The Evolution Of A Startup
11:01 pm
Wed November 30, 2011

Setbacks And Surprises Part Of The Deal For A Startup

Originally published on Tue December 6, 2011 7:21 am

Launching a new company is never easy. But in the beginning, the founders of Web-based marketing firm Bluebox Now felt they were on track. The Seattle startup lined up a large paying customer, had a lot of other great leads and was reasonably confident it would get a sizable amount of outside funding. A lot has happened since then.

The past couple of months have been pretty gut-wrenching for the team at Bluebox Now. One of the original founders had to leave Seattle because of a family medical emergency and took a full-time job somewhere else. Then there was a legal challenge, explains Chad Reed, one of the remaining co-founders.

"That was a doozy," Reed says with a chuckle. "We received this letter in the mail and also over email [saying] there's another group in Seattle called the Blue Box Group."

That group wanted the startup to quit using the Bluebox name. Reed says while they thought they would prevail on the trademark challenge, they couldn't afford to fight.

"Instead of us paying $40,000 to fight this, we're going to end up changing our name," Reed says. "The blue box itself — the gift that we give — is still a key component to what we do. It's just changing up the name, and we're going to be OK with it."

A Pitch To New Investors

The startup's goal is to help its clients increase customer loyalty and spending through the use of online games and prizes, but so far just one company has signed up. That marketing campaign is months behind schedule, so there's no money coming in. Moreover, without proof that their marketing concept works, it's difficult for the team to attract investors.

Getting funding from angel investors or venture capitalists was the main goal of Demo Day, held earlier this month in Seattle. Bluebox — or whatever it's going to be called — was a participant in Techstars, a highly selective incubator and boot camp for technology startups. Its presentation, attended by hundreds of people, many of them investors, was the culminating event.

"Today we're going to show you how we're changing the way loyalty marketing is done," Reed told the crowd. "Think about receiving one of these games instead of a stale email. Wouldn't you be more engaged? The value of winning a reward is far more exciting, and our insights show the redemption will be 10 times more than it was before."

After the Demo Day presentation, Bluebox CEO Naresh Dhiman sounded pretty optimistic.

"Actually, one of the investors was saying, 'OK, do you have [a] term sheet?' So that is very motivating. But I think what benefits [us] most is the right investor, also," Dhiman says.

Right now, though, Bluebox would probably be happy with almost any investor.

Brad Gillespie of IA Ventures, an early-stage venture firm based in New York City, says as an investor he focuses on five things: people, people, people, market and product.

Gillespie had been talking to the Bluebox team and was impressed, but in the end he didn't invest. Another potential investor, Dave Carlson, is still on the sidelines. Carlson said he likes what Bluebox is doing, but he wants to see more numbers.

"I'm a very financially oriented investor," Carlson says. "I say my head and my heart [have] to be aligned, and the numbers have to make sense."

Working Without Pay

Faced with the reality that they don't have nearly as much money as they had expected to raise by now, the founders of Bluebox are rethinking their options.

Reed says a lot of well-known companies remain interested in talking to them, and he believes that if a sizable number sign up for their marketing campaigns, the startup will be able to raise a chunk of money.

But Reed has been working without a salary since the spring.

"If we don't get funding, I mean, I can't live, right?" he says. "I believe so much in this company that, yes, I'm going to continue building it and moving forward."

But he says he's going to have to do some sort of consulting or other work, and that means he wouldn't be spending the time he should be on the product.

That of course means it could take longer to get the customers.

As for Dhiman, his wife is talking about getting a job, allowing him to continue to focus on Bluebox. And like Reed, he remains optimistic. After all, no one ever said launching a startup would be easy.

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Transcript

LINDA WERTHEIMER, HOST:

Now, a look at the challenges of launching a new company. The founders of Blue Box Now, a web-based marketing firm, felt they were on track at the beginning. The Seattle start-up had lined up a large paying customer. It had lots of other great leads. And it was reasonably confident it would have a sizeable amount of outside funding.

