Feeds:
Posts
Comments

Posts Tagged ‘Angel investing’

NorthSharkTank

North was recently quoted dropping some knowledge in the article, Real-Life Lessons From Shark Tank on Entrepreneur.com.

Here’s an excerpt:

Know when to pitch. Entrepreneurs with a well-developed product and proven financial success have the best luck with the “sharks,” says David Brody, a managing partner at the venture analysis firm North. “Nothing builds momentum like demonstrating you know how to make a cash register ring,” Brody says. Krinzman cited the entrepreneurs who failed to net funding for their “fun house” in Times Square as an example, saying they sought capital in the idea phase of their business planning.

READ THE FULL ARTICLE HERE

Advertisements

Read Full Post »

Is Your Revenue Model Automated?


The purpose of this element is to determine whether or not the company can automate the revenue model. Transactions and sales take time (time is money); even retailers spend a fortune on making checkout happen just a few seconds faster. For a business to successfully scale and grow, a turn key sales process will prove invaluable. If each transaction requires many human hours and long contractual negotiations then the revenue model will surely suffer.

Transactions that happen automatically without any human interaction (web sales) are certainly the most effective in terms of volume of transactions. The ability for a company to sell its wares at any time makes sure they are leaving no money on the table. A key to speedy growth is the ability for a business to sell their stuff 24/7/365.

24_7_3651

Quick simple transactions that make sense to the consumer are more likely to achieve smooth predictable growth than an overly complicated model or processes. If the transaction process is overly manual, time consuming or difficult, than even the best unit economics may start to break down quickly.

Some key questions we ask when taking an in-depth look at a new venture’s ability to automate their revenue model: Does the business have a long sales cycle (>90 days)? Can it make money quickly (<5 days) without any human interaction?

This is just one of the key criteria forward-thinking investors use when evaluating the strength of entrepreneurs and their new ventures. How do you measure up? Go to www.venturephenomeproject.com to read all 80 criteria and swap knowledge with other entrepreneurs & investors.

Read Full Post »

The purpose of this Phenotype element is to determine what if any debt the business may have at the time of the financing, and more importantly if that debt will be serviced immediately upon closure of the round. What one isn’t looking to do is to fund a company only to have all the cash go out the door to service old debt, leaving the company with no cash to operate. Ideally there is no debt, or debt that converts to equity at the time of the financing. If there is debt after the financing, the terms should be examined to determine what impact it will have on cash flow. There should also be provisions that give the current investors some protections in the event of a wind up. In addition, keep an eye out for and examine any investment banking agreements that may impact the cash position upon closure of the round.

debt

The definition of debt here is broad and includes trade financing, outstanding credit (even personal credit card balances if known), informal borrowing from friends and family, bank lending, private loans, convertible securities or other forms of debt, formal and informal.  Will such debt need to be serviced immediately upon closing this round of financing?  Are there any existing agreements (e.g. with investment bankers) that may impact cash or equity upon closure of the round, such as warrants or convertible securities? How can existing debt hamstring a new venture?

This is just one of the key criteria forward-thinking investors use when evaluating the strength of entrepreneurs and their new ventures. How do you measure up? Go to www.venturephenomeproject.com to read all 80 criteria and swap knowledge with other entrepreneurs & investors.

Read Full Post »

breakingthroughAs we’ve outlined on this blog over the last few weeks, the system for raising early stage capital today is fundamentally flawed. Even though the road to success for entrepreneurs trying to kickstart their visions is littered with potholes and deceptive directions, it can all be corrected with a little teamwork. If change is going to happen, we can’t just tease the entrepreneurial community with brief moments of candor and transparency. The only way we truly accelerate the rate at which that innovation is created in this country and solve our financial crisis is for us to come together and provide enormous value back to the very entrepreneurs from which we expect that innovation to come. By the way, that busted road we mentioned…it’s a two-way street.

