Tuesday, July 30, 2013

How To Give A Horrendous Investor Pitch


By John Greathouse

The ability to consistently give horrendous investor pitches is within your grasp. If you follow the tips outlined in this entry, you will be guaranteed to suffer absolutely no
dilution, as there is zero chance a reasonable investor will give you money. Investors are overrated. Who needs them?

Open With An Offensive, Off-color Joke
The great thing about beginning your pitch in an awkward manner is that you can alienate the majority of your audience quickly, making the fact that you are unprepared (as outlined in next suggestion) much less relevant. In addition to being blatantly offensive, avoid establishing the proper context of your pitch at the outset. The less foreshadowing you provide your audience upfront, the more confused and disengaged they will become. The best way to botch the First Impression Rule is to speak in a nearly inaudible, flat, monotone voice accompanied by distracting and random facial expressions and hand gestures.

Wing It With Irrelevant Sonic Fillers
Would you study for a test, train for a marathon or memorize your lines for a play? Of course not. Such preparation would be a waste of time. You are an entrepreneur – go for it. If you need to fill any uncomfortable pauses, just utter brilliant sonic fillers, such as: “you know,” “like,” “ah,” “let me be clear,” “as I was saying,” or the classic standby “ummm.” “Um” is especially versatile, as you can sustain it for as long as you need to conjure your next rambling thought.

Obscure How You Will Make Money
Throughout your presentation, emphasize fluff over substance. Liberally utilize video, graphics and other eye candy that distracts from your pitch and is irrelevant to your overall venture’s value proposition. If you are forced to display financial data, ensure that the slides are unintelligible. To further obscure how you will earn a return on the investors’ money, verbally stumble through the description of your financial forecast and make it clear that you only have a cursory understanding of the assumptions underlying your business model. To further weaken your credibility, speak in the future tense as frequently as possible (e.g., we hope to eventually complete our development, once we begin shipping product, etc.). The extensive use of the future tense will make your venture seem less real and more intangible. The more generic and jargon-laden your remarks, the greater the likelihood you will be perceived as an insubstantial dolt.

Do Not Put Yourself in Your Audience’s Shoes
OK, you know that most professional investors listen to hundreds of pitches each year. So what? In order to deliver a particularly terrible fundraising presentation, disregard the fact that your audience is sophisticated and somewhat jaded. Make it clear you do not know their investment focus (e.g., early-stage, late-stage, market-sector focuses, etc.) nor did you take the time to research the investor's investment portfolios. One way to unequivocally convey your disregard of your audience’s frame-of-reference is to tell them things you are certain to already know. For instance, emphasize basic market issues that are familiar to even the most casual observer of your venture’s space. Another tactic that will effectively demonstrate your complete lack of self-awareness is to disrespect your audience’s time constraints. If one of your audience members tries to speed you along, consider this an overt challenge to your ability to give a decidedly poor presentation. Slow the cadence of your pitch to a crawl. Also, consider utilizing irrelevant tangents and frequent repetition to further lengthen the grueling duration of your remarks.

Death by PowerPoint
An effective method to incite Death By PowerPoint is to deploy an extraordinary number of slides. A minimum of 20 to 30 slides per minute is a reasonable rule of thumb. In addition to relying on an enormous slide deck, you can accentuate Death By PowerPoint in a number of ways:
  • Hide behind a podium
  • Avoid eye contact with your audience
  • Turn your back to the audience and read each slide verbatim from the screen
  • Limit the use of pictures or graphs on your slides
  • Utilize extremely small fonts so you can maximize the amount of text per slide
  • Select a complicated, distracting background that will compete with the slides' content
Apologize Profusely
Nothing more effectively conveys the sentiment, “I do not respect you” than an apologetic announcement at the outset that you are unprepared. You can also interject apologies throughout your talk, including: your unintelligible slides, your disheveled appearance, starting the presentation late, running over your allotted time, etc. Such apologetic remarks will substantially erode your credibility. You can also interject subtle, apologetic language into your pitch, such as: “sort of,” “pretty much,” “kind of,” etc. These qualifiers will denude the impact of your comments and reinforce your lack of self-confidence.

Evade Questions
Q&A can often make the difference between a mediocre and a compellingly bad presentation. This is an opportunity for you to shine. Irrespective of a question’s validity, approach each with an overt air of disdain. Never admit that you do not know something. If you are unsure of a factual response, make up a fictitious one. In addition to playing loose with the facts, be defensive and argumentative if a question is too pointed. If the questioner persists with a follow-up question, provide a rambling, semi-coherent response. If you speak long enough, you can be assured that you will squelch any additional questions. Except as noted below, avoid preparing for Q&A. Do not anticipate questions or think through your responses in advance. You are winging it, remember? This includes Q&A.

Do Not Follow Up
Once the presentation is over, forget about it. If a potential investor asks a question that requires additional research, blow it off. In addition, do not bother tracking down the investors to solicit their feedback after the pitch. If they really want to invest, they will seek you out. You are far too busy for such Tomfoolery.

Cocktail Hour Infamy
With a bit of effort, your investor pitches will cause your audience to walk away with no empathy for you, a vague, disinterested understanding of your venture’s value proposition and absolutely no desire to fork over their dough. If you are diligent, the prospective investors will remember your pitch for years and will liven up many a cocktail party with anecdotes from your talk. Differentiation is a good thing, so relish the notoriety that these tips will help you achieve and rest assured that you will never be saddled with troublesome investors.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet about koala bears or that killer burrito I just ate.

Friday, July 19, 2013

VC funding soars in Florida


By Nancy Dahlberg

Venture capital funding in Florida soared in the second quarter of 2013, thanks to large investments in two Miami-based companies.

According to findings of the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association released on Friday, investment in the state totaled $155.8 million, up from just $11.29 million in the first quarter and the highest amount recorded in the survey since the third quarter of 2007.

Florida’s total was powered by the $65 million Series D round in Open English — the 7th largest investment in the country — and the $20 million round in CareCloud, the top two investments in the state.

