Ideas To Deals

Thoughts on Venture Capital and Entrepreneurship

Last week I attended a very interesting Columbus Metropolitan Club forum featuring Sequoia Capital venture capitalist Michael Moritz. Michael has invested in some companies that you might have heard of such as Yahoo, Zappos, PayPal and Google. While this is an impressive list it is important to remember that all of these companies started with the passion of an entrepreneur and the resources of venture investors.

Since I first got into the company building space I have always thought it is important that we in the midwest need to bring in outside perspectives to show us that there are ways to look at things different than our reality. That was the point of bringing Guy Kawasaki in to speak at the inaugural Ohio Growth Summit. I think that to often we get used to working in an environment where there is minimal investment capital and failure is a scarlet letter that you must wear forever but it is important to understand that there is another way. We should work towards a better future state and not be satisfied with the status quo.

Here are a few points that I feel are important for everyone working in the entrepreneurial start-up space to take away from Michael's presentation. 

Companies start from humble beginnings on a journey against all odds towards success. It is important to support young entrepreneurs as they have the luxury of indulging their passion. Investors and advisors should provide experience in company building that will augment the domain expertise the young entrepreneur has around the product. 

Entrepreneurs need to have a purpose and something to really believe in. Support them and help them succeed.

The role of the Venture Capitalist:

• Find customers ~ Help get small companies into meet with decision makers. 
• Find people ~ Help find strong people to build a team that will create credibility for the company. 
• Help raise additional capital.

As companies grow they need to focus on the customer, the market and competitors. Important to make the product really relevant for people. Strive to be special not just a "me too". Captivate the interest of the customer. 

Failure is not final. You have to fight for things that are worthwhile and sometime you will fail. You have to get back up and try again. Don't let it get you down. Learn from the past but focus on tomorrow. Embrace tomorrow to stay ahead of everyone else. 

 

 

What Do I Need To Get Funding?

When I first started working with businesses people would show up asking where to get funding. It didn't matter if their business was prepared to attract funding or not they were convinced that they just needed money. When the recession hit a few years ago banks and investors slowed the flow of capital so people were much more interested in how to build their business through customers and revenue. Sure they still asked for money but given the media coverage of the "credit crunch" entrepreneurs knew that they would need to get creative to build their business. Lately I have been getting a lot more "Where do I get money" calls. The question should not be "where" but rather "how" do I get money? It is all about building a real business. The key point to be able to articulate is how you are getting customers. If you haven't figured that out don't waste your time looking for money. You have to build out your idea into a business before you can get funding.

Here are a few items to focus on before you ask for money:

• Do you have an idea or a real product? Ideas are great but without structure you don't have a business.
• Who is out there to buy it? Understanding your market is critical. Really doing some market research will allow you to better target your marketing and get customers. 
• How are you going to get them to buy it? OK, now you know your customers and where they are how are you going to get them to buy?
• Transition Marketing to Sales. Marketing gets potential customers to the door, how are you going to convert them in to paying customers?
• Get a customer. Even if it is a beta customer get somebody using some version of the product. 
• The closer to market you are the easier it is to get funding. People invest in businesses not ideas.
• The closer to market you are the less expensive the capital will be when you get it. The closer you are to market the less risky the investment is. The less risky the less return the financing source will require. 
• How much money do you REALLY need? Have a funding roadmap that shows what you need and when. Don't ask for $5 million to fund the total project when you really $20,000 to get to the next step of your business.
• Understand the rules of the game. Once you have built out your business it is important to know how the system works and to get inside the minds of bankers and investors so you can address the specific items that they need to see. A couple of weeks ago I posted a presentation I did on funding and I would encourage you to check that out for the mechanical parts of getting funding (Small Business Financing and Funding). 

Getting financing is all about the business and if you can't clearly articulate how you are going to make money you won't get other people's money. Build your business as far as you can before you consider funding and you'll be surprised how much easier it is to get funding.

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Be sure to check out our new Ideas2Deals Facebook page. This will be a great resource to share experiences and have discussion designed to help the small business owner be more successful. I hope to see you there soon.

