With 18 years of experience as a serial entrepreneur, Jonathon Perrelli founded Fortify.vc to provide seed and early stage capital to startups based in the DC region. As a MindShare CEO, Jonathon understands the value of the network and active participation by mentors. He and his team have spent the past year building up and closing their first venture capital fund, creating pitch events where they give away cash with no strings attached, and opening an accelerator in DC. We were fortunate enough to speak to Jonathon and his Fortify.vc General Partner and co-founder of TheFort.vc, Carla Valdes and asked them a few questions about their model and the DC ecosystem.
Tell us about Fortify. What makes you unique?
Jonathon: Fortify.vc is unique because our team is comprised of serial entrepreneurs and experienced angel investors. When we started investing in the Spring of 2011, I was asked what the goal was for Fortify.vc and to this day it is the same; to have significant deal flow of early stage investments that are distilled through our pitch competition format, and to help evolve the startup ecosystem in the DC region by making hundreds of investments over the next 10+ years.
Carla: At a time when founders and entrepreneurs were desperately in need of earlystage seed capital, we were able to write checks to fund them. Startups are in need of more than just capital and our team has been there to assist and guide our portfolio companies wherever needed.
Jonathon: While building our portfolio over the past year, and during our first six months running an accelerator, we have found that it is the strategic and operational advice that some companies need more than capital.
Carla: Being funded by Fortify.vc has become validation for many local stage companies. In many ways, receiving startup capital adds a level of assurance internally to a founding team and signals to angels and VC’s that a company is growing and worthy of capital. Founders like to know that we are going to be there to support them during the rollercoaster ride in startupland.
Jonathon: What makes Fortify.vc unique is what we have accomplished over the past year. We have; 1) started and closed our first venture capital fund, 2) created Distilled Intelligence, our pitch competition, and 3) founded and operated TheFort.vc, DC’s first tech accelerator.
Carla: We hope to see more early stage funds and are glad to be seeing more pitch events, and a few more accelerators. However, I would not recommend trying to create all three within one year. We survived it, but don’t try this at home.
What is Distilled Intelligence?
Jonathon: Distilled Intelligence is a pitch competition designed to energize startups and investors. In October of 2011, we held DI 1.0 and hundreds of companies applied to a one day event, where over 50 companies pitched for a cash prize of $25,000. There was no cost to apply and no cost to attend for the selected companies. Investors and entrepreneurs were welcome to attend and tickets were priced appropriately for students and investors. A select group of service providers that add value to the startup ecosystem were also invited to sponsor and attend the event.
Carla: DI is our way of giving back to the community and is also our way of further distilling companies that we will invest in and invite to participate in The Fort (our accelerator) or invest in directly. DI 2.0 will have a cash bounty of $100,000 and will take place on October 11–12, 2012 in DC. We hope to make DI 2.0 a celebration of entrepreneurship for our region. Applications can be submitted at distilledintelligence.com
How much has Fortify invested so far?
Jonathon: In our first year we’ve made 25 investments. Although we can’t disclose the details of our investments, on average our initial investment range is $25,000–$250,000. As part of our investment thesis, we maintain rights to make follow–on investments in subsequent funding rounds. To date, we have invested in several companies in the round following the initial seed investment that was either led by Fortify.vc or that we participated in.
What are some of the biggest mistakes entrepreneurs make when pitching you their ideas?
Carla: There is a very fine line between being focused and confident vs. seeming unwilling to take feedback. Entrepreneurs should be receptive to feedback regardless of the source. Based on the fact that we invest in early-stage companies, we like to know that an entrepreneur is willing to pivot and explore other models and be agile when needed, while still driving towards their vision. Flexibility is essential early on and feedback from mentors and investors has proven to be useful for many of the companies in our portfolio.
Another mistake that we have seen entrepreneurs make is exaggerating the status of their business. Having the vision for an incredible product is quite different than stating that there is a working product in the hands of customers. Having an accomplished team and committed investors is not the same as potential cofounders that will join once the investors commit.
