Over the past week I have seen a flurry of notes from Angels and VCs to their portfolio companies commenting on the recent economic instability.
The message echoed by all: Batten down the hatches! Review your budgets. Make the cuts you need to. You may not get another round of financing in the near future.
Two such groups that have sent out messages advising their portfolio CEOs of some of the steps they might take to weather the economic storm they are going to face for what many have estimated will be at least the next 18 months, are Sequoia Capital and angel investor Ron Conway.
Ron noted, in an article with TechCrunch, that the current situation is much like that in 2000. So much so, that he simply dug out the e-mails he sent then and circulated them again. The advice:
The down draft in the stock market sends us some obvious “signals” and we can’t help but mention them.
- If you are in a funding cycle, you should raise your funding as soon as possible and raise as much as possible.
- Many companies are ignoring certain VC leads we’ve provided in order to concentrate on the top tier only. While we have preached that in the past, this is no longer the case. Currently, top-tier VC bandwidth constraints, coupled with the market down draft, make it very important to take meetings with any VCs where you can get their attention. We have been working hard to open up this new bandwidth.
- You must aggressively examine and pursue M&A opportunities (unless you have over 12 months of cash reserves!) ro insure you have critical mass (including funding, customers, rolodex power, market share, cash, synergy, etc.).
- Be realistic on valuations - they will fall so be ready and willing to co-operate.
- Look for corporate partners to invest so you can raise more money. You should also consider a sale of your company to your corporate partners.
- If you are entering a funding cycle start raising money sooner rather than later.
- While it’s safe to say entrepreneurs have had negotiating leverage with the “down draft” in the market, the VC community will start exercising their leverage.
I highly advise you to read the full TechCrunch article that goes into much greater detail.
The second group whose advice I think it important to convey is Sequoia Capital. They sent around the slide deck that you can find at: Sequoia Capital on startups and the economic downturn
The most important piece of advice here, I think, is manage what you can control, including your spending, your growth assumptions, and your earnings assumptions.
Companies everywhere have a hard path ahead of them over the coming months (years?). Only those that can create real value, and reach breakeven by stretching their pennies razor thin will flourish in an environment such as this. Can do this? If not, it is time to learn quickly or risk being left in the ‘valley of death’.
Categories: EP Enterprises
Tagged: angel, angel investor, economic, vc
The perfect is the enemy of the good. – Voltaire
Far from a sanction of shoddy work, or an excuse not to think things through, Voltaire makes an excellent point that all start-ups should pay heed to. Attaining perfection, be it in a technology or a business plan, becomes infinitely more difficult as you get closer to achieving it.
There comes a time in every start-up’s life where the CEO must decide that the technology is good enough for the market and the business plan significantly addresses the majority of the issues he is likely to face.
At that time the CEO has a choice:
- Tweak and tune the technology or business plan alone in the basement to make it ‘perfect’ (something I would argue you will never achieve that way anyway…); or
- Get out there, sell, get the market validation a company needs to grow, integrate customer feedback as you grow.
At some point every would-be entrepreneur must decide to jump into business and make a go of it - and potentially fail. Working to perfect a business plan or technology is the deceptively safe alternative. Why deceptively? Because, in the end, all you have is the unrealised down-side of opportunity cost. I have seen a number of people fall into this trap. Don’t let it happen to you. Get out there, even if what you have isn’t perfect, it might just be good enough to start a killer business.
Categories: Concepts · EP Enterprises
Tagged: perfection, voltaire, Venture Development
Mike McDermant, CEO if Freshbooks, wrote a great blog post today, 7 ways I’ve almost killed FreshBooks.
Mike has led Freshbooks to a great place over the last few years, having built a great product sooths a point of pain for many people, myself included. I highly recommend that you check both this post and his product out. The 7 ways? Well:
- Thinking we had to move faster than we did
- Placing my faith in a spreadsheet
- Thinking we had to spend more than we did
- Placing my faith in consultants
- Underestimating word of mouth
- Believing we could not get this far without doing “x”
- Doubting ourselves too much
For full details, see his post.
Thanks, Mike, for being so open about this. A lot of startup CEOs could learn from your experiences
Categories: EP Enterprises · Tech Tools
Tagged: Tech Tools, startup, ceo lessons learned, startup lessons
It is my great pleasure to say that Idée has now opened their TinEye beta to the public!
Captained by Leila Boujnane, CEO, Idée has developed TinEye to be the first image search engine on the web to use image identification technology. TinEye lets you submit an image to find web pages that contain that image.
As someone who often works with images, TinEye is a dream, helping me find out where and how an image appears online, find modified versions of unmodified images or vice versa, and research the usage of editorial or stock images.
If you ever work with images I highly recommend that you sign up for the Beta.
Categories: EP Enterprises · Tech Tools
Tagged: companies, graphics, Tech Tools, tineye
I very much like the comparison Mike McDerment, CEO of FreshBooks, made recently between entrepreneurs and artists.