 

Small Business Financing and Funding

Last week I attended the BOSS 2011 Conference put on by the Barefoot Executive, Carrie Wilkerson. Was an incredible experience!!! While I was there I participated on the "Power of People: Buzz, Publicity and Social Media panel and also conducted a breakout session on Financing and Funding. As you can see I am multi-talented speaking on two such diverse topics. Not sure that is so much true as much as that I have just been around a long time. I spent the first 15 years of my career focused exclusively on financing both bank and investment funding. In the past five years I have continued to counsel on funding but my focus has shifted more to helping people build awareness of their business using social media.  FYI...the social media is a lot more fun.  

The funding presentation was pretty much technology free done on a flip chart. Given how bad I write and spell I promised that I would put together some slides for those that participated in the session and post them here and I thought I could share with them with all of you too.

I'll let the slides speak for themselves but the basic premise is that there is a funding continuum that dictates what kind of funding you should be seeking based on where your business lies on the continuum. Having said that the type of business you have also dictates what kind of financing you can obtain.  Traditional businesses with normal growth models need not look to private equity investors as they will have difficulty reaching the level of scalable growth needed to support the return needs of investors. Likewise, high-growth technology businesses may have difficulty dealing with banks due the business's need for growth capital and the lack of collateral. The key for early stage businesses is to have a great product, plan and strategy that will allow them to move further down the continuum closer to they type of funding they are seeking.  The attached slides touch on each stage of the Funding Continuum with some insights on working each stage of the process. 

Let me know your thoughts / questions and we'll figure out how to get you some money. 

Financing your business

View more presentations from mbowers030

Is All Investor Money The Same?

If you need money to start or grow your business and are seeking investors what are you looking for? Money of course. You need to be careful because the investor waters are full of people that have ulterior motives beyond funding your business. These investors can suck your time, your idea and your patience and in the end you may never see a dime. I came across the article below on Twitter and thought it hit the various types of investors that you want to avoid perfectly. Check it out and let me know if there are others that need to be included.

Mike

Entrepreneurs Corner: 7 Types of Investors to Avoid

By Ellie Cachette

Many startups on the path of fundraising will endure a fair share of comedy and pain. Some investors will seem incredible savvy and others will tout themselves as “internet investors” specializing in Consumer Web – then ask you what SEO is. Some will say your cap is too high and others won’t understand your business model. 

Here is the truth: you are storytelling and “she with the better spreadsheet” wins.

If it’s your first startup, fundraising is a game and the best way to play it is by getting fans.

Investors will follow – Click  here for the seven types of investors you’ll find on this journey.

 

via socialtimes.com

What does FF&F mean in business?

Have you ever had someone tell you that you should consider FF&F for financing your business start-up and you thought to yourself, "What the hell are they talking about"? Basically FF&F stands for Friends, Family and Founder. These are sources of early funding/equity for your business. 

Founder ~ You are the first source of funding for your business. Whether you are bringing your own cash or have tapped other sources such as a home equity loan you need to bring something the table. Some people call it "having skin in the game". You really need to self fund the initial start-up. Let me be clear...I am talking about cash not sweat equity. If you have funded a prototype or intellectual property activity or something like that out of your own pocket that counts but thinking about the business and writing a plan won't cut it.

Family ~ Family is another source of early funding. Family is usually great at this stage because you probably haven't gotten the business far enough along to discuss funding with strangers. Family usually invests in you because of you not the details of the business. Be careful here though. If you are swapping equity for family funding and you give uncle Joe 10% expect that amount to be reduced at future funding events. While that doesn't make Thanksgiving dinner as uncomfortable as if you lose all of uncle Joe's money it is still a little tense.

Friends ~ Again, similar to family, friends may not be into heavy due diligence on the company before they invest. It is still about you more than the business. They will probably need more of an explanation of what you are planning to do but they won't need to have their lawyer write out a term sheet to present. Go out get a couple of beers and pitch your buddy. Remember, however, that nothing changes a friendship like money.

Sometimes you also see it as FFF&F but we will leave the discussion of the fourth F ~ FOOLS until another post.

What are your thoughts on this form of early stage capital? 

 

11 Things Venture Capital Investors Look For » Company Founder

Image by Hampton Roads Partnership

Via Paul Morin

I get a lot of questions about what venture capital (VC) investors look for when they are considering investing in a venture.  Many of the characteristics I’ll cover here are also applicable to what “angel investors” look for in prospective investments, as these days, a significant percentage of such investors have been at it a while and have reached a level of investing sophistication that is hard to differentiate from that of venture capitalists.

