Zelkova Ventures

On August 17, the Syracuse Sandbox, a startup incubator, held their demo day, which was broadcasted live. The sandbox is an ecosystem overflowing with creativity, 71 mentors and 21 teams of entrepreneurs’ ages 18 to 54. Currently, 9 schools participate in the program but the Sandbox hopes to extend their sponsorship to a myriad of others such as Cornell and RIT. The 12 week long journey prides itself on developing creative ideas by providing applicants with the correct set of tools through coaching, mentoring, access to professionals and investors as well as educational programs.

The Sandbox proves to students, they don’t attend school to obtain a job but to acquire the skills necessary to create their own. With a greater admiration for entrepreneurs, the “sexiness” of startups was elucidated with a great quote, “with a good idea, everybody says they will be the next Mark Zuckerberg.” While the startup community is often associated with youth, the sandbox is not just for kids. Men and women of all ages can grab a shovel and brainstorm on the next .com success. The 17 of the 21 teams that pitched were judged by 3 judges.

Here is an overview of the 17 companies that pitched at demo day:

ActivMusic

• A concert booking media company, which strives to revolutionize the music fan experiences by makings fans “no longer hostages at live events.”
• Fans and musicians gain value through interactive communication between one another prior to and post concerts

Collegearts.com

• An online gallery for college artists of all forms varying from music to photography
• Portfolios can be viewed, managed and submitted to professors.

Tagglynx

• A new social layer, which enables users to have discussions while browsing, shopping or researching on the web
• People can engage in real time conversations creating a more interactive twitter-like conversation in their browser sidebar.

Persona

• Users can customize the content of their contact card based on whether they met someone at a bar or at a work event. The person’s contacts are integrated into your phonebook and updated based on any contact change.

GroundSwell

• A platform for users to create social agendas where they potential plans can be uploaded and categorized as going out, staying in or studying. People can decide their course for the evening on one platform versus communicating individually with multiple people.

VenueSpy

• Venuespy provide users with a sneak peak at a venue before attending an event.
• The service is free, viral an enables venues to have their own promotional channels, which they can manage to their likings.

Cansforcauses

• Cansforcause builds solutions to empower users to re-cycle.
• Depositing incentives aim to perpetuate recycling efforts.

The Front

• The Front aims to transform abandoned stores in the Syracuse area.
• Students who wish to put their scholarship into action through revitalizing their community can do so with the Front.

OnePlace

• A place where agents and all the other tools necessary to achieve celebrity status can be managed.
• OnePlace can be considered a virtual talent agency.

Stampede.It

• Stampede.It attempts to conquer Groupon issues and powerfully combines group buying and daily deals of digital goods such as e-books and software.
• The concept lowers companies’ risks and increases users buying power.

AnimAnalysis

• AnimAnalysis attempts to improve users’ personal physiology, athletic performance and leads to a healthier lifestyle.
• Each user is identified with a specific animal in hopes to better understand the human body.  by identifying each person with an animal.

Verve

• Verve solves a transportation issue with a pre-paid door-to-door 24-hour taxi service.
• Verve provides students with an alternative to expensive taxis and modes of transportation, which can be deemed unsafe at night. Sharing sites with friends just got easier.

WriteFlick

• Users can highlight, draw and select parts of websites, which they wish to share.
• Multiple aspects of the site can be simply shared without having to copy and paste URL links in a separate browser.

Proactive Computer Services

• Proactive Computer Services, provides a variety of services all in one place.
• The services include: web design, security and project management as well as computer consulting.

DownUpDesign

• DownUpDesign is a mobile app and web development company, which constantly has “cool” projects and even created apps for some of the sites in the sandbox.
• A few of their projects include: Car Safe, which helps solve the texting while driving issue by setting the airplane mode in phones when driving 15miles/hr or more. Users incentives include accruing points, which lower your car insurance when using the ap. Kickspinner, is a shared photo gallery, which can be synched among multiple devices. Their last project CampusSnaps, lets students know what’s going on at their school.

Helios Medical Technologies

• Helios Medical Technologies designed a medical device, which concentrates on sterilization in hospitals.
• The patent pending technology S1 sterilization system prevents cross contamination of door handles using motion sensors.

IGetMoreFit

• IGetMoreFit syncs iPhones or iPod touches with four wireless fitness sensors (weight scales, heart rate monitors, foot pods and ANT+ multi-sport GPS.
• People who crave healthy lifestyles can now transform their iPhone or iPod into “the ultimate all-in-one fitness computer.”