So without further ado, here, in no particular order, are North’s 10 Rules for Breaking Through:

1. Listen To The Challengers, Not Just The Congratulators.

listentoyourcriticsTurning an idea into an actual operating company is hard work. So make it easier on yourself, bounce your concept off those people that have no problem ripping it apart. Seriously, if all you do is play “show and tell” with your trusted inner circle are you really going to learn anything new? Feedback from candid and objective outsider can often make the difference between your business growing and maturing vs. remaining underdeveloped. Are you listening?

2. Don’t Buy Anything That Doesn’t Provide Value Back.

As mentioned throughout this paper, there are a ton of services marketing at entrepreneurs, especially those that pitch the promise of raising money or connecting you with investors. However, before you take the plunge (or get out your credit card) ask yourself a simple question, “am I getting useful value back?” What you’re doing is hard and takes a lot of time, don’t waste it. Surround yourself with experts that can inspire and help you reach your goals.

3. Those With Fewer Words Win.

We can’t express enough the importance of being able to concisely state your business idea in a very persuasive manner. Investor’s have limited time and even a more limited attention span (do you know how many pitches they hear a day?). If your “single sentence” about what you do and how you make money is confusing, you’ve wasted your breath and other’s time. Take time to dial this in. The results will follow.

4. Talk To Anyone Who’ll Listen.

Okay, quit hiding behind your laptop screen and go talk to people. If you’re too remote and working from a tropical island somewhere (good for you), but at least pick up the phone. Investors know each other and if you talk to large number of them it can actually create more buzz about you and your concept. Healthy competition is good when it comes to raising money. The more options (and contacts) you have, the better off you’re going to be. Lastly, when you’re doing all that talking, be sure you don’t forget to take pauses and listen! (see #1).

5. Momentum Is Your Friend, If…

Don’t waste precious time hunting for cash if you’re not yet “investor ready.” Keep dialing in your business model and make that sucker bulletproof. As an entrepreneur, it’s important to stay focused, inspired, and moving forward with steady pace. If you know which direction you’re going, it’s okay to sprint. On the other hand, if you have no clue where you’re headed, slowdown hombre. Speed without direction is the fastest way to getting nowhere.

6. Start Smart Or End Stupid.

Take it from people who have “been there done that.” Be wise with your time in the early stages. If you’re not truly confident and frequently find yourself second-guessing your path, stop. “Green” entrepreneurs blast out their concept stage plans when they’re not even mature enough to be considered for funding (and then wonder why they hear crickets?). Instead of taking this route, go meet with experts that can help you tighten up your concept, train of thought, and give you an indication whether you even have a viable idea in the first place. You’ll be smarter for it, and a more prepared entrepreneur the second time around.

7. Heighten Your Bullshit Radar.

The early stage investment capital space is crawling with unsavory characters. Do all you can to avoid a lengthy unfruitful and expensive ride on the scam tram. We already mentioned in #2 above that you should seek out value. Well, in order to do so, you must first sharpen your perceptive skills. If someone says they “know how to find you capital” (and they haven’t shown you and credible evidence that they know how), ask them how they intend to do that. Remember during the last presidential race when John McCain proclaimed, “I know how to catch Bin Laden.” Hey, if he knows how to “do it” then why hasn’t he shared it with anyone already. It’s because it’s just desperate drivel from a man seeking votes from unperceptive swing voters.

8. Cash Is King.

Do your economic models scale beautifully? Do you have a solid way to make money? Can you prove it? If this part of your plan is not credible, you will quickly be voted off Start-up Island. No question about it. If an investor were hosting the show Survivor, they’d say, “Bring your business plan up here (after handing it to them, they toss it in the fire). The tribe has spoken. It’s time for you to go. The rest of you looking for funding, head back to camp and work on your financial models.”

9. Don’t Wait In Line.

beheardQuit trying to shout “me…me…me” in the crowded pitch farms. This is a complete waste of time, effort, and money. In order to break through with investors, you’ll have to take risks and do whatever it takes to get noticed. Don’t just show up on the congested scene with one arrow in your quiver. Arm yourself with third party due diligence, a working prototype, or some other vehicle that demonstrates that your business is worthy of attention and funding consideration.