I won’t go into a huge amount of detail on each of these desired characteristics, but I thought it would be nice to at least have many of them covered in the same place.  I will also throw out the caveat that not all venture capital investors put the same amount of emphasis on the same set of desirable venture characteristics, and this list is not meant to be comprehensive.  However, in my experience and that of my client companies, the eleven venture characteristics discussed below usually play at least some role, and often a significant one, in the investment screening decisions of venture capitalists and more sophisticated angel investors.

Click Here to see if you and your business have these charaterisitics.

via www.companyfounder.com

Funding Is Not Magic

Here is the conversation:

Me: Hello this is Michael Bowers. How can I help you?

Caller: I need to speak to someone about my business.  I am having someone write my business plan and I should have it in the next week or so.  I need to discuss how to get funding.

Me: How much do you need?

Caller: $1.2 million.

Me: What are your thoughts on getting the funding?

Caller: I was wondering what was out there in the way of grants, loans or investors. 

Now is when the caller expected me to put on a magic show and pull $1.2 million out of my hat.  As much as I want to help I don't see it happening. 

It is critical that when you know funding will be needed you make the capital access plan a major part of your business planning process.  To many people see the business plan as the path to capital.  However, if you have not thought through how and from whom you are likely to get funding the plan won't be sufficient. 

Thinking through the "Uses" of funds without a strategy around the appropriate "Sources" of funds is a recipe for disaster.   Just like marketing, staffing and sales your capital raising plan needs to be thought through strategically.  Here are key points to address as you are building out your plan.

• Understand where you are in the funding process. Early stage, high risk opportunities don't appeal to banks so you either need to find other sources or figure out how to reduce the level of risk to the bank.
• What is your equity position and how does that relate to your current or prospective debt position.  The more money you need the more equity you need to have in the business.
• Develop your plan including the fund raising strategy.  This should not only include what you need but who provides that kind of funding and how do they evaluate opportunities.
• Be advised...There is no 100% funding. I don't care if you are approaching banks or investors you need to put some of your own cash into the opportunity.
• Not qualifying for loans does not mean you should be approaching investors. 
• Don't expect to find grants to fund your business start-up.  Depending on your business you might find grant dollars to provide services (usually only available to non-profits) but grants don't provide dollars to set up the business.  You need to have the business set-up and successfully operating before you can access most grants.
• Revenue is the best financing! Focus on customers and driving revenue.  This will make getting financing easier when the time is right.
• Push the need for financing out as long as you can.  The more operating history you have the better banks will like you and the higher your valuation will be if you are seeking equity investment.
• Remember the Golden Rule ~ He who has the gold makes the rules.  Don't expect banks or investors  to change the way they do things for you.  You will need to build a plan that works within their systems.
• Don't wait until the last minute.  That is the whole point of this to be prepared to seek financing.  By doing this kind of planning you should be able to avoid an urgent need for cash that is not taken care of you will be out of business.
• Realize that everything will take longer than you expect.  Think ahead and leave plenty of time to get financing arranged.
• If you don't have enough experience to justify getting financing you can build expertise into your team by adding people to your team or through an Advisory Board.

If you are seeking financing know that you need to be thinking several steps ahead.  The more you know about your needs, who can provide the financing and what they need to provide the financing the better your chances of success.

Would You Walk Away from $6 billion? Groupon Did For Now

I wanted to re-post this Wall Street Journal Article as a follow-up to the post last week on the efforts by Google to acquire Groupon.  This is another lesson to be learned for entrepreneurs.

First ~ The Deal isn't done until the deal is done.  Don't be surprised if this gets done sometime in the future or doesn't ever resurface.  Negotiations are just that, negotiations and even if they are closed thay may not be closed.

Second ~ You as the owner are in control of your property in a negotiation.  Is this the right decision for Groupon to walk away from $6 billion?  Time will tell but it is Groupon's right to make a mistake or hit it big.

~ Mike

Google Fails in Quest for Fast-Growing Groupon - WSJ.com

Google Inc.'s multibillion-dollar bid to acquire local deals site Groupon Inc. ended Friday as the two sides broke off talks, according to a person familiar with the matter.

Negotiations between Google and Groupon eated up over the past week but Groupon's board, many of whom are investors, was divided on whether to accept Google's offer. Here, Groupon's headquarters in Chicago.

Negotiations between the two companies heated up over the past week but Groupon's board, many of whom are investors, was divided on whether to accept Google's offer.