Here are a few of the top tweets this week from the Zelkova portfolio.  Follow us on twitter @zelkovavc for more great tweeting.

While on a trip to New York, Jason got seasoned VC Jay Levy of Zelkova Ventures for a man-on-the-street talk about the state of the market, why NYC is a great place for startups and how Jay knew not to pass on Klout.

A Ponzi Scheme is unfolding right in front of our eyes.  Chances are nobody will wind up sharing a cell with Bernie, but it could ultimately crush the growth of the venture and startup industry.

Here’s why it happens: insider pricing rounds, when financing is led by existing investors, creates a natural conflict of interest; as many times, it’s in the insiders’ best interest to inflate the values.  The inflated values allow the investors to show paper gains to their LP’s on their existing investment, which makes their LP’s happy, thereby making the GP happy.  This also makes the founders happy as it’s generally easier to raise money from existing investors, and most entrepreneurs feel a higher valuation is better, something I’ll dive into in a future post.

The sham is being perpetrated by existing investors who price follow on rounds.  To make things worse, since angels are so eager to invest right now, they are essentially ‘validating’ the high valuation.

Below is a realistic example of how the scheme works:

The Setup

A startup raises a $500k seed round on a $2m pre-money followed by a $1m round.

The Analysis

The table below shows the outcomes of raising $1m on $5m pre-money valuation and a $10m pre-money valuation

The Result

The example shows that the fund has an incentive to go with the higher valuation, as the net result of the value of the full investment is 50% higher.  Further, while not shown above the value of their 1^st investment is 100% higher by increasing the pre-money from $5m to $10m.

Unfortunately, this situation is happening pretty regularly right now, and in the long term will prove to be detrimental to founders, vc’s and angels.

We live and work in an extremely “networked” world, which has altered how we interact with people personally and professionally.  As a result, our ability to ask for help as well as receive requests has beensignificantly leveraged due to our accessibility with many people.

Think about how often you or someone else has asked for a favor in the past day, week or month? These favors include:

• Can you help spread the word by sharing this link or retweeting this message for me?
• Can you recommend a subject matter expert to help me solve a problem?
• Can you introduce me to someone in your professional network?
• Can you help me fill or find a job?

How have you asked (or been asked) a favor? Probably one of the two ways mentioned below:

• Some people make these requests one-to-one: face to face, via a phone call or by email. While the chances of fulfillment are high due to the personal nature of the interaction, it’s not the most efficient process.
• Some people make those requests on a one-to-many basis: on Facebook, LinkedIn, Twitter and other social sites. That’s also good, because those networks are force multipliers, which spread messages faster and reach more people. On the other hand, this method is impersonal, so fewer people (per capita) are likely to fulfill that request.

Neither method of requesting or answering a favor works perfectly well. There has to be a compromise between the two systems. These requests can be made more efficiently, powerfully and still maintain a level of intimacy. The bridge is Favo.rs .

Favo.rs is the newest addition to Zelkova’s portfolio and is not another social network. It works in conjunction with existing networks allowing professionals to broadcast and fulfill each other’s help requests. Requests can be as simple as a retweet, or as important as an intro. And each time a request is granted, Favo.rs records the exchange enabling both parties to constantly see how they are building and exchanging social capital with each other.

Most significantly, however, Favo.rs facilitates building relationships between professionals who are unfamiliar with each other. I’ll use myself as an example. As an early stage VC, I have a constant stream of help requests from people I don’t know, or don’t know well. While I always try to be as helpful as possible, I also have to establish a filter for who gets priority and who doesn’t. Usually, this filter is based on a rough mental calculation of my relationship with the person who made the request, but if I don’t have any connection to the person, I am stuck.

Favo.rs eliminates being “stuck” because you don’t know how to proceed with someone you lack a relationship with. Once you join the Favo.rs beta, you’ll be able to follow my public requests and myself. I might ask you and my other followers to tweet and share this blog post, or I might ask someone to refer an expert who can help one of Zelkova’s portfolio companies. Every time you fulfill those requests for me, you’re building social capital with me. And when you have a request for me, I’ll be able to see that you’ve helped me in the past and deserve higher priority. Pretty simple, huh?

I’m really excited for Favo.rs. not only because I think it’s a great company, but also because I think it’s going to help us all be more effective at helping each other. I hope you’ll join me by signing up for early access to the Favo.rs beta now.

PS: Favo.rs will be opening up its beta in just a couple of weeks. If you signup by May 10th, you’ll get a priority invite code so you can check it out early.