Francine Hardaway's Blog

Full Disclosure

Every once in a while, people ask me what Stealthmode does. Simple: we incubate early stage companies. What does that mean? Well, it can mean many things, but in my own case (Ed's involvements are separate for the most part) I'm usually involved in one of three ways.

Here are the categories, and here are the current companies. I've been involved with some of them for six months, and with three of them for more than six years. Most of their founders are also personal friends by now. And I love and respect them all. Sure I hope for an exit. But I also hope to spend each day being of service and having fun.

Every relationship is different, and except for the ones in which I have shares or options, most of them are not a contract, they are a handshake. So never ask Stealthmode what its "standard agreement" is. There isn't one, any more than there's a standard startup.

The one thing they all have in common? None of them are located in Silicon Valley. And yet, I seem to have plenty to do. Most of them have a social purpose, and one is even a not-for-profit. I believe in them and in their dedicated founders, many of whom are bootstrapping their way to fame and fortune.

Direct Investment:

38Minutes

UShow

Consulting:

ESS

Cartfly

Earth911

RealSelf.com

Advisory Board:

Desert Biofuels Initiative

CU Realty

EmpowHer.com

FFWD Creates Personalized TV Channels

Finally saw a company I want to blog about at "Under the Radar" The founder of this one, FFWD,is the former founder of iLike.

He says he is now working on a way to revolutionize television. A way to navigate through the video web that's as simple as channel surfing and as simple as search. It organizes all the content available on the Internet into sets and then makes them into personalized channels. Reinvigorates the "channel" with social awareness and behavioral targeting. All you do is add channels to your profile, and then every click of the FF button brings up another item in the channel, and the result is a mash-up of your personal preferences.

All the information about you may already be on Facebook or Friendfeed, and ffwd can take that information and use it to create your channel.

There's also a remote control function that lets you have more control. Once you create your channel, you can take the data and the application to the Wii or any other platform you want to use. So whatever navigational capabilities the Wii has, you can use to navigate your channel.

Because the founder had been successful, FFWD's Series A came from Draper Fisher. Now they're announcing a Series B, and looking for content partners to have their content indexed.

What did the judges think: Kara Swisher: YouTube has fumbled the discovery issue -- like a library with all the books on the floor. But Kara Swisher doesn't really understand how this will help. Afraid it will drive people down a cul de sac of niche-ness. Charlene LI: this is a feature, not a full solution.

Rest in Peace, Scott Coles

My friend Scott Coles apparently committed suicide yesterday, apparently seeing no way out of the disastrous Arizona mortgage market, in which he was the largest private lender. He had purchased the business from his father, and made private loans funded by individual investors. Many of the investors were friends of his, or friends of his father, or --as one of my friends who also invested with him-- said "every Jew in Phoenix."

Scott proudly proclaimed that in the entire history of the business, he had never lost a penny for investors. I'm guessing that was about to change. I'm also guessing that the two developers who sued him for not fully funding their loans (who could raise money for mortgages in this environment?) affected him personally, too, because he was himself fully invested financially and emotionally in the business. He always thought he could find a solution if he just worked hard enough, but the current credit crisis and mortgage meltdown defeated even his brilliance and hard work.

So as the investors begged to have their capital released, and the builders begged to have their loans funded, Scott didn't see a way out, I'm guessing.

So he left a beautiful wife and three children, and sought peace by killing himself.

It's not my job to judge him, just to mourn him. Yet when something like this happens, I always look for what we can learn from it.

Fortuitously, today I am at "Under the Radar," a technology conference, and the lesson manifested.

There was a way out -- a way I see every day here in Silicon Valley.

The way out is to accept failure and go on. Here in Silicon Valley, this happens every day. No one is happy about it, of course, but when a "black swan" comes along (one of those events no one can predict), you disconnect your ego from the outside event, pick yourself up, and move on. Everyone had to accept that after 9/11, when the Web 1.0 bubble burst, and they will have to do it again when the Web 2.0 bubble bursts. Here in the Bay Area, they're used to it. In their lives, they have a portfolio of ventures, and some succeed while others fail.

The difference between here and the Phoenix real estate culture is that Silicon Valley is a culture that accepts failure as the price we pay for innovation, rather than pilng on the person with problems. In the tech world, when someone fails he is presumed to have learned, and investors are more, not less, willing to fund him/her next time.

Scott, sleep well. You have earned it, and you need the rest. I know how hard you tried.

Update: I'm turnng off comments for this post because of the uncivil tone. I'm grieving and I can't deal with it.

Here Comes Summer!

I'm getting ready to shift my location to Half Moon Bay for the summer. I leave at the end of next week, and stay until the day after Labor Day. While I am up there, I will be blogging, as well as planning the Third Annual Arizona Entrepreneurship Conference, which will be held at the Ritz in Phoenix on November 19. You can register early for a discount here. The reason I'm telling you all this so far in advance is because the conference will certainly sell out this year.

