Where Is Your Technology In The Gartner Hype Cycle?

Image via Wikipedia

Image via Wikipedia

The Hype Cycle was a concept put forward by Gartner, Inc. back in 1995 meant to apply to technology product evolution and acceptance. As I was reading about it a while back, it occurred to me that the concept relates directly to how investors see startup opportunities and potential success as well, at least those with technology in their offerings.

For those of you unfamiliar with the concept, the Gartner Hype Cycle characterizes the over-enthusiasm or “hype” and subsequent disappointment that typically occurs with the introduction of new technologies. Hype curves then show how and when technologies move beyond the hype, offer practical benefits and become widely accepted. A hype cycle in Gartner’s interpretation always comprises five phases: Read more

What are key issues for companies to keep in mind when obtaining investment from an Angel group?

The main one is simultaneously obvious and under-estimated in both directions: you are likely getting a bunch of small-ish investors at once. This might typically be anywhere from five to twenty-five investors each putting in somewhere between $10,00 and $100,000 (depending on the group.)

The good side is that you now have 5-25 smart, connected people rooting for you. If you handle this correctly and make your expectations clear up front, they can be a *major* asset when it comes to introductions, connections, advice and follow-on funding.

The not-so-good side is that you now have an equal number of people with a legitimate interest in the details of your business, to whom you have a fiduciary responsibility both to safeguard their money and to keep them informed. While usually this works out well for everyone, I’ve seen cases where a couple of small investors can aggravate the CEO by constantly calling with questions, intruding with operating advice and generally being a pain in the neck.

The solution, however, is pretty straightforward:

  1. Make sure you have a good working relationship with your lead angel, who will often be on your board. Establish up front that he or she will be your primary interface with the group.
  2. Communicate early, often and fully with ALL your investor members. If your term sheet calls for quarterly reports to investors, SEND THEM! And make sure that financial reports are accompanied by a management letter explaining what’s actually happening.
  3. Use an investor relations platform ([cough] like Gust [cough]) to keep all your investor material, reports and contact info up to date. That’s likely what the group is already using to collaborate with each other.
  4. Have a regularly scheduled conference call with your angels to keep them in the loop and let them ask questions of you. My gut tells me that quarterly is probably too frequent, but semi-annually may be just about right.
  5. Make it a point to reach out to them when you need something, including introductions, leads, team members, etc. (this is where most Founders drop the ball!)
  6. Right from the beginning, make it clear what you expect from the relationship, promising regular communications TO them, in exchange for putting rational limits on communications FROM them. (It’s a “one to many” relationship, so that’s the only way it can work.)
  7. If you’re an LLC instead of a C-corp, be SURE to get all your investors their K1s in good time to file their taxes…or else you run the risk of being burned in effigy.
  8. Finally, make sure to keep all your books and records (including your option program, cap table and 409a valuations) accurate and up to date, so that you can respond quickly and professionally when your investors request information to establish valuations for their portfolios.

 

*original post can be found on Quora @ http://www.quora.com/David-S-Rose/answers *

How To Build Startup Credibility Before Your Brand

Blog image via Pixabay.com

Blog image via Pixabay.com

With the estimated 510 million live websites at last year-end, and 280,000 new ones being added every day, the biggest challenge for an entrepreneur is to get found, and get some credibility for a new startup. I can attest from experience that publishing a regular blog to properly showcase your brand value, even before you have it, is a most cost effective approach in time and money.

The biggest excuse most startup founders mention is too much to do building a product, mapping strategy, investors, etc. For blogging to work, you need to do it consistently and frequently, at least once a week, or the value evaporates. I know that finding time is hard, and good writing is simply not what most people do. But here are some key reasons for giving it a priority early: Read more

Why are the majority of angel investors focused on opportunities with large TAM?

Because of the economic realities of angel investing, not greed.

The hard and unforgiving facts are that the majority of all angel-backed ventures fail completely, losing all the money of all the investors. Of the remaining investments, most will return either the same amount that was originally invested, or perhaps be a moderate success and return two or three times the investment.

The problem is that since the average holding period for an angel investment is around nine years, that means by the time you’ve toted up the returns for 90% of your investments, and subtracted out the time value of money, the one verysuccessful investment in the entire portfolio must return at least *30* times the original investment!

And even with those metrics, and assuming an optimistic holding period of only sixyears instead of nine, the net annual return on all of the investor’s angel activity will be 25%…a pretty limited compensation for taking the enormous risks, active involvement and lengthy period of illiquidity involved.

But assuming we are willing to live with the 25% return, and [obviously] can’t tellwhich of the ten investments is going to be that one “home run”, at the time we make the investment we have to do our best to ensure that ALL of the companies we invest are at least theoretically capable of being a 30x hit.

Therefore, if the maximum market cap we can hope for from a company is $2 million at the end of the day, and our investment needs to return 30x, that means the post-money valuation after our investment needs to be $2m ÷ 30, or $66,666.

If you were therefore looking for an angel investment of $50,000 to fund your company, for example, subtracting that from the $66,666 post-money valuation means that the investor would have to value your startup at $16,666, and would therefore need to own 75% of the company before you got started.

The harsh realities of economics and business turn out to have very, very little to do with greed and evil, and much more to do with Adam Smith’s Invisible Hand.

*original post can be found on Quora @ http://www.quora.com/David-S-Rose/answers *

Do you have to be tech savvy to start a business these days?

It depends on how you define “tech savvy”:

The appropriate analogy would be to ask if you need to be “auto savvy”. If the question is “do I need to know how to drive a car, be comfortable fueling my vehicle at a gas station, and understand the difference between a sports car, an SUV, a panel van and a semi-trailer?”, the answer is an absolute yes.

On the other hand, if the question is “do I need to be able to take apart a carburetor, replace my timing belts and re-bore my cylinders?”, the answer is an equally resounding no.

The tech translation would be:

“Do I need to be able to code in Python, understand the technical differences between Postgres and MySQL, and architect a high-speed trading system?”

No.

“Do I need to understand the concepts of things such as cloud computing, APIs and Search Engine Optimization, be able to craft a basic query on Google and know the key differences between LinkedIn, Facebook, Yahoo and Quora?”

Yes!

*original post can be found on Quora @ http://www.quora.com/David-S-Rose/answers *

How True Entrepreneurs Make Themselves Accountable

Image via Wikipedia

Image via Wikipedia

Everyone seems to like the aspect of being an entrepreneur that goes with “being your own boss” and “able to do things my way.” But sometimes they forget that this kind of freedom comes with a price of personal accountability. Accountability means “the buck stops here,” and “all the failures are mine.”

Too many people seem to do whatever it takes to avoid accountability, both before and after the fact. I suspect that this is largely caused by a fear of the unknown, and a lack of confidence in their own abilities. People with confidence problems and fear problems should avoid the entrepreneur role, since success without accountability is rare. Read more

How often do investors take a meeting with companies that they have rejected when the company was in its early stages?

It happens, but it’s not typical, given their limited time and the large number of companies they need to process in order to find the “keepers”.

Things that increase their likelihood of being open to another meeting after having previously passed on an investment:

  • A case where the entrepreneur was specifically asked to “come back after they have more traction.”
  • A major, public, positive event affecting the company
  • A significant change in stage, if that was one of the stated reasons for passing (such as “we only invest in post-revenue companies”)
  • A direct re-recommendation from a highly trusted source who is aware of the earlier pass and recommends a re-look
  • A case where the investor loved the entrepreneur but was skeptical about the business, and something has now seriously changed or been de-risked.

*original post can be found on Quora @ http://www.quora.com/David-S-Rose/answers *