The Accelerator Group says no thanks to newbies Tuesday, March 18, 2008

I was a little shocked to read the following comment from Robin Klein on The Accelerator Group's (TAG) blog today

"Funding business plans from first time entrepreneurs just won't happen anymore!"

As I commented in response, I'm assuming this just means TAG. Otherwise, if applied universally, then entrepreneurs will soon be an extinct species given that people cannot move between zero and two/three ventures. Of course, Robin may be including folks who've tagged along in management roles with founders in his eligible for funding category.

I can understand why TAG might use this filter, but entrepreneurs repeating previous success is also not a given. Whilst second time round entrepreneurs may have learnt lessons [from failure or success], you can also buy-in experience in support of a great proposition.

TAG have done incredibly well with their formula and have great relationships with the larger VCs, as well as having invested time in community initiatives. However this sends a dispiriting message to new entrepreneurs and undermines efforts of groups like Seedcamp, Y-Combinator etc who advocate that good ideas from quality people can get funding.

UPDATE : Robin responded
"sorry. Wasn't clear enough. My point was that just funding a 'business plan' ie a powerpoint plan with a 3year blue-sky financial model won't happen. Of course, first time entrepreneurs who bootstrap and build something, demonstrate consumer or trade engagement are always going to be of great interest."

That makes more sense.

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Hallelujah - investment sense for startups Wednesday, May 16, 2007

When I read this post by Will Schroter, I almost wanted to print it out and hand it out to Open Coffee attendees.

Extract:

Here are 3 things investors are not looking to write a check for:

Ideas - Investors aren't going to write a check to you just because you have an idea. Millions of people have ideas and most of them are bad. What makes a good idea is not it's novelty, it's the ability to actually run with it and make it successful in the marketplace.

Founder's Salary - Investors won't pay for you to get a full-time market-rich salary while testing out a new idea. You're not going to keep your $200k salary by having an investor foot the bill. Think $50k, best case, and a regular withdrawal from your home equity line of credit.

Back Debt - So you've racked up $100,000 in personal debt while you were building the business. How about getting that money back when the big investment comes? Forget about it. Investors don't want to invest in your debt. Kiss that money g'bye and hope the money you raised turns into a jackpot to pay it back.

The general rule of thumb is that investors want to invest in the growth of a business, not the expense of an idea.

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Is that regular or large infrastructure to go? Sunday, April 29, 2007

At lunch last week, I was chatting with a "techie" about whether one should spend money upfront on building an infrastructure that scales or whether it should simply be designed to be capable of scaling.

It's a debate of keen interest to an investor. The latter should be cheaper and hence offers the appeal of keeping the bet size down until the venture is demonstrating success, at which point, no one will refuse money to scale up. You also get the impression that hardware should be capable of being added easily (famous last words).

However, who can predict when the infrastructure will be required i.e. foretelling the timing of success with sufficient certainty that the infrastructure upgrade will begin in time. The big fear, of course, is missing the "wave" of popularity and actually generating negative sentiment when "customers" find the service isn't working because it's overstretched.

Artificial peaks are the worst though - an example of which is the "Techcrunch bounce", that Mike Arrington acknowledges. In this situation, there is a sudden surge of interest in the site following a blog post or launch piece, which then fades away before a "normal" level of traffic is established. The challenge is whether to build an infrastructure capable of dealing with this only for it to be redundant for some time thereafter.

Many argue you should invest upfront. After all, disk spaces and servers are relatively cheap these days. Yet does that include full resilience from the outset such that the likelihood data loss or service outages is minimised/eliminated. After all, depending on the website offering, losing your customer's data or being temporarily unavailable may wipe out your business on reputation grounds alone eg calendar service, online document storage.

I'm not sure there is a right answer but I know that good design is essential. Peter Van Dijck's has a useful post linking to 10 presentations from some of the large websites on their scaling efforts which offer some fascinating insights. Essential reading for all sites builders.

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Get a new car cheaply and then park at my house Thursday, March 08, 2007

If you read this blog more than once (apparently someone has), you'll have realised I am fascinated and passionate about markets and market mechanisms, amongst other things. So whenever someone at OpenCoffee starts to outline a venture that is markets related I confess to taking a keen interest in understanding how they intend to operate the market.