Here's why:one of the keynote speakers is Matt Mullenweg, the youthful and brilliant founder of Wordpress, probably the most famous blogging platform today. He will be joined by Andy Ehrlich, a fantastic and different leadership speaker, Howard Lindzon (founder of Wallstrip and Knightsbridge Capital), Allen Kaplan, co-founder of Limelight Networks (and man who raises big bucks for Arizona companies), iJustine, Chris Brogan
and a star-studded cast of Arizona startups and successes. If you want to get involved or stay informed as we progress through the planning process, the Google Group for the Conferences is here. We would love to broaden the base of participants.

Update: If the link to the Google Group is incorrect, just go to Google Groups and search for Arizona Entrepreneurship Conference.

My friend Brian Shaler gave me a great idea, which is to turn the conference into a sort of technology festival for Phoenix, similar to South by Southwest (SXSW) in Austin. So after this year, we will have to change locations, probably to downtown as we attempt to integrate three or four other events (RefreshPhoenix, Podcampaz, Phoenix Social Media Club, and anyone else who wants to participate, into GeekWeekAZ, a festival people will want to attend from all over the world.

So that's the plan, Stan. And BTW, proceeds from the conference go to the Opportunity Through Entrepreneurship Foundation, which provides entrepreneurship training to disadvantaged communities.

This is part of my not-so-surreptitious plan to connect Arizona geeks with Bay Area geeks, so my two sets of friends can all meet each other (in Half Moon Bay, where @scobleizer can film it for FastCompany.tv)

Stowe Boyd says it Best

Stealthmode operates in mysterious ways: we don't get paid for a lot of the stuff we do, we don't take (much) money and/or equity from the companies in our portfolio, and we largely appear to be cruising around enjoying ourselves without appearing to work. Even my best friends don't know what I "do."

I define myself mainly as an angel investor, and from time to time I invest real money in companies. But more often I invest time and talent. In other words, I don't have the money to invest in all the companies I see that I wish would be successful, so I invest in some and counsel some. Ed does something similar. Sometimes we are involved in the same companies, sometimes not.

We have been partners for nine years under this arrangement without being able to articulate it beyond aspiring to be in the middle of the activity in the entrepreneurial community and helping to build an interconnected ecosystem for Arizona startups. Yeah, people say when I tell them that, "but how do you make money?"

Today I saw a post by Stowe Boyd that expresses pretty clearly the model by which we (or, at least, I) operate. It's called How I Roll, and it explains how he chooses companies to be involved with, why he takes (or does not take) equity, and why he doesn't look like he works many hours.

Basically, we are in R&D mode more than half the time we are working during any given month. And that R&D, or expertise, is passed on to the companies we advise. Stowe calls his work advisory capital, as do we.

So great to see someone who knows what we do! It's about time we knew it ourselves:-)

Major Real Estate Developer Talks History

It's lunch in a Scottsdale restaurant. The attendees are mainly retired scions of industry, professionals, and business. I came because the group is having a presentation by one of the largest real estate developers in Arizona, and I've come to hear the story of a "typical" Arizona entrepreneur.

Mark Sklar, one of the three original (and still intact) partners at DMB was originally from Wisconsin and studied history. He has the midwesterners' value system and sense of engagement.

He and his wife moved to Arizona to strike out on their own in 1971. For seven years he was in the travel business before becoming partners with Bennett Dorrance and Drew Brown to form DMB, a company known for its excellence in real estate development and community engagement. As he runs down the list of boards he is on, from arts advocacy to Alzheimer's centers to camps for special needs children, he tells us the company credo: profitability, legacy, partnership and fun.

DMB was formed in 1982 out of some land syndications. Drew Brown was Mark's lawyer, and Bennett was Drew's client. They spent a long time getting to know each other, trying to understand if an enterprise among the three of them would make sense. Mark, Drew and Bennett are entrepreneurs who started off by buying and selling land, using money they raised from syndications.

In 1989, the Resolution Trust Company afforded them an opportunity to buy a bunch of stuff from defunct savings and loans. No one else would invest, because no one knew where the bottom of the market was. Sound familiar? So they bought a lot of property, including the famous blue building on Alma School Road in Mesa, Arizona. Of course they had the means to do it. It's not a strategy for everyone.

About fifteen years ago, the company took a philosophical jump into the planned community business. They view themselves as developers, planners, and zoners and marketers of planning communities: large communities (like Verrado and DC Ranch) with lots of different product, and recreational communities for people who want vacation homes (Forest Highlands).

DMB also has a significant amount of investment in California: in Orange County at Madera Ranch. They also have a property in San Francisco Bay that is currently under water; it was formerly a salt mine owned by Cargill.