Nationally, venture capitalists invested $6.7 billion in 913 deals in the second quarter, according to the report, based on data provided by Thomson Reuters. Quarterly venture capital investment activity rose 12 percent in terms of dollars and 2 percent in the number of deals compared to the first quarter of 2013.

A few second-quarter national highlights from the survey:

•  The software industry received the most funding, despite dropping 7 percent from the prior quarter to $2.1 billion, marking the fifth consecutive quarter of more than $2 billion invested in the sector.

•  Biotechnology was the second largest sector for dollars invested with $1.3 billion going into 103 deals, rising 41 percent in dollars and 4 percent in deals from the prior quarter. Of the deals, 71 were in medical devices, an area of strength in South Florida.

•  Early-stage investments rose to their highest level in six quarters, up 63 percent in dollars and 18 percent in deals to $2.5 billion going into 480 deals. The average early-stage deal was $5.2 million, up significantly from $3.7 million in the prior quarter.

•  First-time venture capital increased 24 percent to $1.1 billion going into 302 companies, a 10 percent increase in the number of deals from the prior quarter. First-time financings, particularly software companies, accounted for 17 percent of all dollars and 33 percent of all deals in the second quarter.

“In many ways it feels like the late 1990s with information technology driving venture investment and significantly outpacing other sectors when it comes to level of activity and momentum,” said Mark Heesen, NVCA president. “The difference, however, is where we go from here. There will be no tech bubble. IT investing will continue to be the bedrock of the venture industry — but at sustainable levels. Life sciences investment is poised for a slow and steady recovery, provided we can continue to see progress on the regulatory front.”

According to the survey, 14 Florida companies received venture capital in the second quarter, up from six in the first quarter and the highest number in more than two years. In addition to Open English, an online language school marching across Latin America and beyond, and CareCloud, a fast-growing software and services provider for the healthcare industry, the other South Florida company funded was Contactus.com of Miami, which received $400,000. Other Florida companies that were funded were Kony Solutions, Tower Cloud, Applied Genetics Technologies, Informed Medical Decision, Treehouse Island, XOS Digital, Zentila, SiteWit, Health Integrated, Fracture and Unikey Technologies.

Monday, July 8, 2013

Arianna Huffington's Top 10 Lessons for Entrepreneurs

By Peter Diamandis
  1. Think differently from other entrepreneurs by accepting failure and learning from it. "There are a lot of failures along the way," Arianna said. "I always stress that. I have two daughters, one just graduated from college, the other a junior, whom I always talk to about my failures." Entrepreneurs need to address the possibility of failure, she said, "because so often, I think, the difference between success and failure is perseverance and not giving up after one or two or three failures. Just keep connecting to that place where failure doesn't matter," Arianna said. "If we become so dependent on things always being a success, then we're in a very vulnerable position -- because we're not in control of how the world is going to receive something," she said. "I'm reading Marcus Aurelius, who was a Roman emperor and a Stoic, about how to get to the place where bad things can happen and you are not affected by them. This is now my ambition because I think that from that place then you can act so much more effectively."

  2. Pick something you are passionate about that aligns with the zeitgeist. "For me, the most successful enterprises are always when the entrepreneur's passion matches something happening in the zeitgeist... There is a spirit of the times," Arianna said. "There are things that are happening, that have the wind on their backs and when we tap into them and when our passion converges with what is happening in the world then magic happens. It doesn't mean there's no hard work, but definitely entrepreneurs have the wind on their back. For me the Huffington Post was something like that. I mean, being Greek I was always about connections and conversations. The beginning of the Huffington Post was actually, then, just taking those conversations and moving them online. I could see that the important national conversations were moving online."

  3. Relax in order to get your best ideas. "I'm very interested in how people get their ideas." Arianna said. "A lot of my ideas come in moments of peace, relaxation, hiking and reading. Something completely unrelated. Not in moments of dealing with my email or cleaning out my inbox," she said. "There is a great book by Arthur Koestler called The Act of Creation that tracks where great scientists get their ideas, not just the ones that we all know about. Again and again you come across the fact that creative ideas come in moments of relaxation, not in moments of stress. That's why if you talk to the people who've achieved great breakthroughs, whether it's Bill Gates or Jeff Bezos, they all talk about how they manage their life. Bill Gates taking time to go in a cabin away from everything and read."

  4. Never tolerate a toxic person in your organization. "I heard Jeff Bezos say it best," said Arianna. "He said that he will not allow anybody in the company who comes to his attention who is toxic person, however talented, to stay in the company. I'm a big believer in that. Zero tolerance for toxic people. I would rather have somebody much less brilliant and who's a team player, who's straightforward, than somebody who is very brilliant and toxic."

  5. When hiring, trust your feelings. "When AOL acquired the Huffington Post and we had more resources, one of the hardest things I had to do was staff up rapidly. We're now almost at 700 employees," Arianna said. "I would spend weekends in hiring sessions that were like speed dating. Time is so precious, so I set up a system where I would have other people in the interview with me. I would participate for the first 10 minutes, and then leave them with editors to talk. In interviewing a candidate you know almost immediately if it's a 'no.' There's no need to spend more than that initial time."
    "You also know if it's a yes," she added, "that moment of falling in love. You know it's a yes 100 percent. The hard thing is in between. If there is any slight doubt about it, my answer is no. I don't proceed if I have any doubt because the hardest thing is hiring somebody who turns about not to be the right fit -- that mistake is very costly. We've all done it. It's problematic. So, 'If in doubt: Don't,' is a very good rule for me, whether in relationships or in hiring people."