The company continued to consider remaining independent and pursuing an IPO in the future, people familiar with the matter have said.

ChicagoBreakingBusiness.com reported earlier that the deal was off. A Groupon spokeswoman didn't immediately respond to a request for comment. A Google spokesman declined to comment.

AllThingsD previously reported that Google offered $5.3 billion for Groupon, with a further $700 million to be based on Groupon's ability to hit certain performance milestones.

Groupon, a closely held company based in Chicago, has grown rapidly by getting local businesses to spend money online to attract consumers, a market Google has sought to crack.

The online market for local business advertising is expected to grow rapidly and is coveted by other large Web companies including Facebook Inc. and Yahoo Inc.

Yahoo also pursued an acquisition of Groupon, according to a person familiar with the matter.

Though both Google and Groupon run online businesses, they had significant differences. Google's army of thousands of highly educated engineers, sales and marketing executives, developed advanced software and sophisticated algorithms for its search engine and advertising initiatives.

Groupon, led by its quirky co-founder Andrew Mason, hit upon a new business model by mobilizing a force of more than 1,500 sales and customer service employees to call and deal with restaurants, tanning salons, and helicopter tour guides.

Groupon, whose name is a combination of group and coupon, inspired numerous clones of its business model—selling discounted products and services from local merchants.

The model has caught on because it improved on the idea of local online advertising, where a business pays money up front for exposure that will hopefully translate into sales. With Groupon, merchants don't pay for marketing until they get a customer in the door.

A potential Google-Groupon deal was controversial among Silicon Valley entrepreneurs and executives, with some feeling that the Groupon model could be copied successfully by others and that the two companies' cultures might not mesh, among other things.

Some financial analysts favored the deal, even at $6 billion, because it would allow Google to get a slice of a fast-growing market, and that Google could market the coupon product to its more than one million advertisers.

Google, whose largest purchase to date was $3.1 billion for online ad provider DoubleClick in 2007, appeared willing to pay a lot more than that to gain a beachhead in the local business space. Such businesses currently spend about $20 billion annually online--including for ads on Google's search engine--but are expected to shell out more than $35 billion by 2014, according to BIA/Kelsey, a local-media advisory firm.

Other Web companies including Yelp.com have made forays into the market, attracting suitors such as Google. Last year Google was in talks to buy Yelp, which has become the first stop for some Internet users in their search for local businesses like restaurants, dentists, taxi cab companies, among others, people familiar with the matter have said. No deal was reached. Yelp generates revenue in part by letting those businesses advertise on the site.

Since then Google has developed its own business-review service similar to Yelp's and has increasingly directed its users to its "Place" pages that give information and reviews about local businesses rather than merely directing them to sites like Yelp or CitySearch.com.

Google, which for years has been amassing business listings, has said more than four million businesses have their own "Place" page on Google to which it directs users.

via online.wsj.com

Who Is Your Best Partner? See Google and Groupon

Below is an article from VentureBeat regarding the proposed purchase of Groupon by Goolge.  What I wanted to highlight here is the reason behind the acquisition.  Many entrepreneurs dream of the big exit to help them make their millions off of their start-up.  This exit is key to creating a liquidity event for the investors.  Obviously "exits" occur at the end but it is critical that you be thinking about who your company would be appealing to when you are building the company.  Creating strategic partnerships and customer relationships often lead to an acquisition.  Thus you need to be strategic as you are developing the company even at the early beta stages.  You will see in this story that as they have grown Groupon has had a relationship with Google.  This relationship has allowed Google to identify the advantages that Groupon will bring to them which allowed a $5 to $6 billion dollar offer to be made.

Thoughts?

~ Mike

What Google knows about Groupon | VentureBeat

by Owen Thomas for Venture Beat

As speculation mounts about an imminent buyout of daily-deals company Groupon by Google for a rumored price tag of $6 billion, one salient fact is being ignored: The two companies are already in bed with each other.

And this must weigh on the minds of Groupon’s board members, who are reportedly meeting today to decide whether to take Google’s offer.

How did Groupon get so big? The prevailing theory is that the social features of its deep-discount offers for local merchants — a certain size group had to sign up in order for the deal to be “on” — turbocharged its growth. I’ve long been a skeptic of this argument, which is pleasing to social-media mavens but has untested logic.