DMB prefers to do joint ventures with landowners rather than buy property. They're a project-centric company that pushes authority down into the field into each project's General Manager.

They have done quite a bit of succession planning, including diversifying their capital base outside Bennett Dorrance's personal capabilities. They now have two financial partners from the Bay Area, a board of directors, and a real plan to allow the company to succeed them without a sale or liquidation.

And now...about the market. Mark's guess is that it won't turn around before Q3 of '09 or have righted itself until 2010.

We have an oversupply of single family residential, which will create a longer time to recover this time around. It was fueled by easy money, and the idea that single family residential could be an investment. Two and a half years ago, DMB was so concerned about this that they hired a team to knock on every door in Verrado and see if someone was living in the home. They found that about 25% of the homes were investor-owned.

Arizona has a worse oversupply of single family housing than California, because it has strong employment, a right to work state, and it is easier to bring a product to market here than in California, so that encourages inmigration.

167,000 homes were built in 2004-2006 in Arizona, where there is a need for 35-40k a year based on inmigration. The oversupply will be with us for a while. Here's why:

1)We have had a dislocation in the financial markets that has been unprecedented. Sklar is seeing a lot of institutional lenders do really stupid things; they are handcuffed because they don't know what their portfolios are worth, and they are walking away from sound, underwritten transactions. They just don't know when the regulators will come in.

Bill Gross's newsletter for the past two years has been talking about the shadow economy -- large scale transactions that have been securitized and sold to people who didn't understand the underlying value of the assets. The result of this continues to affect the real estate markets.

2)Huge increase in commodities costs.
3)Recession
4)Interdependence with everything that happens in the national economy.

How does he feel? Negative for the short short term. The economy is one problem for Arizona. Employee sanctions laws are another. The inability of people to sell homes elsewhere slows the state's inmigration. (2006 102,000, 2007, 67,000 people.) DMB has taken their land of the market to discourage more building for right now. They have no wish to contribute to the oversupply. They are also tightening budgets, lengthening timelines, and have laid off twenty people. But DMB is optimistic for the long term. With the business and political leadership we have now, he thinks Arizona has a rosy future.

Tumbleweed T-shirt printing business takes off

Francine Hardaway displays the finished T-shirt; Cameron looks on
Originally uploaded by Blackerby Associates

We've (my Foundation and my partners) been helping Tumbleweed Youth Development Services launch a" start up" --a Drop In Gallery to sell the art of runaway youth that also houses a t-shirt design and print business. Both businesses have taken off!

This is probably the most rewarding thing I do every day(and everything is rewarding); helping disadvantaged youth learn entrepreneurship skills. It's so empowering for them.

The Arizona Entrepreneurship Conferences raise money for the Opportunity Through Entrepreneurship Foundation to fund the programs. Money raised from entrepreneurs goes to other entrepreneurs. So thanks, all the peeps who help me by speaking and volunteering at the conferences...this is the net-net. Otherwise known as the win-win.

A formerly homeless youth looks on in the background. He's on the business team.

Photo credits go to Phillip Blackerby, who facilitates this program. The entire set of photos is here

Breaking the Bank

I've been involved (and invested) in the formation of a new bank holding
company for a while now. It's time for a new bank, because the existing
banks are up to their ears in bad loans and no one who needs a loan can
get one. The concept of the bank was interesting to me from the get-go,
because it is a holding company for a bank that will operate in four
states: California, Nevada, Arizona, and Texas. This regional concept is
one of the new ideas that attracted me. As an angel investor, I like to
have a portfolio, rather than a single investment. Four banks sounded
good. We have named the overall entity Ventana National Bank, and the
siblings Ventana Bank Arizona, Ventana Bank Nevada--you can figure it
out from there. Ventana means "window" in Spanish.

The California bank (in San Diego) is the furthest along, and we expect
our California Charter approval in the next three weeks, which will take
us to our public fundraising. Right now, we have our seed funding --
from nearly 100 founders and organizers of the three banks already in
formation.

By becoming a founder and accepting a board position on Ventana Bank of
Arizona (in formation)'s board, I have become able to influence the
direction this bank goes in -- not only in Arizona, but to some extent
across the franchise. I thought I would never have this opportunity in
my life, so I'm totally stoked.

Here's what I'm thinkin', and what the bankers have so far agreed with.
These are activities that I hope will be part of the core fabric of the
bank.