  6. Handle criticism and public scrutiny by refusing to doubt yourself. "I wrote a book called On Becoming Fearless where I talk about the voice in our head, that voice of doubt which is ultimately your worst enemy," Arianna said. "You can deal with everything outside. The hardest thing is dealing with what I call the obnoxious roommate living in our head. That voice that doubts us and learning to deal with that with a sense of humor or the way we're educating a child is also eliminating a huge drain from our lives."
    When the Huffington Post first began, Arianna added, it received negative reviews from some quarters. "In fact, if you'll go back to the first day, some of the reviews were not kind. I've learned one of them by heart. It was: 'The Huffington Post is an unsurvivable failure. It is the movie equivalent of Gigli, Ishtar and Heaven's Gate all rolled into one.' A year later the woman who wrote that review emailed me and said, 'I was clearly wrong, and I would now like to write for the Huffington Post, to blog for it.' I said absolutely -- and that's the other thing. You never hold grudges. It's really again part of living in abundance."

  7. The truest drive comes from doing what you love. "I feel very blessed to be doing exactly what I love to do," Arianna said. "I feel very grateful. It doesn't mean that there aren't many things every day that happen that I wish didn't happen, challenges I'm dealing with, as we all are, but nevertheless the overwhelming sensation is one of gratitude."

  8. It's important to step back from work to recharge. "One problem is learning to unplug and recharge," Arianna said. As somebody who loves what I'm doing I think we run the risk of forgetting to recharge ourselves. I have a lot of rules around sleep. One of my rules is I never charge my devices near my bed. It's really important because you may wake up for whatever reason in the middle of the night and be tempted to look at your data. There is medical evidence that if you do, even if you go back to sleep it's not the same recharging sleep. You know what? What is it that can't wait? The other thing is a lot of people say oh, I need my iPhone by my bed because it's my alarm clock. Eliminate your excuses. We all know there's nothing better than waking up recharged and nothing worse than going through your day like a zombie."

  9. Find hope in the world by focusing on abundance. "I think the world is like watching a split screen. Depending on which side you are looking at you can be hopeful or despairing," Arianna said. "I focus on what gives me hope. It's key that we focus on abundance and surpluses rather than just our shortages. To that effect, I think, we in the media have not done a good job at spotlighting what is working. So, I think beginning to put a spotlight on what is working not just on what is not working is what gives me hope and we're doing a lot of that. On HuffPost we have a section dedicated to good news. We have a section called Impact, which is all about giving and what people are doing to transform the world."

  10. Build a tribe that will support you. It's important to have a group of trusted friends, colleagues and family -- who will support your efforts. "For me the tribe always started with my mother and my sister, which is very Greek," she says. "What's important, is the combination of whomever it is that helps us connect with ourselves, our mission and passion."

Tuesday, June 11, 2013

Seven financial terms every serious entrepreneur should know


By Jed Simon

There are brilliant technologists and business leaders in today’s tech world, but while startups have their own, great talents, we’re seeing one common weakness: lack of understanding elementary financial concepts.

This impacts long term financial strategy as well as ability to negotiate and set up basic cost structures within the company.

Blame it on business school drop outs, or general lack of exposure to financial principles for building that great idea. It’s a growing trend and even professionals outside financial institutions working with startups have taken note.

Angel Investor and chairman at HDI company, Mark Schwartz told us, “Most companies don’t have people that are finance savvy other than knowing what to put in a term sheet for an initial capital raise.”

Startups forgo hiring a controller to manage the books and create financial reports because of “lean principles.” But even if you aren’t a finance major or don’t employ one, it is every chief executive’s responsibility to understand basic finance principles and how they can affect your business’ bottom line.

Robyn Gould, senior associate at Cooley LLP, a law firm that works closely with start-ups, has also noticed this trend:
“A growing number of our startup clients have developed the most cutting-edge, disruptive technologies, but struggle with determining their monetization strategy and preparing financials for investor pitches – skills that are critical for their ability to raise capital and build a successful business. We hear about startups ‘pivoting’ all of the time – often the most important pivot can be in a company’s monetization strategy. Accordingly, understanding the financial principles underlying such decisions is essential to being able to make these shifts.”
To help get all you new and hoping-to-be CEOs started on the right financial footing to ensure confidence from your team and your investors, here are seven basic finance terms that every good entrepreneur knows. We’ve also included a few additional resources to brush up on your Finance 101.

Bottom Line:

Net earnings and net income both fall under the “bottom line” description. You may hear people talk about “affecting the bottom line” of the company and this is simply any action that may increase or decrease the company’s net earnings, or overall profit. The term “bottom” is in reference to the typical location of the number on a company’s income statement, below both revenues (top line) and expenses. Needless to say, this is an important term to know.

Gross Margin:

Gross margin is expressed as a percentage and represents the percent of total sales revenue that a company keeps after subtracting the cost of producing its goods or services. The higher the percentage, the more the company keeps on each dollar of sales (that will eventually go toward paying its other costs and obligations). In simple terms, if a company’s gross margins are 25 percent, for every dollar of revenue that is generated, the company will retain $0.25 before paying its overhead, which includes salaries, rent, and more.

Fixed versus Variable Costs:

A fixed cost is exactly what is sounds like, a cost that does not change with increases or decreases in the volume of goods or services that are produced by your company. These costs are obviously the easiest to predict and plan for. Rent, salaries, and utilities all usually fall into this category.
Variable costs are just the opposite. They can vary depending on a what a company is producing (such as Amazon Web Services usage), and as a result are much harder to forecast.

Equity versus Debt:

The “equity versus debt” comparison may seem silly to some, but you would be surprised at how many people I have come across who have no idea what either really means. Equity is simply money obtained from investors in exchange for ownership of a company, while debt comes in the form of loans from banks that must be repaid over time. Both are necessary for growth, with their own pros and cons. Equity versus debt is a critical decision for any entrepreneur and it is important to know the difference as the future of your business may depend on it.


Leverage can be interpreted a couple different ways. In the financial world, leverage is most commonly known as the amount of debt that can be used to finance your business’ assets. In simple terms, the amount of money you borrowed to run your business. The balance you want to strike as an entrepreneur is that of your debt and equity. If you have way more debt than equity, you will be considered “highly leveraged” aka “very risky” to potential investors.

