Category Archives: Resources

Angel Groups Syndicate 3 Out of Every 4 Deals

The Angel Resource Institute (ARI), Silicon Valley Bank (SVB) and CB Insights released the Q2 2013 Halo Report last week. Results from the report pointed to the successful syndication of angel investments. You can learn more about this year’s investing trends and download the full report here. Halo-Report-2013_Q1-_Infographic 2013_Q2 _Infographic_Halo Report _final copy Retrieved from http://www.angelresourceinstitute.org/en/Research/Halo-Report.aspx.  

What Makes YOUR Company Stand Out?

BUSINESS PLANNING SERIES

Previously, we wrote about one of the most common – but almost always fatal – errors that we see in business plans – Incorrect Positioning vs. The Competition.   Today we hope to give you some ideas about how to better present your company in a way that truly stands out.

Repeat this 10 times: “We MUST dramatically, effectively and persuasively contrast our company against its competition.”

Not very catchy, I admit, but true nonetheless.

Blog Head PlanningThe point is that you MUST ACTUALLY SHOW investors that your new product is so unique, so compelling and so relevant to your target market that you will displace and even eradicate your competition.  (I guarantee you that your competitors will fight back.  Plan for it.)

Here’s what we want to hear you say and what you need to truly believe —

We’ve carved out a niche. One specific enough that no one is currently targeting.  Company G or F or Y might be in this space but they are not hitting this niche because of X and it is hard for them to move into this niche because of Y.  In fact, G, F and Y are potential partners or possible acquirers (it’s never too early to be thinking about an exit)  because your idea is similar but out of their reach.

We’ve identified a market too small for the established companies but big enough for a compelling business. (Big Enough ≧ $100 Million) Because the big players are too inefficient at building [whatever you build that is so special], they choose to ignore this market.  If you believe that you can build a solid business in this market and can show good growth AND profits, might you not be an obvious acquisition target.

Our technology is so different that we’re changing the conversation.  Although your solution may be technically complex, it must be easy to use and just as important, easy to describe.  For example: how Netflix changed the way people watch movies at home.  (Two times, by the way.)

Our target customers have historically solved this themselves or just lived with it.  New technology makes your product possible.

New technology and modern thinking make this the right time.  (iPhone = Right Time; Newton = Wrong Time.)

This industry has never seen a solution like this. It was previously impossible to address the market this way BECAUSE –

  • It takes an incredible team.  (We talked about this before – Dream Team – but it never hurts to make the point again.)
  • New hardware/technology now makes this possible. (But be prepared to talk about why YOU are the best company to implement this new stuff.)
  • New attitudes enable new workflows.  (Google docs, Facebook, etc. now universally used by non-Geeks.)
  • This now-commoditized industry makes the slightest edge a big deal.  (Be prepared to talk about how you will stay ahead of competition.  Remember, “Anything worth being copied will be copied,”)
  • This industry is just now showing signs of embracing new technology.  (Remember, “Anything worth being copied…..”)
  • We have three lead customers signed up as alpha testers.  (When you enable customer success, they will become your best evangelists.)

So now you can effectively contrast yourself against the competition without letting them define your identity.  In fact, you may have just morphed your competitors into potential acquirers! Very cool! Investors love that.

Tune in next time and we’ll talk about another Fatal Error – No Real Path to the Customer aka If You Build It, They Won’t Come Without Your Help.

 -Steve Hogan

Everyone Loses with New SEC Ruling

Yesterday, the Securities and Exchange Commission (SEC) ruled that startups can begin publically advertising their securities. This new ruling affects investors, journalists and startups alike. While journalists will see their already saturated inboxes take on a whole new meaning of full, startups will have a harder time being noticed amidst all of the noise. What does this mean for investors? While the SEC still needs to rule on whether or not non-accredited investors can legally invest in private companies (and that will open an entirely different can of snakes), this new ruling only affects accredited investors for now.

Our take on this —

Discovery = More Work

Forget that startups will have to invest more energy in obtaining press, energy that could be used toward working on the operating part of the business. There is going to be a tidal wave of startup fundraising press releases. While journalists are already beginning to bolster their inboxes, investors should begin preparing as well. As soon as startups find out your identity as an investor, it will be the decade of telemarketing all over again. Spam-o-Matic at its finest! Not only will you have an absurd amount of startup pitch decks, but how will you determine the diamonds in the rough? With so much noise, it will be difficult to tell the frogs from the princes.  I think I will need a new email address — donotsendyourbusinessplantosteve@tech-rxventures.com  Better yet, some sort of inbox plugin to automatically scan through the plans and flush those that make one or more of these Common-but-Fatal Errors.

Cap Tables and “Activists”

Cap tables in early-stage companies are frequently ugly, but they are about to look a whole lot uglier. While it may not be your job to manage the cap table, a cap table that is longer than a resume is ultimately not fun to work with. The number one issue of a lengthy cap table you face as an investor is that you are unlikely to know the other shareholders and their decision making habits.  While many of the investors will likely be itty-bitty shareholders who aren’t actually paying much attention to the company – essentially playing the numbers game and hoping for a reasonable exit or putting money into their brother-in-law’s new venture just to keep their wife or husband happy –  and others will be truly supportive of the company, all it takes are a few trouble-maker shareholders to ruin the party for everyone.  And its a safe bet that there will be opportunists who will buy into a deal, become troublesome for management and/or the other shareholders, and then offer to sell their shares back for a “small” (500%) profit.  Management and the other shareholders will be only too glad to pay off just to get rid of this “bad money” and let management focus on the company.