Jonathon: We have only seen a handful of companies that spin their story in ways that don’t compute and I doubt that we will meet with those folks again. Having seen pitches from over 1,250 companies, we have found ways to quickly notice the real opportunities from those that have not yet written a line of code. Our process for distilling companies is quite unique and we can identify which startups have the most promise based on simple data points that they provide for us. Our goal is to be fair and reasonable in order to start out a relationship on the right foot. Tell us what you have, what you hope to become, and where you are in the process. Honesty goes a lot further than most entrepreneurs may realize.
When making a decision on a company, what are the top three things you look for?
Jonathon: Team, product, and market. In real estate it is all about location, location, location. The equivalent in early stage investing is team, team, team. Ideally, we like to see a focused founding team made up of one hacker that writes code, a hustler that drives the business, and a designer that creates an elegant and easy to use product interface. The team should be established and knowledgeable in their industry, passionate and dedicated to their company, and completely committed to fulfilling their vision.
Carla: It’s one thing to tell us what we want to hear, which is that you want to change the world. However, it’s entirely different and more appropriate to tell us that you will change the world and show us how you will do it.
Jonathon: Second to the team that will change the world, we need to see a market that is huge and growing and that the team truly understands. Relationships in the market as well as a path for the business and the ability to execute are critical. This is where the Fortify.vc team has and will continue to add value to our portfolio. Not only have we picked up the phone to make calls on behalf of our companies, we pack our bags and travel with them to customer, partner, and investor meetings.
Carla: One more thing to mention is that we require a company to have a working prototype at a minimum. The vast majority of our investments are made in product companies with traction and we like to see revenue.
What are some of the risks of backing early stage firms?
Jonathon: As investors in enterprise software, mobile commerce, cyber security, and consumer internet platforms, there are risks that vary by industry, while some risks are common across the board. In addition to helping founders work through common issues associated with all startups, such as product risk, partnership risks, and the risk of future financing, It is also our goal to assist founders by addressing risks that are less frequently discussed, such as personnel and strategic risks. Startups at the early stage depend mostly on the success of their team and as the earliest investors in most of our deals, we focus on finding and nourishing the right individuals and teams. Personnel risks are really the most impactful to a small company, so we do our best to support and provide assistance in selecting team members and fostering the development and growth of the team. We have also provided support leading up to and during the challenging yet essential times when team members exit.
Carla: It is our preference to fund reasonable individuals that communicate well with one another and show mutual respect. We have passed on deals where founders didn’t even get along during their pitch meetings to us. We have also passed on deals where the founders did not treat their employees respectfully. Our philosophy is centered on our motto, ‘Founders Funding Founders’ and we work side-by-side with founders, so we prefer to get along with them and want to make sure that they are good leaders who care about their teams.
Jonathon: Sometimes risks are mostly within the control of founders, such as cash flow, hiring, financing and, in many ways, technology risks. Market and timing risks are most often outside of the control of founders.
Although capital is a critical component for startups and most will not achieve their product-market fit without funding, it is the face-to-face time with investors, mentors, and advisors that can often be more critical than the investment. It is amazing how involved folks (specifically advisors) will become once they have actually written checks to fund a startup.
What are some of the trends you see in D.C. How does this city compare to what’s going on in Silicon Valley?
Jonathon: Every market has variables that make it unique. There are incredible startup markets and entrepreneurs thriving in places such as Austin, Indianapolis, Denver, Boulder, Philadelphia and, in our region, places like Richmond, Raleigh-Durham, and Blacksburg.
Dozens of markets around the country and the world are evolving their startup ecosystems because we have entered the Age of Innovation. Similar to teaching a farmer how to use tools during the Agricultural Age, we need to teach more entrepreneurs to write software today.
DC will never be Silicon Valley, but the valley will never be DC. We need not compare why one is better than the other, rather, we need to support and learn from each region. We are seeing a significant increase in innovative and creative startups and some of the most advanced technologies in the world are being developed right here in our region, by some of the most energetic and brilliant entrepreneurs.