Capital Expenditures (CapEx):

Capital expenditures are any items purchased by your business that create future benefits. Basically, if something you bought is going to be useful to your business beyond the taxable year in which you purchased it, capitalize the item(s) as assets in your accounting. Examples include computers, property, or acquisitions.


Concentration is simply the measure (usually a percentage) of how much business you are doing with a specific client or partner. Relying on one or a couple of clients and partners to do business is a prime example of over-concentration. This is a losing strategy for any business because if something goes wrong with those limited relationships your business will be in serious trouble. Focus on keeping low concentrations for your accounts and investors will be impressed.


Wednesday, June 5, 2013

Zentila Raises $2.1 Mln in Series A Financing


Zentila said on Wednesday that it has closed $2.1 million in a Series A financing round. The lead investor was Vocap Ventures. Based in Winter Garden, Florida, Zentila is an online meeting planning platform.


ORLANDO, Fla. — Zentila, the first online sourcing, booking and tracking solution for meetings and conventions, today announced the closing of a $2.1 million Series A investment led by Florida-based Vocap Ventures.

“Zentila excited us as an investment for a variety of reasons,” said Vinny Olmstead, managing director of Vocap Ventures. “The technology is disruptive in that it automates and simplifies a fairly complex process. This has enabled the company to enter a fragmented market with a clever solution that has the potential to capture a significant portion of a multi-billion dollar industry.”

Founded in 2011 by hospitality industry veteran Mike Mason, Zentila provides meeting planning solutions for companies and individuals through a free-to-use, highly intuitive strategic meetings management solution. Since November, the company’s 1,500 corporate users have sent meeting requests with an estimated value exceeding $4 million. Hotels are enjoying close rates more than five times the industry’s average, making Zentila one of the most efficient RFP channels in the market today. Zentila was also recently chosen by Northstar Travel Group, the world’s leading business-to-business media company serving the travel and meetings industry, to offer its dynamic sourcing and booking platform on Northstar’sSuccessful Meetings andMeetings and Conventions online facility search.

“While we were approached by a number of venture capital firms, we opted to move forward with strategic investors who have deep experience in both the technology and hospitality spaces,” said Mason. “This new round of funding will enable us to further advance our offerings and continue to build market share.”

Other investors include Arsenal Venture Partners and venVelo, both of Winter Park, Fla., and Matt Avril, former hotel group president at Starwood Hotels and Resorts. Avril will also join Zentila’s Board of Directors.

“Un-bookable leads, or ‘RFP Spam,’ contributes to unproductive time for hotel sales forces globally,” said Avril. “ Zentila represents an ideal solution by helping hotels sell effectively while improving the experience and efficiency for meeting planners.”

“Zentila’s experienced management team is passionate about the meetings industry, and I share their enthusiasm for providing this new solution.” Avril said. “I am delighted to be a part of this dynamic group working to effect change in this critical way.”

Thursday, May 23, 2013

The Seven Deadly Sins of Early-Stage Funding Requests

In The Art of Bootstrapping Guy Kawasaki said, “The probability of an entrepreneur getting venture capital is the same as getting struck by lightning while standing at the bottom of a swimming pool on a sunny day.” And bootstrapping is a viable funding mechanism only if you have boots to strap, i.e., you have the ability to fund your venture with your own money.

For those of you in need of external funding, Kawasaki’s math is daunting. There is a rule of thumb that for every 500 bona fide business plans submitted to sophisticated investors, about 50 will get some consideration, five will become pitch decks seen by investors, and one will get funded.

So, what can you do to increase your chances of getting funded?

Other than being able to convince investors that you have the passion, persistence, and plan to be a successful entrepreneur, you should also avoid the following all-too-common mistakes:

1.     Not Being Coachable
Miles Kington said, “Knowledge is knowing a tomato is a fruit. Wisdom is knowing never to put one in a fruit salad.” Investors want to believe that you are smarter than they are; it is a big reason they will listen to your pitch. But wisdom only comes with the experiences learned over a lifetime. Good investors can help you in many ways beyond just financially, but only if you are willing to listen and learn. Have an open mind to the opinions of those who have done it before. Be the expert in the product or service you are creating, but defer to those who know the many other critical pitfalls you must avoid in order to be successful. 

I recently reviewed a pitch deck that had many grammatical mistakes. I told the entrepreneur that some investors might take that as a sign he lacks attention to detail. His email reply was dismissive and ungrateful. Investors are generally betting on the jockey not the horse, so being a horse’s ass won’t help you get funded.

And it doesn’t stop when you cash the check. Continue to develop a relationship with your investors even after they invest. Everyone needs a boss, even the CEO. Employ an effective Board of Directors that questions your assumptions. Every top golfer has a swing coach because they are always trying to get better. Follow that example.

2.     Not a Scalable Business
Your neighborhood may desperately need a new salad restaurant on Main Street and it might be profitable some day with solid execution. But borrow the money from a bank or raise it from the Three Fs of early-stage investing: friends, family, and fools. Early-stage capital is a high-risk investment and the best investors in the business are wrong more than 50 percent of the time. So the wins need to be big wins or the model doesn’t work. You must demonstrate that investors can make a substantial return and that is only possible if your business scales and scales quickly.

3.     No or Low Barriers to Entry
In the must-read book Do More Faster, Tim Ferriss said, “Trust me, your idea is worthless.” An idea is not a business. A company’s success is much more dependent on management’s ability to execute than on the original idea. That said, if six high school students in Bangalore can replicate your app over a weekend, your business is in trouble. Patents are a barrier to entry, but they cost money, take a long time, and don’t protect what you’ve done – they just give you the right to sue someone who has infringed on your patent. In my view, the best barriers to entry are revenue-generating customers, robust sales and distribution channels, a management team with deep domain experience, and the ability to continue to innovate rapidly. As Will Rogers said, “Even if you're on the right track, you'll get run over if you just sit there.”
4.     Weak Sales / Marketing / Distribution Channels
This is number four on my list, but number one in my heart. The single biggest weakness I see over and over again is a failure to understand how to build an awareness of your product, then an interest in it, and ultimately consumers willing to pay for it. “Social media” is not enough of an answer to the awareness challenge. “If you build it, they will come” only works in the movies to get folks interested. And the “App Store” similarly is not enough of an answer as your distribution channel since yours will be among the million or so already free or for sale there.