Poisoning the Well

This is a problem for the company trying to raise cash.  One of the biggest advantages of pitching your venture to a few investors at a time, especially for first-time entrepreneurs, is that you get to screw up incrementally i.e. you can polish your pitch based upon the feedback you receive.  On the other hand, when you go straight to broadcast, and fail to tell your story well, EVERYONE will have heard you and no one will listen when you finally do get your pitch refined.  That’s why God invented focus groups. Getting feedback from small groups and refining your product is not foolproof (Ref: Groupon Super Bowl) but it is a lot more likely to get results than opening simultaneously in theaters across the country (Google “Disney Lone Ranger”).  Entrepreneurs have a tough-enough time raising capital as it is.  There will be plenty of naysayers. They shouldn’t poison the well themselves.

Good Intentions, etc.

The JOBS Act was created with the intention of helping new business, growing existing ones and creating jobs.   Noble goals.  We fear, however, that unthinking folks may do more harm than good to themselves and other as this volatile and noisy process evolves.

What do you think? Are there ANY winners?

-Steve Hogan, Managing Partner, Tech-Rx

 

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While we would love to have coffee meetings with everyone we meet, we know that it just isn’t possible. With conflicting schedules, inbox overflow and distance constraints, it can be difficult to actually connect. Thus, we have created several avenues to connect!

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We appreciate your readership and want to do our best to help YOU! Are there any other topics that you would like to see us cover? Better yet, are there any topics that you would like to cover on our blog?

Send me a note at nikki [at] tech-rx [dot] com — we always value feedback!

 -Nikki Griggs, Business and Marketing Associate, Tech-Rx

Top 10 Lies Investors and Entrepreneurs Tell

Is a lie just a lie? Benjamin Disraeli once said “There are three types of lies — lies, damn lies, and statistics.” For new entrepreneurs and investors, it is hard to tell the difference between a truth and a lie — let alone what type of lie! For the sake of your prudence, Guy Kawasaki recently posted an article on LinkedIn titled, “The Top 10 Lies of Entrepreneurs and Investors,” and we have to say, its pretty spot on. In fact, it is comically true. To add a little more value to our Business Planning Series, check out what Guy Kawasaki says the top ten lies of entrepreneurs and investors are here. – Nikki Griggs, Business and Marketing Associate, Tech-Rx

We Have No Competition

BUSINESS PLANNING SERIES

Last time, we wrote about the importance of “True Competitive Advantages” and how the lack of at least one will likely condemn your business plan to the reject pile. Today, we will look at another common fatal error – Incorrect Positioning vs. The Competition. The most common errors that we see (frequently in the same presentation) when talking about competition are, amazingly enough, total opposites:

 “We have no competition”

 “We combine the ‘best features’ of four competitors.”

This is not just a pitch problem. It says that you don’t know WHO your customers are or WHAT they want or WHERE you stand in the marketplace. Let’s look at how this error shows itself and what it says about you and your plan: “There are no competitors.” – Either you have failed to recognize direct competition or you are ignoring alternatives such as “build it yourself.” “No one is doing this the way we do.” – Of course not. You offer a unique product, exclusive features, different pricing, revolutionary sales strategy, blah, blah and blah. However, uniqueness does not mean lack of competition. “We have no competition because this is an industry/market that has never used XXX to solve this problem.” – This sounds good but it also means that you must convince people to trust your XXX. Your competition is the status quo which puts you at a disadvantage. “We have no competition because people don’t know there is a problem.” – If potential customers are not feeling the pain, your product will be a tough sell. If you want to become an evangelist, this is the way to go! Preach your gospel if you wish, but people will hear “Time and Money Sink.” OK, those are pretty obvious. You can fix those, right? Good! Now lets look at one that is not quite so obvious:

Defining your company in terms of your competition

Your company is uniquely defined by its own strengths, ideas, values and products, not by how it compares to others. You need a strong position – one that would be clear and compelling even if competition doesn’t exist. Here’s how this error shows itself: “We combine the best features of our competitors, letting them show the way to our success.” – It’s nice that you have learned from the mistakes and successes of others, but “combining the best” is not the key. Each of your competitors has made tradeoffs to make their products the “best” for their target customers. Things that you see as “not the best” may, in fact, be the best for their market. What makes you so sure that enough people will not only agree with you but will be willing to switch to your product? The Feature Comparison Graph – This is the chart with rows listing all of the features and columns listing all of the competitors. It’s full of X’s and check marks everywhere except in your column, where it is all check marks. What baloney. (Actually, that’s not exactly what we think, but this is a G-rated blog.) “We’re just like X, only we’re Y.” So you are betting that Y so monstrously cool that customers will flock to your product. Well, Y had better be super-awesome! And it better be impossible for X to copy – or even to copy one-half of Y. Congratulations. You have just placed your fate in the hands of your competition. “We’re the same as X, only cheaper.” – Cheaper cannot be your only strategy. It might be part of your plan, but it will only last until the established competitors meet, or worse yet, beat your pricing. (Does anyone remember when people used to pay real money to buy a web browser? That lasted until Microsoft decided to give IE away for free.) A variation on this same theme: “We do 75% of the features for 50% of the price.” Less for less is NOT inspiring. OK. So how can you effectively contrast yourself against the competition, but not let them dictate your identity? Tune in next time and we’ll suggest some very effective solutions. -Steve Hogan

