Tag Archive for startup
Yesterday I wrote about the best way to approach a VC as part of the 50 Questions Series I am co-authoring with Nicholas Lovell, so when this morning I saw a post on Business Insider titled Five VCs explain what they REALLY think about your pitches I tapped straight through to read it.
Once inside I found some refreshing honesty and some good content which I think makes for a good follow on from my post yesterday. Some of the points re-affirm what I wrote yesterday, whilst others delve deeper into the things that should be said to maximise the chances of getting a meeting.
- Introductions matter. Josh Kopelman of First Round Capital says that the person introducing the entrepreneur is a big deal — if he doesn’t trust the referral, he won’t even take the meeting.
- Keep it short. Rothrock has seen more than 10,000 pitches, and the best ones are short and to the point. Kopelman also told about his successful pitch for Half.com, which gave users an online marketplace to sell used books — he simply asked how many people had read a book by a popular author. Nearly every hand went up. Then he asked how many wanted to read it again. Nobody raised their hand. Done. The rest was details.
- Answer questions quickly without getting defensive. Both Rothrock and Bill Maris of Google Ventures said that entrepreneurs need to answer questions quickly and simply. VCs are trying to assess risk, and if you don’t help them, they can’t help you. Maris is particularly turned off by people who get defensive during Q&As — he ends up concentrating on their attitude instead of the company.
- Be a good storyteller. Kopelman says that most successful entrepreneurs are great storytellers — they have to be able to get investors to believe in their crazy idea, then convince employees to sign on and press to write about it. Senkut agreed — it’s easy for entrepreneurs to inspire their first few employees with stock options or founding titles. But inspiring the 50th or 100th employee requires a great story.
- Avoid buzzwords. Lots of buzzwords are immediate death, says Kopelman. As he put it, he didn’t pitch Half.com by saying it was an online peer-to-peer marketplace for monetization of underutilized printed matter assets (or words to that effect). If he had, it wouldn’t have worked.
- Know the people you’re pitching. Rothrock said that entrepreneurs should know everything about the VCs they’re pitching to — where they live (“as long as you don’t drop by”), their dog’s name, their hot button issues. Senkut agreed — do your research and try to make personal connections.
- Don’t forget the financial info. This may seem obvious, but Rothrock said that he sees a lot of pitches with no financial information about the company. Big mistake.
- Think big or don’t bother. Howard Hartenbaum of August Capital points out that VCs need to be convinced that they’re investing in a company that has the potential to be huge. A business might be perfectly successful if it gets to $80 million in revenue in five years, but it won’t help the typical VC fund return its investors’ money. If you can’t convince yourself that your company has huge potential, seek money elsewhere.
- “Stay in touch” means “no.” So says Maris.
- Forget saving the world. One audience member asked whether the VCs give a little slack to startups that are trying to do good. “I discount them,” said Maris. It’s not that VCs are all individually callous — although some are — but their job is making good investments for their limited partners. For this goal, there’s only one fair way to measure the value of a company, and that’s the discounted value of expected future cash flow. There are other sources of funding, like the Gates Foundation or Google.org, for companies that are more socially oriented.
Max Marmer set up Blackbox.vc, a seed accelerator for technology startups (and one of the tour stops for entrepreneurs from around the world.) They went to work gathering deep knowledege of what makes successful Internet startups.
Max and his partners interviewed and analyzed over 650 early-stage Internet startups. Today they released the first Startup Genome Report— a 67 page in-depth analysis on what makes early-stage Internet startups successful.
- Founders that learn are more successful: Startups that have helpful mentors, track metrics effectively, and learn from startup thought leaders raise 7x more money and have 3.5x better user growth.
- Startups that pivot once or twice times raise 2.5x more money, have 3.6x better user growth, and are 52% less likely to scale prematurely than startups that pivot more than 2 times or not at all.
- Many investors invest 2-3x more capital than necessary in startups that haven’t reached problem solution fit yet. They also over-invest in solo founders and founding teams without technical cofounders despite indicators that show that these teams have a much lower probability of success.
- Investors who provide hands-on help have little or no effect on the company’s operational performance. But the right mentors significantly influence a company’s performance and ability to raise money. (However, this does not mean that investors don’t have a significant effect on valuations and M&A)
- Solo founders take 3.6x longer to reach scale stage compared to a founding team of 2 and they are 2.3x less likely to pivot.
- Business-heavy founding teams are 6.2x more likely to successfully scale with sales driven startups than with product centric startups.
- Technical-heavy founding teams are 3.3x more likely to successfully scale with product-centric startups with no network effects than with product-centric startups that have network effects.
- Balanced teams with one technical founder and one business founder raise 30% more money, have 2.9x more user growth and are 19% less likely to scale prematurely than technical or business-heavy founding teams.
- Most successful founders are driven by impact rather than experience or money.
- Founders overestimate the value of IP before product market fit by 255%.
- Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely.
- Startups that haven’t raised money over-estimate their market size by 100x and often misinterpret their market as new.
- Premature scaling is the most common reason for startups to perform worse. They tend to lose the battle early on by getting ahead of themselves.
- B2C vs. B2B is not a meaningful segmentation of Internet startups anymore because the Internet has changed the rules of business. We found 4 different major groups of startups that all have very different behavior regarding customer acquisition, time, product, market and team.
Mobile application developer Outfit7, maker of the hugely popular Talking Friends series of apps, has announced that its iOS and Android apps have hit the 100 million downloads milestone, roughly 3 months after hitting the 60 million downloads milestone.
Notably, Outfit7 launched its first Talking Friend app less than ten months ago (July 2010).
The series of apps, which include breakout hits Talking Tom Cat and Talking Santa, currently averages about 15 million downloads per month.