I decided to drop in on Pingup, a technology start-up that enables people to text instead of call businesses (“Are you open?” “What’s the special tonight?” “How fast can you dry clean my tux?”), and the businesses to text them back (“Until 6 p.m.” “Peking Duck.” “Twenty-four hours.”), partly because its offices in Boston’s recently designated Innovation District are near CFO’s, and mainly because this month it received $1 million in seed money from Avalon Ventures.
The key question for any start-up, especially one like Pingup that has five full-time employees (plus some paid interns), a product that’s been launched but is still being tweaked, and customers but no revenue, is how to make sure that seed money lasts long enough to build the business to a point where the cash coming in the front door reasonably aligns with the cash going out the back, thereby convincing future investors that the business is both serious and potentially profitable. I figured that if anyone would know the answer to accomplishing that it would be Pingup CFO Bethe Palmer, who adores start-ups and has a long history with them.
The key to handling the seed money, Palmer says, is not a secret: you try to keep expenses down. For instance, Pingup is located in the Innovation District — a heretofore largely undeveloped and unprepossessing slice of South Boston’s waterfront — because rent is cheap. “We try to be as efficient as we can with every single dollar,” says Palmer, who includes herself in that efficiency. She works at Pingup part-time.
“At this point, that’s all we need,” she says. “Paying me full-time is not the right way to spend start-up dollars. Depending on how complicated it gets, how many transactions we’re handling, I’d first bring in a junior person to run the basic blocking and tackling of accounting: payroll, making sure we’ve been paid, balancing the books — basic accounting stuff.”
Borrowing from banks to keep the business going is not really an option for Pingup. “Certain businesses have hard assets and banks will loan them money. But all tech companies have is intellectual property, and banks don’t loan against IP. Believe me,” says Palmer, “I’ve tried.”
While making sure every dollar Pingup spends is focused “on things that bring value — the tech deliverables, the marketing deliverables,” Palmer is preparing for the inevitable Series A funding round by “derisking the business proposition as much as possible.” For Palmer, that means being very clear “about communicating the impact of operating decisions on the financial model. My job,” she continues, “is to oversee the fiscal health of the company. So I have to negotiate the best deals, determine what the benefits package is going to look like, make sure we do all the things we’re legally obliged to, and not expose the company to unnecessary costs.”
It also means getting feedback from businesses and tweaking the product to make sure it contains the features those businesses want and, Pingup is betting, will be willing to pay for as a new generation grows up texting rather than calling.
“We’ll build up enough merchants that will pay for our services to cover our fixed and variable costs,” Palmer says, looking into the crystal ball of her financial model. The model exists as a series of iterations as she incorporates new data about the cost to deliver Pingup’s product and the potential revenue ramp-up rate, she says. Today’s model tells her that profitability is about five years down the road.
Palmer has gazed down that road before, having taken a wide range of start-ups from the angel and seed stage of investment to the Series C round. She’s been CFO at Karmaloop, an online street-wear retailer that reported $130 million in sales last year and is so hip it has its own web television station; Zipcar, which went public in 2011 (and reported first-quarter revenue of $59 million this year, a $10 million increase over 2011’s first quarter); The Echo Nest (a music intelligence platform); and Uptown Network (a foodie application), among others.
That road hasn’t always been smooth, according to Palmer. But it’s generally been fun, especially during the “dot-bomb era,” she says. Back then, Palmer was controller at Ars Digita, the legendary open-source software company that parked a Ferrari behind its Cambridge, Massachusetts, offices to inspire its workers to recruit new talent (recruit 10 and you got the Ferrari), ramped up to 180 employees at its peak, and infamously burned through tens of millions of venture capital before the bubble popped and the lawsuits inevitably followed. (Its intellectual property was acquired by Red Hat in 2002.) “I worked at the kitchen table in a house we rented,” Palmer recalls. “There were people sleeping on couches 24/7. People were throwing money at us. It was a wild ride.”
Palmer’s experience with the good, bad, and ugly of start-ups, says Pingup marketing director Dade Sokoloff, is a huge asset to the company. “Lots of times these tech companies are started by guys with ideas, programmers who don’t know how to get VCs to look at them as viable businesses,” he says. “Bethe enables us to have real and better numbers, to create presentations in a dollars-and-cents way. These VC guys have seen every pitch; they say no to a million ideas a day. They’re looking for people who’ve done it before, who have relevant experience.”
Palmer pooh-poohs her contribution. “It’s the team,” she says. “None of this happens without the whole team.
“I have a passion for start-ups,” she continues. “The environment for start-ups we have in this country is amazing, and I don’t want to miss it. It’s a ferocious meritocracy. You have to have the goods.”
As I leave, Palmer, wearing red Karmaloop kicks without laces, points to a T-shirted Mark Slater, Pingup founder and chief executive officer, and one of the founders of Karmaloop, hovering over the office copier. “See,” says Palmer. “That’s what I love about start-ups. There’s the CEO, making his own copies.”