3 Essential Pitching Tips

We get it. Pitching is hard. However, some of us get so worked up about selling their company that we forget the very essential elements to successful pitching, such as knowing your audience! Below are a few unbreakable rules when it comes to pitching.

Know your audience. At networking events, there are usually a number of investors, employees, competitors and advisors. Know who you are pitching and tailor your pitch specifically to your listeners. Trying to pitch each one with the same story can become incredibly long-winded, which brings us to our next point.

Keep it short. Never underestimate the simplicity of the elevator pitch.  Stick to less than 90 seconds. By doing this, you lessen the risk of rattling off irrelevant details that are bound to put your audience to sleep! But you know what is likely to sustain their interest? A good story.

Tell a story. Sharing your company story shows that you are personally connected to the problem you are looking to solve. Not only does it show a personal connection but it also demonstrates that you are the right person for the job.

Are there other rules that you pitch by? Or even better, are there rules that you refrain from?

-Nikki Griggs, Business and Marketing Associate, Tech-Rx

 

No One Ever Said They'd Buy It

BUSINESS PLANNING SERIES

Last time, we wrote about the importance of True Competitive Advantages and how the lack of at least one will likely condemn your business plan to the Reject Pile. Today, we will look at another common Fatal Error – Lack of Market Validation, or —

No One Ever Said They’d Buy It!

Blog Head PlanningOne of the saddest mistakes we see in business plans, especially from first-time entrepreneurs and, regrettably, from some second- and third-time entrepreneurs as well, is the failure to actually validate the market for their new product.  They propose to go ahead and build their product without asking anyone if they will actually pay for it.  The “If we build it, they will come” model is fine if you are building a simple iPhone app that you plan (hope) to sell for $0.99 and will only take 100 hours for you to build it.  It’s something else again when you are betting the kid’s college money and taking out a second mortgage to fund your efforts.

Here’s some typical answers received (and our unspoken responses) when investors ask about market validation:

“I’m my own target customer. I’m ‘scratching my own itch.’  I know what to build.” What we hear you saying: “OK, so I guess there might be a market for at least one of these.”  More to the point, “scratching your own itch” is just the beginning.  It’s your inspiration, NOT the strategy for a real business.  “I’m the target customer” is NOT market validation.

“We didn’t bother with research.  It doesn’t matter what 10 people think, there are millions of potential customers.” Our unspoken questions: “If there are millions, you mean to say that you can’t find at least 10 that will commit to buying your product?  If you can’t find 10, what makes you think there are millions, or thousands, or even hundreds of potential customers?”

“My customers won’t understand mockups. I have to build it to show them first.” We hear you saying, “This product is too complex to sell, or even understand.”  If you can’t describe your concept in 30 seconds or less, it’s either too complex, or you don’t understand it yourself.  Let’s pretend that your customers don’t get it from mockups.  By definition, your first customers will be early adopters who will probably be OK with, and anxious to get, an alpha version.  If you can’t find a few who are excited about your product, perhaps your product isn’t exciting.

“I’m no good at sales and marketing.  I have to build a product so good that it sells itself.” Our immediate thought:  “This guy does not understand business.”  We don’t doubt that you can build what you say you can build.  (If you can’t, that’s an entirely different problem.)  The high risk is not that you can’t build it; it’s that you be able to find actual customers who will cough up cash for what you have built.  The earlier you can reduce this uncertainty, the more likely we are to invest.  No sense in putting this off.

“My friend / co-worker /  brother / teacher thinks it’s a GREAT idea.”  We hear: “His mommy thinks he is smart and handsome too!”  It does not matter what non-entrepreneurs think of your product. Actually, it doesn’t matter what real entrepreneurs think either. They are not experts on your problem, probably have outdated ideas and might not like certain technologies or methodologies (e.g. Mac vs. Windows, Linux vs. Windows, Open Source vs. Proprietary, etc.), probably due to bad experiences. Of course, none of these “expert opinions” matter, because you have done your homework and actually have real-world people who are saying that they want your product and are willing to pay for it, right?

Conclusion:  The only thing that matters is that people are willing to give you money. It doesn’t matter what “experts” say. When 10 people say that they will give you money if you build this thing, that’s the only validation that matters!

The next time, we’ll look at Fatal Error #3 – Incorrect Positioning vs. Competition.  I hope this is helpful.  We want every entrepreneur to be successful!

-Steve Hogan