One way to jump start this process is with Eric Reis’ Lean Startup approach to a minimally viable product (MVP). Find a client to demo your MVP product or service. You won’t get paid, but you will get great feedback and, more importantly, a reference on which to attract distributors and resellers (and investors). If you are not ready for 10,000 customers then don’t sell direct – find a channel where you have 10 customers and each of them have thousands of customers.

5.     Failing to Understand Resource Requirements
In engineering circles there is the Stanforth Rule that states, “There are only two kinds of problems in the world: those that violate the laws of physics and those that time and money can solve.” President Kennedy knew in 1961 that with enough money and enough time, the United States could land a man to the moon and return him safely back to earth. But he didn’t advocate landing a man on the sun. You shouldn’t either. If your idea doesn’t violate the laws of physics, don’t be afraid to explain how much money you are going to need to raise to achieve escape velocity. The ability to articulate that you understand that $500,000 in seed capital will not be your last raise is actually a huge positive. Remember the Rule of Twos: It will likely take you twice as long to raise half as much as you are looking for – budget accordingly.

6.     Inappropriate Use of Funds
Certainly you are not going to tell an investor that the first thing you plan to do with his money is buy $6,000 office chairs for everyone in your company. But knowing specifically how the money will be spent is an absolute must. A plan to spend that scales the business faster and/or increases the team responsible for sales / marketing / managing distribution channels will help your cause. Remember it is their money even after they invest it in your company. If you want to raise more from them, or raise money from others who will ask them if you spent the last round responsibly, treat it like you are bootstrapping. Resource efficiency is the trademark of a true entrepreneur.

7.     A Revenue Model, but No Profit Model
I’ve got a great idea for a business that will generate explosive revenue from day one: I’m going to stand on a busy street corner and sell hundred dollar bills for $90. My forecast has me grossing $9 million the first quarter and all I need is $10 million to get it launched.


Again, an idea is not a business. Don’t tell us how much money you are going to bring in; explain to us how much profit you are going to be able to retain, reinvest, and distribute.

Although not one of the Seven Sins, Not Doing Something Useful probably should be. Marcus Wohlsen of Wired magazine said, “The history of technology is littered with solutions to non-existent problems.” Investors want and need to make money and that fact drives most of their decisions. But, speaking only for myself, building something more than just a cool new restaurant finder or the like would sure help you capture my interest.

One final piece of advice to increase your chances of raising money: Be so good you can’t be ignored.

Allen H. Kupetz is the COO of venVelo, a Winter Park early-stage investment fund, and the Executive-in-Residence at the Crummer Graduate School of Business at Rollins College. venVelo has recently invested in three central Florida companies: flexReceipts, Row Sham Bow, and Zentila.

Looking to learn more about how to be a successful entrepreneur? The author recommends these books:

Blank, Seven. (2005). The Four Steps to the Epiphany: Successful Strategies for Products that Win.

Blank, Steven and Dorf, Bob. (2012). The Startup Owner's Manual: The Step-By-Step Guide for Building a Great Company.

Cohen, David and Feld, Brad. (2010). Do More Faster: TechStars Lessons to Accelerate Your Startup.

Duhigg, Charles. (2012). The Power of Habit: Why We Do What We Do in Life and Business.

Dyer, Jeff and Christensen, Clayton. (2011). The Innovator's DNA: Mastering the Five Skills of Disruptive Innovators.

Freid, Jason and Hansson, David. (2010). Rework.

Guillebeau, Chris. (2012). The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future.

Johansson, Frans. (2012). The Click Moment: Seizing Opportunity in an Unpredictable World.

Kidder, David. (2013). The Startup Playbook: Secrets of the Fastest-Growing Startups from 42 Founders.

Lacy, Sarah. (2011). Brilliant, Crazy, Cocky: How the Top 1% of Entrepreneurs Profit from Global Chaos.

Moore, Geoffrey. (2002). Crossing the Chasm: Marketing and Selling Disruptive Products to Mainstream Customers.

Ries, Eric. (2011). The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses.

Tatum, Doug. (2008). No Man's Land: Where Growing Companies Fail.

Tjan, Anthony and Harrington, Richard. (2012). Heart, Smarts, Guts, and Luck: What It Takes to Be an Entrepreneur and Build a Great Business.

Wasserman, Noam. (2012). The Founder's Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup.

Wednesday, March 27, 2013

10 startup fundraising tips from North Bridge VC Michael Skok

by Kyle Alspach
Boston Business Journal

Michael Skok, partner at North Bridge Venture Partners, on Tuesday evening continued the third edition of his popular "Startup Secrets" workshops with a session on "Raising Money from Seed to Exit."

After introducing the topic by saying that "raising money is like sex" — "everyone wants to know about it, but few people want to talk about it openly" — Skok and several guest speakers offered insights on how to think about raising funding for your startup.

Here are 10 takeaways from the event, held at the Harvard Innovation Lab in Allston:

1. In some cases you should not raise money. Great entrepreneurs, in many cases, don't even think about raising money until they've exhausted all of their own resources.

2. One great time to raise money is when you are brand new and have lots of potential. Startups are attractive at this stage if the opportunity seems exciting enough. Plus, there is nothing that can be disproved at this point. The key here is having the perfect pitch.

3. Another great time for fundraising is when you have proof. When investors do their due diligence on your company, and there is plenty of proof that the business is working, investment will be a no-brainer. Investors will often create their own theory about how your business will evolve at this point.

4. Validate the opportunity before raising seed. The worst thing you can do is spend months building a product, only to find that you haven't validated whether it meets a need or solves a problem — that is not a seed investment that's going to succeed.

5. Time intensity is more important than capital intensity up front. Entrepreneurs must be willing to put in the time early on to build a business before even thinking about raising money.

