Adeo Ressi Says Problems With Venture Capital Are Grave

PREV 2 of 2

Could the Founder Institute be viewed as competition to some of the other venture models out there? "I am not competitive because I don't take an investment position with cash. I am not competing, in fact I defer to their valuation by using a warrant vehicle."

So, what's it like trying to work with venture investors given your somewhat negative perception in the business? "I deal with the top-30 funds who appear on the homepage of the site and are quite happy with TheFunded because it has changed their reality for the better. It provides a quality filter. And here's the other thing, for those who can get out of their own way in being frustrated, again TheFunded can be a good tool for them because, if they do their job well, it can guarantee their success."

On the economy and what it means for new startup businesses: "I am an optimist, and I do believe that the funding situation will improve. It is easy to build a fast-growing business when the entire economy is growing fast because you grow with it. It is hard to build a fast-growing business when everything is tanking. Whether it is the bottom or close to the bottom, you are going to ride a wave upward at some point, so now is as a good a time as any to start."

Why did you create the Founder Institute? "(At TheFunded), we take about 200 CEOs every day who apply, and we only let in between 10 and 20 percent of those applicants. The difference between the people we admit and don't admit is the level of experience they have and their relative ability to be successful in raising capital. We said, 'What can we do with the 180 or 190 CEOs every day who don't get into the site?' And we thought long and hard about how we can help them. And that was the genesis of the Institute, because we felt the best way to help CEOs that don't have a lot of experience would be to put them through a training program. And when we looked at that, the best way to run a training program was to have other founders—and other CEO—show them the ropes."

Why training programs and why are you setting them up in certain geographies? "Times are changing constantly, so the circumstances today if I am starting a business are much different than a year ago. If you want to help people build relevant and meaningful companies, they need relevant and meaningful mentoring from people who are succeeding in the current market at the current time. And then, not only that, really it is location specific as well because a successful person today in San Diego or Seattle or D.C. is probably operating in a different way than, let's say, someone in San Francisco, because the markets are inherently different."

Why set up a branch of the Founder Institute in Seattle? "There's no question that Seattle is a hotbed of innovation. You obviously have a few of the largest companies like Boeing and Microsoft with great engineers…and you have a flourishing gaming industry in Seattle as well. We feel that the market is ripe there just given the large talent pool that Seattle has, and I am sure there are a lot of people thinking about starting a company."

How many people will be in the program in Seattle this winter? "It is hard to predict because the Seattle market is large, but at any one time there's only a certain number of people thinking about starting a company. I'd be really happy if there are 30 founders in the program, but it could be as large as 50 if everything goes well."

Talk a little bit about the economic incentive in this program and how that works with the common pool of equity split amongst people in the group? "I've looked at incubators very carefully since 1999…and what generally happens…with incubators and accelerators is that they make an investment, and that immediately troubles the waters. By not directly investing at first it attracts a wide range of companies, and we introduce those companies to the appropriate investors to make sure they get fair market value for their idea. Obviously, when you try to create a training program, you want to incentive all of the stakeholders to success. So we thought long and hard on how to do this, and what we ultimately decided to do was to allow everyone—all of the stakeholders—to share in the success of the companies created. This is classically called an exchange program where a group of people contribute stock into a pool and then the success of one benefits them all."

What's the structure of that look like? "We give 30 percent to the founders, 30 percent to the mentors, 25 percent to the person who operates the local chapter, and the Institute keeps 15 percent. The Institute runs the warrants pool, which we refer to as a bonus pool, for many years, and we send checks as these companies grow and achieve liquidity to the various parties."

How do you pick companies to get into the program? "We don't pick companies. We pick people. We don't ask applicants for a business idea. We only ask them for what they are passionate about. We put the applicants through a combined personality and aptitude test and, based on the caliber of their application and the results of the test, we admit people into the program. What's interesting is, there is absolutely no idea selection by us. We don't care what your idea is."

PREV 2 of 2