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Tech Talk: Flashgroup, made in Pittsburgh. Staying in Pittsburgh.



Rumor has it that VCs investing in Pittsburgh companies force them to move – to Boston, to Silicon Valley, to Austin. But that’s not always true. Witness Flashgroup.com, a startup founded by two world-class Carnegie Mellon computer science professors, Seth Goldstein and Carlos Guestrin. They are busting the myth that you can’t grow a startup in Pittsburgh with top tier VC funding from elsewhere.

How are they doing this? It’s all about the team. That’s what gets investors excited. When I had the chance through my role at Carnegie Mellon’s Project Olympus  to work with these two super-smart CS professors who were committed to doing a startup, I jumped! (You can view a three-minute video of my interview with Seth and Carlos.)

Background. Seth and Carlos have known each other for eight years, which is when Carlos came to CMU. As they got to know each other, they developed an appreciation for their complementary skill set as well as a shared desire to do something different. Seth had dabbled in entrepreneurship before with an original programming language. His company was not successful, but it gave Seth a taste for what could be. Carlos was raring to go entrepreneurial.

They formed a company to serve as a springboard for ideas. Dubbed GGIdeaLab, after their two last names, the company had no product, no customers, and no plan. But, it had Seth and Carlos! That was October, 2009, and the result today is Flashgroup.com. Seth and Carlos are in their second year of an entrepreneurial leave of absence. The company has raised over $1M in seed funding, half of that from the largest VC in the world – New Enterprise Associates (NEA), a 30-year old firm with over $11B in committed capital.

About Flashgroup.com.  The idea originates with the concept of a flashgroup – people coming together around a particular topic or “intention.” Carlos explains: “Think of Steelers fans tweeting during a game. During that moment there is a spark of interest, of discovery, that is powerful and that has not been tapped before. Steelers fans talking about the game provide a very targeted set of customers for advertisers.”

Flashgroup.com connects people together with content. Companies can attract a flashgroup through implementing a widget on their site. Seth explains: "When you go to a page that indicates your intention, the flashgroup widget on the page shows you recommended content based on your history, including connections, groups, blogs, etc. It’s a social connection, a flashgroup of people around a particular theme which comes together quickly then disbands.”

To create the technology was a challenge, even for CS profs. They had to invent a product that provides value and that can’t be easily replicated. Seth attributes this to Carlos: “He had the brilliant realization of matching people through intention. Carlos’ algorithms for understanding and interpreting intentions are unique – no one is doing this.”

Company status.  The company is up to seven people now and the product is in beta testing. The two partners work long hours. The company was seeded with grants from the DoD and a  Small Business Innovative Research (SBIR) award. Then Seth and Carlos raised over $800,000 in equity financing from NEA, Innovation Works, and BlueTree Allied Angels. Flashgroup.com just went live with their first big media company client. And they have other clients coming on board every day.

Challenges.  Faculty-based university spin offs face unique challenges (see my recent New Venturist blog post, “How to kill a university spin out”). However, Seth and Carlos are not falling into the usual deathtraps because they know:
  • what they don’t know;
  • they are not the CEO;
  • even if they are wrong about their product they can build better software faster than anyone else; and
  • the market is king.
They learned a lot from pitching to investors. I had counseled them that it would take more time than they anticipated to raise financing. Seth and Carlos had not pitched before, but they are disarming, sincere and committed. That got investors’ attention. Where they got rejected – and that was often – they also got feedback. Which they took. And they adapted.
Seth laughingly describes their biggest challenge: “Now we know that being a professor is not the same as being an entrepreneur!” Carlos adds, “We’ve both done a PhD and this is like doing a new one from scratch.”

Pivots.  Flashgroup.com has undergone a couple of pivots. Carlos describes one shift: “Trying to sell investors on the wrong product spurred us to think deeply about what was needed in the market. We started with a focus on online shopping. But we soon realized that neither of us are shoppers. On the other hand, we read news online and web content every day. This is a domain closer to our hearts and we can bring a lot to that concept.”

The pair is not worried about proving their revenue model (yet). “We are technical people," says Seth. "Our investors know that. We need to build something that people will use first.” Carlos chimes in, “You have to build a user base. If you have no users your business model is irrelevant.”

What’s ahead?  Seth and Carlos are super excited and a bit scared about where they are headed. The atmosphere at Flashgroup.com is electric. Everyone is working hard. And the company, Seth and Carlos assure me, is staying in Pittsburgh.

Babs Carryer is an entrepreneur, New Venturist blogger and involved in entrepreneurship at CMU (Project Olympus, Don Jones Center for Entrepreneurship, Institute for Social Innovation)
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