Not every innovation is a good idea. Last night over couple beers this may have sounded like a good idea, but in the sober reality common sense should prevail.
Here are top 4 reasons startups fail.
Who thinks #1 is
Not right team?
No market need?
Market share based on % of total market It’s a giveaway to no real g2m- means you stayed up at night playing with formulas instead of talking with prospects who are first adopters, how do you reach them, what is sales cycle, who are second adopters FF&F terms friendly for angels - convertible note Make it a convertible note or some inexpensive valuation Uncle Irv getting non-dilutive stock or a board seat are deal killers, unless Irv is rock star Also- get realistic w valuation and valuation growth path Use of proceeds pays salaries or pays off debt Nobody likes to cash out previous investors And you must have skin in the game- why should I take all your risk? Even worse if you are not going full time Send unsolicited plans don't carpet bombing Use key referrals- attorneys, advisors, friends No competition Claims of no competition- big red flag Don’t overstate capabilities NDAs We don’t sign NDA’s If you cant tell us enough to get us exited w/out NDA, never get money or customers Polishing the cannonball polishing the cannonball At some point need to sell something Bury the headline Answer questions w yes/no and follow-up Its like a news article- headline, short summary paragraph- then the detail Relatives and friends on management team Similar to Uncle Irv before, unless they are rock stars or some value (business people, banker, etc) Muddy IP If IP key to value, must be strong and clear
Clearly defined benefits and differentiation How is market dealing with issue you address? How is your solution a better compelling alternative Get customer pilots/traction/involvement early Critical- they will help guide development, be anchor customers and referals, and reality meters Exit angels less strict on liquidity but show the path from comps How are you going to make money What is sales model and profit model Traunche milestones Rome wasn’t built in a day. What are your short term milestones- how do you get there, who, how much, Team examples of success Background check – no surprises What has this team done to make me comfortable they will be successful hear. Don’t give me job titles …give me successes Valuation convertible note- let market determine valuation Clear, concise and compelling- 9th grader Not stereo instructions Not full of jargon cause investors may not be from industry Forget crowdfunding Congresses Works bill for lawyers In addition to litigation possibilities, angels want clean cap table Profitable, repeatable, sustainable, scalable Profitable, repeatable, sustainable, scalable
Dumb Money Some local investors are kiss of death Talk with knowledgeable investors, lawyers, serial entrepreneurs, etc Kiss of death advisor Some people have built a name for themselves while climbing on backs of others without having built a significant business on their own. Misspent effort Networking can be valuable but don’t spend more time networking than building your business (product or biz dev) King of the dung hill A marginal low-tech barrier feature in a crowded space with entrenched players is a sprint to the bottom Build to buzz ratio PR is good but time spent on that is backseat to actual value development Bus Investment Theory Good deals are like buses, if you miss one another will be by in 15 minutes. If there is hair on a deal its just easier to pass. To you its life or death, to investor its one of a portfolio of companies, another one will come by soon. Seem unchoachable While this seems obvious, a surprising number of entrepreneurs argue or don’t listed to comments from investors. Get defensive, etc
Jeff Bezos- What’s going to change in the next 10 years?’ And that is a very interesting question; it’s a very common one. I almost never get the question: ‘What’s not going to change in the next 10 years?
DFJ Operating Partner Heidi Roizen- I don't believe anything is a transaction anymore in life. I believe everything is about relationships. the business school term for this which, it's like the only sentence I remember from business school, that's how important it was to me, is the art of negotiation is finding the maximal intersection of mutual need. So I'm going to say that again because I love it so much. It's the art of finding the maximal intersection of mutual need. if I can walk into a transaction with you and my goal is to not only make myself better off, but to make you better off as well, to find the maximal intersection where both you and I benefit as much as possible, we are going to have better outcomes. And you are going to want to business with me again, and that is really, really important
Seeking angel capital dos and donts
Presented by Roger London
American Security Challenge
Serial Entrepreneur #6?
Dept of Defense and Intelligence Community Tech Scout
Dingman Angels, Baltimore Angels
Startup America/NYSE, Wal-Mart, GE, Coca-Cola
NOKIA Venture Capital
Techstars mentor and partner
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Team No Market
Startup Failure Not Right Team
No Market Need
Top 4 Reasons Startups Fail
1. Market share based on % of total market
2. FF&F terms not angel friendly
3. Use of Proceeds pays salaries or debt
4. Send unsolicited plans
5. No competition
7. Polishing the cannonball
8. Bury the headline
9. Relatives/friends on team
10. Muddy IP
Soooo, what should you do?
1. Clearly defined benefits and differentiation in scalable business
2. Get customers pilots/traction/involvement early*
3. Show exit possible
4. How are you going to make money!
5. Traunche milestones
6. Team examples of success
8. Clear, concise and compelling- 6th grader *
9. Forget crowdfunding
10. Profitable, repeatable, sustainable, scalable
Startups Hurdles Race Theorem
1. Distance: How long is the race…100 meters or mile? Is start to exit in
5 years or 15?
2. Number of Hurdles: is this a 3 hurdle race or 10 hurdle race where
hurdles include factors like raising capital, finding talent, raising
capital, creating demand in new market, manufacturing, raising
capital, distribution, etc.
3. Hurdle height: are these hurdles easily crossed? Need 100 customers
or 1M to break even?
4. Purse: playing for pile of pennies or pot of gold?
Bonus: from Driven Forward
1. Dumb money
2. Kiss of death advisor
3. Misspent effort
4. King of the dung hill
5. Build to buzz ratio
6. Seem uncoachable
Bonus: from Driven Forward
• Mark Cuban ‘s 12 Rules for Startups:
• Sales cures all
• Jeff Bezos:
• ‘What’s not going to change in the next 10 years?
• Heidi Roizen:
• the art of negotiation is finding the maximal intersection of mutual need
• Roger London
• Investor decision making: Bus Theory
• Roger London:
• Pattern recognition
Roger London, President
AmericanSecurityChallenge.com | TechMATCHs3.com
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