6. Decide how committed you really are before raising a Series A. Even if someone writes you a Series A check, you may not want to spend years of your life building that business. Typically it takes six to seven years to create real value in a company. Are you ready to go the distance?

7. Before working with a VC, decide what sort of attributes you want in them. Are you looking for somebody who has operating experience, or someone who's a pure investment professional? Do you want someone who is hands-on, or not? Will you be looking to them to help with team building or with removing roadblocks to your business?

8. Don't try to fit too much into the first meeting with an investor. Tell your story, but don't spew out your entire business plan in one mouthful — that can be tough for an investor to digest. Just tell the investor enough to get them interested and get to the next step.

9. Be wary of the term sheet that arrives before due diligence is done. This doesn't represent much of a commitment, because an investor's feelings can change after due diligence. A term sheet that arrives after due diligence, however, strongly suggests a deal is going to close.

10. Do a quick wrap-up with the investor at the end of each meeting. Ask them, was this a good meeting? And do you want to move forward? If you don't get a good sense that the investor wants to continue, it might be time to move on to someone else. Your biggest cost is your opportunity cost.

Read more: North Bridge VC Michael Skok on Boston's startup mentor gap (and how to close it)

Monday, March 25, 2013

Sh*t you should never say to a VC in a pitch


This is a guest post by Mucker Lab’s Will Hsu.

Raising money from venture capitalists can be a lot like dating. Certain topics are simply off-limits — like talking about why your ex left you. Venture capitalists are also expert pattern-matchers. They need to know a little about a lot of things. And because they see so many potential investment opportunities, it’s almost impossible for them to have the time and energy to conduct detailed market and customer due diligence to determine the viability of an idea.

Instead, they rely on how you explain your idea and match that to their past experiences to create a complete picture of the potential investment potential. As a result, an innocent sentence you throw in at the end of your presentation could trigger either great memories of their last successful investment or nightmares of their last $10 million down the drain. So sometimes, it’s the things you don’t say that are the most important.

While you might understand the basic topic points, such as revenue potential, market opportunity, and so on, it’s important to know what not to say on the periphery as well. Here are some of the things you definitely should not mention to a venture capitalist if you don’t want to trigger bad nightmares.

10. “Daily deals”: It may seem unfair given that consumers are still lapping up deals and businesses are issuing coupons like never before. But VCs have all moved on. The reality is that it just takes too much effort, time, and tongue-twisting for a VC to tell his buddies how his latest investment is better than all the other daily deal companies that came before. And it will take too much effort for you too.

9. “Big shots like A,B,C,D,E,F,G are advisers”: Simple rule. Being able to say “adviser and investor” is 10 times better than just having an adviser. It doesn’t mean you don’t want lots of advisers and mentors, because you obviously do. You want lots of helpful and passionate advisers, but just be careful thinking that all VCs will give a damn. As a VC, I care about your ability to convince important and influential people to help you build your business (and invest); I don’t really care who they are and how many there are. It’s not about who, it’s about you.

8. “… Uncapped Note … ”: If you’re a YC company, go for it. For the rest of us mortals, let’s get real and understand the point of investors is to have smart people with money on your side.

7. “I’m pretty sure my product will sell itself, and I’m not worried about customer acquisition”: Saying that you’re not worried about customer acquisition is like saying you’re not worried about driving a thousand miles and not running out of gas. If you are not concerned now, you will be eventually. Either have a really detailed customer acquisition plan or show some metrics that allay the fears that acquisition would be too expensive or will never scale. Even product purists care about acquisition.

6. “… SoLoMo … ”: Pick two out of three. Any two. And if you must, at least jumble up the sequence (“MoLoSo?” or “LoMoSo?”). Just don’t say “SoLoMo.” Every time I hear it, a tingle goes up my spine (not in a good way), and I’m pretty sure I’m not the only one.

5. “I don’t need to do market research because consumers are incapable of envisioning the future, you just have to give it to them”:An experienced VC could only respond, “I served with Steve Jobs. I knew Steve Jobs. Steve Jobs was a friend of mine. You, sir, are no Steve Jobs.”

4. “My product is naturally viral”: Every entrepreneur claims to have a “naturally viral” product. It’s like everyone believing they are an above-average driver. The fact remains that average CTR on Facebook news feed links are around 0.2 percent, which are about the same as banner ads, and certainly no one has ever claimed that banner ads are viral. Until a product has gone viral, it’s not viral.

3. “I’m Pinterest for X”: I cannot figure this one out. Apparently it is perfectly fine to be “AirBnB for X,” “ShoeDazzle for Z,” and “Dropbox for Y” … but the moment someone utters the word “Pinterest for … ,” everyone’s eyes just glaze over.

2. “I want to build a great user experience, I don’t care about monetization and revenue”: Only a handful of guys can say this: Zuckerberg, Dorsey, Page, Brin. The only reason they can say it is because they have proven abilities to build a large audience and eventually figure out a way to make lots of money. Unless your last name happens to be one of those, you need a plausible business model.

1. “My addressable market is $XXX billion”: Any market sizing higher than $100 billion (actually, I would really be careful starting around $50 billion) is simply not credible. It either means the entrepreneur has no idea how to analyze the market to find the initial target customer segment (and thus a smaller addressable market), or the entrepreneur has no idea how to tie his business model to a market-sizing calculation. For instance, if you are selling food trucks, you can’t say your addressable market is the total dollars for food sold by food trucks. Neither one builds confidence.

Will Hsu is a cofounder and managing partner of MuckerLab, a mentorship-driven startup accelerator focused on serving Internet software, services and media entrepreneurs in Los Angeles and broader Southern California.