10. Sell Something Dammit.

cashregisterIf you are starting a business, sell something. Nothing builds excitement, momentum, and revenue faster than actually ringing a real register. Far too many new ventures focus on research and development and by the time they have a product, the market has moved. They never got real consumer feedback and they wound up running out of money before they were able to hang that first dollar on the wall. If you want to succeed, make sure the “selling” component is a well-oiled machine. It’s the difference maker.

This is the conclusion section from our recent paper, Breaking Through The Broken: The Transparent Guide To Overcoming The Inefficiencies In Early Stage Venture Capital.

Read Full Post »

This  element is designed to look for a key trait in the management team of nearly all successful new ventures: speed. While some people can drive a car comfortably at 100 MPH, others start to panic and constantly ride the brakes. Key entrepreneurial instincts and the ability to move quickly (combination of confidence, analysis, and risk) are core to moving nearly all business ventures forward. Can the team keep up with the aggressive pace a start up demands? Or are they a group of “over-thinkers” who have a tough time making decisions? What questions do you ask to find out if the management team has what it takes to accelerate?

speed-limit-100

There is certainly a balance we look for in this category.  Swiftness of execution is an essential component for any startup, but there is a good deal that needs to be sorted out before the plan is followed through.  A great analogy here is to think of painting: preparation is 80% of the work. Obviously, figuring out how to turn the crank and make money with your business as quickly as possible is the goal, but putting all your resources into a plan you suspect is the right one before actually knowing for sure is a recipe for disaster.  In other words: you must first do the planning before you can start executing at full speed.  You don’t want to be sprinting down a dead end, do you?

dead-end

How fast are you going? Go to www.venturephenomeproject.com and share your experiences with investors and entrepreneurs.

Read Full Post »

261728814_887d305c1dWhen evaluating a venture, one of the key areas to look at is the company’s projected time to break even. In economic terms the equation looks like this: (Break Even = Fixed Cost / (Unit Price – Variable Unit Cost)), but in reality the break even point is a huge day for a new business.

The purpose of this element is to determine how far the business is from that magic point where revenue can eclipse costs. Does a venture require more than 24 months to break even or has it used a skeleton staffing model to crack the code in under 6 months? And if the economic model is fundamentally broken, breaking even is probably nothing more than a fantasy. The break even point is critical, and any venture that can’t reach this point quickly will face mounting pressure as capital consumption starts to create a moving brick wall coming towards the company. How patient should investors be for reaching the break even point? How long is too long?

121969929_b5b9d7fb9a1

Remember, sales forecasts for new products are notoriously inaccurate, and giving yourself less than a 10% margin for error seems risky. When looking at new ventures, we immediately throw the projected financials into excel and put them through a stress test, making sure that the management team has left themselves some wiggle room. Most investors are usually not willing to wait more than 18 months to see a profit, so some flexibility with the pricing structure is a good thing.

Have you left yourself some wiggle room? Go to www.venturephenomeproject.com and share your experiences with investors and entrepreneurs.

Read Full Post »

needleinhaystackThe scarcity of capital for early stage companies in recent years has lead to the creation of literally thousands of businesses focused on helping entrepreneurs raise money for their start-ups. At North, this subject is close to our hearts, as we’ve made it our mission to make the entire process for fostering, filtering, and funding entrepreneurial innovation more efficient.

While some individuals and companies are taking strides to optimize entrepreneurship and inspire innovation, others unfortunately seem to be falling into the all too familiar trap of playing “follower,” when today’s economy desperately needs leaders. While there’s certainly value to extract from a few of these businesses, many unfortunately are coming up short of industry expectations, launching the exact same set of features and functionality as those that came before them.

“They have taken their cue from the Gold Rush when the truly crafty business-people made money not from prospecting but by selling shovels to the prospectors. Likewise, today’s money-raising services have found a low risk means to separate the cash-starved entrepreneur from any money he or she may have left.” – Antiventurecapital.com

In this section, we highlight a few of the emerging ideas, ventures, and individual brand names that either have or are in the midst of trying to bring much-needed efficiency to the early stage venture market. Are any the long-awaited silver bullet that is going to help accelerate economic growth when now we need to create innovation faster than ever before?

