Sweat Capitalism
Mark Hoover, President, Acuitive, Inc.

Over the past three years, we have been involved in the conception and gestation of a lot of start-up companies. This has gone so well that Acuitive’s main business focus is now squarely on being a start-up accelerator. 

What is a start-up accelerator? Well, first let me tell you a couple of things that it is not. 

We are not a venture capital company. Instead, we help our clients develop their strategy and business plan in a way that can be appreciated by the funding community, and then vector our clients into the VCs that we think are best suited to work with and support our client. In this process, we work closely with many of the top venture capitalist firms and we have helped many client companies achieve seed, Series A and Series B funding, as well as mezzanine rounds. 

We are not an incubator, which provides useful services to start-up companies such as early stage office management, human resources, and IT services. Instead, we work with such incubator companies and point our clients towards the better ones, to enable them to get rooted and move forward as fast as possible. 

So what are we? Sweat capitalists? 

The nature of the support we provide depends mostly on the needs of the entrepreneurial team driving the client company. We focus on helping embryonic client companies define and develop their core business, whether it is centered on products or on services. We fill in gaps, so that the progress of the company does not stall. Our role varies from occasional and strategic to intense and operational. 

As I mentioned above, in the earliest stages of the company, we have helped many start-ups define their market strategy, product strategy and overall business plan, and then establish funding so that they can execute on these plans. This gets companies off to the fastest start possible, even though the initial team may have gaps in staffing of the executive team. I always feel that if we can help get a company from zero to full speed in a period of two or three months, we have radically improved the chances for that company’s success, as most take six-to-nine months to hit full stride. Those three months or more of advantage due to the acceleration that we can provide is often looked back on as the key make/break factor by many of our past clients. 

If the client company needs it, we will also often take on a temporary operational role such as interim CEO, acting VP of Marketing, Marcom Manager, or Product Manager. In taking on this role, we do everything (and more) for the company that you would expect an employee with this job to do, and one more thing - we work like crazy to help recruit our replacement so a permanent position can be established for the team. But sometimes the right replacement just isn’t out there. As a result, our operational “time on duty” has ranged from a couple of months to a couple of years. This helps the company continue to move forward on all cylinders even in this era of painfully difficult recruiting for key positions. 

In other situations, rather than (or in addition to) taking on a role, we will often provide some extra bandwidth to execute on time critical projects, such as competitive analyses, MRDs, PRDs, internal training, product and company launch planning and oversight, product beta testing, etc. Here, our main value is just being smart people who can parachute in, understand the need, and execute quickly. 

Our business model with our clients is generally shared risk/shared reward. If we are comfortable with the executive team we will be working with, in terms of their ability to execute and their willingness to listen to our suggestions, then we prefer a financial arrangement that is weighted towards an equity stake in the client company. 

This works out great for our client companies, because as an owner, Acuitive has a selfish interest in the long-term success of the company. Even after our project is long over, we remain in contact with our previous clients, informing them if we see customer opportunities for them, new competitive threats, partnering or acquisition opportunities, good prospective employees, etc. It also means that we are likely to prioritize “call back” work to these previous clients. 

This business model also works out great for Acuitive, because it gives us leverage equal to or better that working at a hot start-up or at a venture capitalist company. By exercising this model, we have attained ownership in close to 40 companies, most of whom are currently private, but some of who have gone public or have been acquired. The rest are on their way to such liquidation events (we hope). Our stake in companies is less than the venture capitalist’s stake, but on the other hand, we get to keep it all whereas the VCs must return 70-80% to their investors. Often, taking all factors into account, our upside is roughly equal to the VCs. That seems fair to me, because we each take risk and we each contribute in important ways that complement one another. 

Whether you calculate based on the actual present value or the expected future value of this stock, the sum total represents most of the value of Acuitive as a company. We are privately owned and the only owners are Acuitive employees. We each own a portion of this Acuitive “mutual fund,” whose value increased by 1000% in 1999 and continues to rise rapidly in 2000 in spite of the recent hammerings in the public exchange markets. 

The work is a lot of fun. Our model of operation provides a way for our employees to be a “serial entrepreneur,” getting involved in and fundamentally contributing to sequence of interesting companies in various hot areas, resulting in a unique “big picture” view of what is happening in the world, and, more importantly, what is going to happen. 

My goal is for Acuitive to have a conservatively estimated book value of a cool $1B by the year 2005. We may get there with our present configuration. But it sure would help if we could add a few more top-notch contributors to the team, located geographically in any of the five or six top hot spots for start-up companies. If you are interested, contact me. We may be able to have a very interesting discussion. 

(volume 3, number 5)  

 

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