Sunday, March 3, 2013

The Silicon Valley Survival School


By Ari Levy

Even by Silicon Valley standards, venture capitalist Tim Draper is an oddball. He co-owns a luxury resort in Tanzania, helped produce a Nickelodeon mockumentary series about his sister’s kids, and ends speeches by singing a five-minute ode to entrepreneurs called The Riskmaster. His latest passion is Draper University of Heroes, where students aged 18 to 26 discuss the future instead of history, play volleyball with two balls, and learn survival skills that include suturing and weapons training. Set to open in April, the program is a $7,500, eight-week crash course in entrepreneurship. “Other schools out there are focused on getting an A, which means don’t make any mistakes,” Draper says. “Our school was created to fail and fail big and succeed and succeed big.”

A typical University of Heroes morning will begin with a lecture from a well-known speaker. Zappos (AMZN) Chief Executive Officer Tony Hsieh and Elon Musk, co-founder of Tesla Motors and CEO of SpaceX, spoke during a pilot class Draper ran last year. The rest of the day will mix courses on urban survival training, finance, and sales as well as viral marketing and idea generation. There will be yoga, go-karting, and riflery. The Heroes version of baseball more closely resembles Calvinball from Calvin and Hobbes—players may run the wrong way around the bases or change positions after every pitch. And, yes, there will be karaoke.
Draper, 54, whose father and grandfather were also venture capitalists, has spent the past 28 years backing startups as founder and managing director of Draper Fisher Jurvetson, whose funds have raised more than $7 billion since 1985. He bet early on Hotmail, Skype (MSFT), Tesla, and Baidu (BIDU), but his once top-echelon firm has missed many of the big social media winners in recent years.

Now he’s bet $20 million of his personal wealth on his school. Some of that went toward acquiring a campus—the vacant 90-room Benjamin Franklin Hotel in downtown San Mateo, Calif., and a former antiques store across the street. Draper plans to host quarterly sessions with up to 180 attendees each. He’s working with universities to help students get class credit, similar to a study-abroad program.

Students who can’t afford the $7,500 tuition can promise Draper 2 percent of their income over the next 10 years, or they can propose another arrangement. For the term starting in April, he’s accepted two such proposals: A race-car driver will put the school’s logo, a shield, on her car during competitions, and two Egyptian students say they’ll write a book about the school in Arabic. “We’ve had some other offers that weren’t quite as good,” says Draper.

Christine Guibara, 27, a jewelry designer in Burlingame, Calif., took part in Draper’s 40-student pilot program last June. She says that though her business was already doing well, Heroes made her think bigger. She says she was inspired by a lecture by Ron Johnson, the J.C. Penney (JCP) CEO who previously led Apple’s retail operation, and has begun talking to possible partners about starting what she calls a retail incubator, a common sales space for up-and-coming jewelry designers. Like every Heroes student, she finished her program with a two-minute pitch to a panel of real investors. By that time, she says, she’d overcome her fear of public speaking through extensive pitch practice and other work. Camaraderie with her classmates also helped, she says: “Being uncomfortable almost every day and still looking forward to it makes you comfortable with the unknown.”

Draper expects Heroes to at least break even, and hopes alumni give Draper Fisher Jurvetson an early chance to invest in their projects. Draper says he expects to invest between $300,000 and $500,000 of his own money into a $4 million round of financing for nVision Medical, a devices company founded by Surbhi Sarna, 27, who attended the Heroes pilot program last year. Sarna says Heroes inspired her to broaden the company’s focus from female infertility to early detection of ovarian cancer as well.

Within about two years, she hopes to have an early detection device on the path to approval from the Food and Drug Administration. That’s the kind of risk Draper sings about on stage. As he says in his song: The riskmaster “skates on the edge of disaster.”
The bottom line: Third-generation VC Tim Draper has invested $20 million of his own money in a $7,500-a-pop boot camp for young entrepreneurs.

Tuesday, February 26, 2013

An entrepreneur’s quick guide to working with angel investors


by Deanna Pogorelc

The number of angel investors in the U.S. has jumped 60 percent since 2002, and the number of dollars they’ve invested in companies has gone up even faster. Not to mention that a few new angel groups have sprouted just within the last year to invest especially in life science companies.
Given all of this activity, Cleveland non-profit entrepreneurship group JumpStart Inc. (disclosure: JumpStart is an investor in MedCity Media) gathered a panel comprising two local technology entrepreneurs who have raised angel funding and the manager of an angel fund to talk about how entrepreneurs should prepare for this kind of investing and what they should expect when a deal goes through.
There’s no one “kind” of angel. Some investors will want to know lots of details about the progress of the company; others will want to be involved in only the big-picture things. Iron out all of those expectations in the beginning. “We’ve created an internal blog where we’re posting everything and we give access to them, so they’re able to figure out on their own whether they want to come in and see what we’re doing,” said Bryan Chaikin, a co-founder of eFuneral.

Take their advice as just that – advice. A good angel will give you more than just money. Soak that up. If you follow every suggestion or critique an investor offers with, “yes, but…,” they will eventually stop offering suggestions, noted Adam Roth, president of StreamLink Software. But at the same time, you shouldn’t try to follow every piece of advice given by every angel you pitch to. “They have a lot of good knowledge but probably don’t know your business as well as you do.”

They want to hear about who you’ve hired. For companies that are on an otherwise even playing field, it’s the management team that makes the different. “We know that the business plan you present to us will be different than 12 months from now,” said Clay Rankin, manager of North Coast Angel Fund, which invests in early-stage healthcare, advanced materials, information technology and energy companies. “It will be different because they have run into obstacles trying to get the product to the market or trying to develop their product in the first place, but it’s the successful management team that can figure out how to overcome those obstacles that’s most important.”

No matter how early stage you are, have some intelligent thoughts on funding down the road and an exit. “We try to not only look at the environment right after the money is put in, but also where is that company going? What kind of financing is going to be needed down the road, and who is likely to provide that financing?” Rankin said.
And if you take angel or VC money, make sure you’re on the same page about how you might exit and who the potential exit partners could be. “They’re looking for their return; they’re not in it for a lifestyle kind of situation. It’s just not the way those kinds of investors are thinking.”

