A Few Quick Observations on Why Many Entrepreneurs Keep “Missing the VC Boat” & What To Do About It Steve Barsh www.stevebarsh.com  blog.stevebarsh.com steve@barsh.com  +1.215.888.2101  twitter: sbarsh

Raising Capital Too Early “Premature Pitching” Too early? Too many assumptions Chasing money rather than “ de-risking ” Wasting time, energy & focus Business is based on 3 – 7 key assumptions = risks (see CBE blog post) Spend more time Refining extremely compelling value proposition (see “Stop Coding, Start Marketing” blog post) “ De-risking ” the business model, e.g., Market demand Differentiators Pricing stevebarsh.com

Too early?

Too many assumptions

Chasing money rather than “ de-risking ”

Wasting time, energy & focus

Business is based on 3 – 7 key assumptions = risks (see CBE blog post)

Spend more time

Refining extremely compelling value proposition (see “Stop Coding, Start Marketing” blog post)

“ De-risking ” the business model, e.g.,

Market demand

Differentiators

Pricing

Out-of-Box Ideas for “De-Risking” Using Very Little Cash! Testing via cost-per-click advertising Market demand is there (may have to use A/B Testing) The right price (test multiple price points) Positioning works / key messages (try variations) Differentiation resonates with target market (is there “lift?”) SWAT team / “Rent-A-Coder” product development approach Build a “ good enough ” version -- get it in the hands of real users Get “ in market ” to get feedback, results, adoption Start collecting relevant metrics as soon as possible Your OOB ideas / experiments ? NITMOI. stevebarsh.com

Testing via cost-per-click advertising

Market demand is there (may have to use A/B Testing)

The right price (test multiple price points)

Positioning works / key messages (try variations)

Differentiation resonates with target market (is there “lift?”)

SWAT team / “Rent-A-Coder” product development approach

Build a “ good enough ” version -- get it in the hands of real users

Get “ in market ” to get feedback, results, adoption

Start collecting relevant metrics as soon as possible

Your OOB ideas / experiments ? NITMOI.

Most Entrepreneurs Don’t Seem To Know The Implications Of The VC “Magic Ratios” VC wants 7 – 10x in 3 – 5 years purchasing 30 - 40% @ early stage Example Entrepreneur wants to raise $2 million for their Series A VC buys 40% and may assume they only own 20% at exit Implication for entrepreneurs? Just pegged exit @ $100+ million ($2 million @ 10x = $20 million, which is 20% of $100 million) So entrepreneur needs to show a path to… Traffic / customers / users (and what’s the value of each?) Revenue (companies in that space acquired for what multiple?) Profits (companies in that space acquired for what multiple?) stevebarsh.com

VC wants 7 – 10x in 3 – 5 years purchasing 30 - 40% @ early stage

Example

Entrepreneur wants to raise $2 million for their Series A

VC buys 40% and may assume they only own 20% at exit

Implication for entrepreneurs?

Just pegged exit @ $100+ million ($2 million @ 10x = $20 million, which is 20% of $100 million)

So entrepreneur needs to show a path to…

Traffic / customers / users (and what’s the value of each?)

Revenue (companies in that space acquired for what multiple?)

Profits (companies in that space acquired for what multiple?)

A Few Quick Observations on Why Many Entrepreneurs Keep “Missing the VC Boat” & What To Do About It Steve Barsh www.stevebarsh.com  blog.stevebarsh.com steve@barsh.com  +1.215.888.2101  twitter: sbarsh