Vistascape.
ROB: A strong group. And how much have you guys raised approximately?
SAID: We’re not finished yet. We are hoping it will be somewhere around 30 million dollars.
ROB: What size investments are you looking for?
SAID: We’re looking for investments, companies that are early stage but past the concept period. We’re looking for companies that have their product or service up and running, and have some number of customers, perhaps revenue of a million or two million dollars a year. We think our money and our background will be helpful to businesses and that’s where we can make the most contribution. Our investments initially may be one or two million dollars, but we expect that over a period of time, it’ll end up averaging about four millions dollars per portfolio
ROB: And what industry are you targeting?
SAID: Software. Computer software, and specifically we’re looking for software as a service. We like the small business market a lot, so we ideally are looking for software as a service to the small business market.
ROB: And what is the advantage of software as a service to the small business market that you like?
SAID: Well, software as a service in general is a good way of delivering an application to businesses because you can basically have a much, much higher effective rate of success. The software is operated and run by the people who designed it, basically the people who are experts at it, and the businesses don’t have to go through a learning curve and they don’t have to spend their resources doing things that are not business critical to them. The function of the software may be business critical, but running it and maintaining and so on, should not be. This particularly applies to small businesses because small businesses don’t have IT departments, so they basically live vicariously through the services of part-time consultants or people who they know. So they don’t end up spending a whole lot of time making sure that their computers and the data is well taken care of. So for them, offering computing in general as a service is very, very important.
ROB: And it’s provided over the internet; is that how it works?
SAID: That’s right. You’re connected through the internet, and basically all you need is the PC and a broadband connection.
ROB: And you don’t need a server in your office?
SAID: You specifically don’t need that server in your office; and therefore, you don’t need anybody to take care of it.
ROB: It’s all taken care of at the site of the vendor, is that right?
SAID: That’s correct.
ROB: Said, I know you’ve mentioned this before and you alluded to it a minute ago, but what will you actually provide besides money?
SAID: Our name is indicative of the strategy we’re trying to employ. We’re all operators of companies; we’ve owned businesses in the technology market before, and what we want to offer to companies is money, but also the availability of us as experienced operators and our network. We’ve worked with a lot of very good people, so we think we would be particularly useful in the stage of the company where the concept is proven and you know there’s a business, and the execution is the key point. We can help them grow faster and maybe skip some of the mistakes that we’ve made, help them find the right people, help find distribution, help with strategy, you know to whatever help they feel they need, we are very likely to have had that experience before amongst the four of us.
ROB: Will you guys actually visit your clients on a regular basis? I said clients, the companies you are investing in on a regular basis?
SAID: Yeah. We expect to be quite available to our portfolio companies to the extent of, if they wanted us to spend a day a week with them, we’d be happy to do it, as opposed to a typical venture investment where you tell them to show up for the Board meetings and maybe make a couple of calls in between.
ROB: As far as the money you’re putting in, what form of investment do you expect to make?
SAID: It will always be in equity form, preferred stock basically which is a normal easy type of instrument.
ROB: And you’ve mentioned to me before that valuation as a criteria for a potential portfolio company is overrated. What did you mean by that?
SAID: Well, what I meant was that entrepreneurs, and sometimes venture capitalists as well, tend to focus on, you know, to put an inordinate amount of focus on evaluation of the investment process. In my humble opinion, it’s a misguided focus. You know, valuation has to be in the general ballpark, but whether it’s a little bit less or more is not all that important to either side. What matters is whether there’s a good fit. If you have the right investors and they help you, then you end up winning. And if you win, everybody comes out okay. And if you don’t win, it really doesn’t matter what the valuation is. So it’s not the critical success factor.
ROB: Said, in deciding whether to invest in a company that meets your general criteria as far as the one or two million a year in income and meeting the SAAS model, what are the factors that would make you choose one company over another?
SAID: Well, there are some markets that we know a lot more about than others. We know that two of my partners have strong security software backgrounds. My background is enterprise software and mobile software. Dave’s is primarily enterprise software, so those are areas that we know reasonably well, to the extent that some things in those areas are easier for us to evaluate. It’s more comfortable, as opposed to other software where we have to learn the space. Our experience still applies, but in a more general way. We’re basically looking for software with viable markets. We think there’s a lot of possibilities and services that would be good for small businesses. We’d like to have specialized apps for enterprises that are interesting and have a lot of growth potential. Other than that, we’re hoping to look at all software services.
ROB: How important is the business plan?
SAID: You have to get the gist of what your business is across to your perspective investors, but it doesn’t have to be a big long document. The information that’s really, really important is what helps somebody else understand the gist of your business, understand the gist of your market, why your customers are interested, why would they want to pay what you think they would pay, what is the competitive landscape, etc. What is not useful is having a lot of pro forma information where stuff could be true or not be true about any company. That really doesn’t serve a purpose being in your business plan. It just adds bulk and hides the more germane factors that we really want to learn. So I’m perfectly fine with a business plan that’s four, five, six or seven pages as opposed to something that’s forty or fifty pages.
ROB: Do projections matter to you that are in a business plan?
SAID: Having a model matters, but there has to be some substance behind it. Projections that are just exercises, operating a spreadsheet, don’t add anything; we all know how to do that. But the model that has some substance based on real data from the market is very smart. And if they haven’t done one and we’re interested in the company, then we’ll help them do it.
ROB: And it sounds like you really want the principals of your companies to understand their market.
SAID: That’s the key to any business’s success. Smart ideas, hard work and money, all of those help, but you’ve got to understand your market. To be successful, you’ve got to figure out what it is that your customers are willing to pay for and other factors that are market related.
ROB: Said, what do you think about these broker groups that tell entrepreneurs that they’ll try to find the money from venture capitalists? Do you believe they’re helpful?
SAID: In most cases, I don’t believe that’s very helpful. It depends on how much money you’re trying to raise. At later stages where some company’s looking for tens of millions of dollars in a single capital raise, it makes some sense because your type of investors change and so you can have a banker who takes you to different kinds of institutional investors. But for early stage companies, I think most venture capitalist are not predisposed to want to deal with a broker. They want the money that they invest to go towards growth in the company. They’re unwilling for that money to pay for intermediary fees and so on. And generally, you know, if you’re an entrepreneur, and you understand your business, you’re supposed to be able to go out there and pitch it to people. If you can’t do that and you have to have somebody else do it for you, then perhaps that’s a different problem.
ROB: Are referrals helpful from lawyers or accountants or others?
SAID: The referrals are helpful because … because depending on who’s referring you, then you know that the company’s already made it through their filter, so referrals are helpful.
ROB: Said, if somebody is in a field other than what you’re targeting, other than software as a service, would you consider investing in them?
SAID: It is unlikely. If it is still software, we might because we understand the market. If it is something other than software, then it’s very much not in our park.
ROB: Said, if anyone believes they fit your criteria and they want to contact you, how would they reach you?
SAID: Well, the best way would be through our website. We have a website called techoperators.com. There’s a way to contact us by e-mail there. They could either send it to me directly at email@example.com, or just send it directly to firstname.lastname@example.org, which makes sure that two or three of us actually see it.
ROB: Said, thanks a lot for being available today. I think this is going to be very helpful to a lot of entrepreneurs.
SAID: I hope so. It was a pleasure talking with you Rob.
ROB: Appreciate it.