You be the judge. Let’s take a closer look at the Pitch Farms.

fundinguniverseefactorlogo




We’ve already spoken at length about the recent proliferation of the “Pitch Farms,” those online destinations that promise to connect start-ups with the investor community. If you’re an entrepreneur, you’re probably very familiar with the usual suspects that offer up their virtual cork board for some type of fee (usually a recurring monthly one): FundingPost, FundingUniverse, EFactor, and GoBigNetwork to name just a few.

David Rose, Founder and CEO of Angelsoft, considered one of the “smarter” pitch farms, outlines both the opportunity and the shortcomings of these destinations when he said, “…there are many, many web sites out there which purport to connect, or ‘match’, entrepreneurs seeking funding with potential investors. By our own count, there are probably three or four dozen, and that’s without looking very hard. The reason there are so many is that it’s like shooting fish in a barrel: how many starving entrepreneurs wouldn’t want to come to a web site that promises them cash?!”

Mr. Rose originally launched Angelsoft to Angel groups software that enabled submissions, file management, and group communication tools. It was a lot of the infrastructure that traditional Angels needed to scale and to update their current submission processes and makes them more “new economy ready.” However, Angelsoft has since morphed into another massive deal farm for the start-up community. Perhaps pleasing their engineers on staff, they now offer up a dizzying array of features and software updates. So many in fact, it makes an average Angel investor feel as though they’re playing around on their kid’s Facebook page.

angelsoftscreenshotEven with the questionable, confusing, and clearly off-target features, it’s not hard to tell that Mr. Rose has his sights on consolidating the entire early stage venture market. With 442 Angel groups, over 14,000 investors, and a staggering 2,000 new venture applications per month, they now have an Open Deal pitch for $250 a pop that allows an entrepreneur to get their plan in front of all 14,000 investors with the click of a mouse (if those investors were actually logged on and could even find their way to the Open Deal room…).

“The sad reality, however, is that while it is extremely easy to get hungry entrepreneurs to list their plans, it is well-nigh IMPOSSIBLE to get investors to show up on the other side of the curtain…for the simple reason that (a) the ratio of investors to entrepreneurs is about 1:1000, and (b) investors are so deluged with opportunities that they simply don’t go out LOOKING for plans; plans come to them!” says Mr. Rose who in his own words admits he’s got an efficiency problem on his hands.

Recently Angelsoft started to actually push deals onto the unsuspecting investors of all the third party Angel groups that use their software. This pushy intrusion comes in the form of a bi-weekly unsolicited email filled with recent venture submissions. Angel groups that signed up for Angelsoft to help manage their Angel group now find themselves competing for their own investor members attention with the unrequested (and often unwanted) deal flow being shoveled onto their members by an Angelsoft email server that seems to have its dial stuck on “spam.”

“With Angelsoft, all of the personal aspects of Angel investing seem to be removed from the equation. My materials are submitted through Angelsoft forms, and then disappear into some system that encourages a group of busy angels to evaluate the opportunity in a black box. Do they like it? Do they hate it? Do they even read it? I have no idea, since I have never heard anything!” comments a disappointed entrepreneur.

For all the aggressive email action and striking numbers on this site, one has to wonder, is it really delivering on quality deal flow or just polluting the Internet with more “not ready for prime time” quantity? As of this writing, Angelsoft reports that just 1.32 percent of start-ups on their site have been funded, and that the average number of “views” for each submission is only 5.3 (Which means an average submission is viewed by only 1 of every 3,000 investors that Angelsoft claims to represent). For entrepreneurs and investors, the verdict is still out on whether this site is more “soft” than true “Angel.”

The following excerpt is taken from Breaking Through The Broken: The Transparent Guide To Overcoming The Inefficiencies In Early Stage Venture Capital.

Read Full Post »

Older Posts »