On the community relations side:
1)Classes in financial literacy and consumer financial education
2)Workshops in entrepreneurship
3)strong commitment to minorities, diversity, and microlending
4)involvement by and for women
5)partnerships with schools to teach financial literacy

On the "real" (financial side):
1)strong commitment to entrepreneurship
2)strong commitment to smaller businesses
3)raising money to open the bank by allowing a broader base of smaller
investors
4)having women and minorities as shareholders
5)having the people who invest in the bank be customers of the bank
6)creating a TRUE community

Most of the banks in formation that I've known about recently have been
backed by a small group of guys (just a word) who threw in their
personal capital to open the bank. That makes most new banks "private"
banks, often concentrating on concentrating to a speciice niche (in
Arizona often real estate). The units of investment are so big that
"ordinary" people can be shareholders in the bank. So when the bank is
sold to a bigger bank (this is the "exit" strategy most often), a small
number of people make money.

But my travels around the world have taught me that true community
lending can make lots of money and still be a service to a larger
community. We don't really have an entrepreneur's bank in Arizona right
now, or even a bank that understands the unique needs of small business.
I do.

Fortunately, banking is tightly regulated, so I can't get too dreamy.
But stay tuned. If I don't participate in the formation of a bank that
is trully different and inclusive, I'll feel like a real failure.

Which Candidate Can Get Us Out of This Mess? None of Them

'm up here in the Bay Area this week, having (or is it "taking") some
meetings, attending Web 2.0 Expo, and doing some other business.
Unfortunately, I missed NewComm Forum, the other conference I was
supposed to attend today, because when I came home from Moscone West
last night, I had a fever and barfed. Flu. Not going anywhere today.

Which gave me unexpected free time, with practically my only option
being to think.

What is there to think about up here? Innovation, of course. While in
Arizona everything revolves around real estate, even in a down market,
in the Bay Area, everything seems to revolve around innovation. I'm
watching the local News, and there are three segments in a row about
innovation:

--there's a new CO2 laser that cuts down the recovery time in laser
resurfacing. It's called the "dot" technique, and it leaves unbroken
skin between patches of re-surfaced skin, which allows skin to heal more
easily

--there's a new technology that helps non-verbal autism sufferers to
make themselves understood. It's like a little Leappad, and if the child
presses on a picture, it tells the caregiver what he or she wants. It
cuts down the tremendous frustration autistic children feel about not
being able to make themselves understood

--there's a new Lasik technique that apparently gives better surgical
results, and a new longitudinal study to determine what the true risks
are of the surgery.

The local NBC station even has an ecological reporter, who is talking
about the carbon footprint of what and how we eat. In a real restaurant,
where we eat off china and use flatware, we're being sustainable. But
paper plates and disposable packaging? Not sustainable. Most of the
paper goods used by fast food companies are not recyclable because they
are coated.

The local news in San Francisco has a lot of the "WOW" factor. It's not
just a re-telling of the latest shootings, pool drownings, and bank
robberies in town.

California has a crummy housing market, too. In fact, foreclosures here
are up 300%. On my block alone, there have been two short sales, which
will of course bring down the value of my own home.
But people don't sit around talking about the real estate market all the
time. It resides (bad pun) in the background, rather than the
foreground, as it does in Arizona.

Conversation in Phoenix is all about the bottom. Are we there yet? When
will it happen? When will things turn around? You would think people had
nothing else to think about. It will turn around when we stop talking
about it and feeding the fear.

Actually, there's plenty else to think about. Rice is being rationed in
Costco and Sam's Clubs, and Brazil and VietNam and Korea have chosen to
quit exporting. The price of rice has gone up 140% since January. Food
rationing in the United States -- unheard of but happening. More to
come.

The price of food has gone up about 13% in the past year.

And in preparation for tomorrow's price rise of 22 cents a gallon of gas
on the New Jersey Turnpike , there were long gas lines tonight as
drivers tried to save $3.00.

That's true in California, too. It's one of the most expensive states in
which to live. Gas here is easily $4.15 a gallon.

But the emphasis on innovation continues. And I think that's what I like
about it here. I believe, as I always have, that innovation is the key
to getting us out of the recession/depression we are now in. Not
government. Not stimulus packages. Not handwringing. Not corporate jobs.

There's pain in America now, and when there's pain, there's a market
opportunity for solutions. Think of this pain as an opportunity. Go out
and do something new.

__._,_.___

@SamLawrence's Sponsored Wheelchair

photo.jpg
Originally uploaded by hardaway

Just came out of the panel on "Short Attention Spans," i.e. microblogging, at Web 2.0 Expo and ran into a fascinating guy in a wheelchair. Turns out @SamLawrence broke his foot a couple of weeks ago and realized he would be coming to Moscone in a wheelchair.

So he Twittered the opportunity to sponsor his wheelchair,and within minutes he had a porn site, wanting to sponsor him. He wouldn't sell (good move for an early stage venture) and soon he had Cap Gemini and two others.

His sponsored wheelchair is called The Corporate Octopus, and you can see it in the halls outside the conference room, where all the REAL action is.