As a fan of Romantic Realism, a term that usually refers to a type of art that deals with the themes of volition and value while also acknowledging objective reality and the importance of technique, to me, Mike’s is an very fitting comparison.
An entrepreneur, like an artist, must:
- Choose to shape/reshape/create something new he thinks will be of value to the market based on, hopefully, objective information he has gathered; and
- Produce something that:
- Works for the customer and meets their needs (Technology – 10% of the failure of early-stage companies);
- Satisfies a market need, is accessible to the market (they understand it!) and acts according to the realities of the market (Market – 30% of the reason for failure of early stage companies); and
- His/her team’s personal competencies can deliver (Team – 60% of the reason for failure of early stage companies).
The comparison could continue but I think Mike did a great job of it!
I would say one thing, in addition to Mike’s comments, about starving artists: Entrepreneurs, like artists, 
must produce something of value to their customers.
If an artist or entrepreneur engages in an exercise that only focuses on the product and not ensuring it garners traction in the marketplace they deserve to starve if, after labouring for years they find out that the market doesn’t have a use for it. Someone paying for your art/product is the true litmus test of your art/product’s worth, not to mention your company’s worth when trying to find investors!
Starvation may mean two things:
- The market signalling that your product is not relevant to it, that it is not understood, that it is priced outside what the market will bear, or that you are doing something else wrong in conveying it’s value;
- That you are making the conscious choice to ‘starve’ and push all profits back into the venture to grow it.
Entrepreneurs in the latter category, Angels are waiting to hear from you!
On another note much delayed note, I would like to add Freshbooks to the Tech Tools section of my blog. They have created an amazing suite of tools that I use to keep my invoicing and books clean! An example, perhaps, of a company providing a much needed product to their market? Absolutly!
Categories: EP Enterprises · Tech Tools
Tagged: angel investor, artist, entrepreneur, market, romantic realism, validation
I truly enjoy what I do these days. I get to work with great start-ups and the people that fund them.
One such company was Cambrianhouse. I met Mike Sikorsky a few years ago at the Canadian Venture Forum (a now dead venture forum) and absolutely loved where he was trying to take his company. In the last week, though, it seems the Cambrianhouse model (hopefully not the company!) has been relegated to the deadpool. The reason: Team.
In this case it was not the company’s team, but the teams meant to commercialize Cambrianhouse’s crowdsource-developed products.
As Mike commented:
The limiting reagent in the startup equation is not ideas, but amazing founding teams.
A key assumption for us, which proved out NOT true: given a great idea with great community support and great market test data, we would be able to find (crowdsource) a team willing to execute it OR we could execute it ourselves. We needed amazing founding teams for each of the ideas – this is where our model fell short.
What we learned: it would have been better to back great teams with horrible ideas because most of the heavy lifting kept falling back on us, or a few select community members… Trying to find people willing or capable to take on the offspring (our outputs) of the CH model was hard and/or incredibly time consuming.
This is a well documented fact: the TEAM is the MOST important aspect of any start-up company, NOT the technology or the idea. Though technology might be an enabler, according to a study conducted on Morgenthaler’s companies that failed, only 10% failed because of the technology or idea compared to 60% failing because the team couldn’t make it happen.
So, let Cambrianhouse’s lesson, and that of hundreds of other start-ups be a lesson to any and all entrepreneurial companies: Technology or a great idea are good to have, but, whatever you do, concentrate on ensuring you have a WORLDCLASS team.
As for Cambrianhouse, good luck, Mike, with your efforts to keep crowdsourcing alive – I still believe the concept (and your tool to make that concept functional) has a role to play in the future of innovation, especially given the recent acceptance of open innovation and network-centric innovation/commercialization.
Categories: Concepts · EP Enterprises
Tagged: team company start-ujp
Republished from www.naoangelinvestor.wordpress.com
High-potential companies often need investment. Angels and Angel groups need dealflow; i.e. to know about and see such high-potential companies so that they may invest in them.
This seems like a simple equation, but there are times when such simple market clearing isn’t so simple. Information asymmetry problems regarding what Angels are interested in and the level a company must be at to entice investment and what investment opportunities are actively looking for financing are often the cause this market failure.
One way to overcome this problem is for Angel group managers and individual Angels to take an active role in the community in which they live or the sectors in which they are interested.
Over the past several years a number of communities have coalesced across Canada; what I call the BarCamp Phenomenon. Defined as user generated conferences — open, participatory workshop-events, whose content is provided by participants — BarCamps, DemoCamps, TorCamps, etc. attract some of the newest, hottest companies, often in the ICT/Web sector, emerging in your community!
Since their founding in Palo Alto, California, from August 19-21, 2005, in the offices of Socialtext, BarCamps and their derivatives have spread throughout the world and are now held in almost any major city you can think of, from Montreal, to Toronto, to Calgary to Chennai.
At such events in the past week alone, in Southern Ontario, I have seen demos from and met the founders of such companies as Gigpark, PlanetEye, AskItOnline, and Scenecaster. I have also been tantalized by hints about the new, top secret start-up (Akoha) from serial entrepreneur and Angel, Austin Hill.