Carla: We are seeing more and more new faces in startupland every week. One critical success factor for the DC region is that jurisdictions and organizations supporting startups must work together to foster entrepreneurship. One of the greatest joys for us since starting Fortify.vc and The Fort is the overwhelming and positive response from the community in support of these efforts.
Why D.C.? What makes this city a good place for what you do?
Carla: First and foremost, because this is home for our families. The DC region has a truly unique set of characteristics that make it a great place for early stage, innovative companies. Jonathon: DC has an incredibly talented and diverse workforce. The ingredients needed to create the highest chances for startup success are: easily accessible technical training, a skilled workforce, collaborative workspaces, capital, and an ecosystem that supports risk takers. We are starting to see the right combination of these attributes regionally and that makes our area an ideal place to launch a startup. More affordable office space that is convenient for commuters, along with a more active angel investment community are also critical.
Where do you see DC in the next decade?
Jonathon: The DC region will continue to develop as a high-tech center for innovation and creativity. Our area is very family friendly, and the economy has been fairly well insulated, thanks in large part to federal spending. In the months and years to come however, Uncle Sam will not be growing in the same manner and a reduction in defense and federal spending may force more hackers, hustlers, and designers into startupland. We welcome these folks and we are confident that the ecosystem will be ready for them.
Carla: The DC area is and will continue to be an attractive place for people to move and is a wonderfully diverse community for folks to settle in and stay. Although Fortify.vc does have plans to expand to other markets, we plan for this to be home to our core team and our headquarters.
Tell us a little about the companies operating out of the Fort.
Jonathon: As challenging as operating an accelerator has been, I would not trade the past six months, as the experiences were priceless.
Lemur winning the NVTC Hottest Startup award was exciting, but watching them work as hard the next day as any other day was just as awesome as their winning. Lemur plans to disrupt retail and they’ve built an incredible team from just two individuals in January to over twelve people. Speaking of growth, Social Tables, recently featured on CNN, has grown from a single founder six months ago, to several employees working together to disrupt the event management industry. Hinge is making matches through friend of friends via the Facebook platform and their approach to social question gaming is truly addictive. Speaking of matching, CoFoundersLab is the online platform for matching founders of startups together. They also have real world events in a number of cities and CoFoundersLab has already acquired two of their largest competitors!
Carla: Some of The Fort companies have technology with a lot more to offer than what is visible to the outside world. Slowly but surely, they continue to grow their client and user statistics and are now well–recognized brands in their respective industries. Feastie offers a recipe search engine for blogs. Klaggle has a resonance platform that powers large content and media resources. NextGame helps people connect and participate in their favorite activities. HugeFan provides a medium for fans to meet celebrities over unique experiences. Saylo offers a platform for local search and chat. Uppidy helps users store, search and manage text messages.
Jonathon: Forensic Innovations has a unique cyber security product for high tech investigators, prosecutors, and national security agencies and is leading the revenue charge at The Fort. Venga has experienced the most amazing pivot that we have seen and they are increasing revenues daily with their restaurant loyalty and analytics platform.
What have been your biggest surprises and disappointments since starting Fortify?
Jonathon: When we opened the accelerator program and invited the first dozen companies to participate, we envisioned it as a 12–month program. A few months in we were pleasantly surprised to see that several of the companies were getting so much traction so quickly that they were ready to move out. So, at the six month mark, we actually had some of our companies “graduate.” At the end of June we held our first Investor Day, (DC’s first ever Accelerator Demo Day), where The Fort companies pitched investors for follow-on funding. We are proud to report that going into Investor Day, over $2,750,000 had been raised and it looks like over $5 Million will be raised in the Fort’s Inaugural Class. As challenges go, it’s actually the other side of that same coin. When a company moves out, we miss seeing them every day, but at the same time we are really excited to see their progress. Not all companies succeed and hopefully those that do not will have the nerves and knowledge to try again someday.
Carla: One of the greatest outcomes is the founder network that has been created and the assistance that the Fort companies provide to one another. It must be obvious that we are indeed proud of the companies and their accomplishments. We are just as proud of the relationships that have developed between the founders that will last well beyond their time that was spent together at The Fort.