Make the most of your friends and family money. “If you have money, but you know you don’t have enough money and you’re wanting to valuate your business, don’t burn all your capital before you go get that investment,” Roth said. “Get a lead investor, get the terms so that you have preferred shares and then invest in preferred shares, because it doesn’t matter how much money you put into the company before the investment. You’re better off taking that dollar and putting it in after there’s already a value set so you can actually buy real shares with that money, as opposed to buying sweat equity.”

If your company is very early stage, consider convertible debt. That was the best option for eFuneral when the company was first ready for funding, because there was no way to put a valuation on the company just yet. “One of the benefits of doing it that way is you’re giving the company the opportunity to move its business far enough along that there is clear value in it, and it’s that value that allows you to attract outside investors,” Rankin said.
“I wouldn’t diminish those frilly things that add some value to it — the warrants or stock options. The reality is that a 7 or 7.5 percent interest rate is not commensurate with the risk you’re taking as an investor. This is huge risk at this very early stage, so what you’re doing about getting the warrant or getting an option for additional stock is to recognize the fact that you came in early, you took that early risk, and you’re entitled to get a little extra kicker when others come into the picture with equity.”

But, again, all angels are different. Some angels may not favor convertible debt because they want to know what their ownership in the company will be up front. “If we wait and wait and wait (for a valuation), the limited amount of money we’re able to put in as an angel fund becomes smaller and smaller as a percent of the value of the company, so your ownership ends up being tiny,” Rankin said. “Then if there are future rounds, your ownership is more diluted after that, so we do like to get the oar in the water.”

Plan on the process of getting an investment being at least six to eight months long. For North Coast Angel Fund, Rankin and his associate screen all of the opportunities and send one or two per month to a screening committee. If that committee likes what it sees, the company is invited to present to the full membership about a week later. If the membership approves, around three months of due diligence will follow. “Once the due diligence process is complete and the team comes back and recommends an investment in the company, it is not uncommon for it to take another month to negotiate the final deal documents between lawyers on both sides,” Rankin said. Of course, there are always exceptions that could speed up or slow down the process.

Break up your fundraising, if applicable. “If you’re worried about the perception of how long it’s taking you to raise capital, I think you could set goals for yourself – short-term goals, mid-term goals, long-term goals – and define how much capital you need to get to each stage and break your raise down into those buckets,” Roth said. “If you do that ahead of time, when you’re talking to your investors and you’ve got that laid out, I think they’ll be impressed with your thinking about how you’re trying to be capital efficient as opposed to how you can’t just get a bunch of capital in the door.”

Wednesday, January 23, 2013

Start Here if You are Looking for Angel Investors


If your startup is looking for an Angel investor, it makes sense to present your plan to flocks of Angels, and assume that at least one will swoop down and scoop you up. Or does it? Actually numbers and locations are just the beginning. The challenge is to find the right Angel for you, and for your situation. Here are some basic principles:
  • Angels invest in people, more often than they invest in ideas. That means they need to know you, or someone they trust who does know you (warm introduction). For credibility, they need to know you BEFORE you are asking for money.
  • Angel investors are people too. Investors expect you to understand their motivation, respect their time, and show your integrity in all actions. They probably won’t respond well to high pressure sales tactics, information overload, or bribes.
  • Angels like to “touch and feel” their investments, so they are generally only interested in local opportunities. It won’t help your case or your workload to do an email blast and follow-up with 250,000 members around the world.
But now to answer one of the most common questions I get “How do I find Angel investors?” With today’s access to the Internet, and Google searches, it really isn’t that hard. Here are the largest flocks:
  1. Gust (formerly AngelSoft). This is perhaps the most widely-used source of information on Angel investor groups across the world, run by the “Father of Angel Investing in New York,” David Rose. This software platform is used by most local Angel organizations for managing deal flow.
    It boasts more than 1,000 member-managed groups and VCs, with 40,000 investors, and over 1,800 startups funded in the last 12 months. As an entrepreneur, you simply use their investor search engine to find appropriate investors for your business according to location, industry interest and other relevant criteria.
  2. AngelList. This is another very popular website for raising equity or debt investments for startups. It was founded back in 2010 by Naval Ravikant and Babak Nivi of Venture Hacks, which is also a great place to visit for startup advice. Although relatively new, they announced early last year that their community had already grown to more than 500 startups, and 2,500 investors. The format is more social networking in nature, and they also will soon provide a recruiting portal for crowdfunding with unaccredited investors, now that the US JOBS Act has been passed.
  3. Keiretsu Forum. This one claims to be the world’s largest single Angel investor network, with 1,000 accredited investor members throughout twenty one chapters on three continents. Since its founding in 2000, its members have invested over $400 million in companies in technology, consumer products, healthcare/life sciences, real estate and other segments with high growth potential.
    The Founding Chapter is in Silicon Valley, California, (naturally). A caveat is that this is a for-profit organization, so fees to present may be significant.
  4. New England Investment Network. This is an online platform connecting entrepreneurs based in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont, with Angel investors worldwide. The caveat here is that this network doesn’t have a personal touch, as it only facilitates the exchange of contact information, so the matchmaking is left up to you.
    The reach is very broad, however, with 30 branches worldwide covering over 80 countries in Europe, North America, South America, Africa, Asia and Australasia, and over 200,000 members worldwide.
  5. Angel Capital Association (ACA). ACA membership includes more than 160 angel groups and 20 affiliate organizations across North America. ACA member angel groups represent more than 7,000 accredited investors and are funding approximately 800 new companies each year and managing an ongoing portfolio of more than 5,000 companies throughout North America.
Of course, there are many Angel investors, often called “super Angels,” that have a large following and large reach, so they don’t need any of these organizations to be found. Examples of some leaders in this space include Ron Conway, Mike Maples, Jr., and Dave McClure. Connecting with one of these would be a real coup for your startup.

My real message is that the best Angel you can find is a local high net-worth individual, with whom you or your advisors have an established prior relationship. So get out there and network today, and you can be one of the lucky ones who is touched by an Angel without having to go through hell first.

Marty Zwilling