You can’t go anywhere online these days without spotting a Groupon ad. The company is clearly spending a lot of money with Google. And as Sency founder Evan Britton recently pointed out, Groupon’s ads are distinctly effective on Google’s AdSense platform, because they are targeted to a specific city, feature a compelling offer to cost-conscious Internet users, and have easily tracked return on investment, allowing Groupon to constantly tweak its ads for the best results.

The result: Runaway growth, with the two-year-old company estimated to have $500 million in revenues.

The problem is that growth is dependent on Google, which is famously opaque about the workings of its ad systems. As much as Groupon may know about what works when placing ads with Google, Google always knows more. And Google could change the rules at any time.

That information advantage may be what lets Google confidently bid $6 billion for Groupon. Google knows exactly what it’s getting and how profitable the company is. Right now, Groupon is arbitraging Google’s AdSense system, aggregating demand from customers and supply from local merchants, and raking in the difference. Google’s just getting its usual cut. Wouldn’t it be nice to own the whole shebang?

One thing to keep in mind, though, is that Groupon’s success has been the human touch — hand-selecting deals, cajoling merchants to offer discounts, and crafting witty, catchy offers. Recent moves to offer self-service deals and expand into Asia won’t change that appealingly soulful core of Groupon’s business. Perhaps Google’s geeky hackerocracy should simply aspire to own Groupon, not run it.

via venturebeat.com

17 words and phrases to avoid in your business plan | VentureBeat

Megan Jones is a Director at Hadley Partners. A modified version of this story appeared on the company’s blog.)

We all have words that make us cringe. That’s especially true in the investment community.

Generally, I can tell a few lines into a business plan if a company just doesn’t “get it”. Sometimes, it’s blatant – like the lack of a clear mission statement. Other times, it’s something more gut-based, like the use of quotation marks as I did at the top of the paragraph (it’s too cute for a serious business proposal).

There are some words and phrases that are real showstoppers, though – and if you’re using them, you’ll need to rethink your pitch before approaching a possible source of financing. They not only fail to sell your story. They often end up having the exact opposite effect.

• “Next big thing”.  If someone would give me a dollar for every time I’ve seen or heard that one, I could retire happily. The proof on that sort of claim is in the numbers. Show me traction in building your business and I’ll see it.  I’ve known people that built the next big thing and they were always too busy working (and scared of competition) to boast along the way.
• “Bigger than Facebook”.  (Or Google.  Or pick your company.)  Never compare yourself to or value yourself off the best winning companies.  Ideas are comparatively easy; implementation requires real work.
• “Game changer”.  Life (or business) isn’t a game.  I don’t know what this means.
• “Guaranteed”.  If its impossible for the opportunity to fail, then why are you sharing it?
• “Paradigm shift”.  Again, I don’t know what this means or why it matters.  Proof on this one is in the implementation.
• “Next level” (or “next generation”).  A completely unnecessary phrase.
• “Unique”.  Not a big offender in my book but I’m probably in the minority.  Everything and nothing is unique.  The word is overused.
• “Unparalleled”.  Um, no. There’s always something that can match some aspect of your product or service.
• “Ad supported”.  Is that the only source of financial support? I heard that pitch in the late ‘90’s and I’m still hearing it now.  What changed (other than Google being the rare company to make it work well)?
• “Viral marketing”.  This works wonders in the gaming world, but where else today?  Define what you mean but don’t use the term unless you really understand it (at which point I’m okay with it).
• “Free”.  Ouch.  Explain to me how that is working right now for you, not how it will at some fuzzy future date.
• “Really”, “very” and “a lot”.  No.
• “Opportunity”.  No thanks.  Opportunity is easy. Explanations (and monetization) matter more.
• “Leader”.  To where?
• “Best” and “top”.  Says who?  You?  You’ll need backup. Prove these sorts of claims; don’t just say them.  (if you were, in fact, the best, you wouldn’t need to look for money – it would find you).
• “Great”.  See “best” and “top”.
• “Solution”.  If you can walk me through it, I’ll follow it.  Otherwise, you aren’t saying much.

Reality: when you are pitching an early-stage opportunity, you are also pitching yourself.  If you are talking to quality investors, most of the above words don’t tell them anything about your business.  But they do tell the investor something about you – you are prone to exaggeration, to vagueness, to hype, to lack of depth.  Those words are setting you back.

via venturebeat.com