Archive for May 25, 2011

Startup Genome Project

May 30, 2011 Entrepreneurship

Happy Memorial Day, everyone!

Steve Blank has a great article up talking about the Startup Genome Project — a detailed analysis about what makes startups more or less successful, based on analysis of 350 startups (primarily based in Silicon Valley).

Some highlights are listed in Steve’s article; the full report, though, is very much worth a read. Use this form to get access. A couple of my favorite bits:

  • Founders that learn are more successful: Startups that have helpful mentors, track metrics effectively, and learn from startup thought leaders raise 7x more money and have 3.5x better user growth.
  • Investors who provide hands-on help have little or no effect on the company’s operational performance. But the right mentors significantly influence a company’s performance and ability to raise money.
  • Balanced teams with one technical founder and one business founder raise 30% more money, have 2.9x more user growth and are 19% less likely to scale prematurely than technical or business-heavy founding teams.
  • Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely.

Also on the StartupGenome site is an interesting tool to Benchmark your Startup. If anyone gives it a try I’d be interested in hearing the results!

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First Time Startup Investor Q&A

May 26, 2011 Investing, Startup Life

Below are my notes from another Boulder Startup Week 2011 talk. I don’t represent to speak for David and Brad, and any misstatement of the content of this talk is on me and me alone.

 

First Time Startup Investor Q&A – 5.18.11 – TechStars – David Cohen, Brad Feld

  • Q: How much money does one need to be an angel investor? A: A typical investment may be $10k-$25k. One needs to be able to do many such deals in a year, since a high percentage of startups will fail. If you can’t afford to lose 50k per year (net) over several years without getting an ulcer, you may want to consider other options.
  • Investing in a startup is almost always a group endeavor. There are official Angel groups — some are effective and some are not. Good groups make plenty of investments; often have an activity requirement. Less effective groups are more social in nature and less active with their investments.
  • The Boulder Angels have a monthly lunch event.
  • Boston “Common Angels” is a good institutionalized group.
  • Beware of any angel group which charges investors to listen to a pitch.
  • Think of 3 types of angels, based on when they invest:
  1. Leaders — write checks early in the process, help pull the rest of the round together. They add credibility and help get others involved.
  2. Followers — may commit early, but the check comes later. Still can be very useful if you get a promise of a check as soon as the round comes together; evidence of support for the startup adds momemtum.
  3. Everyone else — checks that come together as the round finalizes.
  • “Control” only comes into play when things are going south. By that point, there is often little that can be done to salvage a crashing startup.
  • Angels are generally more interested in reputation than money. They take on more risk than VCs, since they are involved so early in the life of a company — most businesses fail.
  • As an angel, you should have an explicit strategy (write it down!). How many businesses you intend to fund per year, at what approximate $ value. What type of businesses? Have a 2-4 year fund at your disposal.
  • Many companies an angel funds will go to zero; the rare breakout, though, can return 100x.
  • Some angels are fully engaged in a company; some offer some resources or guidance; some offer $ only. One is not necessarily any better than the other. Fit is the key — make sure that there is a match between the kind of involvement the entrepreneur needs/wants and what the angel is able and willing to provide.
  • Consider a deal that offers the angel extra equity over time for actively advising, helping.
  • Angel advice: when you are interested in a deal, make your decision and commitment quickly. 24hrs after receiving term sheet.
  • Angel advice: get entrepreneurs to ID the biggest issues they will face; discuss how they will overcome them. Perhaps you will need to help.
  • Angel advice: tell fellow angels about your investments. Build momentum to help make your deals happen.
  • Angel advice: take phone calls, answer emails.
  • Read “Do More Faster” — you won’t regret it. (thanks for my copy, David!)

This was an extremely interesting and useful session for me. Really helped crystalize the direction I want to go with things; helping people start businesses and make their dreams real will be very fulfilling to me.

I hope to work with both David and Brad in the future.

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BSW11: Crafting Your Startup Pitch

May 25, 2011 Pitching, Startup Life

So as I mentioned on my personal blog on Monday, I thought I would post some notes from each day at Boulder Startup Week 2011, from one week previously.

(Probably should have done this each night while I was there, but I’m only human!)
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Crafting Your Startup Pitch – 5.18.11 - Atlas Purveyors – Jason Mendelson

  • 90% of the pitches are crap; and in reality it is not that hard
  • The #1 reason you need to be trying to start a company is the idea. Not the money. If the idea is keeping you from sleeping until you try to make it real, then you have a shot.
  • Be at the intersection of Passion and Chance-of-Viability
  • Top 5 mistakes when trying to get something going with a VC:
  1. English/Grammer — it matters. When someone sees hundreds of pitches/plans a week, they will likely discard those that haven’t taken the time to get basic language right. Get your English major friend to proof for you!
  2. Asking for a NDA up front. Shows lack of understanding of how the VC/Startup world works. Immediate trash.
  3. Carpet-bombing via a VC mailing list. A little competition is great, but if you are sending to dozens of VCs without discretion, you are likely to get placed on the “good luck with that” list.
  4. Refusing to work the way a VC likes to work; for example insisting they read the full business plan rather than creating and sending a 1-3 page summary as requested.
  5. Being unaware of what type of business a particular VC is interested in working with — this is about matching your needs and passions with theirs, not casting about blindly for money.
  • Elevator pitch: just a few (2-3) sentences with maximum clarity.
  • Use this (pitch) as the start of everything you send out… 3 parts:
  1. What is the problem or dislocation you are trying to solve
  2. How are you going to solve it
  3. Why you rock
  • More valuable than the 70-page business plan (only clerks at big firms actually read them; doesn’t mean you don’t need to do the thinking required to write one, though!) is a 1-5 page executive summary.
  • A PPT, Video, or Prototype is even better. Prove you can actually execute!
  • Be honest. You may not have all the answers up front; admit that.
  • Think holistically about who your competition really is. For example it’s not just other websites you are competing against, but other ways customers might use their free time.
  • Meeting with a VC/Angel is like dating… you want them to want a second (and third…) date. If the VC wouldn’t want to have a beer (or coffee) with you again, then things aren’t off to a good start. If you’re not a people person that’s OK; bring one on as a partner, or be so compelling with your idea that it doesn’t matter.
  • Things will get rocky in a startup. Expect it.
  • Differences between a VC and an Angel: that’ll be a whole other post.
  • Bootstrapping at the beginning is good! Shows you are serious, and that you can execute. Ideas are one thing; ability to make them real is another.
  • Should you take a salary during startup? Sure; but be prudent. Just because you made $150k at your last job doesn’t mean you should now.
  • Avoid convertible notes in early funding rounds. Mucks things up.
  • VC’s can only invest in a C-corp; no S-corp for you!
  • Google “early stage software” to find a VC that might be a match for you.
  • Can shop around for funding, but be nimble and selective. Don’t let a potential deal hang for days or weeks waiting on something better. Engage 2-3 conversations, with term sheets, but keep the momentum going.
  • #1 killer of startups: personnel issues. People suck. Your first few hires can make or break your company. That said, have a partner or two! Starting a company is a huge task and you can be more effective with the right team, who complements your areas of strengths and weaknesses.

If you ever have the chance to listen to Jason speak in person, take it. This was a great session and I learned a ton! I hope our paths cross again one of these days.

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