As a best practice, Angels and Angel groups should be actively engaged in their local communities, one of which, I would suggest be their local BarCamp community. Not only does this ensure they are connected within the startup ecosystem and seeing the best, hottest companies emerging in their backyard, but it also gives them a chance to provide feedback on emerging opportunities and play a role Angels often take on, that of a Mentor.
Categories: EP Enterprises
Republished from www.naoangelinvestor.wordpress.com
Following on from my post the other day about Angels actively engaging in their community, I thought it important to outline exactly why information asymmetry, as discussed, can be such a problem for Angel investors.
Information asymmetry, the condition in which at least some relevant information is known to some but not all parties involved, leads to market inefficiencies. In this case, the most important inefficiency it causes is adverse selection.
In economic terms, adverse selection happens in a situation where sellers have relevant information that buyers lack. In the context of Angel investors and potential investee companies, this is where a company has some information (or there is information generally available in the community about a company/technology) that the investor lacks.
Post-engagement due diligence can reveal problems with a specific company, but by being plugged into the community, writ large, an Angel can gather enough context to help ensure that he or his group is seeing the best risk-adjusted opportunity with the highest potential for return that is our there in the market.
Having this information, you might find out that, even through the company you are conducting due diligence on is perfectly fine and a good investment opportunity, ceterus paribus, there are better opportunities, risk-adjusted, out there with higher potential returns. He might also find out that the opportunity has been shopped around for many years, never gaining any traction for a variety of reasons, and is generally considered to be a lemon!
Just one more benefit of being plugged in to the community: reduced averse selection!
Categories: EP Enterprises
Republished from www.naoangelinvestor.wordpress.com
An Industry Canada study recently crossed my desk. Released May 2007, the study, Case Studies of Collaborative Innovation in Canadian Small Firms, focused on network-centric innovation and commercialization.
I was highly encouraged to see Angel investors not only identified as stakeholders in this network-centric model with respect to early-stage company finance, but recognized as indispensable to solving the growing funding gap issues high-potential Canadian companies face. Even more encouraging was the recognized need to implement incentive structures that foster Angel investment.
“There is a gap in financing spinoff companies during the phase between incorporation and the point when revenues are generated from sales. The most likely source of additional funding would be angel investors, who would require the requisite incentive structures.”
“Institutional capital in Canada is sometimes not well suited to financing emerging technology companies both because of a lack of understanding of the technology and because companies at this stage of development often do not progress as fast as they would like. The solution to this gap may well lie in angel investors, provided they can be given greater encouragement to fill this specific need.”
In Canada Angel investors invest about $3.5 billion a year; nearly twice the amount formal institutional Venture Capital invests annually. Unfortunately, the Angel industry is rather decentralized. Angels, because they work as individuals or as members of Angel groups, often do not get the recognition they deserve as the investors on the bleeding edge of commercialization and company acceleration, underwriting companies at the time of their greatest risk.
The National Angel Organization, the industry organization devoted to developing a robust Angel investor community in Canada, has long recommended that both Provincial and Federal governments adopt an Innovation and Productivity Tax Credit (IPTC) to encourage Angel investment by offsetting some of the risk they face when investing in such early-stage companies. Such programs have been adopted in the UK, many US States, and a number of Canadian Provinces.
Along these same lines, I am happy to announce that Manitoba has recently adopted a program similar to the IPTC that has successfully run in British Columbia and other provinces in Canada.
“Angel investors in Manitoba are extremely pleased that the province has now formally approved its new tax credit system for private start-up investments.” said Ken Cooper, Managing Director for the Winnipeg Angel Organization. “This will really help balance the extra costs of documentation and liquidity – not to mention risk - which investors face when considering private equity deals. We’re already seeing increased interest in start-up deals because of it.”
Congratulations, Ken, from the National Angel Organization, on your success! I am gratified to see that the need for incentive structures that foster Angel investment is beginning to resonate more strongly both Federally and Provincially.
Categories: EP Enterprises
Last week the next round of StartupCamps, StartupCampWaterloo (June 5th) and StartupCampMontreal (May 15th), were announced in Toronto at StartupCampToronto.
What are StartupCamps?
StartupCamp, a.k.a “The Unconference for the Startup Community”, is an unconference-style event that’s dedicated to bringing together the various members of the startup community for a face-to-face collaborative meetup where its the attendees that drive the agenda (in true unconference fashion).
Often showcasing new and interesting startup companies these ‘camps’ are a great resource for Angels, helping them engage the startup community and overcome the adverse selection risk I examined in a previous post. Especially in the ICT space, these ‘camps’ are a great venue to gather context on the newest high-potential companies coming down the dealflow pipeline such as Tungle, Chide.it, or Podbean.com.
Also, it should be noted that NAO’s own President, W. Daniel Mothersill, will be one of the keynote speakers at the next StartupCampMontreal as will serial entrepreneur and Angel Austin Hill.
Categories: EP Enterprises