Last week I met with the founder of autoedbid, which is an excellent business that operates a reverse auction for the sale of new cars. Quite simply, you publish the car specification and the maximum price you commit to pay, then let car dealers fight it out for your business by competitively bidding down the price they are willing to sell you the car for. Autobid operates a "no win, no fee" revenue and has 700 UK dealers signed up.

Dealers submit their bids anonymously thereby protecting their reputation - only the buyer gets to find out who the successful dealer was and the identity of other bidders remains secret. Dealers are motivated to use this service as it enables them to quietly shift stock to meet quotas and earn improve terms. Buyers are motivated to use the service simply getting a better deal and without the pressure sell they might get in a dealership - of course, the buyer has to make a commitment when opening the auction; it's not a play thing, so take care.

This market simply could not exist in any workable fashion without the internet.

Today I came across Parkatmyhouse, which is an online market for parking spaces, the founder of which is an OpenCoffee member. People willing to rent out their driveways/parking space post a listing including a price and details of when the space is available.

People looking for a space can then search locations to identify listings or can post a "want" listing if no suitable ones are presently showing. Spaces are shown in context on google maps.

Presently there is no price negotiation facility I could locate on the site, nor is there any price history data (the site is fairly recent) of advertised spaces or transactions done on the site, to help participants gauge what to pay/charge. I think both of these would help.

Whilst this market could exist in the classified ads section, the fact that it didn't shows two things

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Is owning 51% important? Sunday, March 04, 2007

VC Confidential advances that entrepreneurs shouldn't get hung up on having 51% in this post as there are more important issues to be concerned with in the early stages of a business.

One of the greatest misperceptions in the early stage entrepreneurial world is that control revolves around maintaining greater than 51% ownership in a firm.

It certainly is the case that this tends to be the thing that entrepreneurs are most passionate about in any funding discussion. And it's understandable if you hold the view that "control" is the most important thing, rather than doing the right deal with the best people to create the greatest capital value down the line.

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Web startups are just like garage bands Friday, January 19, 2007

At mobile monday last week, I made an observation to the audience that web/mobile startup business environment reminded me of the music industry

- you can easily start a business/band in a garage with a few mates

- you don't necessarily need much (any?) talent nor do you need much money these days

- whilst there are examples of some bands/firms catapulting to fame & riches on the wave of viral fortune, many others have to do the hard work of marketing to a sceptical market full of noise & short on attention

- most firms/bands hope to be discovered by the big industry giants who'll promote & bankroll them

- some bands/firms are condemned to forever play to small audiences, or simply fall out with each other before fading away into oblivion



I say this because I don't think the existence of a large number of startups equate to a bubble. Of course there have been some big hits for firms with a large "fan" bases or awesome output into supergroups. Yet in the music industry this is just the natural order of things - frothy & hyped, but not a bubble in the way people are talking about the web space..



Certainly the music industry structure is changing & bands can make it on their own with the right talent/luck. But the helping hand of a large record company marketing budget can massively help an otherwise average/weak product.



Perhaps one day, being an entrepreneur will be as cool/hip/happening (whatever is the phrase; I don't have teenagers so am out of touch) as being in a band......... just fewer screaming/adoring female fans.

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Startup entrepreneurs rejoice! Tuesday, January 16, 2007

I've just been speaking to David Cohen, Colorado investor/entrpreneur, who I first came across with his Earfeeder venture. Yesterday, he and three friends launched Techstars.

This is simply brilliant and I am already speaking to a number of people in the UK scene about how we can do the same as a UK "chapter" of the idea.

Simply put Techstars is inviting startups to apply for a small amount of seed funding ($5k per founder to a max of $15k). Ten firms will be selected from the applicants. However, the bigger prize for the lucky firms will be access to the Mentors that have offered their time to help the startups - there are some notable names amongst the list of mentors offering their time over the Summer.

In exchange, Techstars takes 5% of the equity of your company, with no dilution protection required.

Clearly TechStars companies will get immeasurable benefits that come from introductions and connections to potential partners and customers. At the end of the summer, each company also has the opportunity to pitch during an investor event that they organize.

Worth checking out. As they say get funded; get educated; get started

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