Business Rx: FlagTap

May 19, 2013
The entrepreneurs

Marketers often use proven pay-for-action models to sell products online, where companies can determine the investment in advertising required to yield customers. But those models largely don’t exist for companies that are increasingly focused on driving customer engagement through their Web sites and social media pages.

Aaron Dinin and Matt Hofstadt created a new way for companies to increase their social engagement online, one click at a time. Dinin, who started his career in online advertising and marketing, first teamed with childhood friend Hofstadt to build Web sites. But last year they abandoned that business to focus on building FlagTap.

Dinin

“We’re helping companies increase customer engagement online with the world’s largest game of capture the flag — it has the potential to span the entire Internet. Players ‘capture flags’ by interacting and engaging with Web sites, such as following a company’s Facebook or Twitter feeds, leaving a comment, posting a review, or signing up for an e-newsletter. From the company’s perspective, our platform allows them to create ‘flags’ as rewards to increase any kind of online interaction.

“Each flag is worth points. Web sites pay for the points they give out. Users accumulate points as they go from site to site and discover new flags. Users can redeem flags they capture in the FlagTap store for gift cards and prizes.

“We’re up and running right now. We built capacity for about 100 Web sites to incorporate our flags and about 15,000 players to participate. We set a goal to get there in three months, and we hit those targets within two weeks of launching.

“With our team of two, we can’t keep up with demand. We need to grow our team, and to do that we need to raise money. But as tech co-founders, we are not traditional business people. We’ve been honing our pitch and learning how to approach and keep in contact with investors. We’re also trying to understand what they expect.

“This is a new realm for us, and we don’t always know how aggressive we should be and where to draw the line when working with potential investors. We don’t want to walk away from an investor who could eventually invest, but we also don’t want to waste time being strung along, either.”

The advice

Elana Fine, managing director, the Dingman Center for Entrepreneurship

“Sometimes investors are surprisingly hesitant to say ‘no.’ I suggest companies think of the fundraising process the same they would the sales process. Spend your time on the things that have the highest probability of panning out, or those that might have a lower probability, but have the potential for a very high payoff. A lot of times investors are looking for you to be tenacious. But, at some point, you need to ask for an answer.

“One way to ask more diplomatically is to consider three options for investors: One, if they are satisfied with the diligence information, then they should be ready to make an investment. Two, if they are still a ‘maybe,’ offer an agreement on performance milestones or a timeline for when to check back. Three, give them a window to respond before assuming they are not interested at this time. Investors need to understand that entrepreneurs are big boys and girls — they can take ‘no’ and would prefer to get a straight answer.

“One reason investors don’t always say ‘no’ is that angel investors have constant deal flow, and though they might seem initially excited about one deal, another deal might soon attract their attention or their interest level might change.

“Collectively, in this region, we need to be better at giving entrepreneurs answers. It tends to take too long to get deals closed, but for these start-ups, things are moving so quickly. Getting bogged down in a lengthy deal process can impede an entrepreneur’s ability to go after a market in the window that they need to.

“You don’t want to get caught in a lot of fishing expeditions without catching more than advice. If that’s the case, you need to ask investors for feedback on where your company is lacking. Everything is about execution — while investors might really like your product, they may never pull the trigger on investing if they have big questions.”

The reaction

Dinin

“We couldn’t agree more with you, Elana, when you say that investors need to understand that entrepreneurs are big boys and girls and want a straight answer. Not only is this true in our personal experience of fundraising, but it’s also what we’ve heard from countless conversations with other start-ups.

“One of our favorite fundraising-related sayings is: ‘The best thing aside from a “yes” is a quick “no.”’ As entrepreneurs, we never take someone telling us they’re not interested or able to invest as a personal insult. We know investors have lots of potential investments available and limited investing resources, so they have to do what they believe is best for themselves. But we do get frustrated when we feel like we’re jumping through hoop after hoop for investors who ask us to do something because they think it’s easier or more polite than just telling us they’re not interested.”

“Heck, most of the time when someone tells us we can’t do something, we don’t listen anyway. The best entrepreneurs know that a ‘no’ really just means we should keep trying.”

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