But a lot has happened since those first days. MORNING EDITION has been following the start up and NPR's Wendy Kaufman brings us this update.

WENDY KAUFMAN, BYLINE: The past couple of months have been pretty gut-wrenching for the team at Bluebox Now. One of the original founders had to leave Seattle because of a family medical emergency and he took a full-time job somewhere else. Then, says Chad Reed, one of the remaining co-founders, there was a legal challenge.

CHAD REED, CO-FOUNDER, BLUEBOX NOW: That was doozey.

(SOUNDBITE OF LAUGHTER)

NOW: I'll tell you what, we received this letter in the mail and then also over email. There's another group in Seattle called the Blue Box Group.

KAUFMAN: That group wanted the start up to quit using the Blue Box name. Reed says while they thought they would prevail on the legal issue, they couldn't afford to fight.

NOW: Instead of paying $40,000 to fight this, we're going to end up changing our name, and the blue box itself - the gift that we give - is still a key component to what we do. It's just changing up the name and we're going to be okay with it.

KAUFMAN: The start-up's goal is to help its clients increase customer loyalty and spending, through the use of online games and prizes. But so far, just one company has signed up. That marketing campaign is months behind schedule so there's no money coming in. Moreover, without proof, their marketing concept works, it's difficult for the team to attract investors.

(SOUNDBITE OF CONVERSATIONS)

KAUFMAN: Getting investors, be they angels or venture capitalists, was the main goal for Demo Day held last month in Seattle.

NOW: My name is Chad Reed. This is my co-founder Naresh Dhiman. Today, we're going to show you how we're changing the way loyalty marketing is done. Our platform is available on web, smartphones and on Tablets.

KAUFMAN: Blue Box - or whatever it's going to be called - was a participant in a highly selective incubator and boot camp for technology start-ups. Their presentation at Tech Star's Demo Day was attended by hundreds of people. Many of them were investors. And afterward, CEO Naresh Dhiman was sounding pretty optimistic.

NARESH DHIMAN: Actually one of the investors was saying, OK, do you have term sheet. So that is very motivating. But I think what benefits most is the right investor also.

KAUFMAN: But right now, Blue Box would likely be happy with almost any investor.

BRAD GILLESPIE: I'm Brad Gillespie from IA Ventures, an early stage venture firm based in New York City. As an investor, I'm really focused on five things. In order of priority its: people, people, people, market and product.

KAUFMAN: Gillespie had been talking to the Blue Box team and was impressed, but in the end, didn't invest. And another potential investor, Dave Carlson, is still on the sidelines. Carlson said he likes what Blue Box is doing, but he wants to see more numbers.

DAVID CARLSON: I'm a very financially-oriented investor. I say my head and my heart have to be aligned, and the numbers have to make sense.

KAUFMAN: Faced with the reality that they don't have nearly as much money as they'd expected to raise by now, the founders of Blue Box are rethinking their options. Chad Reed says lots of well-known companies remain interested in talking to them. And he believes that if a sizeable number sign up for their marketing campaigns, the start-up will be able to raise a chunk of money.

But, in the meantime, Reed who's been working without a salary since spring, doesn't get paid.

NOW: If we don't get funding, I mean, I can't live. Right? I mean you have to make money. I believe so much in this company, that yes, I'm going to continue building it and moving forward. But I'm going to have to take some sort of consulting job, which means that you're not spending the time that you should be on the product.

KAUFMAN: Which means, of course, it could take longer to get those customers.

As for Naresh Dhiman, his wife is talking about getting a job, allowing him to continue to focus on Blue Box. And he, like Chad Reed, remains optimistic. After all, no one ever said that launching a start-up would be easy.

Wendy Kaufman NPR News, Seattle.

WERTHEIMER: You're listening to NPR News. Transcript provided by NPR, Copyright NPR.