OnSet Ventures
...umb”: 1. They will not lead a start-up in an industry where they don’t have the ability to reinvent a business model. 2. They will only invest in a deal where they have a local presence. 3. If a company needs more that $30 million of private capital then it is not an opportunity for them. 4. They will not invest in a deal that is “under the spotlights”. TallyUp TallyUp was a software company that has worked with ONSET since August 1996. Initial meetings with ONSET involved an inexpensive internet billing system, which was determined not to be feasible. TallyUp then developed a sales force compensation system software, which caught ONSET’s attention and is the subject of this case analysis. ONSET’s “Factors that create an attractive opportunity” 6 principles were distilled from an analysis of 300 separate investments. ONSET was founded based on these principles. First, a full time mentor who has actually run both a start-up and a larger business and who was not part of the company’s management team drastically increases the success rate of the opportunity. The second principle related to whether or not the business continued operating based on its original business plan. Successful companies almost always changed their business model as they progressed. Third, do not prematurely hire a CEO. The CEO should be hired after the business model is refined. Fourth, money should only be spent to add value as perceived by those individuals providing the next round of investment capital. Fifth, there has to be a want and not just a need for the product. The company must have a unique reason to succeed. Finally, you cannot succeed with ordinary people. Facts Stated Companies were spending $100,000 to $200,000 per year on managing the administration of sales force compensation. Implied Companies would be willing to pay hundreds of thousands of dollars for a sales force compensation system. Problem Definition Source Problems Is the TallyUp sales force compensation system worth investing in? Secondary Problems How much money should they accept for the latest fund and what financing approach they should advocate for TallyUp? Alternatives • Do nothing. • Mitigate risk and invest in TallyUp for as little money as possible in as short a period of time as possible. Criteria Two critical issues quickly surfaced. First, a subject-matter expert in the compensation field was needed to work with the team on product design, to set up and lead discussions with potential users, and to give TallyUp credibility with customers. Second, was whether a sales force compensation system could be designed as an off-the-shelf product. Solutions After determining that a full-time person would not be required at this stage and after interviewing over 30 people, Jim Finkelstein was hired. He was a director of compensation at Pepsi-Cola and compensation consultant at Towers Perrin before starting his own compensation consulting practice. ONSET negotiated a combined cash and equity-based compensation package with Finkelstein. It was determined that the compensation system could be captured in an off-the-shelf product. Implementation and Follow-up Once incubation began, Darlene Mann acted in a day-to-day CEO role for TallyUp, working to achieve the five goals that she and the management team had established: 1. Validate, size, and segment the market • The team estimated the market for replacing existing dedicated sales force compensation systems to be around $400 million. 2. Bring the product to the beta stage • This was a critical decision. Should ONSET invest an additional $1,000,000 into TallyUp to develop a beta version of the product, or should TallyUp go out to the venture capital community at the current stage-without a product-to raise $3-$4 million for both...